The Development of Local Conventional Banks in Malaysia Finance Essay

This study investigates the development of local and foreign commercial banks conventional and Islamic banks in Malaysia for more than past ten years. From this we can see the growth of both types of banks. Besides that, from this we can see that even during crisis Islamic banks was stable compared to conventional banks. In addition, we analysed how Financial Blueprint will impact commercial banks in the next ten years. Furthermore, the prospects of Islamic banking in the near future in Islamic banking in Malaysia are towards global integration and international acceptances.

Introduction

The Malaysian financial system is divided into two main groups which are Financial Institution and Financial Market. The Financial Institution consists of Banking System and Non-bank Financial Intermediaries. However our focus is on Banking System. Under banking system there are Bank Negara Malaysia (Central Bank of Malaysia), Banking Institutions (commercial banks, finance companies, merchant banks and Islamic banks and a diverse group (discount houses and representative offices of foreign banks). The largest part of financial system is the banking system which accounts 67% of the total assets in financial system. Presently there are 27 commercial banks (excluding Islamic banks) of which 8 are local commercial banks. The main roles of commercial banks are to supply retail banking services for instance granting loans. Besides that, treasury services are also given by commercial banks. In addition, trade financing facilities for example trust receipts and Bankers Acceptances are also provided by them. Furthermore, cross border payment and custody services such safe deposits and share custody are also provided by commercial banks (Kpmg, 2010). Those with conventional banking system exist side by side with Islamic legislation and banking regulations in Malaysia. The Islamic Banking Act which came to effect on 7 April 1983 supply Bank Negara Malaysia to administer and regulate Islamic banks. Islamic banks activities are based on Shariah principles (the Islamic principles). All Islamic banking entities are offering banking product based on Islamic principles. The main element, or principles, that establish Islamic banks from any other type of bank is the turning down of Interest-based financial transactions. Islamic banking is based on the conventional debt-based. Islam prohibits the earning of money through unfair trading practices and other activities that are social harmful. This is why predetermined or riba is forbidden (Angelo M Venardos, 2012).

The Development of Local Conventional Banks in Malaysia

List of Local and Foreign Commercial Bank 2012 1 Affin Bank Berhad 2 Alliance Bank Malaysia Berhad 3 AmBank (M) Berhad 4 BP Paribas Malaysia Berhad 5 Bangkok Bank Berhad 6 Bank of America Malaysia Berhad 7 Bank of China (Malaysia) Berhad 8 Bank of Tokyo-Mitsubishi UFJ (Malaysia) Berhad 9 CIMB Bank Berhad 10 Citibank Berhad 11 Deutsche Bank (Malaysia) Berhad 12 HSBC Bank Malaysia Berhad 13 Hong Leong Bank Berhad 14 India International Bank (Malaysia) Berhad 15 Industrial and Commercial Bank of China (Malaysia) Berhad 16 J.P. Morgan Chase Bank Berhad 17 Malayan Banking Berhad 18 Mizuho Corporate Bank (Malaysia) Berhad 19 National Bank of Abu Dhabi Malaysia Berhad 20 OCBC Bank (Malaysia) Berhad 21 Public Bank Berhad 22 RHB Bank Berhad 23 Standard Chartered Bank Malaysia Berhad 24 Sumitomo Mitsui Banking Corporation Malaysia Berhad 25 The Bank of Nova Scotia Berhad 26 The Royal Bank of Scotland Berhad 27 United Overseas Bank (Malaysia) Bhd. (Bank Negara Malaysia, 2012) Table 1 In helping government hard work in giving business support for entrepreneurs, local commercial banks play a key function. Commercial banks give loans that are distributed by the Bank Negara Malaysia to be given to eligible candidates (Mygoverment, 2012). The development of conventional banks are as per below. There are no development during the Asian financial crisis in the year 1997 and Euro debt crisis in the year 2008.

