Indonesia BNI aims to spin off sharia unit in first half

11-Feb-2009 Intellasia | Reuters | 7:01 AM

Indonesia’s fourth-largest lender, PT Bank Negara Indonesia Tbk , said on Monday it expects to spin off its Islamic banking unit in the first half of 2009 in a bid to tap growing demand for Islamic financial products.

As the world’s most-populous Muslim country, Indonesia has been developing its Islamic financial market, with various sharia-compliant investment products.

The daily newspaper Kompas reported on Monday that banks will have to allocate a minimum of 500 billion rupiah (US$43 million), or half the amount currently required, in paid-up capital if they spin off their sharia banking units as separate entities.

Bank Indonesia, the central bank, is expected to issue the new ruling in March, Kompas reported, citing Ramzi A Zuhdi, a central bank director in charge of sharia banking.

Central bank officials could not be reached for comment.

“With the expected new ruling, there is a possibility to accelerate” the spin-off of the sharia unit, Ismi Kushartanto, head of BNI’s sharia unit, told Reuters.

Under sharia or Islamic law, interest is banned and income must be derived from a fundamental economic transaction such as trade in goods and services, direct investment in a business, or renting out property.

Last month, Bank Indonesia predicted that sharia banks would account for 3% of total banking industry assets in 2009, compared with 47 trillion rupiah in 2008, or 2.1% of total banking assests.

Indonesia had five sharia banks and 28 commercial banks with sharia units at the end of 2008, according to central bank data.