World Islamic Banking Competitiveness Report

Transcription

19th Annual
A critical reference source for decision makers in the global Islamic finance industry, providing strategic insights from Ernst & Young
Dear Banking & Finance Leader,
It is with great pleasure that we present to you the 9th annual edition of the World Islamic Banking Competitiveness Report 2012/13, developed in collaboration with leading global professional services
and advisory firm Ernst & Young, and exclusively launched onsite at the 19th Annual World Islamic Banking Conference (WIBC 2012) during a specially convened WIBC plenary session held on the 10th
of December 2012 in the Kingdom of Bahrain. More than 1,200 industry leaders from over 50 countries attended WIBC 2012 to chart new directions for the global Islamic finance industry, continuing WIBC’s
longstanding tradition of shaping the future of Islamic finance.
Despite the challenging global economic environment, leading Islamic financial institutions have been able to sustain their growth ambitions. The industry, with its increasingly international footprint,
continues to demonstrate its resilience and competitiveness, while the range of Shari’ah-compliant products and services available globally has significantly widened and deepened. The rapid growth and
the intensification of the industry’s internationalisation highlight the dynamic nature of the industry and underscore the increasing efforts of Islamic financial institutions to meet the growing demands of a
global economy. However, in order to sustain growth over the long term, there is a need to put in place prudent legal and regulatory policies together with sound and efficient business frameworks that will
further boost the resilience and success of the Islamic financial sector.
We would like to express our sincere gratitude to Ernst & Young and their world renowned Islamic Financial Services Team for investing their considerable talent and resources in developing the World
Islamic Banking Competitiveness Report 2012/13. The Report, titled “Growing Beyond: DNA of Successful Transformation”, analyzes key strategies that leading Islamic financial institutions must
adopt in order to ensure continued stability and success amidst the challenges of slowing growth and declining profitability.
Established as a critical reference resource for key industry players, thought leaders and policy makers in the global Islamic banking and finance industry, we hope that the analysis in this year’s
Report will provide practical, constructive and valuable insights which will be useful in your own strategic planning activities and will assist your organization in its quest for success as the Islamic
banking and finance industry seeks to ‘adapt to the new dynamics of global finance’. To find out more on how your organization can play a part in this important research initiative in the future,
please e-mail [email protected]
Yours sincerely,
David McLean
Chief Executive
The World Islamic Banking Conference
A MEGA Brand
A MEGA Brand: Shaping the Future of the Global Islamic Finance Industry Since 1993
P.O. Box 72045, Dubai, UAE | t. +9714 343 1200 | f+971 4 343 6003
MEGA Brands. MEGA Clients. Market Leaders.
www.megaevents.net
World Islamic Banking
Competitiveness Report 2012-2013
Growing Beyond
DNA of Successful Transformation
December 2012
Report structure
Opening
Executive brief
Competitive positioning
Global
industry
insights
Performance analysis
CEO agenda
Country
spotlight
2
COMPETITIVENESS REPORT 2012-2013
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
United Arab Emirates
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
3
Executive brief
Islamic banking assets with commercial banks globally grew to $1.3 trillion in 2011, suggesting an average annual growth of 19% over past four
years (2011: 24%). The top four markets account for 84% of industry assets. The Islamic banking growth story continues to be positive, growing
50% faster than the overall banking sector. High potential international markets – each in different stages of development and therefore requiring
different penetration strategies - include Saudi Arabia, Malaysia, Qatar, Turkey and Indonesia.
This year, we launch the EY Islamic Banking Universe that tracks industry performance across core Islamic finance markets with a combined
GDP of $5 trillion in 2011. Islamic banking assets are forecast to grow beyond the milestone of $2 trillion by 2014.
It is however a different story when it comes to profitability. The industry’s average ROE was 12% compared to 15% for conventional in 2011.
Islamic banks continue to grapple with multiple challenges relating to sub-scale operation, asset quality, negative operating income from core
activities and a weak risk culture. The severity of performance challenge has prompted several institutions to initiate wide-ranging transformation
programs. We call it the new 3 R’s for the industry:
► Regulatory transformation – involving compliance risk, capital optimization, integrated balance sheet management and liquidity
management
► Risk transformation – around Shari’a governance, single data management framework, segment specific risk models and fund transfer
pricing capabilities
► Retail banking transformation – strengthening customer centric operating model, channel integration and technology enablement
The turnaround could take 2-3 years and shareholders and management need to be making commitments now to capitalize on the positive
outlook. Successful transformation around 3 R’s could potentially increase the profit pool of Islamic banks by 25% by 2015.
Beyond numbers, Shari’a governance and responsible innovation require urgent attention, and sukuk is developing to be an effective instrument
for capital management and growth. The industry is still in transitory stage and a lot more needs to be done to demonstrate the impact of Shari’a
compliant system on businesses and economies. The coming up of populous and diverse markets like Indonesia, Egypt and Pakistan would help
and regulatory authorities and multilateral institutions will need to play a more central role to facilitate this transition.
Ashar Nazim
Partner, Islamic Banking Excellence Center
Ernst & Young , MENA
4
Gordon Bennie
Partner, Financial Services Leader
Ernst & Young , MENA
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
5
One potential scenario shows global Islamic banking assets with
commercial banks to reach $1.8 trillion in 2013 (2011: $1.3 trillion),
representing average annual growth of 17%
Islamic banking asset growth (US$b)
257
1,334
Global Islamic
Banking Assets
2011
Source: IMF, The Banker, Central Bank Reports, EY Universe
6
89
South
East Asia
1,811
131
GCC
Rest of
the World
Global Islamic
Banking Assets
2013e
Islamic banking growth outlook continues to be positive, growing 50%
faster than overall banking sector in several core markets. In Saudi Arabia,
market share of Islamic banking assets is now over 50%
Banking asset penetration (% of Nominal GDP) and
Islamic banking market share of total assets (%) in 2011
60%
Islamic banking share of total assets (2011)
Saudi Arabia
50%
40%
Kuwait
30%
Bahrain
Qatar
20%
UAE
Malaysia
Bangladesh
10%
0%
30%
Pakistan
Jordan
Turkey
Egypt
Indonesia
80%
130%
180%
230%
Banking asset penetration (% of Nominal GDP, 2011)
Source: Central Bank Reports, Ernst & Young Analysis
Size of circles denote the relative size of Islamic banking assets in 2011
7
Top 20 Islamic banks make up 55% of the total Islamic banking assets and
are concentrated in 7 countries, including GCC, Malaysia and Turkey
Total Assets 2011 (US$b)
Average ROE (2008 – 2011)
Saudi Arabia
60
13.1%
20
10.6%
Bahrain
17
11.5%
Qatar
16
15.2%
Qatar
15
16.2%
Malaysia
14
(3Y CAGR)
12.1%
Malaysia
22
Growth
8.9%
24
11
Malaysia
11
Saudi Arabia
10
Saudi Arabia
10
Malaysia
10
Turkey
9
Kuwait
8
7
Saudi Arabia
7
Malaysia
7
Bahrain
6
Qatar
18.3%
16.2%
3.2%
0.7%
19.2%
13.7%
10.5%
3.6%
2.4%
7.7%
-11.7%
14.5%
16.2 %
US$ 17b
Leading Islamic Average
11.6%
13.9%
US$ 65b
Comparable Conventional Average
15.3%
Source: Company Reports, EY Universe (Note: analysis excludes Iran assets & institutions)
23.1%
Kuwait
48
8
Bank’s Home Market
13 Islamic banks have an equity base of more than $1 billion. Building
regional institutions and participating in larger transactions requires the
industry to scale up
Equity US$ m
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Saudi Arabia
Kuwait
Saudi Arabia
Qatar
4
UAE
3
Bank’s Home Market
UAE
Qatar
Bahrain
7
Qatar
Malaysia
Saudi Arabia
Turkey
UAE
Kuwait
Saudi Arabia
13
Turkey
Malaysia
Kuwait
Kuwait
UAE
Conventional Banks
Qatar
Malaysia
Saudi Arabia
UAE
Kuwait
Saudi Arabia
Saudi Arabia
UAE
UAE
Turkey
Indonesia
Malaysia
UAE
Indonesia
Jordan
Turkey
Malaysia
Saudi Arabia
Indonesia
Saudi Arabia
Equity US$ m 0
4,000
8,000
12,000
Source: Company Reports, Ernst & Young Analysis, EY Universe
9
Many Islamic banks still face legacy startup issues with higher fixed
operating costs as a proportion of their overall income, lower leverage and
are behind the curve in technology enablement
Islamic
Equity vs. ROE
Conventional
25.0%
Indonesia
Average ROE (2008 – 2011)
20.0%
Qatar
Pakistan
Qatar
Egypt
Turkey
Indonesia
15.0%
Turkey
Malaysia
Kuwait
Bangladesh
UAE
Egypt
10.0%
Jordan
Kuwait
5.0%
Saudi
Arabia
Malaysia
Saudi
Arabia
Jordan
UAE
Bahrain
Pakistan
Bahrain
0.0%
0
5,000
10,000
15,000
20,000
Equity US$ m (2011)
10
25,000
30,000
35,000
40,000
Performance challenge is further exacerbated due to small size, high
proportion of non yielding assets and rather basic risk culture at standalone Islamic banks
Islamic
Assets vs. ROA
Conventional
3.5%
Qatar
3.0%
Average ROA (2008 – 2011)
Saudi
Arabia
2.5%
Qatar
Indonesia
Pakistan
2.0%
Saudi
Arabia
Turkey
Kuwait
1.5%
Brunei
Jordan
1.0%
Indonesia
Pakistan
0
Malaysia
Jordan
Bangladesh
Egypt
Egypt
0.5%
0.0%
Turkey
UAE
Malaysia
UAE
Kuwait
Bahrain
Bahrain
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Assets US$ m (2011)
11
Higher growth in personal financing assets is made up from a number of
factors: pricing differential has been reduced or eliminated, customers are more
accepting of Islamic finance, and distribution capability has improved
Conventional
Islamic
Financing growth (CAGR, 2008 - 2011)
30.4%
23.5%
12.9%
12.8%
10.0%
10.2%
12.8%
8.5%
8.3%
4.2%
Corporate
12
Government
Personal
Real Estate
Services
Islamic banks, on the whole, no longer trade at higher valuations
despite having better prospects. Regaining investor confidence will
require fundamental transformation of business practices
Conventional
Islamic
Price to book and price to earning
30
Price to earnings (November 22, 2012)
25
20
15
10
5
0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Price to book (November 22, 2012)
13
There remains considerable potential for growth with some strategic
quick wins possible; retail specialization, regional diversification,
transformation of middle-tier conventional banks to Islamic...
