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Reuters Summit - CIMB Islamic eyes Indonesia, Singapore for growth

KUALA LUMPUR (Reuters) - CIMB Islamic, the world’s top sukuk arranger, will offer new sharia products this year to expand its business in Indonesia and Singapore, as the Islamic finance market struggles to recover from the financial crisis.

The Malaysian bank plans to launch products such as Islamic auto financing, structured instruments, derivatives and unit trusts to tap demand in Indonesia, the world’s most populous Muslim nation, Chief Executive Officer Badlisyah Abdul Ghani said.

“There aren’t enough products yet in the market so the first bank that can provide all those comprehensive offerings that are sharia-compliant would be able to benefit from that expected growth spurt in Indonesia,” Badlisyah told Reuters ahead of the Reuters Islamic banking summit from Feb 15-18.

“When we started the industry in Malaysia, nobody knew whether there was demand for it but we did know there was a huge number of Muslims out there who may want to have sharia-compliant financial products. It has proven to be very very succesful in Malaysia and we anticipate the same scenario to be in Indonesia.”

Indonesia’s nascent Islamic finance market now typically consists of home financing, basic deposits and credit and debit cards, he said.

CIMB Islamic is part of Malaysia’s No.2 lender CIMB, which runs its consumer banking business in Indonesia through PT Bank CIMB Niaga.

Global sukuk sales totalled $23.3 billion last year, compared with a record $34.3 billion in 2007, according to Standard & Poor’s.

Bankers have blamed the drop on the financial crisis and a ruling from an influential Islamic finance industry body questioning the validity of certain popular structures.

Practitioners expect Dubai’s debt crisis to weigh on the Gulf region, a key sukuk market, this year.

Indonesia’s central bank has forecast that Islamic banking assets will grow 30 percent to 69 trillion rupiah this year but remain at about 2-3 percent of total banking assets.

A law will take effect in April scrapping double taxation on Islamic financial transactions in Indonesia, but some bankers warn sukuk issuance will be slow due to sharia interpretation issues and a lack of familiarity with Islamic banking.

Badlisyah said CIMB Islamic also would offer Islamic retail products in Singapore this year such as basic deposits, credit cards and home and auto financing.

Singapore has taken regulatory and tax measures to develop its Islamic finance industry but growth has been slow, due partly to its much smaller Muslim population, bankers have said.

The top executive of Singapore-based Islamic Bank of Asia, a unit of Southeast Asia’s largest bank DBS Group, quit last December.

The Singapore operations of Kuwait Finance House, which was set up as a fund management centre, said last month it had not managed any funds since its inception and that it had cut its workforce.

Badlisyah said less than a tenth of CIMB Islamic’s income is derived from overseas businesses.

The bank’s profit before taxation and zakat rose five percent to 97.6 million ringgit ($28.43 million) in 2008. It is due to announce its 2009 earnings this month.

(Editing by Kim Coghill)

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