Danamon Syariah, the Islamic banking unit of Bank Danamon Indonesia, is hoping its customers have an appetite for gold, launching a new Shariah-compliant ownership financing product for the precious metal on Thursday in an attempt to boost its assets.
Danamon Syariah is aiming to finance up to Rp 150 billion ($15.6 million) of gold purchases by the end of this year, bringing its total gold-backed portfolio to Rp 400 billion. The move is also part of the lender’s move to become a stand-alone Shariah-compliant bank in 2014.
Danamon Syariah currently has a gold pawn product, which was valued at Rp 125 billion at the end of September, more than double what it was a year earlier.
The new product will allow Indonesian customers to buy gold from any supplier, with Danamon Syariah paying up front and customers repaying the lender in installment plans that span up to five years. The gold is placed at the lender and will be owned by the customer at the completion of the payment plan.
“We are confident with the prospects,” said M. Budi Utomo, executive vice president of Shariah gold solutions at Bank Danamon. “We are among the first to introduce this product.”
The unit is seeking to expand its assets in preparation for its break from Bank Danamon in 2014, Budi said.
Danamon Syariah’s assets rose to Rp 1.6 trillion as of September, up 45 percent from a year earlier. Budi said the gold-backed assets would comprise 18 to 20 percent of the unit’s total assets by the end of this year.
Bank Indonesia limits gold-based financing to 20 percent of the total loan or 150 percent of capital, whichever is less.
Recent problems involving gold pawn products at other Shariah banks would not deter customers from seeking finance to own gold, Budi said.
“We target customers who see gold ownership as savings, and not for speculation.”
Earlier this month, Bank Indonesia mediated a dispute between comedian Butet Kartaredjasa and Bank Rakyat Indonesia Syariah, after Butet’s attempt to realize gains from a gold purchase ran up against a newly issued central bank regulation, ultimately resulting in losses for the comedian.