Islamic
Strategic growth matrix
Conventional
45%
Indonesia
Growth in Islamic assets CAGR 2008 - 2011
40%
35%
Higher growth
markets with
potential for
large retail play
Turkey
Significant variation
between similar
countries imply
different strategies for
banks in those markets
Qatar
30%
25%
20%
Pakistan
Bangladesh
Jordan
15%
10%
Syria
Malaysia
UAE
Egypt
Saudi Arabia
Bahrain
Kuwait
5%
0%
0%
10%
20%
30%
Low market share
40%
50%
60%
High market share
Market share 2011
14
Market Share = Islamic Assets / Total Banking Assets
Several core Islamic finance markets lack regulatory clarity. Recent
initiatives by Islamic Development Bank could see more jurisdictions
introducing Islamic banking legislation and regulatory framework
Relatively developed
infrastructure
Some
infrastructure
Weak or no
infrastructure
In a bold step forward, the draft
Islamic banking regulations in Oman
disallow commodity murabaha for
liquidity management. For a long time
now, the (mis)use of synthetic
instruments has disillusioned the
proponents of
Islamic banking
15
Since its inception last year, the Islamic Interbank Benchmark Rate
(IIBR) has been evolving through a process of regular reviews from
the Islamic Benchmark Committee and the Shari’a Committee
Key Facts
Key Parties
Road Ahead
• Published for nine price points from
overnight to 1 year
• USD reference rate applicable based on
underlying Murabaha, Mudaraba and
Wakala contracts
• Calculated by taking price of 18
contributors, excluding top and bottom
quartiles and calculating mean of remaining
data points
• Governed by Islamic Benchmark Committee (which oversees
contributions, process and governance) and the Shari’a Committee
(which oversees compliance)
• Established by 18 major Islamic banks and windows
• IDB and Islamic infrastructure institutions are part of the Islamic
Benchmark Committee, including AAOIFI, CIBAFI, Bahrain
Association of Bank and Association of Islamic Banking Institutions
• Central banks of Bahrain, Kuwait, UAE and Qatar are observer
members
• Continue enhancing governance
• Permit more contributions beyond Malaysia
and GCC (subject to Islamic Benchmark
Committee approval)
• Develop benchmarks in more local
currencies, SAR, QAR, BAH, EGP
• Develop ‘dealt rate’ benchmarks that are
derived from actual trades
Key Milestone
LIBOR governance to be transferred
from BBA to the FSA with more
stringent reporting requirements
IIBR launched on 22
November 2011, after several
closed door meetings of the
Islamic Benchmark (IB)
Committee and Shari’a
Committee
IB Committee first deliberates on
changing rate from Bid to Ask
and strengthening rules for
admitting new contributors
Major global bank fined more than
$420 million by US and UK
regulators
0.9
IB Committee welcome
3 Malaysian banks
0.8
0.7
0.6
Code of Conduct reviewed by IB
Committee Chairman
0.5
0.4
New rules for admitting new banks including a
minimum level of Shari’a compliant assets and
trades. Mandatory Code of Conduct for all
contributors proposed
41214
41183
41153
41122
41091
41061
IIBR is moved from
Bid to Ask contributor
field
41030
IIBR 3 Months
Source: Thomson Reuters
16
LIBOR scandal
breaks: US
Department of Justice
launches criminal
investigation
41000
40969
LIBOR 3 Months
40940
0.3
0.2
0.1
40909
40878
0.0
40848
10 of the world’s 25 Rapid Growth Markets (RGMs) have large Muslim
population and offer strong growth prospects for Islamic banking
sector (retail, SME, trade finance, wealth management)
Rapid Growth
Markets
GDP CAGR
2000-2010
Qatar
China
Kazakhstan
India
Vietnam
Nigeria
Ghana
Russian Federation
Indonesia
Malaysia
12.8%
10.3%
8.5%
7.4%
7.2%
6.4%
5.6%
5.3%
5.2%
5.0%
UAE
4.9%
Egypt
Ukraine
Korea, Rep.
Thailand
Turkey
Colombia
Argentina
Poland
Chile
Brazil
South Africa
Saudi Arabia
Mexico
4.9%
4.7%
4.6%
4.4%
4.2%
4.1%
4.1%
3.9%
3.8%
3.7%
3.6%
3.4%
2.3%
Leading Islamic finance centers
Kuala Lumpur’s audacious
financial sector plan could
see Islamic financing assets
growing to 40% of the total
industry by 2020.
A vibrant sukuk market,
anticipated consolidation
among Islamic banks,
Shari’a transformation of
developmental institutions,
private pension scheme, and
tax and regulatory reforms
are all steps in the same
direction.
Bahrain’s unique Islamic
banking proposition is guided
by four strategic priorities:
1) Regulatory clarity across
major existing and
emerging Islamic finance
areas
2) Empowering institutions
through skills development
3) Consolidation amongst
market players
4) Standard setting initiatives
facilitated through industry
infrastructure institutions
17
Several Arab Spring markets are expected to launch Islamic banking
initiatives although progress to-date has been slow
Egypt
► Regulatory framework for Islamic
banks being considered
► Sovereign sukuk planned
► Launch of Shari’a compliant products
by several banks
Syria
Lebanon
Iraq
Jordan
Morocco
Algeria
Libya
Egypt
Kuwait
Tunisia
Tunisia
Libya
Turkey
► Approval of Islamic banking legislation
► Sovereign sukuk planned for 2013
Bahrain
Qatar
UAE
Saudi Arabia
Oman
Hydrocarbon reserves center
Population center
Yemen
Iraq
► Islamic banking legislation being
18
considered
► Several existing and new banks
considering Islamic banking
operations
Demand for sukuk instruments will continue to grow, outpacing
global supply and providing opportunities for banks to establish and
grow their Islamic fixed income advisory platforms
Outstanding Sukuk maturity profile and
estimated demand by Islamic banks
400
400
US$ b
Islamic financial institutions will require
at least US$ 400b of short term,
credible, liquid securities for liquidity
and capital management purposes, by
2015
350
GAP
300
250
 Including other investor classes, global
200
39
150
179
in new issuance – a record year but
still short of industry demand
35
100
15
0
55
2012
sukuk demand could be in excess of
US$ 600b by 2015
 2012 would see in excess of US$ 110b
20
15
50
 Based on current growth forecast,
 Market opportunity will drive more
2013
2014
2015
2016
2017+
TOTAL Est Dem.