Year

Development

1971 The assets and liabilities as a ratio of the national GDP has been increasing to reach the peak of RM44.3 billion before the Asian financial crisis (Fadzlan Sufian, 2009) 1998 The Malaysian government established three institutions to resolve that banking sector's growing Non-Performing Loans (NPLs). Besides that, Bank Negara Malaysia's banking sector restructuring efforts is substantially (Institut Bank-Bank Malaysia, 2011). 1999 Throughout the post-crisis period, the commercial banks' assets and liabilities continued to remain stable at 0.17 to 0.22 times the national GDP. The government initiated a robust bank merger programme to restructure all domestic banking institutions into six banking groups (Sang-Woo Nam, 2006; Chee Soon Lu, 2006). 2001 The Financial sector Master Plan (FSMP) and Capital Markets Master Plan (CMMP). To consolidate the banking industry resulted in reduction of the number in domestic commercial banks 20 in 1999 to 10 in 2001 when the bank merger programme was completed (Bank Negara Malaysia, 2001) 2002 The Malaysian government started the implementation of the banking sector reformation in respond to the 1997 financial crisis. (Ezreena Jasmine, Koh Yen Yi, Siow Yun Xi, Swapna A/P Mohanen, and Tan Jia Ding, 2011) 2003 Danamodal, the capital injection vehicle for Bank Negara, wound down its operations on the last day of December (Institut Bank-Bank Malaysia, 2011). 2006 It's been the fifth year into the financial sector master plan. Thus, Malaysia banking sector has emerged from the crisis management mode and moved closer towards the development of a strong and diversified financial system. The technological progress increased at the rate 27.3% (Hazlina Abd-Kadir, Zarehan Selamat, and Muzlifah Idros, 2010) 2007 Development in the productivity increased at the 24.1% because of technological advances (Mahadzir Ismail, Hasni Abdul Rahim, 2009) 2008 Bank Negara Malaysia build up its engagements with a range of stakeholders, including financial institution trade associations and businesses to make sure the undisrupted flow of funds to the real sector. The financial crisis does not have much effect on the commercial banks in Malaysia (Prof. Dr. Volker Nienhaus, 2010) 2011 Bank Negara Malaysia released the new financial sector blueprint "Strengthening Our Future". Table 2

The Development of Local Islamic Banks in Malaysia

No.

Name of Islamic Banks

Ownership

1 Affin Islamic Bank Berhad Local 2 Alliance Islamic Bank Berhad Local 3 AmIslamic Bank Berhad Local 4 Bank Islam Malaysia Berhad Local 5 Bank Muamalat Malaysia Berhad Local 6 CIMB Islamic Bank Berhad Local 7 Hong Leong Islamic Bank Berhad Local 8 Maybank Islamic Berhad Local 9 Public Islamic Bank Berhad Local 10 RHB Islamic Bank Berhad Local 11 Al Rajhi Banking & Investment Corporation (Malaysia) Berhad Foreign 12 Asian Finance Bank Berhad Foreign 13 HSBC Amanah Malaysia Berhad Foreign 14 Kuwait Finance House (Malaysia) Berhad Foreign 15 OCBC Al-Amin Bank Berhad Foreign 16 Standard Chartered Saadiq Berhad Foreign (Bank Negara Malaysia, 2012) Table 3 In Malaysia, the Islamic banking system considered as more forward-moving and strong compared to other parallel banking system in other Muslim countries. Malaysia is now acknowledged as the vanguard in Islamic banking. Islamic banking has been established from humble beginning in 1983 to a vigorous and strong system that is capable of to fulfil the banking requirements of all races in Malaysia (Kuala Lumpur Business School, 2012). The Islamic banking sector in Malaysia has been rising at a vigorous pace. According to Financial Sector Master plan of 2001, asset industry has been rising at the rate of 19% for the past five years. There are about RM 122 billion worth of assets in the Islamic banking sector. Overall in the banking systems this account is about 12% (Bank Negara Malaysia, 2011). Today, Malaysia is one of the distinctive countries which run as dual banking system where, Islamic banking system functions in equivalent with the conventional system. According to Institut Bank-Bank Malaysia , (2011); Khiyar Abdalla Khiyar, (2012); Kuala Lumpur Business School, (2012) there are 3 phases of Islamic banking development in Malaysia. The first phase which the initial period from the year 1969-1992. The second phase is the liberalisation period from the year 1993-2000 and the third phase is the strengthening of the system from the year 2001.

