UAE Islamic banks account for 30% of global Islamic banking industry

The report revealed that the UAE Islamic financial services sector represented 30% of the global Islamic banking industry in 2011 and due to the growing demand for Islamic financial services among different customer segments within the UAE.

The report showed that Islamic banks have played a major role in financing UAE infrastructure projects, residential properties for UAE nationals and development of the human capital market through training of national talent.

Commenting on the report, Tirad Mahmoud, CEO of Abu Dhabi Islamic Bank, said, “UAE Islamic banks play an important role in the development of the global Islamic banking industry which is now valued at more than US$1 trillion.

This growth in the Islamic banking industry is driven by the increased demand for Islamic services and products by a growing number of customers. Demand is growing due the industry’s emphasis on ethical principles, its commitment to the principles of transparency and the application of the principle of mutual benefit in its operations and transactions.”

Tirad Mahmoud highlighted the effective role of Shari’a committees, which are independent from bank managements, in regulating and controlling banking operations.

They ensure compliance with Shari’a principles and enforce the principles of transparency and mutual benefit in all banking transactions. He also praised the support that Islamic banks receive from the UAE Central Bank which helps develop the sector and has led it to achieve a global recognition.

Islamic banking assets in MENA rose to US$ 416 billion in 2010. This represented a cumulative annual growth rate of 20% over five years, compared with less than 9% for conventional banks.

“Although there are similarities in the nature of work of Islamic and conventional banks, there is a vast difference in their financial mechanisms and transactions. In Islamic banking for example, the rates of Murabaha are fixed and known to the client from the moment the contract is signed. Islamic Banks cannot increase that rate even in the event that the client is unable to meet monthly payments on time,” added Tirad Mahmoud.

The Abu Dhabi 2011 Report aims to provide a snapshot of the Islamic banking sector in the UAE, specifically in the Emirate of Abu Dhabi. It is an increasingly important reference for the industry and contains a wide range of interviews with leaders of the Islamic banking sector.

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Noor Islamic Bank Social Media

Global Islamic banking assets with commercial banks to reach US$1.1 trillion in 2012, reveals Ernst & Young report

BAHRAIN. According to Ernst & Young’s inaugural World Islamic Banking Competitiveness Report 2011, Islamic banking assets with commercial banks globally will reach USUS$1.1 trillion in 2012, a significant jump of 33% from their 2010 level of US$826 billion.

The report also highlighted that Islamic banking assets in the Middle East and North Africa (MENA) region increased to US$416 billion in 2010, representing a five year CAGR of 20% compared to less than 9% for conventional banks. As new geographies open up to Islamic banking, the MENA Islamic banking industry is expected to more than double to US$990 billion by 2015.

The report was presented at a special plenary session of the 18th Annual World Islamic Banking Conference today where more than 1,200 industry leaders from over 50 countries gathered to chart the future of Islamic finance.

The report explores key industry trends and critical success factors guiding the global Islamic banking and finance industry into its next chapter of performance and growth.

Ashar Nazim, MENA Islamic Financial Services Leader, Ernst & Young, said: “The global Islamic finance industry continues its quest to boost international competitiveness and to build a sustainably profitable business model. Both the challenge and the opportunity currently facing leading industry players is how will Islamic banks succeed in making the historical growth curve sustainable.”

Growing Islamic banking assets and market share

Islamic banking market share of all banking assets in the MENA region has reached 14%, whereas in the GCC it crossed the all important 25% threshold in 2011. The report expects that there will be a change of play going forward as Islamic banks compete for mainstream customers who are open to Islamic or conventional banking.

Ashar adds: “A worrying concern is the limitations in the enabling legislative, regulatory, tax and legal environment in most OIC markets, which add to the cost and complexity of Islamic banking operations. Where there are guidelines and standards issued by industry infrastructure institutions, their reach and enforceability remains a concern. These must be addressed as priority.”

Performance risks and advantages

The report cautions that the Islamic banking industry is still fragmented with most Islamic banks holding less than US$13 billion in assets and are yet to achieve scale as they face pressure on profitability. In addition, exposure to downgraded real estate markets remains a concern for Islamic banks and this may also affect future growth.

Business repositioning, mergers and acquisitions and conversions appear set to dominate MENA Islamic banking in 2012. A sizeable decline in industry profitability from 2006 levels of returns on equity of 23% to the present levels of around 10% have left Islamic banks exposed to the charge of operational deficiencies.

Clearly, the structural advantages of stronger retail focus begetting better financing margins, higher deposit growth and higher proportion of free deposits needs to be translated into higher profitability.

However, misaligned people-processes-systems have led to high cost to income ratios for most Islamic banks.

“Higher provisions and operating costs have contributed to the steep decline in profitability of Islamic banks. Returns on assets have dropped from 4% in 2006 to 1.5% in 2010, due to deteriorating asset quality,” added Ashar.

