Bursa Malaysia: Banks should list their Islamic banking subsidiaries

KUALA LUMPUR: Bursa Malaysia Bhd has encouraged financial institutions to begin exploring the possibility of listing their Islamic banking subsidiaries despite inadequate shariah-compliant equity instruments in the financial service sector.

Bursa Malaysia chairman Tan Sri Abdul Wahid Omar said financial institutions in Malaysia, such as major banks, are still categorised as conventional, albeit a big portion of their businesses are now shariah-compliant.

“For example, more than 60 per cent of Maybank’s total financing is already shariah-compliant. In a typical approach, we would like to encourage these banks to list their Islamic banking subsidiaries.

“However, there will be some challenges because many of them are operating on a leverage model, meaning that their Islamic banking business hinges on their current branch network, management team and so on,” he told the media at Invest Shariah Conference 2023, which was organised by CGS-CIMB Securities Sdn Bhd, here today.

Abdul Wahid noted the presence of minority shareholders and third-party transactions as among the issues which need to be looked into if financial institutions were to list their Islamic banking subsidiaries separately.

Thus, he highlighted that there is a need for financial institutions to start thinking about other instruments which will enable a portion of their equities to be traded on the shariah-compliant market.

“We would like to encourage market players to think about how we can have more shariah-compliant equity instruments in the financial services sector and it is a collective effort for everyone.

“In the past, I have mentioned the need to designate some of the shares as shariah-compliant shares. What you do is earmark and ring-fence Islamic banking operations as a source of dividend payment and so on,” Abdul Wahid added.

He also highlighted that the exchange expects a more positive outlook in the Islamic equities market for the second half of 2023.

“Given that the global interest rate has reached its peak level, we will see the reversal of investments flow away from developed markets into emerging markets such as Malaysia and other Asean countries.

“When they (investors) come into the market, it will bolster not just the shariah-compliant equities but also the broader market here,” he said. – BK