O/S '11
'15
Islamic banks to set up international
platforms to offer Islamic fixed income
advisory services
Source: IFIS, Standard & Poors , Bloomberg, ThomsonReuters, EY Analysis
19
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
20
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
ROE decomposition assists in understanding the key performance
indicators of banks
Leverage
Deposits
Cost of funding
ROE
X
Return on
assets
Operating expenses
Provisions
21
Islamic banks continue to develop their non-retail banking assets. With the
sukuk market development continuing, we expect to see a rapid increase in
both Corporate and Treasury & Investments assets
Islamic banks
32%
41%
32%
23%
28%
Conventional banks
18%
20%
38%
43%
18%
61%
40%
Treasury &
investment
37%
Corporate
22%
22%
Retail
UAE
Turkey
44%
57%
39%
36%
Malaysia
36%
Saudi Arabia
45%
30%
UAE
21%
17%
Turkey
Malaysia
Saudi Arabia
Segment assets
22
Includes selected banks from each country based on the availability of data
After a difficult few years, banking profitability looks to be stabilizing in
major Islamic banking markets. However, Islamic banks have experienced a
mixed recovery across markets
Conventional
Islamic
Return on equity
19%
17%
15%
18%
5%
13%
10%
2008
2009
2010
2011
17%
15%
South East Asia
20%
18%
19%
15%
13%
12%
11%
10%
5%
9%
7%
15%
2008
2009
2010
2011
10%
14%
15%
2008
2009
2010
2011
Rest of the world
20%
5%
Based on weighted average
14%
10%
15%
5%
GCC
20%
16%
14%
12%
13%
2008
2009
2010
2011
23
With underperforming assets being disposed and capital replenished,
banks have seen ROA stabilize or improve. However, Islamic banks must
address others factors too…
Conventional
Islamic
GCC
2.5%
Return on assets (ROA)
2.4%
2.0%
2.6%
2.4%
1.0%
1.8%
1.5%
1.6%
1.5%
2008
2009
2010
2011
2.2%
South East Asia
2.0%
1.8%
2.5%
2.0%
1.7%
1.7%
1.6%
1.0%
1.5%
1.4%
1.0%
1.2%
2008
1.3%
1.2%
1.8%
1.4%
1.5%
1.1%
2009
2010
Rest of the world
2.5%
2008
2009
2010
2011
2.0%
1.6%
1.6%
1.5%
1.0%
24
2011
1.2%
2008
2009
2010
2011
… a more detailed analysis shows operating expenses as a proportion of
assets are 50% higher for Islamic banks. For mid to smaller sized banks,
this proportion would be higher still
Islamic banks
ROA
2.9%
1.4%
Conventional banks
1.3%
2.2%
6%
6%
5%
5%
4%
2.6%
1.0%
3%
2.7%
2.7%
2.9%
1%
-2%
-3%
1.2%
Other
income
Net financing
income
2.1%
2.4%
2.6%
-0.8%
-1.0%
-1.2%
Operating
expenses
-0.6%
Provisions
0%
0%
-1%
1.4%
1.1%
2%
2%
1%
1.7%
4%
1.4%
3%
1.8%
-2.1%
-1.8%
-1.8%
-0.3%
-0.9%
-0.8%
2007
2010
2011
-1%
-0.2%
-0.7%
-2%
-3%
2007
2010
2011
Return on assets
Numbers may not add up due to rounding
25
Cost of funds remains lower for Islamic banks overall, although smaller
banks and those in distressed markets have seen this advantage erode
sharply post financial crises
Conventional
Islamic
GCC
9.0%
Cost of funds
7.0%
9.0%
5.0%
3.0%
8.0%
1.0%
3.5%
2.8%
1.6%
2008
2009
2010
1.2%
2011
7.0%
South East Asia
6.0%
5.0%
4.0%
9.0%
7.0%
5.1%
5.0%
3.0%
3.5%
1.0%
3.1%
2.8%
3.0%
2.0%
1.0%
9.0%
2008
2009
2010
2011
8.8%
7.0%
2008
2009
2010
2011
5.0%
1.0%
26
2.3%
2.1%
Rest of the world
3.0%
3.2%
5.6%
4.5%
5.5%
2008
2009
2010
2011
The largest operational cost tends to be for human capital. Inefficient
operating models need urgent reform to increase technology enablement
Conventional
Islamic
GCC
Operating cost / operating income
60%
50%
40%
60%
30%
20%
10%
50%
45%
40%
39%
40%
32%
33%
2008
47%
43%
42%
2009
2010
2011
South East Asia
60%
50%
40%
46%
48%
45%
45%
30%
30%
20%
10%
2008
20%
2010
2011
Rest of the world
60%
10%
2009
50%
2008
2009
2010
2011
40%
57%
50%
43%
45%
30%
20%
10%
2008
2009
2010
2011
27
Asset quality still needs better management with risk and governance often
a complex and sensitive factor in deciding revaluations or disposals
Conventional
Islamic
GCC
Provisions / operating income
30%
30%
25%
20%
15%
10%
25%
5%
22%
19%
15%
13%
2008
2009
2010
2011
South East Asia
20%
19%
17%
30%
25%
20%
18%
18%
15%
15%
14%
10%
12%
5%
10%
13%
2008
8%
2009
2010
2011
Rest of the world
30%
5%
2008
2009
2010
2011
25%
20%
15%
10%
5%
28
17%
16%
15%
2008
10%
2009
2010
2011
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
29
The severity of performance challenge demands wide-ranging
transformation of business practices around the 3 R’s
Regulatory
Transformation
Risk
Transformation
Retail
Transformation
Faced with mounting pressure to improve
sub-par ROE, many institutions are
tempted to cut or delay the much needed
change agenda.The danger is that banks
will miss the limited window they have to
implement their future blueprint
30
Regulatory transformation – will deepen the divide between weaker and
stronger banks. The impact of reforms will force the industry to adapt to
radically different ROE expectations
Basel III & IFSB Capital
Basel III & IFSB Liquidity
Risk weighted assets &
revenue levers
Capital and funding
pressure
Unique Islamic
banking
framework
Shari’a rulings
Transformation Agenda
Impact on Business
Model
Cost of funds and
operational cost
Sukuk as growth and
capital instrument
1
Capital optimization
2
Dynamic liquidity
forecasting
3
Integrated balance
sheet management
4
Data management
5
Regulatory reporting
6
Compliance risk
management
31
The risk agenda has been elevated significantly as regulators require banks
to implement comprehensive reforms. Islamic banks require more attention
Areas of greatest
progress*
83%
89%
Increased
board oversight
of risk
Strengthen
CRO mandate
65%
Capital
reallocation
92%
Liquidity risk
management
93%
► Boards playing a more
active role in setting
organizational risk policies
and parameters and
spending more time on risk
Enhanced
stress testing
* Source: Selected responses from Ernst & Young’s survey on risk management practices
78%
Compensation
schemes
92%
Attention on
risk culture
96%
Clearly defined
risk appetite
59%
Enhanced risk
transparency
► The influence of the Chief
Risk Officers has been
elevated, and CROs are
now actively participating in
strategy planning and
product development
► Clearly defining organizational
risk appetite and risk strategy
for the businesses to follow
► Embedding the risk culture
throughout the organization
32
Areas requiring more
progress*
Risk transformation – balancing models and judgment
Data & IT
infrastructure
Fund transfer
pricing
Integrated data
and reporting
Risk governance
1
Strengthening risk governance to integrate risk appetite,
stress testing, strategic planning, capital and liquidity
management
2
Longer term strategy to eliminate redundancies across
data initiatives, and development of a single data
management framework to meet business, Shari’a and
regulatory demands
3
Using granular data and enhanced funds transfer pricing
to segment and price products effectively
4
Building capacity for granular risk, finance and treasury
