The steady growth of sharia-compliant assets suggests banks believe in the future of the sector, but the dismantling of the largest cross-border Islamic window raises questions about whether global banking groups can make a success of the business.
An increasing number of financial institutions from international banks to local specialist players are developing sharia-compliant structured products, offering investors limited downside risk and high returns. But as the uptake for such products increases, so does the pressure of ensuring that they are 100% sharia-friendly.
Despite being the fourth most populous country in the world, Indonesia's growth story is often overshadowed by that of its Asian peers, China and India. The country's potential has not been lost on the international banking community, however, which is slowly but surely upping its presence in this vast and highly unbanked archipelago.
Policy reforms in Indonesia's banking sector have transformed shareholding structures and foreign investors have scooped up local banks. But further change is needed to enable the country to cope with an anticipated economic explosion, say local bankers. Writer Michelle Price
Boosting profits at a mid-size bank in an often turbulent market is not easy. But, with Indonesia on an upswing during a smooth political handover in 2004, Bank Internasional Indonesia (BII) discovered many opportunities to raise its game. The result was a 101% increase in Tier 1 capital to $383m and net profit almost doubled.