The Islamic finance sector made more than RM1 billion ringgit in profits last year, breaking the barrier for the first time, central bank chief Zeti Akhtar Aziz said today.

The Bank Negara governor said the Islamic banking and insurance sectors had averaged 19 percent and 25 percent growth respectively over recent years, making them among the most dynamic elements on the nation's financial scene.

"In 2005 the profitabilty of Islamic banking has surpassed the 1.0 billion mark for the first time while the assets (held) have reached the 100 billion ringgit threshold," she said at an industry conference.

At the end of March, Islamic banking assets accounted for almost 12 percent of the total assets of the national banking system, she said.

"I believe six, seven years ago it was 6.0 percent so we can see that the growth has really gained momentum," she said, adding the banks had begun to seize on the "Islamic banking concept of profit and risk-sharing.

"We are seeing this concept more keenly being exploited in profit and risk-sharing ventures, and the Islamic fund and wealth management (services) which are now emerging as rewarding banking activities," she said.

Several fronts

Zeti said Malaysia was striving on several fronts in order to realise its goal of becoming a leading international Islamic financial centre.

It is pushing for dominance in the Islamic capital market and treasury instruments, fund and wealth management services, offshore Islamic financial services and Islamic insurance or "takaful", she said.

Malaysia in 1983 launched the Islamic financial sector to provide products and services that comply with syariah, or Muslim religious laws, banning the earning of interest.

To fend off growing competition from other regional players such as Singapore, the majority-Muslim country is liberalising its Islamic financial system and promoting itself as a centre for Islamic finance education.

As part of the liberalisation, Islamic banking licences have been issued to foreign players, while foreign firms are allowed to own up to 49 percent of equity in the Islamic banking and takaful industries.

Total worldwide assets of Islamic financial institutions exceed an estimated 250 billion dollars and are growing 15 percent annually, according to the International Monetary Fund.