Value of Saudi Arabia’s Islamic banking assets reaches $285bn

The Dubai Chamber of Commerce and Industry based on a recent study by Ernst and Young stated that global Islamic banking assets have registered cumulative annual growth rate of about 16 percent during 2008-2012, reflecting the radical shift from conventional financial system in favour of Islamic finance.
The statement was made in the framework of the preparation for the 10th World Islamic Economic Forum (WIEF), which is being organized in Dubai from Oct. 28-30.
As the emphasis on low risk product alternatives kept the sector insulated from the financial meltdown, Islamic banking products and services have consistently gained market share in recent times, growing up to 50 percent faster than the traditional banking sector in some markets.
The 10th WIEF, organised by Dubai Chamber and the WIEF Foundation, is set to give a new direction to the Islamic finance industry, and help consolidate efforts, share knowledge and experiences to leverage the emerging opportunities in the changing dynamics of the global economy.
The Dubai Chamber report states that there are 38 million Islamic banking customers around the world with two-thirds of them in Qatar, Indonesia, Saudi Arabia, Malaysia, the UAE and Turkey (QISMUT).
Among these six prominent Islamic finance countries, Saudi Arabia is the biggest market in terms of Islamic banking assets with estimated value of $285 billion in 2013 compared to $245 billion in 2012.
The research note shows that Saudi Arabia represents about 43 percent of the total Islamic banking assets in all the six countries. It also accounts for about 53 percent of Saudi Arabia’s total domestic banking assets.
Notably, Saudi Arabia also figures prominently in the World Islamic Banking Competitiveness Report 2013-14, which shows that while one-fifth of the banking system assets across QISMUT have transitioned to Islamic banking, in Saudi Arabia supply push has seen share of Islamic banking cross 50 percent of system assets.
In the region, the UAE is emerging as another serious player in this sector with total Islamic banking assets growing to about $ 95 billion in 2013 compared to $ 83 billion in 2012. The Dubai Chamber report adds that the compound annual growth rate (CAGR) for Islamic banking assets in the UAE is expected to be about 17 percent over the period 2013-2018.
According to the Dubai Chamber report, the group of QISMUT was the fastest growing markets for Islamic banking in 2012, with total Islamic banking assets commanded by the QISMUT reaching about $ 567 billion and registering CAGR of about 16.4 per cent over the period 2008-2012.
The Dubai Chamber research also shows that globally Islamic banking profit pool is projected to reach $ 30.5 billion by 2018 driven mainly by higher retail focus.
“The report by Dubai Chamber shows that the prospects of Islamic banking are very promising as indicated by the significantly high growth rates of Islamic banking total assets,” said Hamad Buamim, president and CEO of Dubai Chamber.“
“Dubai has the potential to shape the course of the massive Islamic economy, and this is reflected in the choice of Dubai as the venue for the 10th World Islamic Economic Forum (WIEF),” added Buamim.
In 2012, QISMUT Islamic banking profit pool was estimated at $9.4 billion and it is expected to reach $26.4 billion by 2018.
Commenting on the findings, PwC Global Islamic Finance Leader Ashruff Jamal said: “A fundamental part of the global Islamic economy is the Islamic finance sector, which is witnessing rapid growth as Islamic financial institutions look to deploy their liquidity into regional and international expansion such as the acquisition of retail portfolio of Barclay's by Abu Dhabi Islamic Bank, and Dubai Islamic Bank's acquisition of a 25 percent stake in Indonesian Islamic lender Bank Panin Syariah.”
He added: “Another notable instance is the recent announcement of an Islamic Exim (export-import) bank, which will be the only institution of its kind in the world with three unique features; it will be Shariah-compliant, trade-based and run largely by the private sector.”
The Dubai Chamber report, however, points out that many Islamic retail banks suffer from lower profitability than the conventional banks, mainly due to higher expenses attributed to complex products, lengthy process steps and more interfaces.
It is estimated that on average leading Islamic banks posted 19 percent lower return on equity (ROE) than comparable conventional peers.
The average ROE for the top 20 leading Islamic banks is about 12.6 percent compared to an average of 15 percent of comparable conventional banks, it states.
The Dubai Chamber research note supports recent indications that Islamic finance is extending reach, particularly in the Middle East and North Africa (MENA) region.
According to Kuwait Finance House 2013 estimates, the MENA, excluding the Gulf Cooperation Council (GCC) states, remains the focal market for Islamic finance, with $599.4 billion in total assets, followed by GCC with $536.9 billion assets.
Interestingly, Islamic finance is also gaining ground in North America and Europe with banking assets worth $59.8 billion and total assets reaching $71.6 billion in 2013, reflecting the industry success in transcending barriers to gain greater market share in new areas.