The CEO Agenda

According to the report, two key themes are starting to emerge. The first is the need for excellence in banking operations and the second is to improve product innovation. The combined MENA Islamic banking profit pool could rise to US$15 – 19 billion in 2015 from the 2010 levels of US$5 – 6 billion, primarily by combining operational transformation with a more robust risk infrastructure.

Potential growth opportunities for regional Islamic banks include the emerging Islamic geographies, growing affluence among retail customers, better alignment with real economy and rising SME banking.

“Ensuring sustainable growth will require brave, meaningful and decisive performance improvement initiatives. CEOs and boards appear keen on transforming operating models for quality growth and to create sustainable shareholder value,” added Gordon Bennie, MENA Financial Services Leader, Ernst &Young.

“Reduced profits and valuations are amongst the biggest business risks facing Islamic banks, which can partially be tackled by introducing a service driven culture, investing in customer centric activities, and with better use of technology and risk management tools. Sharpening of their Shari’a differentiation by acquiring and building specialist product skills and ensuring better integration with the real economy will help CEOs to take their banks to the next phase of growth,” said Gordon.
Call to establish iSWF

The growth opportunities in OIC markets are clear. The best way to take advantage of them, however, is not. With the growing internationalization of the industry, the report says that now would be the opportune time for the industry to consider establishing Islamic sovereign wealth funds (iSWF).

“Most Islamic banks remain localized to their GCC base which makes it very difficult to get a holistic picture of emerging markets and opportunities.  iSWF could provide this visibility very effectively.  As the lead promoter, the iSWF would attract significant interest from other financial institutions, helping the industry grow in a sustainable way,” concluded Ashar.
About Ernst & Young MENA

The MENA practice of Ernst & Young has been operating in the region since 1923.  For over 87 years, we have evolved to meet the legal and commercial developments of the region. Across the region, we have over 4,200 people united across 20 offices and 15 Arab countries, sharing the same values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
Ernst & Young’s award winning global Islamic Finance Center of Excellence is the market leader in providing Islamic financial advisory services to a diverse range of financial institutions.  The center is credited with advising on a number of innovative initiatives in Islamic finance.
About Ernst & Young Global:

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Source: Noor Islamic Bank Social Media

Exciting times ahead for Islamic capital market

The Islamic capital market will sustain its growth momentum over the next decade. Its next phase of growth will be characterized primarily by greater internationalization, which will help address some of the challenges faced by the industry and will provide Malaysia the opportunity to strengthen its position as a hub for Islamic capital market activities. This is the prediction of the Securities Commission of Malaysia, the securities regulator.

An Islamic bank for Australia

It’s every Islamic home financing company’s dream to become an Islamic bank, but it is not necessarily the dream of every community cooperative.

However, that is just what is about to happen to Australia’s MCCA as the building blocks are put in place to see the launch of Australia’s first Islamic retail bank catering to the needs of the domestic population – both Muslim and non-Muslim alike.

World Islamic Banking Competitiveness Report to be launched at WIBC

The World Islamic Banking Competitiveness Report 2011/12, developed in collaboration with Ernst & Young, will be officially launched on 22 November 2011 at the 18th Annual World Islamic Banking Conference (WIBC 2011)

he World Islamic Banking Competitiveness Report, an initiative designed to not only identify but also to raise the bar of competitive excellence, strategic leadership and performance improvement in the global Islamic finance industry, now in its eighth annual edition, will analyse key strategies that leading Islamic financial institutions must deploy in order to ensure continued growth in a challenging economic environment.

Islamic Banking Making Inroads

Amid Turkey’s turn away from strict secularism, Islamic banking practices in the country are gaining currency. But they still face significant obstacles as they strive to enter the financial mainstream.

Turkey at present has four Islamic banks — three that are partially owned by companies based in the Persian Gulf — which accounted for 5 percent of Turkey’s 1-trillion-lira ($559 billion) banking sector in late 2010, according to data from the Participation Banks’ Association of Turkey, a lobbyist group for Islamic banks.

Islamic bankers set for crucial meeting

Islamic finance officials will gather in Kuala Lumpur next week to debate the industry’s future path and craft crisis measures, as banks’ limited capital base and liquidity management ability render them vulnerable to a global slowdown.

Alternative to the western finance model gains favour

Dubai: From September 19 to 23, Toronto hosted the massive Swift International Banking Operations Seminar (Sibos) event from Society for Worldwide Interbank Financial Telecommunication (Swift), where I was involved in the session called ‘Islamic Finance 2.0: Growth Opportunities for All’.

Industry experts to study Islamic finance growth

MANAMA: More than 400 experts from the international Islamic funds and investments industry are set to gather at the Seventh Annual World Islamic Funds and Financial Markets Conference 2011, which opens at the Gulf Hotel today.

Action on lack of Islamic expertise

Bahraini group that sets standards for Islamic finance in 45 countries is helping universities start courses in Sharia-compliant business practices to avert a shortage of experts in the US$1 trillion (Dh3.67tn) market.