Year

Landmark Development

1969 Lembaga Tabung Haji was founded which systematize and handle the savings of Muslims in order for them to perform their haj (Institut Bank-Bank Malaysia, 2011). 1981 National Steering Committee established Islamic Banking (Kuala Lumpur Business School, 2012). 1982 In order to have an Islamic bank, National Steering Committee handed in the required documents and proposed to the government (Kuala Lumpur Business School, 2012; Khiyar Abdalla Khiyar, 2012). 1983 Government approved the Islamic banking Act 1983 and endorsed the Government Investment Act 1983. In addition, Bank Islam Malaysia Berhad was established as the first Islamic bank (Kuala Lumpur Business School, 2012; Institut Bank-Bank Malaysia, 2011). 1984 Established first licensed Takaful operator (Institut Bank-Bank Malaysia, 2011). 1990 Labuan International Offshore Financial Centre (IOFC) was established and which also offers Islamic financial services (Institut Bank-Bank Malaysia, 2011; Khiyar Abdalla Khiyar, 2012). 1993 Islamic Banking Scheme (IBS) was introduced by Bank Negara Malaysia which was known as Skim Perbankan Tanpa Feadah before this period (Institut Bank-Bank Malaysia, 2011; Khiyar Abdalla Khiyar, 2012; Kuala Lumpur Business School, 2012). 1994 Established Interbank Islamic Money Market. This set up the Islamic Interbank cheque clearing system based on the Mudharabah principles (Institut Bank-Bank Malaysia, 2011; Khiyar Abdalla Khiyar, 2012). 1996 Permitted full-fledge Islamic branches were set upped in conventional banks and New Financial Disclosure was launched (Kuala Lumpur Business School, 2012). 1997 Bank Negara Malaysia established National Shariah Advisory Council (SAC) (Institut Bank-Bank Malaysia, 2011; Khiyar Abdalla Khiyar, 2012; Kuala Lumpur Business School, 2012). 1999 Bank Muamalat Malaysia Berhad was established as the second Islamic bank by the combination of the Islamic banking assets of Bank Bumiputra, Bank Of Commerce and BBMB Kewangan (Kuala Lumpur Business School, 2012). 2001 Financial Sector Masterplan was launched which consist of 10 years plan for progressing in Islamic Banking and Takaful (Institut Bank-Bank Malaysia, 2011; Khiyar Abdalla Khiyar, 2012; Kuala Lumpur Business School, 2012). 2002 The world's first global sovereign sukuk (Malaysian Government Sukuk) was issued by the Malaysian Government. In addition, the world's first global corporate Islamic bond was issued by Kumpulan Guthrie (Institut Bank-Bank Malaysia, 2011). 2003 The responsibilities and functions of Shariah Advisory Council (SAC) were revised by Bank Negara Malaysia. Furthermore, procedures on the Specimen Reports and Financial Statement for licensed Islamic Banks were issued by Bank Negara Malaysia (Khiyar Abdalla Khiyar, 2012; (Institut Bank-Bank Malaysia, 2011 2004 New banking licences were issued to 3 foreign Islamic Institutions which are Kuwait Finance House, Asian Fianace Bank and Al Rajhi Bank. Moreover, based on Shariah standard a procedure on the issuance of credit card, credit card-i was issued. Besides that, Islamic bank's Market Risk Capital Adequacy Framework was issued. Furthermore, to wisely and restructure the functions and roles of Shariah bodies of the financial institutions, Bank Negara Malaysia issued the procedure on the Governance of Shariah Committee for the Islamic Financial Institutions (Institut Bank-Bank Malaysia, 2011; Kuala Lumpur Business School, 2012). 2005 The change of the Islamic window institutional formation to the Islamic subsidiary formation was passed by Bank Negara Malaysia. Besides that, 49% of equity is permitted for foreign contribution in Islamic subsidiaries. Furthermore, tax neutrality policy for Islamic banking and finance was announced by government. In addition, Shariah governance framework was established by Bank Negara Malaysia (Kuala Lumpur Business School, 2012). 2006 The Malaysia International Islamic Financial Centre project was launched by government. Furthermore, in order to be eligible foreign and Malaysian financial institutions to perform business in international currencies, new group of licences were issued to International Islamic Banks (IIB) under Banking act 1983. In addition, an International Currency Business Units (ICBU) got approval for setting up within the Islamic financial institution. Besides that, it was contracted approval to establish operational offices anywhere in Malaysia for Labuan offshore Islamic banks and the Islamic divisions of the offshore banks (Institut Bank-Bank Malaysia, 2011; Khiyar Abdalla Khiyar, 2012; Kuala Lumpur Business School, 2012). 2007 Capital Markets and services Act 2007 was established (Khiyar Abdalla Khiyar, 2012). 2009 Distinguishing the duality of the banking system by law according to Act 701 in Bank Negara Malaysia Act 2009 (Khiyar Abdalla Khiyar, 2012). 2011 Islamic banking assets rose 15 percent to 389.3 billion ringgit, strengthens the country position as the global nub for Shariah-compliant financing 2009 (Khiyar Abdalla Khiyar, 2012). 2012 Currently we have 10 local Islamic banks (Institut Bank-Bank Malaysia, 2011; Khiyar Abdalla Khiyar, 2012; Kuala Lumpur Business School, 2012; Bank Negara Malaysia 2012) Table 4 (Kuala Lumpur Business School, 2012) According to Bank Negara Malaysia, Islamic banking has been developing steadily in terms of assets, deposits and financing from the year 2001 to 2006 (Kuala Lumpur Business School, 2012) Even during the Initial crisis, Islamic banking only had a minor impact on their profitability but the asset and credit growth remain the same compared to commercial banking (International Monetary Fund, 2010) (International Monetary Fund, 2010)