data analysis to improve development and pricing of
products
33
Retail – developing a ‘whole-customer’ view of requirements and
profitability will be an essential capability for Islamic banks to improve
performance
Banking activities customers most want
their bank to improve*
1
Customer centric operating model
Trust
22%
2
Customer acquisition model (integrated
onboarding strategy & process definition)
Specific service offering
22%
3
Product portfolio management (up sell and
cross sell at customer level)
4
Sales force effectiveness
5
Integrated channel strategy (channel
proposition, segment alignment, migration)
6
Customer data design and advanced pricing
management
Branch proximity
22%
Product offering
Price
Service Quality
31%
36%
41%
* Source: Selected responses from Ernst & Young’s global consumer banking survey
34
Retail – technology will emerge as both an enabler and a differentiator
despite all forms of capital expenditure being under heavy scrutiny
Technology to
comply
As new regulatory requirements take effect, Islamic banks will need to
become more data intensive. The quality and extent of data expected, the
connectivity between functions, the level of risk assessment and the
speed of delivery will prompt organization-wide change programs
Technology to
understand
Islamic banks need to implement new systems for effective collection,
management and mining of customer data
Technology to
deliver
Although some security concerns remain, technology will play an
increasing role in the interaction between bank and customer via multiple
channels. Increasing importance of smartphones in Islamic banking
markets can no longer be ignored
35
Retail – the digital channel must now be at the heart of an integrated multichannel offering to improve accessibility, cross sales and servicing
Develop joint
sales &
marketing
strategy
optimizing
sales capture
Reassure
customers
with robust
but simple
security
measures
Develop
integrated
channel
development
plan with cost
–benefit by
channel
Instigate fast
track approval
& change
processes to
exploit online
channel
flexibility
36
Optimizing the value of digital channels
Key Segments
Mass market
HNW
Marketing
Sales &
Distribution
Management
Customer &
Product
Management
SME
Retail Marketing
Branches
Contact centers
RMs
Internet
Direct sales force
ATM / self
Intermediarie
s
Joint
ventures
Customer product design & propositions
Consumer products
and propositions
HNW Products &
Propositions
SME Products &
Propositions
Divisional
Supports
Strategy &
Planning
Change
Operational
Efficiency
Credit Policy
& Risk
Shari’a
support
Group
Manufacturing
Prod Service
Fulfillment
Customer
Servicing
Technology
Credit
operations
Payments
Group Supports
HR
Legal
Risk &
Compliance
Credit
Finance &
Tax
Design end to end experience and
operating model for online services,
to understand full costs and operating
implications
Build online capabilities
once, for use by all
products and brands
Understand
the real needs
of your target
customers
and keep the
online offering
& experience
as simple as
possible
Partner with
innovative
companies to
fuel creative
channel
design
Use champion
challenger
testing to
improve
channel
performance
A well executed transformation program would take 2-3 years to be
implemented and embedded, and could improve Islamic banks’
profitability by approximately 25%
Global Islamic banking – estimated combined profit pool, 2015 (US$ b)
Current
performance (2011)
Growth momentum
(2012 – 2015)
17 - 18
15 - 17
► Regulatory transformation
3 R’s driven
improvements
~9
► Risk transformation
► Retail transformation
Potential combined Islamic banking profit pool (2015)
41 - 44
37
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
38
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
Banking sector overview – Bahrain
Banking sector 2011
Macroeconomic 2011
Total domestic assets (US$b)
47
Real GDP growth
1.9%
Total loans (US$b)
17
Nominal GDP (US$b)
Total deposits (US$b)
32
Nominal GDP per capita (US$)
Total equity (US$b)
27
Total population (m)
1.2
1.1
29
24,939
Assets CAGR (2007-2011)
6.0%
Total Muslim population (m)
Loans CAGR (2007-2011)
11.4%
Population (0-14)
20.2%
Deposits CAGR (2007-2011)
12.8%
Population (15-64)
77.2%
Total Islamic assets (US$b)
13
Population (65 & over)
2.6%
Islamic asset market share
26.9%
Population growth
-1.9%
Islamic assets CAGR (2007-2011)
7.4%
Inflation
-0.4%
Total number of commercial banks
23
Unemployment rate
3.7%
Total number of Islamic retail banks
6
Policy interest rate
1.0%
Source: Central Bank Report, Industry Sources, Ernst & Young Analysis
Limitation: Impact of consolidation, off-shore business and window operation
39
Banking sector snapshot – Bahrain
Total domestic banking assets (US$b)
30
60
49
50
40
Total equity (US$b)
42
38
46
47
25
15
20
10
10
5
2007
2008
2009
2010
2011
-
2007
18
16
16
12
16
17
15
2009
2010
2011
29
30
25
11
20
8
15
6
25
25
2008
2009
32
20
10
4
5
2
2007
2008
2009
40
2008
35
10
-
27
Total banking deposits (US$b)
Total advances (US$b)
14
23
27
20
30
-
21
25
2010
2011
-
2007
2010
2011
Top five banks – Bahrain
Total assets (US$b)
Total equity (US$b)
30
3.0
25
2.5
20
2.0
15
1.5
10
1.0
5
0.5
0
Bank A
Bank B
Bank C
Bank D
Bank E
0.0
Bank A
Market share (Assets)
16%
Bank C
Bank D
Bank E
Return on equity
20%
14%
15%
14%
12%
16.8%
11.5%
11.8%
Bank A
Bank B
13.4%
10%
10%
9%
5%
8%
6%
4%
4%
0%
3%
3%
2%
0%
Bank B
-5%
Bank C
Bank D
Bank E
-10%
Bank A
Bank B
Bank C
Bank D
Bank E
-15%
-10.7%
2011 Figures
41
Islamic banking sector snapshot – Bahrain
Total assets of top 3 Islamic banks (US$b)
21
18
15
12
9
6
3
0
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Bank A
Bank B
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Market share of top 3 Islamic banks
Bank A
Bank B
Bank C
ROE of top 3 Islamic banks
15%
8.7%
12%
10%
5%
0%
3.5%
2.1%
3%
-11%
Bank A
Bank B
Bank C
-5%
-10%
Bank A
Bank B
42
Bank C
Total equity of top 3 Islamic banks (US$b)
Bank C
-15%
2011 Figures
Islamic banks in Bahrain need to take a fresh look at their
business model
Islamic
Conventional
20%
Bank D
Bank E
Bank A
15%
Growth in assets CAGR 2008 - 2011
Undifferentiated business models will need to
be reconfigured to be specialized (retail,
SME) and diversified (regional, trade finance,
wealth management, etc.)
10%
Bank B
Bank B
Bank C
5%
0%
Bank A
Bank C
0%
2%
Bank F
Bank G
4%
6%
8%
10%
12%
14%
16%
18%
20%
-5%
-10%
Low market share
High market share
Market share 2011
Banks are ranked based on asset size 2011
43
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
44
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
Banking sector overview – Egypt
Banking sector 2011
Macroeconomic 2011
Total assets (US$b)
215
Real GDP growth
1.8%
Total loans (US$b)
80
Nominal GDP (US$b)
