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Islamic Finance in Gulf
Rehan PathanHead of International Sales, NCB Capital
10 December 2011
Growth of Islamic finance since the 50s
The Experiments (50s and 60s)1956 : Tabung Hajji (Malaysia) 1963 – 1967 : Mit Ghamr (Egypt)
1970: Organisation of Islamic Countries (OIC)1973: Oil shocks and the increased price of oil1974: Islamic Development Bank (IDB) and the Fiqh Academy1975: Dubai Islamic Bank 1976: First International Conference on Islamic Economics1979: Pakistan ‘islamicises’ economy ; Iranian Revolution
Growth of Islamic finance since the 50s
Changes in Global finance (80s)
- Washington Consensus and the deregulation of the markets. - Significant changes in the financial markets - Islamic banks and products enter international markets - Corporate scandals (BCCI)
The Growth (90s – Present Day)
- Fall of communism and greater Western influence in MENA - Recognition of Islamic finance by the West (Eddie George) - The success of Malaysia - The economic growth of the Middle East - The problem of terrorism
Recent growth of the Industry Strong growth in Islamic banking continues
Global Islamic banking assets
The interest for Islamic finance continues to grow even in non-Islamic countries as reflected from the fact that there are over 300 Islamic financial institutions worldwide across 75 countries
Share of GCC: Shari’a compliant assets represent 26% of the total size of global Islamic financial assets
While Islamic banking assets have grown significantly in the past decade, their share of total global banking assets remains marginal
Sukuk Issuance: 17bn of the total issuance in first 9 months, 38% of the total issuance in the year. Corporate Sukuk accounted for 87% of the total issuance ($14.6bn) compared to 77% (44.6bn) in 2010.
Source: CIBAFI, Central Bank of Iran, Central Bank of Sudan
Global Islamic banks assets have grown
considerably from USD145 bn in 2002 to
USD1,033bn in 2010
The global economic crisis negatively
impacted the Islamic banking sector
After growing at double-digit pace for
number of years, growth in Islamic banking
assets slowed down to 9.8% in 2009 before
accelerating again to 26% in 20105.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
0
200
400
600
800
1,000
1,200
2002 2003 2004 2005 2006 2007 2008 2009 2010
Total Assets (USD bn) Assets growth-RHS
CAGR – 28%
Sharia Compliant assets compared to total assets
Islamic finance assets in GCC:
Total Banking Assets
$bnTotal Islamic banking
asset $bnPercentage share of the
total assets KSA 377 131.95 35%
Kuwait 155 48.05 31%Bahrain 46 12.42 27%Qatar 156 34.32 22%UAE 438 74.46 17%Oman 41 0 0%Total 1213 301.2
GCC Profitability; Decrease in Return on Equity & Return on Assets
Higher provisions and operating costs have contributed to the steep decline in profitability of Islamic banks
Situation is not that bad:
Islamic banks are able to generate higher financing margin because of their stronger retail focus
Islamic banks in GCC continue to grow their deposit base
The biggest business risks faced by Islamic banks
Future growth & direction
Islamic banking and finance industry is projected to be worth $658bn by 2015 compared to the current that is worth $301bn.
Islamic Asset Management – a compelling opportunity
Value of GCC funds: $28.5bn, 110 fund management companies and manage 337 funds. The six biggest banks constitute about $10bn of these GCC funds.
Islamic Asset Management – room to grow
Final thoughts - Key messages for Turkey
Today, participation banking assets account for 4% -5% of the total banking assets in Turkey
Participation banking is expected to more than double its market share to 10% in thenext decade.
The Turkish National Assembly in February passed tax and other measures to facilitate the introduction of sukuk in Turkey
The core Shari’a sensitive segment constitutes approximately 20% of the bankable Market
Thank you