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Islamic banks’ profits hit record $10 billion

Study says Islamic economy has $6.7 trillion potential, bigger than all nations except US, China

The combined profits of Islamic banks said across the six core markets broke the $10 billion mark for the first time at the end of 2013 as global Islamic banking assets continue to grow at a vibrant pace, according to specialists at Ernst & Young (EY).

The six markets include Qatar, Indonesia, Saudi Arabia, Malaysia, the UAE and Turkey.

Fuelled by economic growth in core Islamic financial markets, global Islamic banking assets are set to exceed $3.4 trillion by 2018, EY’s Global Islamic Banking Centre said. Another report published in November 2013 by the Dubai authorities and Thomson Reuters, valued worldwide Islamic financial assets currently at $1.35 trillion, a figure which is expected to grow at 15-20 per cent per year in core markets – with potential Islamic banking assets under optimal conditions of as much as $4.1 trillion.

The study found that Islamic economy has a potential value of $6.7 trillion – bigger than all but two of the world’s national economies, the US and China. Muslim consumers’ global expenditure on the media, food and lifestyle sectors is forecast to reach almost $2.5 trillion by 2018.

Ashar Nazim of EY said while the profit numbers for Islamic banks are impressive, they are still, on average, 15-19 percentage points lower than traditional banks in these markets. Regionalisation and operational transformation, which are currently underway in several leading Islamic banks, will help to close this gap.

EY said there is significant growth potential – there are about 38 million customers who bank with Islamic retail banks globally, but only a small number have fully transitioned from a traditional to an Islamic banking relationship. The average number of Islamic banking products per customer is just over two, whereas leading traditional banks have an average of five.

“Building consumer confidence through service excellence, especially when it comes to customers opening accounts and cross-selling can increase the market share of Islamic banks by 40 per cent from these customers,” said Ashar.

Another major opportunity is for Islamic banks to assist SMEs with cross-border business growth.

“With increasing trade and capital flows between Turkey, Middle East and Asia Pacific, there is growing appetite to learn about Islamic financial solutions from clients and investors in these markets. Similarly, linking with world growth engines like China and India is becoming more important to help build business bridges between these high potential markets,” said Gordon Bennie, EY’s Mena head of financial services.

Given the tremendous growth potential, several GCC countries have taken initiatives to position themselves as Islamic finance centres.

In October 2013, Dubai launched a drive to emerge as the capital of the Islamic economy in three years.

According to credit ratings agency Standard and Poors, asset growth within GCC Islamic banks is expected to outpace conventional banks, with Qatar posting the fastest asset growth in the region, reaching an asset base of $100 billion by 2017, up from $54 billion at the end of 2012, placing Qatar as the third-largest Islamic banking market after Saudi Arabia and the UAE.

— issacjohn@khaleejtimes.com