The Development of Foreign Commercial Bank in Malaysia for the Past 10 Years

After the independence of Malaysia in year 1957, foreign commercial bank was had 90% shares of the banking market in Malaysia. But in 1997 the shares was reduce to 16.7% due to the new regulation conduct by the government that the foreign commercial bank cant open the new branches since 1991(Kim et al, 2012).Other than that, financial crisis in 1997-1998 was hit almost all the countries in the world, included Malaysia. When the financial crisis happened Malaysian banking sector also was slap. Non-performing loan was increased from 6% to 22%. Ali and Yosuf stated that liberalization under the general agreement of WTO was indirectly invited the foreign banks to invest in Malaysia (2004). In 2012 there are 17 foreign commercial banks and there are only 10 local commercial banks in Malaysia. From the number of banks, foreign bank is more than the local bank. However, base from studied done by Tze san et al, from the efficiency prospective, local commercial bank was more efficient than the foreign commercial bank (2012). Foreign bank also received less support from government, even though some of them are weak in the financial performance (Detragiance and Gupta , 2003). The financial crisis in 2008 was not left a big affect for the banking industries in Malaysia, it because of the effort of Bank Negara Malaysia to build up up the banking sector trough the huge consolidation exercise sector of financial crisis 1997. Figure 1: mean efficiency of commercial bank in Malaysia period 2002-2009 Figure2: profit efficiency of foreign commercial banks period 2000-2006 Figure 2 shows that the profits efficiency of the foreign bank in Malaysia was increasingly over the year, even thought in 2006 it was slightly decreasing due to the economic downturn. The performing of the foreign banks in Malaysia is relatively good. And they become more efficient in order to generate profits over the year. This is because of the foreign-owned bank having good corporate governance. It may be because of some of the foreign commercial banks in Malaysia was opened their branch in here since before Malaysia become independent. HSBC was opened their first branch in Malaysia in 1884 (HSBC, 2012). They have more experience in Malaysian economic system because they have been here for more than 100 years.

Year

Development

1957 Foreign had almost 90% of the share in the commercial bank in Malaysia 1997 The shares was reduced to 16,7% due to the new regulation of Bank Negara Malaysia (BNM) 1997-1998 Financial crisis happen and affected the commercial bank performance in Malaysia 2006 Economic downturn 2008 Financial crisis, but cause big problem because of the effort of the bank Negara Malaysia so strengthen up the banking sector 2012 There are 17 commercial banks in Malaysia Table 5

The Development of Foreign Islamic bank in Malaysia for the Past 10 Years

Kuala Lumpur Regional Centre for The arbitration (KLRA) was introduced the rule which invited the Muslim arbitrator to offer their product in Malaysia. Interest free banking system or known as Islamic Banking System (IBS) was introduced in 1993 by Bank Negara Malaysia (BNM). (Abdulah, 2010). Foreign bank that already exist such as HSBC, OCBC, and Standard Chartered was also participated in IBS. In 1990 Islamic Banking System in Malaysia became more prosper to welcoming foreign banks. September 2003 Suffian stated that the central bank of Malaysia was announced the 3 new foreign Islamic institutions from Middle East (2010). Kuwait finance house is the first fledge foreign Islamic institution that was opened their new branches in august 2005. The other 2 is Qatar Islamic bank and Al-Rajhi bank that opened in the year 2006 and early 2007. Currently, Malaysia Islamic banking assets reach USD$ 72,5 billion with 20% annual growth rate per year. This rapid liberalization was promoted other foreign institution to make Malaysia as their new intention. (Global Islamic Finance, 2012). Till 2012, there is 6 foreign Islamic bank in Malaysia.

