GCC Islamic banking assets set to exceed $515 bn by 2013-end

Sunday 24th, November 2013 / 21:09 Written by Oman Observer

in Business

By A Business Reporter — MUSCAT — Global Islamic banking assets with commercial banks reached $1.54 trillion in 2012, according to EY’s Global Islamic Banking Center. 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. Ashar Nazim, Partner, Global Islamic Banking Center of Excellence, EY, said: “There are six markets that are systemically important to the future internationalisation of the Islamic banking industry.  They are Saudi Arabia, Malaysia, the UAE, Qatar, Indonesia and Turkey. Of the top 15 Islamic banks with a capitalisation of $1 billion or more, 13 of them are located in these rapid growth markets. With trade patterns shifting decisively in favour of these rapid growth markets, this is a huge opportunity for Islamic banks.”

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. 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. In the GCC, Islamic banking assets reached $452 billion in 2012 and are expected to exceed $515 billion by the end of 2013. Saudi Arabia was the biggest market with an estimated $245 billion in assets in 2012. UAE Islamic banking assets, including windows were estimated at more than $80 billion and Qatar’s Islamic banking assets reached $53 billion in 2012. 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. 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.

“The progress of the industry is 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. 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 becoming multi-jurisdiction businesses. These factors have had an impact on profitability, which although is improving, still remains approximately 18 per cent 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,” concluded Ashar.

(OEPPA Business Development Dept)