Rapid Islamic Finance Growth

ISLAMIC banking is growing faster than its conventional counterpart but is focused in a few core markets and risks missing an opportunity to build a global footprint, the EY consultancy said in a report yesterday. Islamic banks across six core markets of Qatar, Indonesia, Saudi Arabia, Malaysia, the United Arab Emirates and Turkey held US$625 billion (RM2.1 billion) at the end of last year, or 80 per cent of the global Islamic finance market, the report said.

The figure was 95 per cent when Bahrain, Pakistan and Kuwait are included. The report estimated the combined Islamic banking assets in the six core markets will reach US$1.8 trillion by 2019, buoyed by growth which has been 1.9 times faster than that of conventional banks over the 2009-2013 period.

The six core markets now comprise 82 per cent of the global industry, and this could rise even further, said Ashar Nazim, a partner at EY’s global Islamic banking centre. “As the populous centres of Turkey and Malaysia gain momentum and Saudi banks continue their transformation to syariah compliance, we expect the market share to account for between 80 and 90 per cent of the global market,” said Ashar.

Beyond these markets, the industry is expected to make some gains in Egypt, Pakistan and North African countries such as Tunisia, Algeria and Morocco, Ashar added. “However, in the absence of regulatory reforms and strong sovereign support, the pace of growth is likely to be moderate.”

Islamic bank revenues are also underweight on trade finance and lending to medium-sized businesses, two core areas in fast-growing emerging markets. According to EY, 10 of the 25 high-value emerging markets are core Islamic finance markets.

“This is a once-in-15-year-opportunity to capture the share of this evolving trade market for younger Islamic banks,” Ashar said. Entry into such markets would allow Islamic banks to build much-needed scale, but many lack the expertise and risk appetite to venture abroad, which has in turn affected profitability.

Originally published on www.reuters.com