The central bank today said it plans to speed up the opening of the Islamic banking sector under a financial blueprint to make the country a regional Islamic financial hub.

Bank Negara governor Zeti Akhtar Aziz said new Islamic bank licenses would be issued to foreign players sooner than planned under the Financial Sector Masterplan unveiled two years ago but did not give a time frame.

She said the sector's growth had surpassed expectations to become a stable source of long term funds for financing large infrastructure and development.

But the market's effectiveness and efficiency must be improved and a new breed of bankers nurtured to tap the benefits, she said.

New licences

"To further enhance the pace of development and progress, Bank Negara Malaysia will bring forward the financial liberalisation for the Islamic banking sector," she said when launching CIMB Bhd.'s Islamic financial services.

"This will involve issuing new Islamic Bank licences to qualified foreign players with presence in the global Islamic banking industry."

The Financial Sector Masterplan maps out the liberalisation of Malaysia's banking and insurance industry in three phases during the next decade.

It lists incentives to develop the Islamic financial sector and enlarge its market share to 20 percent, from under 10 percent now.

Predominantly Muslim Malaysia aims to be a key Islamic financial hub in Asia and is also working on setting up an Islamic Financial Market in its offshore financial centre of Labuan on Borneo island.

Special court

Islamic banking combines Islamic laws against interest payments with modern banking principles.

Zeti said the sector's opening would boost greater competition, bridge gaps with other global Islamic financial hubs and spur development of the Islamic system.

She said a dedicated High Court had been set up to handle Islamic banking and finance cases, a law review committee formed and disclosure standards for Islamic banks were being finalised.

As of April 30, assets in the Islamic banking sector stood at RM72 billion, representing 9.2 percent of the banking system. Deposits totaled RM55 billion or 10 percent of the market, while financing was RM40 billion or nine percent.

Zeti noted the Islamic capital market had grown rapidly, with Islamic bond issues growing at an average 42.8 percent each year since 1995.

Last year, total funds raised via new Islamic bonds surpassed total conventional bonds issued to reach 13.8 billion or 52 percent of the total debt securities issues, she added. AFP