Move into digital channels key to increasing market share
Adoption of digital channels and expansion into key OIC [Organisation of Islamic Cooperation] markets will be crucial for Islamic banks to increase their asset size and market share in the future, according to World Islamic Banking Competitiveness Report 2016 from EY (Ernst & Young).
The operating environment is getting tougher for banks, given the prevailing oil price and the resulting impact on banking system liquidity and infrastructure spend. Islamic banks are in a better position to weather this storm due to the simpler nature of their balance sheets, basic products and localised operations.
But Islamic banks in general are falling behind in digital adoption and cross border expansion, limiting their growth potential. “Islamic banks do not appear to be ready for the digital changes that are impacting the way customers engage with banks. A fundamental review of their operating models at this stage will be critical to the success of Islamic banking across the Organisation of Islamic Cooperation markets,” said Muzammil Kasbati, Director, Global Islamic Banking Centre, EY.
The total Islamic banking assets with commercial banks in Qatar, Indonesia, Kingdom of Saudi Arabia, Malaysia, the UAE and Turkey (QISMUT) are expected to reach $1.6 trillion by 2020 and the total industry profit pool of QISMUT is expected to reach $27.8 billion.
In terms of banking market share, Saudi Arabia, Kuwait, Bahrain and Qatar are expected to be the major players by 2020. QISMUT is expected to remain the key driving market with the GCC providing the additional acceleration for future growth of the industry, with Turkey expected to recover from the current temporary setback. “There is still a lot of under utilised opportunity in the sector. The industry today is yet to reach 100 million customers. The potential captive market is six times bigger but requires a different banking model. A digital-first strategy has to be the stimulus for Islamic banks to sign up the next 100 million customers over the next decade across a number of new markets,” said Ashar Nazim, Partner, Global Islamic Banking Centre, EY.