Sabah: Rising incomes bode well for financial services growth

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Buoyed by an improved economic outlook across Malaysia, Sabah’s emerging middle class is expected to spearhead the expansion of the state’s fledgling financial services sector. However, with penetration levels still low, educating Sabah’s population on topics such as investment and financial planning is likely to prove instrumental in supporting the industry going forward.

Sabah’s officials recently highlighted both the vast growth potential in the state’s financial services industry and the benefits that products and services, such as collective investment mechanisms, could offer locals.

On January 30, Sabah Community Development and Consumer Affairs Minister, Datuk Azizah Mohd Dun, said that Malaysia’s growing unit trust industry was now offering low- and middle-income groups an opportunity to make money from the stock market. Unit trusts allow investors to pool money and use a broad spread of shares to reduce risk.

Azizah told Bernama, the state news agency, that around 43 unit trust management companies had been established between 1956, when Malayan Unit Trust was set up, and November 30 last year. The firms now manage 607 unit trust funds between them, she added.

The minister’s words echoed comments made last April by the Minister for Housing and Local Government, Datuk Hajiji Noor, during the 13th National Unit Trust Week in Sabah. Noor told participants that he hoped Trust Week would help highlight the role investment and financial planning could play in supporting the well-being of familes.

PNB unit trusts were among the top choices for investors, he added, with figures showing that over 144bn units were held by more than 10m people worldwide. Hajiji said the total number of investors included around 1m Sabahans who collectively owned around 12m units.

Azizah said the net asset value of the unit trust industry reached RM293.9bn ($95bn) last November. From the 607 funds available, she added, 171 were sharia-compliant. Sabah’s evolving financial services sector is well placed to benefit from the expanding sharia-compliant segment, which remains earmarked for significant growth. Keen to tap rising demand, several banks in the state have already begun offering Islamic financial products and services.

Last February saw the opening of Standard Chartered Saadiq in Sabah, a wholly-owned Islamic banking subsidiary of the country’s oldest bank, Standard Chartered Bank Malaysia. The bank also launched an Islamic financial services education programme in 2012.

Standard Chartered Bank Malaysia’s managing director and chief executive officer, Osman Morad, described the subsidiary in Sabah as the “next generation branch”, adding that the project underlined the institution’s confidence in the rapid economic growth potential of the state.

The Malaysia Building Society (MBSB), which offers retail banking products and services, also set up a representative office in Sabah in 2012. In the previous year, Malaysia’s Agrobank , the Islamic bank AmBank and Saudi Arabia's Al Rajhi Bank all opened new branches in Sabah.

In other signs of growth, the Sabah Development Bank in August issued three tranches of five-, seven- and 10-year bonds, at coupon rates of 4.15%, 4.3% and 4.55%, respectively, and a total issuance size of RM500m ($161.37m). The bonds were rated AA1 by RAM Ratings.

The Sabah Credit Corporation was awarded “AA1” and “P1” issue ratings in July by RAM Ratings, which described the outlook for the state financial institution as stable. In the previous month, RAM also assigned long- and short-term issue ratings of “AA1” and “P1” to the Sabah Development Bank (SDB), noting the “strategic role” the financial institution was playing in supporting the state’s goals.

Earlier in the same month, the SCC issued three tranches of sukuk, with tenures of five, seven and 10 years, amounting to RM200m ($64.7m). In August, the SDB also issued three tranches of five-, seven- and 10-year bonds, totalling RM500m ($161.37m).

Officials are confident that Sabah’s financial services industry should also receive a boost from Malaysia’s positive economic outlook. Deputy Chief Minister Yee Moh Chai said last July that increasing population and rising disposable income should lead to higher demand for financial services, particularly insurance.

“There is no doubt that this sector is steadily growing and hopefully would increase the penetration rate,” he said at the opening of AXA Affin Life Insurance’s branch in the state capital Kota Kinabalu. “With the thriving property segment and development in major areas in Sabah, the property and land insurance are set to grow significantly in the next few years.”

Demand for financial services in Sabah will continue to rise as investment-related wealth accumulates and the state’s middle class grows in numbers. However, while the government is leading the drive to encourage investment, the introduction of incentives would almost certainly strengthen its efforts to boost growth in Sabah’s financial services industry.

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