162
Total equity (US$b)
14
82
78
229
2,783
8.7%
8.5%
Population (0-14)
32.5%
10.7%
Population (15-64)
62.8%
8
4.7%
3.8%
Population growth
1.7%
9.5%
Inflation
10.1%
Total number of banks
39
Unemployment rate
12.0%
4
9.5%
Note: Only commercial banks
45
Banking sector snapshot – Egypt
250
200
150
154
172
189
211
215
Total equity (US$b)
16
14
12
10
10
11
2007
2008
14
14
2010
2011
12
8
100
6
4
50
-
2
2007
2008
2009
2010
2011
-
180
100
80
60
2009
70
71
75
80
150
120
58
108
124
135
148
162
90
40
60
20
-
30
2007
2008
2009
46
2010
2011
-
2007
2008
2009
2010
2011
Top five banks – Egypt
Total assets (US$b)
Total equity (US$b)
30
1.5
25
1.2
20
0.9
15
0.6
10
0.3
5
0
15%
Bank A
Bank B
Bank C
Bank D
Bank E
0.0
Bank A
12%
20%
9%
15%
Bank C
Bank D
Bank E
Return on equity
25%
12.7%
Bank B
22.7%
20.2%
15.7%
6.1%
6%
10%
4.8%
3.5%
3%
0%
Bank A
Bank B
Bank C
Bank D
2.9%
Bank E
9.0%
7.2%
5%
0%
Bank A
Bank B
Bank C
Bank D
Bank E
2011 Figures
47
Post Arab spring, Egypt is expected to be a key market for
Islamic banking although pace may be slow initially
Islamic
Conventional
15%
Bank B
13%
Great potential for Islamic banking but key
challenges related to fiscal stability remain
Regulatory clarity will be key to development
of Islamic banking in Egypt
11%
9%
Bank B
Bank A
7%
5%
3%
Bank A
0%
2%
4%
6%
8%
Low market share
10%
12%
14%
High market share
Market share 2011
48
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
49
Banking sector overview – Indonesia
Banking sector 2011
Total assets (US$b)
408
Real GDP growth
Total loans (US$b)
381
Nominal GDP (US$b)
345
Total equity (US$b)
68
242
6.5%
847
3,495
16.5%
213
14.1%
Population (0-14)
27%
11.8%
Population (15-64)
66.6%
16
6.4%
4.2%
Population growth
40.5%
Inflation
5.4%
1%
120
Unemployment rate
6.6%
11
6.0%
50
Macroeconomic 2011
Banking sector snapshot – Indonesia
450
408
400
300
250
222
258
80
50
40
100
20
50
10
2007
2008
2009
2010
2011
-
2007
450
381
400
350
309
225
225
2011
345
350
255
250
286
243
221
222
2007
2008
200
150
100
100
50
50
2008
2010
400
150
2007
2009
300
200
-
2008
300
32
43
35
30
150
250
54
60
283
200
-
68
70
336
350
Total equity (US$b)
2009
2010
2011
-
2009
2010
2011
51
Top five banks – Indonesia
Total assets (US$b)
Total equity (US$b)
8
70
60
6
50
40
4
30
20
2
10
0
Bank A
Bank B
Bank C
Bank D
Bank E
18%
16%
0
Bank A
16%
14%
9%
10%
8%
20%
Bank E
25.8%
19.5%
15.4%
6%
6%
Bank D
30.3%
30%
11%
12%
Bank C
Return on equity
40%
13%
Bank B
13.3%
10%
4%
2%
0%
Bank A
Bank B
Bank C
52
Bank D
Bank E
0%
Bank A
Bank B
Bank C
Bank D
Bank E
2011 Figures
Islamic banking sector snapshot – Indonesia
6
0.4
0.3
4
0.2
2
0
1.5%
0.1
Bank A
Bank B
Bank C
1.3%
0.0
20%
Bank A
Bank C
17.9%
15%
1.0%
Bank B
13.2%
0.9%
10%
0.5%
0.3%
5%
1.7%
0.0%
0%
Bank A
Bank B
Bank C
Bank A
Bank B
Bank C
2011 Figures
53
With population approaching 250 million, and a positive stable
economic outlook, Indonesia is likely to be the next major
growth market for Islamic banking
Islamic
80%
While political and economic risks remain,
Indonesia’s nascent Islamic banking industry
is forecast to grow five folds to $83 billion by
2015
Bank D
70%
Conventional
With local banks focused on retail customers,
foreign institutions are developing significant
presence in wholesale and corporate banking
60%
50%
A regulatory proposal seeks to limit foreign
ownership to less than 50%
Bank A
Bank B
40%
Bank B
30%
Bank C
20%
Bank C
Bank D
Bank A
10%
0%
0%
2%
4%
6%
8%
10%
12%
Low market share
14%
16%
18%
20%
High market share
Market share 2011
54
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
55
Banking sector overview – Kuwait
Banking sector 2011
Total assets (US$b)
159
Real GDP growth
Total loans (US$b)
108
Nominal GDP (US$b)
116
Total equity (US$ b)
22
2.8
5.7%
2.6
161
57,102
5.5%
6.1%
Population (0-14)
25.7%
8.7%
Population (15-64)
72.3%
52
2.1%
33%
Population growth
2.6%
6.5%
Inflation
4.7%
22
Unemployment rate
2.1%
5
2.5%
56
Macroeconomic 2011
Banking sector snapshot – Kuwait
180
160
140
128
141
145
149
159
Total equity (US$b)
25
20
120
21
17
17
2007
2008
22
18
15
100
80
10
60
40
5
20
-
2007
2009
2010
2011
-
99
104
106
108
2010
140
120
85
80
100
60
80
2011
99
104
109
2008
2009
2010
116
83
60
40
40
20
-
2009
120
100
2008
20
2007
2008
2009
2010
2011
-
2007
2011
57
Top five banks – Kuwait
Total assets (US$b)
50
10
40
8
30
6
20
4
10
2
0
35%
Bank A
Bank B
Bank C
Bank D
Bank E
31%
30%
0
14%
31%
10%
20%
8%
10%
10%
8%
6%
0%
0%
Bank C
Bank C
Bank D
Bank E
Return on equity
13.0%
10.2%
4%
2%
Bank B
Bank B
9.1%
6%
5%
Bank A
Bank A
12%
25%
15%
58
Total equity (US$b)
Bank D
Bank E
2.4%
0.2%
Bank A
Bank B
Bank C
Bank D
Bank E
2011 Figures
Islamic banking sector snapshot – Kuwait
60
6.0
50
5.0
40
4.0
30
3.0
20
2.0
10
1.0
0
Bank A
Bank B
Bank C
35%
30.9%
10%
Bank A
Bank B
Bank C
9%
8%
30%
25%
6%
20%
4%
15%
10%
6.0%
5%
0%
0.0
Bank A
Bank B
3%
2%
3.6%
Bank C
2%
0%
Bank A
Bank B
Bank C
2011 Figures
59
Search for a differentiated business model to reignite growth
Islamic
Conventional
27%
Retail banking transformation, wealth
management solutions and regional
expansion will drive the next phase of growth
for Islamic banks in Kuwait
Bank C
22%
17%
12%
Bank A
Bank B
7%
Bank B
Bank A
Bank D
2%
0%
5%
-3%
10%
15%
20%
25%
30%
35%
Bank C
-8%
Low market share
High market share
Market share 2011
60
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
61
Banking sector overview – Malaysia
Banking sector 2011
Total assets (US$b)
579
Real GDP growth
Total loans (US$b)
325
Nominal GDP (US$b)
411
9,977
Total equity (US$b)
48
28.9
5.1%
17.3
288
9.9%
11.8%
Population (0-14)
29.4%
11.4%
Population (15-64)
65.5%
106
5.1%
18.9%
Population growth
1.6%
21.3%
Inflation
3.2%
27
Unemployment rate
3.1%
16
3%
62
Macroeconomic 2011
Banking sector snapshot – Malaysia
700
579
600
500
400
397
435
464
504
60
50
30
44
48
34
28
20
200
10
100
2007
2008
2009
2010
2011
-
2007
350
2008
2009
2010
325
500
411
286
300
208
235
2011
250
40
40
300
-
Total equity (US$b)
254
400
200
300
150
200
267
304
334
359
100
100
50
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
63
Top five banks – Malaysia
Total assets (US$b)
Total equity (US$b)
150
12
120
10
8
90
6
60
4
30
0
2
Bank A
Bank B
Bank C
Bank D
Bank E
0
Bank A
30%
25%
25%
25%
Bank D
14%
15%
13%
4%
5%
Bank A
Bank B
Bank C
Bank D
14.1%
14.2%
14.8%
Bank C
Bank D
15.8%
10%
8%
10%
Bank E
22.4%
20%
15%
64
Bank C
Return on equity
20%
0%
Bank B
Bank E
5%
0%
Bank A
Bank B
Bank E
2011 Figures
Islamic banking sector snapshot – Malaysia
25
1.4
20
1.2
1.0
15
0.8
10
0.6
0.4
5
0
0.2
Bank A
Bank B
Bank C
0.0
4.0%
Bank A
20%
16%
2.3%
18%
15%
13%
1.8%
2.0%
10%
1.0%
0.0%
Bank C
25%
3.7%
3.0%
Bank B
5%
Bank A
Bank B
Bank C
0%
Bank A
Bank B
Bank C
2011 Figures
65
Malaysia is seeking to double the share of Islamic banking
assets by 2020. The game changer would be conversion of
