On the regulatory front, a series of enhancements to the risk management regulatory framework has been introduced with the aim of promoting a more robust and comprehensive risk management practices within banking institutions. In addition, significant effort has also been put in place to prepare the industry towards the implementation of Basel II, which is targeted for January 2008 for the standardised approach and January 2010 for the IRB approach. The industry has responded well with various improvement measures that have been instituted, and investments made to enhance their systems and approaches to elevate their capability to manage risk exposures. This will contribute towards enhancing further overall financial stability, and towards the development of new products with better pricing of the financial services. The Islamic banking and takaful industries have been among the most dynamic in the sector. In terms of assets, the annual growth rate of Islamic banking and takaful averaged 19 percent and 25 percent respectively. In 2005, profitability of Islamic banking surpassed the RM1 billion mark for the first time, while its assets breached the RM100 billion threshold. As of end-March, the Islamic banking assets accounted for almost 12% of the total assets of the entire banking system. The takaful industry's assets stood at about 6% of the industry total. The Islamic banking industry has begun to maximise the competitive advantages of the Islamic banking concept of profit and risk sharing.
These efforts have further enhanced the ability of the financial system to respond to the changes that have occurred. The banking sector recorded improvements on all fronts, enhancing the ability to compete effectively and strengthening the resilience to weather any potential adverse developments in particular, any external shocks to the system. The level of capitalisation remained consistently strong with the riskweighted capital ratio of the banking system above 13% for the period concerned with quality of portfolio continuing to improve further amidst sustained economic performance. The banking sector also continued to record strong profitability performance despite the increasingly competitive operating environment. In 2005, the banking system as a whole registered a pre-tax profit level of RM12.4 billion with a higher component of the revenue originating from service related activities such as the sale of wealth management products and remittance services, as well as from trading and investment activities. With this stronger performance and enhanced capability to manage risk exposures, several banking institutions have also taken the next step and moved forward to expand in the regional market to reach new sources of business opportunities. On the domestic front, there has been a narrowing of the gap as compared with the foreign banks. Further initiatives undertaken include enhancing the operational aspects and delivery of services to banking consumers through the rationalisation of the configuration within respective banking groups.