Bandar Seri Begawan (The Brunei Times/ANN) - Islamic banks are anticipated to come out strong in 2019 the target year regulators have set for the full implementation of the Basel III framework since these Syariah-compliant institutions already have the basics in meeting the requirements of the new regulations.
"I don't believe Islamic banks will have an issue meeting the Basel III requirements," said the CEO of CIMB Islamic Bank Bhd Malaysia.
"The very underlying, basic foundations of Islamic banking could be said to be very much in the spirit of the Basel III framework, and Islamic banks, in general, are conservative with already high levels of capitalisation," Badlisyah Abd Ghani said at an Islamic Financial Services Board (IFSB) seminar here on Tuesday.
Introduced last year, the new framework required all banks to hold top-tier capital worth seven per cent of their risk-bearing assets, among other defensive buffers, by January 1, 2019. The initiative has been planned to be implemented worldwide in phases starting from 2013, with the intention of shielding banks from a relapse of the global financial crisis.
The notion that some banks are"too big to fail" has ceased to be a reality, Badlisyah said. "Big banks were failing across the board. The Basel III was introduced in light of the crisis," he said, adding that the new framework did not discriminate between Islamic and conventional banks.
It was anticipated that the regulations would level the playing field between the Islamic and conventional financial institutions.
However, even with the tougher minimum capital requirements, the bank CEO said that banks still needed to engage in prudent lending and be wise in their activities. "More capital doesn't mean anything if we don't manage the bank effectively or efficiently."
The secretary-general of the Kuala Lumpur-based IFSB told The Brunei Times that there was a "tremendous global market of potential consumers who are looking for financial institutions in which they can place their trust" following the economic downturn.
"Now we can already see, generally, that there is a common desire across the world to have a restoration of faith in financial institutions. There's been a lost of trust, especially in conventional financial institutions," Jaseem Ahmad said.
Therefore, this presented an opportunity for Syariah-compliant banks, particularly with history proving that Islamic financial institutions have benefited from previous lapses in the conventional banking sector.
"In particular jurisdictions, we have already seen that if the conventional financial sector undergoes the substantial set of difficulties involving lack of trust for services and so on, in some cases, we see very strong expansion of the Islamic banking sector in situations like that," Jaseem said.
The IFSB secretary-general added the principles of Syariah were consistent with "the general notions" of corporate social responsibility. "The principles of the Syariah, for financial institutions, if it is committed to them, are going to be very well met by consumers. The consumers are going to say, 'this is the bank I want to put my money into'," he said.
"So, I think that that gives scope for Islamic financial institutions but it also gives scope for conventional institutions, which will remain conventional institutions but will perhaps operate in a way that is more similar to the principles of Islamic finance."
"And that is very good because not only does it promote a sector in which we all have an interest Islamic financial sector but that expansion also helps to raise the standards in the conventional financial situation, when it comes to issues of service and trust," he said.