conventional banks
Islamic
40%
Conventional
Bank B
Growth in Assets CAGR 2008 - 2011
35%
Bank A
Consolidation will help create larger Islamic
banks with capacity to grow regionally
Bank D
Operational transformation of Islamic banks
and windows is a pre requisite for meaningful
growth
30%
25%
Bank E
20%
Bank G
15%
10%
Bank D
Bank D
Bank C
Bank A
Bank C
Bank B
Bank F
5%
0%
0%
5%
10%
15%
20%
25%
30%
High market share
Low market share
Market share 2011
66
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Executive brief
Global
industry
insights
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Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
67
Banking sector overview – Pakistan
Banking sector 2011
Total assets (US$b)
124
Real GDP growth
Total loans (US$b)
35
Nominal GDP (US$b)
58
Total equity (US$b)
7
177
2.4%
170
209
1,184
7.7%
8.1%
Population (0-14)
34.7%
12.9%
Population (15-64)
61%
7
4.2%
5.7%
Population growth
1.8%
20.7%
Inflation
12%
38
Unemployment rate
6.2%
5
12%
68
Macroeconomic 2011
Banking sector snapshot – Pakistan
140
112
120
100
92
93
124
99
Total equity (US$b)
8
6
6
80
4
60
40
7
7
4
4
2
20
0
0
2007
2008
2009
2010
2007
2011
30
30
33
34
2009
2010
2011
40
2008
35
70
58
60
26
50
40
20
36
44
41
50
30
20
10
10
0
0
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
69
Top five banks – Pakistan
Total assets (US$b)
Total equity (US$b)
14
1.6
12
1.4
10
1.2
8
1.0
6
0.8
0.6
4
0.4
2
0.2
0
Bank A
Bank B
Bank C
Bank D
Bank E
0.0
Bank A
12%
10%
10%
25%
15%
6%
4%
4%
Bank E
21.0%
23.3%
17.3%
13.1%
10%
0%
Bank A
Bank B
Bank C
70
Bank D
5%
2%
0%
22.2%
20%
7%
6%
Bank C
Return on equity
10%
8%
Bank B
Bank D
Bank E
Bank A
Bank B
Bank C
Bank D
Bank E
2011 Figures
Islamic banking sector snapshot – Pakistan
2.5
0.18
2.0
0.12
1.5
1.0
0.06
0.5
0.0
Bank A
Bank B
Bank C
2.0%
1.8%
0.00
Bank A
25%
Bank B
Bank C
20.4%
20%
1.5%
15%
1.0%
0.6%
0.5%
10%
0.5%
6.3%
5%
-1.2%
0%
Bank A
0.0%
Bank A
Bank B
Bank C
Bank B
Bank C
-5%
2011 Figures
71
Islamic banks will continue to experience high growth as they
build their distribution capacity
Islamic
Conventional
70%
Bank B
Industry leader Islamic bank has thrived on
differentiating itself from conventional peers
60%
Strong potential for organic growth but
Islamic banks need to build distribution
capacity and scale
50%
Bank C
40%
30%
Bank A
20%
10%
Bank B
Bank C
0%
0%
2%
4%
6%
Low market share
Bank A
8%
10%
12%
High market share
Market share 2011
72
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
73
Banking sector overview – Qatar
Banking sector 2011
Total assets (US$b)
187
Real GDP growth
Total loans (US$b)
109
Nominal GDP (US$b)
98
Total equity (US$b)
26
1.7
14.8%
1.3
174
101,340
23.9%
25.9%
Population (0-14)
12.5%
21.4%
Population (15-64)
86.7%
44
0.8%
23%
Population growth
5.8%
30%
Inflation
1.9%
18
Unemployment rate
0.6%
4
4.5%
74
Macroeconomic 2011
Banking sector snapshot – Qatar
200
187
153
150
30
126
20
13
15
79
10
50
15
17
9
5
-
2007
2008
2009
2010
2007
2011
120
109
100
66
2009
2010
2011
120
98
100
85
80
2008
60
26
25
109
100
Total equity (US$b)
73
83
80
60
43
40
40
20
20
57
67
45
-
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
75
Top five banks – Qatar
Total assets (US$b)
Total equity (US$b)
90
14
12
10
60
8
6
30
4
2
0
Bank A
Bank B
Bank C
Bank D
Bank E
50%
20%
43.5%
40%
16%
30%
12%
20%
8%
10.3%
10%
0%
Bank A
Bank B
8.4%
8.0%
7.5%
Bank C
Bank D
Bank E
76
0
Bank A
Bank B
Bank C
Bank D
Bank E
Return on equity
17.7%
16.5%
13.2%
17.5%
12.2%
4%
0%
Bank A
Bank B
Bank C
Bank D
Bank E
2011 Figures
Islamic banking sector snapshot – Qatar
18
3.5
15
3.0
2.5
12
2.0
9
1.5
6
1.0
3
0.5
0
0.0
Bank A
9%
Bank B
Bank C
8.4%
8.0%
Bank A
18%
Bank B
16.5%
15%
12%
6%
3.4%
Bank C
13.3%
12.2%
9%
6%
3%
3%
0%
0%
Bank A
Bank B
Bank C
Bank A
Bank B
Bank C
2011 Figures
77
Regulatory clarity has helped Islamic banks in Qatar to achieve
scale in the high growth market. There is also potential for a
strong Islamic capital market play in future
Islamic
50%
Bank B
40%
Barring the conventional industry leader,
Islamic banks are comparable in size to
conventional peers
35%
Large infrastructure spend will fuel continued
profitable growth for the banking industry
45%
Growth in Assets CAGR 2008 - 2011
Conventional
30%
Bank A
25%
Bank C
20%
Bank A
15%
Bank C
10%
5%
0%
Bank B
0%
5%
10%
15%
20%
25%
Low Market Share
30%
35%
40%
45%
50%
High Market Share
Market Share 2011
78
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
79
Banking sector overview – Saudi Arabia
Banking sector 2011
Total assets (US$b)
417
Real GDP growth
Total loans (US$b)
232
Nominal GDP (US$b)
298
Total equity (US$b)
51
28
7.1%
27
597
21,262
9.5%
9.5%
Population (0-14)
29%
11.4%
Population (15-64)
68%
207
3%
49%
Population growth
2.2 %
Inflation
5.0%
12.5%
12
Unemployment rate
5.8%
4
2%
80
Macroeconomic 2011
Banking sector snapshot – Saudi Arabia
450
400
350
300
352
370
383
417
Total equity (US$b)
60
50
291
40
250
30
200
150
36
29
20
100
10
50
2007
2008
2009
2010
2011
2007
250
201
199
210
2008
2009
2010
2011
200
44
51
48
232
300
229
250
161
200
150
254
266
298
194
150
100
100
50
50
-
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
81
Top five banks – Saudi Arabia
Total assets (US$b)
Total equity (US$b)
90
12
9
60
6
30
3
0
0
Bank A
Bank C
Bank D
Bank E
19.5%
20%
14.3%
12.5%
Bank C
Bank D
Bank E
22.5%
17.2%
15.2%
15%
11.7%
9.0%
10%
Bank B
Return on equity
25%
15%
14.8%
10.4%
10%
5%
5%
0%
0%
Bank A
Bank B
Bank C
82
Bank A
25%
20%
Bank B
Bank D
Bank E
Bank A
Bank B
Bank C
Bank D
Bank E
2011 Figures
Islamic banking sector snapshot – Saudi Arabia
60
10
50
8
40
6
30
4
20
2
10
0
0
Bank A
15%
Bank B
Bank C
Bank A
14.3%
12%
20%
9%
15%
6%
10%
3%
2.4%
Bank B
Bank C
Bank C
25%
2.5%
Bank B
22.5%
6.4%
5%
2.7%
0%
0%
Bank A
Bank A
Bank B
Bank C
2011 Figures
83
With more than 50% share of the banking system assets in
2012, Islamic banking is in fact mainstream banking in Saudi
Arabia
Islamic
35%
Bank C
Conventional banks have large Islamic
banking book which is more than just a
‘window’ operation
30%
Conventional
Housing finance will be reconfigured based
on new mortgage law and (draft) regulations
and offers significant growth opportunity
25%
Bank D
20%
A key systemic challenge is to safeguard and
strengthen Shari’a governance framework
15%
Bank B
Bank A
Bank A
10%
Bank C
5%
0%
Bank D
0%
5%
Bank E
Bank B
10%
15%
20%
-5%
Low market share
High market share
Market share 2011
84
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
85
Banking sector overview – Turkey
Banking sector 2011
Total assets (US$b)
631
Real GDP growth
Total loans (US$b)
354
Nominal GDP (US$b)
378
Total equity (US$b)
88
74
8.5%
72
775
10,524
20%
27.2%
Population (0-14)
26.2%
18.9%
Population (15-64)
67.4%
31
6.4%
4.9%
Population growth
1.2%
30%
Inflation
6.5%
62
Unemployment rate
8.8%
