Dubai: The UAE is emerging as a serious player in the Islamic banking market with total Islamic banking assets growing to about $95 billion (Dh348.9 billion) in 2013 compared to $83 billion in 2012, according to a report by Dubai Chamber of Commerce and Industry based on a recent study by Ernst and Young.
The report shows that the compound annual growth rate (CAGR) for Islamic banking assets in the UAE is expected to be about 17 per cent over the period 2013-2018.
“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 Bu Amim, president and CEO of the Dubai Chamber.
“The research note supports Dubai’s recognition of Islamic finance as a key pillar in the strategy to position itself as the centre for Islamic banking and finance as part of the Dubai Capital of Islamic Economy initiative.”
Dubai will be hosting the 10th World Islamic Economic Forum (WIEF) and will organised by Dubai Chamber and the WIEF Foundation from 28-30 October 2014.
“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. The forum comes as a unique opportunity for Dubai 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,” said Bu Amim.
The Dubai Chamber in its report estimates 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 about $285 billion in 2013 compared to $245 billion in 2012.
The research note also shows that Saudi Arabia represents about 43 per cent of the total Islamic banking assets in all the six countries. It also accounts for about 53 per cent of Saudi Arabia’s total domestic banking assets.
According to the World Islamic Banking Competitiveness Report 2013–14, 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 per cent of system assets.
In 2012, the group of QISMUT was the fastest growing market for Islamic banking, with total Islamic banking assets commanded by the Qismut reaching about $567 billion and registering a CAGR of about 16.4 per cent over the period 2008-2012, according to the Dubai Chamber.
The Dubai Chamber research also shows that, globally, the Islamic banking profit pool is projected to reach $30.5 billion by 2018, driven mainly by a higher retail focus. In 2012, the Qismut Islamic banking profit pool was estimated at $9.4 billion and it is expected to reach $26.4 billion by 2018.
“Dubai is powering ahead with the creation of its recently announced ‘Capital of the Islamic Economy’ initiative. A number of the building blocks of this initiative, spanning seven key pillars, are already in place as the emirate eyes the $8 trillion global Islamic economy which accounts for approximately 11 per cent of global gross domestic product,” said Ashruff Jamal, PwC Global Islamic Finance Leader.
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 per cent lower return on equity (ROE) than comparable conventional peers.