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NEWS UPDATES Asean Affairs        14  February 2011

Indonesia's Islamic bank assets to jump

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The assets of the nation's Islamic banks are expected to grow by half this year as people in the world's largest Muslim-majority state increasingly turn to the sector for their financial needs, according to a report by the central bank released over the weekend.

"If Indonesia's economy grows at a decent pace, the assets of Islamic banks will increase by 55 percent,'' said Mulya Siregar, director of Shariah finance at Bank Indonesia.

"With total assets exceeding Rp 100 trillion ($11.2 billion) last year, that should become a solid base for Indonesia's Islamic banks, which now have more than six million customers and employ more than 20,000 workers."

The central bank forecast that Shariah assets would reach Rp 155 trillion by the end of this year, after rising 47 percent to Rp 100.26 trillion last year, with Rp 2.74 trillion of that held by rural banks, the report said.

Indonesia's economy, which grew 6.1 percent last year, is forecast to expand by 6.5 percent this year, Bank Indonesia said.

Islamic banking has emerged as one of the most rapidly expanding sectors in the nation's economy and is expected to play a significant role in the coming years, the report said. Lending by such institutions is expected to grow by 40 percent this year, the same pace it recorded last year, Mulya said.

Although Indonesia's population of about 240 million people is 90 percent Muslim, Shariah banking only accounts for about 3.5 percent of the total finance sector, providing plenty of room for growth.

Shariah finance complies with Islam's prohibition on charging interest, with gains coming through a system of profit sharing.

The sector emerged largely unscathed from the global financial crisis due to its strict rules against investing in risky instruments, such as the derivatives, that saw Wall Street financial giants stumble.

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