4
5.8%
86
Macroeconomic 2011
Banking sector snapshot – Turkey
700
631
600
520
500
400
300
374
427
299
200
100
2007
2008
2009
2010
2011
Total equity (US$b)
100
90
80
70
60
50
40
30
20
10
-
354
350
300
200
150
136
168
2010
2011
71
50
2007
54
2008
2009
400
378
325
350
300
268
250
88
400
86
250
189
200
239
270
189
150
100
100
50
50
-
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
87
Top five banks – Turkey
Total assets (US$b)
Total equity (US$b)
14
120
12
100
10
80
8
60
6
40
4
20
0
2
Bank A
Bank B
Bank C
Bank D
Bank E
0
Bank A
20%
15%
15%
Bank E
24.8%
25%
13%
10%
20%
15%
18.3%
16.5%
13.9%
11.8%
10%
5%
5%
Bank A
Bank B
Bank C
88
Bank D
30%
11%
0%
Bank C
Return on equity
17%
15%
Bank B
Bank D
Bank E
0%
Bank A
Bank B
Bank C
Bank D
Bank E
2011 Figures
Islamic banking sector snapshot – Turkey
10
1.4
1.2
8
1.0
6
0.8
4
0.6
0.4
2
0.2
0
0.0
Bank A
Bank B
Bank C
Bank A
1.6%
1.3%
1.2%
1.2%
12%
0.8%
8%
0.4%
4%
0.0%
Bank C
16%
1.5%
Bank B
13.6%
14.6%
9.9%
0%
Bank A
Bank B
Bank C
Bank A
Bank B
Bank C
2011 Figures
89
Turkey’s 2023 financial services vision could see Islamic
banking industry tripling in size to more than $100 billion
(approximately where Malaysia is today)
Islamic
40%
Bank B
35%
Conventional
Bank D
30%
Islamic banks will continue to post strong
growth helped by regulatory clarity and new
liquidity management solutions
Bank E
Bank A
25%
Possible entry of more foreign Islamic banks
through acquisition & conversion
Bank C
20%
Bank C
Bank D
Bank A
15%
Bank B
10%
5%
0%
0%
2%
4%
6%
8%
10%
12%
Low market share
14%
16%
18%
20%
High market share
Market share 2011
90
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
91
Banking sector overview – UAE
Banking sector 2011
Total assets (US$b)
450
Real GDP growth
Total loans (US$b)
268
Nominal GDP (US$b)
289
Total equity (US$b)
76
4.2%
339
42,921
7.9
8.5%
12.2%
Population (0-14)
20.5%
10.6%
Population (15-64)
78.5%
75
0.9%
16.7%
Population growth
5.0%
14.8%
Inflation
0.9%
6
50
Unemployment rate
4.6%
7
1.0%
92
Macroeconomic 2011
Banking sector snapshot – UAE
500
400
391
411
434
450
Total equity (US$b)
80
74
76
2010
2011
66
60
325
45
300
40
35
200
20
100
-
2007
2008
2010
2011
2007
250
259
262
2008
2009
300
200
2009
268
350
300
246
250
169
200
265
283
289
2010
2011
193
150
100
100
50
-
2007
2008
2009
2010
2011
2007
2008
2009
93
Top five banks – UAE
Total assets (US$b)
Total equity (US$b)
80
10
8
60
6
40
4
20
2
0
Bank A
Bank B
Bank C
Bank D
Bank E
0
Bank A
18%
17.1%
16%
16%
14%
Bank D
14.0%
13.8%
9.5%
8%
8%
Bank E
13.9%
12%
11.0%
10%
Bank C
Return on equity
15.4%
12%
Bank B
10.4%
7.1%
5.4%
6%
4%
4%
2%
0%
0%
Bank A
Bank B
Bank C
94
Bank D
Bank E
Bank A
Bank B
Bank C
Bank D
Bank E
2011 Figures
Islamic banking sector snapshot – UAE
30
3.0
25
2.5
20
2.0
15
1.5
10
1.0
5
0.5
0.0
0
Bank A
Bank B
Bank A
Bank C
6%
5%
4.5%
12%
4%
13.5%
10.4%
8%
3%
Bank C
16%
5.4%
Bank B
6.7%
1.7%
2%
4%
1%
0%
0%
Bank A
Bank B
Bank C
Bank A
Bank B
Bank C
2011 Figures
95
Regaining momentum through retail banking transformation
is essential for Islamic banks in UAE
Islamic
Strategic Growth Matrix
Conventional
20%
Bank B
15%
Bank B
Bank D
10%
Bank C
5%
Bank D
Bank A
0%
0%
2%
4%
6%
Bank A
8%
10%
12%
14%
16%
18%
20%
Undifferentiated business models will need to
be reconfigured to be specialized (retail &
SME) and diversified (regional, infrastructure,
wealth management, etc.)
-5%
Bank C
-10%
Low market share
High market share
Market share 2011
96
Report structure
Opening
Executive brief
Global
industry
insights
CEO agenda
Country
spotlight
Bahrain
Pakistan
Egypt
Qatar
Indonesia
Saudi Arabia
Kuwait
Turkey
Malaysia
97
Ernst & Young Leadership – Islamic Banking Center of Excellence
(and what they have to say)
Game changer for us would be bold,
fresh thinking that drives responsible
innovation
Ashar Nazim
[email protected]
Successful strategy execution is
dependant on a bank's operating model
being realigned to deliver on the new
strategy
Abid Shakeel
[email protected]
Islamic banking is no rocket science
but structuring real Islamic products
requires sophisticated thinking
Nida Raza
[email protected]
Industry may potentially face an
existential threat if it cannot manage its
most important risk, i.e. Shari'a noncompliance
Sohaib Umar
[email protected]
98
Real progress will only come from
greater integration with the real
economy
Shoaib Qureshi
[email protected]
If the change does not happen at the
right time, there will be nothing left to
change
Shahid Mughal
[email protected]
Market leadership will belong to those
who can meet both commercial and
Shari'a needs of their customers
Mustafa Adil
[email protected]
I wish my Islamic bank could deliver the
same service levels that my previous
conventional bank had to offer!
Noman Mubashir
[email protected]
Report methodology and tools
►
Global Islamic banking assets are estimated based on publicly
available data from 22 Islamic banking markets
►
The research and insights are primarily based on EY Islamic
Banking Universe (EY Universe), which is proprietary, based on
sample, and is not meant to be fully exhaustive
►
The EY Universe analysis covers 62 Islamic banks and 42
conventional banks across 12 Islamic banking markets, with a total
asset base of $2.6 trillion (2011)
►
For the purpose of this report, the analysis excludes Iran market
due to its unique characteristics (except when reporting estimated
global industry assets)
►
EY Universe covers approximately 80% of the estimated global
Islamic banking assets (excluding Iran market)
►
Insights are also based on industry survey, including interviews
with executives and industry observers, to identify key trends, risks
and priorities
►
►
►
►
►
►
The break down of banks selected country wise in the EY
Universe is:
►
►
►
►
►
►
►
Bahrain – 7 Islamic and 4 conventional banks
Saudi Arabia – 4 Islamic and 5 conventional banks
Kuwait – 4 Islamic and 3 conventional banks
Qatar – 3 Islamic and 3 conventional banks
UAE – 8 Islamic and 4 conventional banks
Indonesia – 5 Islamic and 4 conventional banks
Malaysia – 13 Islamic and 4 conventional banks
Pakistan – 5 Islamic and 3 conventional banks
Bangladesh – 5 Islamic and 2 conventional banks
Jordan – 2 Islamic and 1 conventional banks
Egypt – 2 Islamic and 4 conventional banks
Turkey – 4 Islamic and 5 conventional banks
Anonymity and Quotes
►
Limited disclosures on Islamic windows, subsidiary operation and
offshore businesses was a limiting factor
►
All interviewees were assured of anonymity and minutes
documented during our discussions
►
The EY Universe is categorized as follows:
► GCC – Bahrain, Kuwait, Qatar, Saudi Arabia, UAE
► South East Asia – Indonesia, Malaysia
► Rest of the World – Bangladesh, Egypt, Jordan, Pakistan,
Turkey
►
Quotations have been used to support arguments made in the
report.
