Total assets of sector leap 14% to $95b, offering strong support
The prospects of Islamic banking are very promising in the UAE on significantly high growth rates of total Islamic banking assets, according to a report by the Dubai Chamber of Commerce and Industry based on a recent study by Ernst & Young.
The UAE is emerging as a serious player in Islamic finance as total Islamic banking assets jumped more than 14 per cent to about $95 billion in 2013 compared to $83 billion in 2012. The report shows that the compound annual growth rate, or CAGR, for Islamic banking assets in the UAE is expected to be about 17 per cent over the period 2013-18.
The Islamic capital market of Dubai is recording rapid expansion as more than $16 billion of sukuks are expected to be issued by the end of 2014. It is important to mention that Dubai's sovereign sukuks are being ranked as one of the world's best-performing instruments.
It is estimated that global Islamic banking assets have registered a CAGR of about 16 per cent during the period 2008-12, reflecting the radical shift from conventional financial system in favour of Islamic finance.
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 per cent faster than the traditional banking sector in some markets.
The Dubai Chamber conducted the study in preparation for the 10th World Islamic Economic Forum, or WIEF. The 10th forum will be organised in the emirate by the Dubai Chamber and the WIEF Foundation from October 28 to 30.
"The report 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 chief executive officer 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," Buamim explained.
"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," he said.
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, UAE and Turkey, or 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. 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. 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.