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The growth of shariah-compliant investment accounts at Malaysian banks will remain strong over the next three to five years, carrying over the trend started in July 2015, according to Moody’s Investors Service.

This is following active promotion by the regulator and banks themselves, it said.

Vice-president and senior analyst Simon Chen said Malaysian banks had strong incentives to promote the growth of such investment accounts because they provided capital benefits and an additional source of funding to grow their assets.

At the same time, concerns exist over the untested state of loss-sharing mechanisms in the accounts, although the regulators have instituted safeguards to protect the banks said Chen.

Moody’s conclusions are contained in its just-released report on Islamic banks in Malaysia titled Strong Growth of Investment Accounts Supports Bank Capital and Funding, But Risk-Sharing Mechanism Remains Untested.

The robust growth of The robust growth of The robust growth of shariah-compliant investment accounts in Malaysia began in July 2015 following the implementation of the Islamic Financial Services Act 2013.

It said such accounts are defined in the act as those under which money is paid and accepted for investment in accordance with syariah principles and on terms that stated there is no express or implied obligation to repay the money in full.

Moody’s noted that by February 2017, these accounts had grown to RM74.2bil, or 13% of total banking system liabilities.

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