99
Ernst & Young universe of Islamic and conventional banks
Islamic banks that contributed data to Universe:
Bahrain
►
►
►
►
►
►
►
Al Baraka Banking Group (ex subsidiaries)
Al Baraka Bank Bahrain
Ithmaar Bank
Al Salam Bank
Bahrain Islamic Bank
Khaleeji Commercial Bank
Kuwait Finance House Bahrain
Saudi Arabia
►
►
►
►
Al Rajhi Bank
Bank Al Jazira
Alinma Bank
Bank AlBilad
Conventional banks that contributed data to our Universe :
Bahrain
►
►
►
►
Saudi Arabia
►
►
►
►
►
Kuwait
►
►
►
►
Kuwait Finance House
Ahli United Bank
Boubyan Bank
Kuwait International Bank
Qatar
►
►
►
100
Qatar Islamic Bank
Masraf Al Rayan
Qatar International Islamic Bank
Arab Banking Corporation
Ahli United Bank
Bank of Bahrain and Kuwait
National Bank of Bahrain
National Commercial Bank
Samba Financial Group
Riyad Bank
The Saudi British Bank
Arab National Bank
Kuwait
►
►
►
National Bank of Kuwait
Burgan Bank
Commercial Bank Kuwait
Qatar
►
►
►
Doha Bank
Qatar National Bank
Commercial Bank of Qatar
UAE
►
►
►
►
►
►
►
Abu Dhabi Islamic Bank
Ajman Islamic Bank
Al Hilal Bank
Dubai Islamic Bank
Emirates Islamic Bank
Noor Islamic Bank
Sharjah Islamic Bank
Indonesia
►
►
►
►
►
Bank Bri Syariah
Bank Muamalat
Bank Syariah Mandiri
Bank Syariah Mega
Bank Syariah Bukopin
Malaysia
►
►
►
►
►
►
►
►
►
►
►
►
Affin Bank
Al Rajhi Bank
Alliance Bank
Asian Finance
Bank Islam
Bank Muamalat
CIMB Islamic Bank
Hong Leong Islamic Bank
Kuwait Finance House Malaysia
Maybank Islamic Bank
Public Islamic bank
RHB Islamic Bank
UAE
►
►
►
►
►
Abu Dhabi Commercial Bank
Emirates NBD
First Gulf Bank
Mashreq Bank
National Bank of Abu Dhabi
Indonesia
►
►
►
►
Bank Central Asia
Bank Mandiri
Bank Negara Indonesia
Bank Rakyat Indonesia
Malaysia
►
►
►
►
CIMB Bank
Maybank Bank
RHB Bank
Public Bank
101
Pakistan
►
►
►
►
►
Al Baraka Pakistan
Bank Islami
Burj Bank
Dubai Islamic Bank Pakistan
Meezan Bank
Bangladesh
►
►
►
►
►
Al Arafah Bank
First Security Bank
ICB Islamic Bank
Islami Bank Bangladesh
Shahjalal Islamic Bank
Jordan
►
►
Jordan Dubai Bank
Jordan Islamic Bank
Egypt
►
►
Al Baraka Egypt
Faisal Islamic Bank of Egypt
Pakistan
►
►
►
Bangladesh
►
►
►
►
►
►
Al Baraka Turk
Bank Asya
Kuveyt Turk
Turkiye Finanse
►
Arab Cairo Bank
Banque Misr
Commercial International Bank
Union National Bank Egypt
Turkey
►
►
►
►
►
102
Arab Bank
Egypt
►
►
►
Agrani bank
Rupali Bank
Jordan
►
Turkey
MCB Bank
National Bank
United Bank
Turkiye Vakiflar Bankasi
Yapi ve Kredi Bankasi
Turk Economi Bankasi
Turkiye Garanti Bankasi
AK Bank
References and acknowledgments
Sources
►
Making the right moves – Global banking outlook 2012-13
►
Financial regulatory reform – What it means for bank business models
►
Rapid Growth Markets (RGMs) forecast
►
DNA of the CIO
►
Trading places - the emergence of new patterns of international trade
►
Central bank reports
►
Global Insight - comparative world overview tables
►
Zawya
►
Economist intelligence unit
►
The Banker
►
Islamic Finance News
►
Bloomberg
►
Bank annual reports
Ernst & Young’s Project Team
►
Shoaib Qureshi
►
Noman Mubashir
►
Saad Qureshi
►
Zahid Awan
►
Ali Al Musawi
Our industry awards
18TH Annual World
Islamic Conference
2011, Bahrain
►
►
►
►
►
►
►
Nader Rahimi
Ashar Nazim
Abid Shakeel
Nida Raza
Sohaib Umar
Mohd Husin
Murat Hatipola
Best Islamic Advisory
Firm, 2011/2010/2009
WIBC Leading Islamic
Financial Services
Provider, 2008
Best Takaful Advisory
Firm, 2011/2009
CPI Financial Islamic
Finance Awards,
Dubai
►
World Islamic
Banking Awards,
Bahrain
►
Best Islamic Finance
Advisory Firm,
2009/2008/2007
Kuala Lumpur
Islamic Finance
Forum, Malaysia
World Islamic
Banking Awards,
Bahrain
►
For questions or comments, please contact :
Shoaib Qureshi: [email protected]
►
CPI Financial Islamic
Finance Awards
►
►
Thought Leadership
Award, 2011
3rd International
Takaful Summit,
London
►
Most Outstanding
Business Advisory &
consulting Firm,
2007/2006
Best Islamic Research,
2011
World Islamic
Banking Awards,
Bahrain
►
Best Islamic Finance
Advisory Firm,
2009/2008/2007/2006
Sheikh Mohammed
Bin Rashid Al
Maktoum Award
►
Best Islamic
Consulting Firm, 2006
Consistently ranked the best Islamic Advisory firm with
awards every year since 2006
103
Ernst & Young
Assurance Tax Transactions Advisory
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and
advisory services. Worldwide, our 167,000 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.
Ernst & Young refers to the global organization of member firms of Ernst &
Young Global Limited, each of which is a separate legal entity. Ernst &
Young Global Limited, a UK company limited by guarantee, does not
provide services to clients. For more information about our
organization, please visit www.ey.com.
The Middle East practice of Ernst & Young has been operating in the
region since 1923. For over 85 years, we have evolved to meet the legal
and commercial developments of the region. Across the Middle East, 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.
© 2012 EYGM Limited. All Rights Reserved.
EYG no. AU1369
This publication contains information in summary form and is therefore
intended for general guidance only. It is not intended to be a substitute for
detailed research or the exercise of professional judgment. Neither EYGM
Limited nor any other member of the global Ernst & Young organization
can accept any responsibility for loss occasioned to any person acting or
refraining from action as a result of any material in this publication. On any
specific matter, reference should be made to the appropriate advisor.
104
Celebrating 20 Years of Leadership and Innovation in the Islamic Finance World
MEGA: Shaping the Future of the Global Islamic Finance Industry Since 1993
2 Decades of Supporting the Market Leaders
MEGA is the leading international information firm focused on achieving business results for the Islamic banking & finance industry since 1993. Our exclusive focus on Islamic finance has enabled us to create
significant value for the leading players in the Islamic banking, finance and investment markets. The portfolio of MEGA brands represents the landmark industry conferences and our clients are the leading
players in the international financial markets.
Partnering with Governments and the Industry Thought Leaders
Our Strategic Partners are world leaders in their respective fields and include key government finance and regulatory agencies such as the Central Bank of Bahrain, Dubai International Financial Centre, UK
Trade & Investment, the Monetary Authority of Singapore, the Economic Development Board of Bahrain, the Qatar Financial Centre Authority, Luxembourg for Finance, Business Bermuda, the U.S. Chamber of
Commerce and Invest in Mauritius. These and our other strategic alliances with international thought leaders including Ernst & Young further strengthen MEGA’s brand leadership position by providing original
new research insights on the Islamic finance industry worldwide.
Investing in Our Brands: Number 1 in Each of Our Markets
MEGA continues to grow its portfolio of Islamic finance brands to further extend our leadership position across the Banking, Takaful, Funds, Capital Markets, and Project Finance segments. Each brand is
successfully developed over many years in order to further cement its number 1 position in its respective market.
In 1994 we founded the World Islamic Banking Conference (WIBC), which at the time was one of the first conferences in the world to focus on this nascent industry. That first year we had 120 pioneering
delegates and one sponsor. Today, fast approaching 2 decades later and with more than 1,200 delegates from over 50 countries attending the conference each year, WIBC is an iconic brand internationally
recognised as the world’s largest gathering of Islamic finance leaders.
A World Stage: Genuinely Global Dialogues
MEGA brands have a genuinely global reach across the Islamic finance industry. An initiative to further broaden this international representation ‘The World Comes to WIBC’ was launched at WIBC 2007 and
has grown to now feature a British Pavilion led by UKTI and comprising leading British-based banks. Over the years, the World Comes to Initiative has expanded and now features a series of Country Pavilions,
Country Interfaces and Country Focus Roundtable Debates showcasing exciting new high-growth markets for Islamic finance. A number of leading international Islamic banking groups also now convene
their annual board meetings along the sidelines of WIBC.
Understanding Client Needs & Delivering Long-Term Value
MEGA’s leadership position has come as a result of our relentless focus on the constantly changing needs of our clients as the Islamic finance industry has grown and matured. Whether it be the challenges of
launching a new bank, a new investment fund, an innovative new retail financial product or raising corporate profile in a key target market, we ensure that our offerings are closely aligned to the immediate
business priorities of our clients. Then we make sure that we deliver on our promises and that is why the market leaders come back and work with us year after year. Our genuine value creation is highlighted
by our long-term relationship with Ernst & Young who have worked with us continuously since the inception of the World Islamic Banking Conference 19 years ago - and who are also now our partners across
the portfolio of MEGA brands.
A MEGA Brand: Shaping the Future of the Global Islamic Finance Industry Since 1993
P.O. Box 72045, Dubai, UAE | t. +9714 343 1200 | f+971 4 343 6003
MEGA Brands. MEGA Clients. Market Leaders.
www.megaevents.net
20th Annual
Supported by
8, 9 & 10 December 2013, The Gulf Hotel, Kingdom of Bahrain
WIBC: Celebrating 2 Decades of Supporting Growth, Excellence & Innovation
in the Global Islamic Finance Industry
20 Years of shaping the future of the global Islamic finance industry
20 Years of gathering industry thought leaders in dynamic debate
20 Years of bringing together more than 1,200 international industry leaders
20 Years of successfully working with the market leaders
20 Years of delivering a one-of-a-kind spectacle to the Islamic finance industry
In collaboration with
WIBC is a MEGA Brand
1,200 Industry leaders. 50+ Countries. 1 Gathering: WIBC 2013
The World’s Largest Annual Gathering of International Islamic Finance Leaders
To be a part of the 2 decades of WIBC celebrations please contact: [email protected] | t:+971 4 343 1200 | f:+971 4 343 6003 | P.O. Box 72045, Dubai | www.megaevents.net/Islamic_banking

World Islamic Banking Competitiveness Report

Transcription

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