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Monday, 9 December 2013

Saudi Arabia takes a bigger share of global Islamic assets

JEDDAH - Global Islamic banking assets with commercial banks are expected to reach $1.72 trillion in 2013, according to EY's latest World Islamic Banking Competitiveness Report 2013-14 launched recently at the World Islamic Banking Conference in Manama. In 2012, global Islamic banking assets with commercial banks reached $1.54 trillion.

The report revealed that six rapid-growth markets including Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (QISMUT) represented 78 percent of the international Islamic banking assets with commercial banks, excluding Iran. This includes both pure-play Islamic banks and windows of conventional banks. There is also increased demand on established and new reference centers including Bahrain and Malaysia to provide leadership for the next phase of industry's development.

Gordon Bennie, Partner and MENA Financial Services Leader at EY, said: "We believe that the future success of Islamic banks will be measured less by the growth of assets and more by the quality of this growth. Impact made through responsible banking, inclusive growth and alignment with the broader halal asset class will be the defining features. Also, trade patterns are shifting decisively in favor of rapid growth markets and QISMUT will be the major beneficiaries. Banks with strong connectivity across key markets and sectors are set to gain."

QISMUT is home to 17 of the top 20 Islamic banks and the global Islamic banking standard setting bodies. QISMUT holds the largest pool of financial and intellectual capital of the industry that will drive the next wave of development across existing and new markets.

Ashar Nazim, Partner, Global Islamic Banking Center at EY, said: "Bahrain and the six rapid-growth markets are systemically important to the future globalization of the Islamic banking industry. We expect Islamic banking to grow at a CAGR of 19.7 percent across QISMUT to reach $1.6 trillion by 2018 compared to $567 billion in 2012."

According to the report, Islamic banks today serve approximately 38 million customers globally, two third of whom reside in QISMUT. However, few Islamic banks are able to fully apply customer insights to innovate. Going forward, emphasis on customer excellence will be the key differentiator that will separate successful Islamic banks from others.

"Islamic finance markets are far from being homogenous as each market is at a different stage of maturity and profitability varies significantly compared to conventional banking. For 2012, the average ROE of the 20 leading Islamic banks was 12.6 percent compared to 15 percent for its conventional peers," added Ashar.

The reports revealed that many banks are currently in the process of replacing or upgrading their core banking system. Capital planning in view of Basel 3 and IFSB guidelines is already influencing the preferred business mix and more Islamic banks believe that the collaborations between mobile providers and banks will further accelerate the adoption of mobile banking beyond payments to more complex savings and financing products.

The biggest challenges for Islamic banks are how to become a mainstream form of banking in their home markets, diversification to build regional brands, and taking a more socially responsible approach to differentiate themselves from conventional banks. The growth of the industry is expected to remain moderate going into 2014, as several leading Islamic banks contemplate large-scale operational transformation. 

"Driving such a broad change program - combining cost improvement with revenue growth - requires exceptional leadership capabilities and significant management capacity. Moving forward, customer and technology will be among the top transformation themes for the global Islamic banking industry," he noted.

(Zawya / 08 Dec 2013)
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Islamic banking expected to 40% of Malaysia’s financial sector by 2020

Islamic financial business is at the heart of the Tun Razak Exchange (TRX) project, with some experts calculating that Sharia-compliant transactions could account for up to half of the business that will go through the new centre when it is complete.

Dato’ Azmar Talib, the chief executive of 1 Malaysia Development Berhad (1MDB), the real estate business overseeing the project, says Islamic banking comprises about a quarter of Malaysia’s domestic financial market in terms of assets and financing, but this is expected to reach 40 per cent by 2020, when TRX will be well developed.

“We intend to use Malaysia’s strengths, particularly in Islamic finance, to provide the infrastructure that will enable innovation, attract skilled talents and promote ease of doing business in the sector,” he says.

Others are even more positive about Kuala Lumpur’s potential in the global race to build the leading Islamic financial market. Many analysts believe the competition will come down to a three-way pull between KL, Dubai and London.

Malaysia has longevity on its side, and a developed domestic market. About 60 per cent of primary market sukuk (Islamic bond) issuance was in KL in the first half of this year.

Mohammad Daud Bakar, the chairman of the Sharia Advisory Council of Malaysia’s central bank, says the country has advantages in Islamic finance, such as a developed pensions funds industry, takaful (insurance) and long-term project finance.

“We have established private Islamic ratings agencies that vet the sukuk, and we are the only country with a Sharia-compliant equivalent of the American mortgage firms like Freddie Mae,” Mr Bakar says.

But despite the strength of the domestic industry, Malaysia faces some challenges in the international market. “Around 90 per cent of our issuance is in local currency, so we don’t trade in London. Malaysia has never issued any global sukuk. London uses hard currency, and has deep pockets of dollar reserves, which we do not,” he adds.

“But I believe the UAE will be a leader in this market in the future. It has dollar reserves and will be in a position to take business from London.”

Mr Bakar also points to the potential of the Saudi market. “It is booming because of all the infrastructure that needs to be financed there. It’s a booming market and will probably overtake KL in terms of value of issuance, if not volume,” he says.

(The National / 07 Dec 2013)
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