The Financial Blueprint and Commercial Banking

The Financial Blueprint (2011 - 2020) is a sketch of the financial journey of Malaysia for the next ten years. On December 21, 2011, Bank Negara Malaysia - The Central Bank of Malaysia released the financial blueprint themed "Strengthening Our Future". The financial sector plays a major role in the Malaysian economy by being the medium for economic growth as Malaysia is in the verge of becoming a high - income country. At this edge, financial sectors in Malaysia are aspired to be more positively spirited to present financial services at its best. As forecasted by the central bank, Gross Domestic Product (GDP) of financial sector is expected to increase six times in 2020 than the current GDP, 4.3. On the other hand, financial services sector's GDP is expected to develop from 8.6% to a range of 10% to 12%. There nine focal points in the Financial Blueprint but only five crucial points will be discussed.

Effective intermediation for a high value-added and high-income economy

This improves the potential of financial sector to support high value-added activities as well as the financial requirements of enterprises. This is a draft of dissimilar savings and fruitful investments in Malaysia to convene the desires of both business and households. Furthermore, it enhances the role of commercial banking by increasing the profit and risk sharing investments and financing facilities. Financing facilities comprises the proviso of large and long term project financing for infrastructure development. At the same as Malaysia widens its trade and investment portfolio, the financial sector is contemplated to have a larger role in sustaining the internationalization of Malaysian businesses. Headed to provide Malaysia's upward well off segment and maturing population, importance will be placed on enhancing the provision of financial services for wealth management, retirement and long-term healthcare. The growth of a vibrant private pension industry is also expected to enhance the role of pension funds as a key source of funding for the longer-term and risk-based financing needs of the economy.

7.2 Financial inclusion for greater shared prosperity

The motive of this inclusion is to allow all Malaysians including the underserved to use the vital banking or financial services at its highest quality and affordability. More delivery mode will be developed such as agent banking to boost the outcome of financial services in an economical way. A range of products such as flexible micro financing are to be introduced to alleviate poverty. Micro financing products consist of:- microsavings microloans microinsurance

7.2.1 Microsavings

Microsaving is a product whereby it allows an individual to save a small amount of money without the minimum requirement for future use. In contrary, in developed nations, microsavings are used as additional funds for retirees.

7.2.2 Microloans

Microloans are also known as microcredit. A microloans has a very low value targeting home based business such as sewing, cookery, agriculture and so forth in a developing country. However, interest charged in a microloan is very high compared to normal loan interest rate. For example a normal loan interest to start a business would be 10% but in microloan, it would be 30%. Even if this sounds very high, it is still low compared to other options such as illegal money lenders.

7.2.3 Microinsurance

For people living in a developing country like Malaysia, there are more risks in their lives. But fortunately Malaysia is away from natural disasters however, natural disasters in neighboring countries affect Malaysia. For example, the 2006 Tsunami in Indonesia affected Penang, a state in Malaysia. In other cases, when Malaysia's northern region state such as Kedah, the rice bowl of Malaysia is always affected by flood. Here, the micro insurance comes into picture by providing risk management for the farmers. Microinsurance policy has a very low premium and policy amounts. An example of microinsurance would be a crop insurance for a paddy field.

7.3 Strengthening regional and international financial integration

The cross border linkages between countries will have important impacts affecting the trade and investment opportunities by expanding the market demand to compete in the current and future market, provide the interacting firms opportunity to share the cost of producing knowledge, especially in dynamically competitive environments, for example Specialization is one of the main enhancement which can be served from strong linkages, as all producing activity cannot be incorporated into one firm. Such cross-border linkages will also improve cross border fund for Malaysia. Malaysia to be more regionally & internationally integrated A¢â‚¬A¢ Creation of an ASEAN Economic Community (AEC) by 2015 A¢â‚¬A¢ Closer regional trade integration, through ASEAN & other bilateral or regional free trade agreements A¢â‚¬A¢ Malaysian corporations venturing abroad to expand business opportunities A¢â‚¬A¢ Labour & specialised talent increasingly more mobile A¢â‚¬A¢ Greater spillovers from dynamism of Asian economies Table 6 Malaysia's investment policy is based on- prudent standards The impact of the investment on Malaysia's economic activities, predominantly in catalyzing new high value-added activities, stabilizing the level of competition and influence to strengthen the international trade and investment cross- border. In order to continue to mobilize a significant share of resident deposits, a deeper consideration in analyzing the best interest of Malaysia is continued presence of strong and well maintained management of the local banking groups. In addition, this is fairly important to the growth and development of the particular financial sector.

