DUBAI: Global Islamic banking assets with commercial banks are expected to reach $1.72 trillion in 2013, according to EY’s latest World Islamic Banking Competitiveness Report 2013–14, launched yesterday at the World Islamic Banking Conference in Manama, Bahrain. In 2012, global Islamic banking assets with commercial banks reached $1.54 trillion.
The report revealed that six rapid-growth markets including Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (QISMUT) represented 78 percent of the international Islamic banking assets with commercial banks, excluding Iran. This includes both pure-play Islamic banks and windows of conventional banks. There is also increased demand on established and new reference centres including Bahrain and Malaysia to provide leadership for the next phase of industry’s development.
Gordon Bennie, Partner and Mena Financial Services Leader at EY, said: “We believe that the future success of Islamic banks will be measured less by the growth of assets and more by the quality of this growth. Impact made through responsible banking, inclusive growth and alignment with the broader halal asset class will be the defining features. Banks with strong connectivity across key markets and sectors are set to gain.”
Bennie said trade patterns are shifting decisively in favor of rapid growth markets and Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey will be the major beneficiaries.
Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey are home to 17 of the top 20 Islamic banks and the global Islamic banking standard setting bodies. QISMUT holds the largest pool of financial and intellectual capital of the industry that will drive the next wave of development across existing and new markets.
Ashar Nazim, Partner, Global Islamic Banking Center at EY, said: “Bahrain and the six rapid-growth markets are systemically important to the future globalisation of the Islamic banking industry. We expect Islamic banking to grow at a CAGR of 19.7 percent across QISMUT to reach $1.6 trillion by 2018 compared to $567bn in 2012.”
According to the report, Islamic banks today serve approximately 38 million customers globally, two third of whom reside in Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey. However, few Islamic banks are able to fully apply customer insights to innovate. Going forward, emphasis on customer excellence will be the key differentiator that will separate successful Islamic banks from others.
“Islamic finance markets are far from being homogenous as each market is at a different stage of maturity and profitability varies significantly compared to conventional banking,” added Ashar. The reports reveals that many banks are currently in the process of replacing or upgrading their core banking system.
The biggest challenges for Islamic banks are how to become a mainstream form of banking in their home markets, diversification to build regional brands, and taking a more socially responsible approach to differentiate themselves from conventional banks. The growth of the industry is expected to remain moderate going into 2014, as several leading Islamic banks contemplate large scale operational transformation.