GCC Islamic banking assets to hit $515bn
Dubai, November 24, 2013
The Islamic banking assets at commercial banks in the GCC is likely to surge to more than $515 billion by the end of 2013 from $452 billion last year led by the regional giant Saudi Arabia, according to a report.
The global Islamic banking assets banks reached $1.54 trillion in 2012, said Ernst & Young's Global Islamic Banking Center in its report.
This includes both Islamic banks and Islamic windows of conventional banks. The annual growth of the industry remains at 16 per cent (5-year CAGR) which is faster than the growth of conventional banking system assets in each of the core Islamic finance markets, it added.
Ashar Nazim, the partner at Global Islamic Banking Center of Excellence, EY, said: “There are six markets that are systemically important to the future internationalization of the Islamic banking industry. They are Saudi Arabia, Malaysia, the UAE, Qatar, Indonesia and Turkey."
"Of the top 15 Islamic banks with a capitalization of $1 billion or more, 13 of them are located in these rapid growth markets. With trade patterns shifting decisively in favor of these rapid growth markets, this is a huge opportunity for Islamic banks," he stated.
However, the industry however has recently experienced a slowdown caused by two major developments. The continuing economic and political setbacks in some of the Islamic finance markets have adversely impacted overall business sentiments, including the financial services sector, said the E&Y report.
In addition, the large scale operational transformation that many of the leading Islamic banks initiated approximately 18 months ago, continue to consume time and investment, it added.
In the GCC, Saudi Arabia was the dominant player with an estimated $245 billion in assets in 2012, followed by the UAE whose Islamic banking assets, including windows were estimated at more than $80 billion and Qatar at $53 billion, said the report.
A common theme across leading GCC Islamic banks is the fundamental repositioning of their balance sheets and their business following the global financial crisis in 2008, according to Ernst & Young report.
Going forward, many Islamic banks are looking to expand regionally, where a sizeable amount of their revenues are expected to be generated from outside their local market, it added.
Nazim pointed out that the progress of the industry was not without challenges. "Large scale and technology-enabled transformation around customer centricity remains a critical consideration for Islamic banks which intend to become mainstream in their respective markets," he noted.
The rapid growth of Islamic banks over the years has also been costly due to increased operational complexity as the banks transform from operating in a single market to becomingmulti-jurisdiction businesses, said Nazim.
"These factors have had an impact on profitability, which although is improving, still remains approximately 18% lower than their conventional banking peers. A significant change is required to sustain and improve performance with regard to organizational capacity and the capabilities of the Islamic banks which intend to expand," he added.-TradeArabia News Service