7.4 Internationalization of Islamic finance

Malaysia's mission is to develop in becoming an international Islamic financial center; contribution will continue to be undertaken for enhancing the Islamic financial environment. This will be a strain in developing a more conducive environment for the investor from all around the world get more involvement and participation in Islamic financial market. In the need of better structure of legal and Shariah frameworks and further improving and advancing Malaysia's thought leadership in Islamic finance, the country have to establish a single legislated department to be the top authority on the subjected matters which will include Shariah issues in Islamic finance. Islamic finance is now a global market, they haveA a wide range of investment, for example sukuk, mutual funds, commodity funds, equity traded funds, real estate investment trusts,A shariahA compliant derivatives and hedge funds whichA contributed across region to region. Recent developments also included the possibility of an Islamic bank in France, the publishing of a book on Islamic finance in Italian and shariah compliant real estate funds in Australia. There is also news of expected sukuk issuances from the United Kingdom, Australia and Korea. There have also been a diverse range of issuers of shariah compliant products including the World Bank, the Islamic Financial Centre, the German state of Anhalt-Saxony, Aston-Martin and Shell, which pioneered the sukuk.

7.5 Regulatory and supervisory regime to safeguard the stability of financial system.

Financial security is a core of the country's economic security. Financial stability is an important foundation to ensure the financial security of a country. Steady run, good efficiency and financial stability, reasonable structure state can lay a strong foundation for financial security; overregulation, inefficiency and structural imbalances in stable condition in the state will harm the intermediary function of the financial system, increasing its vulnerability brewing significant financial risks. To promote an easy going way to regulation and supervision within the financial sector is by enhancing the legislative framework or structure; it may also require a higher risk based approach. This will end up strengthening the Bank's capacity to manage risks associated issues which maybe include non-bank credit matters; in addition this will also give the opportunity to enhance the strength of the Bank to take proper intervention actions against the issues. Strengthening the cross border linkages will be pursued with other supervisory authorities as it is actually globally connected (example- US financial can also affect all countries' currency)

