GCC Islamic banking assets up 18%
SAUDI ARABIA CONTINUES TO DOMINATE THE GLOBAL MARKET SHARE AS BAHRAIN MAKES STEADY GAINS
Islamic banks expected to see strong growth across the GCC with total Sharia compliant commercial banking assets surging 18 per cent ($91 billion) year on year last year, according to World Islamic Banking Competitiveness Report 2016 from EY [Ernst & Young].
Globally, Islamic banking assets with commercial banks are set to exceed $920 billion (Dh3.4 trillion) growing at a compounded annual growth rate of about 16 per cent.
Islamic banking assets of commercial banks based in Qatar, Indonesia, Kingdom of Saudi Arabia (KSA), Malaysia, the UAE and Turkey (together denoted as QISMUT) are set to exceed $801 billion in 2015 and will represent 80 per cent of international Islamic banking assets. Data shows in some of the traditional markets such as Indonesia and Turkey, Islamic asset growth has either plateaued or declined marginally.
“Growth trajectories of some of the historically strong markets are seen diverging with different factors impacting the asset growth. In turkey geopolitics has impacted growth but the slowdown is temporary. Indonesia will require more regulatory stimulus to lift growth in the sector,” said Ashar Nazim, Partner, Global Islamic Banking Centre, EY.
In some of the high growth markets such as the UAE and Malaysia, Islamic banking asset growth appears to be converging to that of traditional banks in the range of 20 to 25 per cent. “This calls for new initiatives to boost the market share of Islamic banks. There are efforts in both these countries to drive growth by linking Islamic banking to Islamic economy initiatives.
“In addition, these markets will need to upgrade the overall industry infrastructure such as regulations, supervision, legal and accounting infrastructure to gain market share,” said Nazim.
In overall efforts to gain market share analyst said Islamic banks need to look beyond home markets for expansion. While there are 1.7 billion Muslims in the world, the market reach is limited to less and 100 million people and serious efforts are required to grow in key OIC [Organisation of Islamic Cooperation] markets and beyond.
Future regionalisation
“Twenty-two international Islamic banks now have $1 billion or more in shareholder equity, making them better positioned to lead the future regionalisation of the industry. In relative terms however, they are still only one third of the size of their largest traditional peers in home markets, and also lag in terms of return on equity,” said Gordon Bennie, Mena Financial Services Leader, EY
Saudi Arabia continues to dominate the share of the global Islamic banking market at 33 per cent and is the highest contributor to total global Islamic banking assets, followed by Malaysia at 15.5 per cent and the UAE at 15.4 per cent. Islamic banks in Bahrain have also been steadily gaining market share over traditional banks.
“Leading Islamic banks have done well to mainstream with a competitive, sizeable business in their home markets. The combined profit pool of Islamic banks across QISMUT was estimated at $10.8 billion in 2014, which is a notable milestone. However, the return on shareholder equity could be significantly enhanced, by at least 15 per cent — 20 per cent, and this need becomes more pressing in the context of the prevailing macroeconomic environment,” said Nazim.
In Turkey geopolitics has impacted growth but the slowdown is temporary. Indonesia will require more regulatory stimulus to lift growth in the sector.”
Ashar Nazim Partner, Global Islamic Banking Center, EY
|