The Prospects of Islamic Banking In Near Future

Islamic banking industry has a very bright future and expected to grow further by 2014 as the industry already has some of the key values and essence required in order to move forward. Globally, Islamic banking has increasingly become an alternative to conventional banks especially in Islamic countries where the rapid growth of the Islamic banking seems to be as fast as conventional banking (Paulius Kuncinas, 2012). The expansion of Islamic banking is largely driven by several major factors. The most significant would be the increasing regulatory support and the strong alliance among the players within the industry together with the relevant institutions. Those countries that have greater regulatory support for Islamic banking will grow faster. The regulatory supports that could help the growth of Islamic banking could be in the form of separate licensing and regulatory requirements, avoidance of double taxation as well as permission for the Islamic banks to get involved in trading and direct investment. Nowadays, governments in various markets have taken proactive action to promote the development of a healthy Islamic banking ecosystem (Naim, 2012). For instance, in the UAE, all new local banking licenses granted in the last 15 years have been for Islamic banks. Apart from that, Islamic banking is growing due the demand from society. As product offering by Islamic banking became more attractive, most Muslim customers have started to switch from conventional banking to Islamic banking at a rapid pace. This is due to responsiveness of Islamic banking towards meeting the customer's expectation who seeks for not less than what they could actually received from conventional banking (Naim, 2012) Despite the rapid growth in Islamic banking, there are key areas in the banking industry that needs to be improved to progressively support future development. Therefore, it is important to highlight the challenges facing the Islamic banking industry. One of the major challenges of the industry is to create awareness among the consumers of the banking about the values and limitations in Islamic banking. Awareness is very important, as the growth of Islamic banking will have a direct impact regarding this issue. If people have better knowledge and understanding about the Islamic banking initiatives, the overall growth pattern will definitely improved. According to Al Rajhi Bank Malaysia director of operations, Selamat Sirat, he stated that people are still not well-educated and not well-informed about Islamic banking even though they are various promotions and write-ups already been done. This statement is supported by the complaints received from people who are still complaining that Islamic banking is more expensive than conventional. He added that this is due to lack of awareness. If people look at the structure and truly understand the product, they will realize that the pricing of Islamic banking is even better and sufficiently cost-effective than conventional and not at all equivalent. This shows how lack of awareness is a very crucial issue that needs to be resolved (Clint Loh, 2012). The second major issue is the structure of certain Islamic products. Islamic banking player need to come up with a real new structure in order to ensure that people will not associate Islamic banking products with the conventional products. This could be a challenge as conventional banking has been in existence for more than 100 years compared with 20 for Islamic banking. However, this effort must be in place and they have to play a perpetual catch-up game with the conventional financial system for Islamic banking to remain competitive and attractive (Clint Loh, 2012). Furthermore, in this rapidly changing environment, customers expect more and their needs keep on changing and becoming more complex. It is essential to satisfy customers' needs and to meet their expectations. Thus, innovative solutions are required as product innovation is the important factor in the process of broadening the development of the Islamic banking industry. Another issue facing the development of the Islamic banking industry is the ineffective accounting standards resulted from the absence of recognized guidelines on prudential, supervisory, accounting, auditing and other corporate regulatory practices. Difficulties may arise when comparing financial statements issued by Islamic financial institutions and those of conventional financial institutions. In addition, it is a factor that could affect the growth of Islamic banking. Therefore, there is a need for The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in addressing these problems (Venardos, 2012). Besides, the varying and lack of convergence of Shari'ah interpretations across jurisdictions due to the different school of thoughts among Shari'ah scholars will add on to the challenges faced by Islamic banking industry. Thus, different Muslim countries have adopted different practices in relation to various Islamic banking product and services. This may have implications with regards to investment and trading of International Islamic instruments. More standardized Islamic banking products and services may be achieved if there is harmonization in the Shari'ah interpretations, which could lead to the enhancement of the overall growth of the Islamic banking industry. This point is supported from the statement made by Dr Zeti Akhtar Aziz , Governor of the Central Bank of Malaysia, who believes that the absence of a truly global Islamic financial system based on Sharia'ah principles, means that the continued growth and development of Islamic banking and finance is somewhat haphazard (Venardos, 2012).

Recommendations :

To ensure the growth and sustainability of Islamic banking industry in the coming future, various efforts can be made such as the followings: Reviewing the existing framework and structures governing the issuance of global Shari'ah compliant products. Governments should act more aggressively in promoting the development of Islamic financial systems such as providing the necessary infrastructure that will favour the growth of Islamic banking in their respective countries with the complete, Shari'ah compliant, legal and regulatory framework. Ensuring the transparency in the Islamic financial system. To create an effective international Islamic banking industry that will be able to serve the needs of both local and international customers, a strategy of openness in the Islamic financial system is required. Increasing the number of professionals in the Islamic banking industry. Currently, there is only a small number of professionals available in this industry as well as the professional bodies especially in the Non-Muslim countries. Thus, with the involvement of more experts, customers will become more attracted as they have better confidence to rely on convincing advice given by the experts. Offering Islamic financial products to big companies. This is because if Islamic banks are able to target those big companies in using their Islamic financial products, the rest of the customers can be easily influenced by their actions. Encouraging the involvement of the established rating agencies. This action may help in creating more awareness towards the customers and building up their trusts in Islamic financial systems. For example, the well-known rating agency such as Standard & Poor's should put more effort in doing their research and providing data regarding Islamic banking that are more useful to the people who are interested.

Conclusion

The development of Malaysian banking system in the past years was positive. Although there was a financial crisis in 1997-1998, Malaysian banking system was able to deal with it. The financial masterplan1 that was launched in 2001 was successful to build up Malaysian banking system to become stronger. They still continue to build up the financial system with the financial masterplan2 that was launched in 2011. Local and foreign bank are still growing steadily over the years. On the other hand, the financial blueprint is a vision and direction for Malaysia financial sector for the next ten years. We focused and discussed about the 5 key points which is included in the Financial Blueprint (2011 - 2020) that supports the development of the commercial banking. It also helps to develop the various areas of our financial market and directly improve the development of the commercial banking, which bank itself is the main participant in the financial market. Commercial bank is a financial intermediary which channels the fund from savers to borrowers, and it needs financial market to enhance and provide more variety to the bank. Enhanced development of financial market can provide more long term and short term loan to the commercial bank as well as commercial bank can invest in financial market if the bank has excess of funds.

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