Islamic banks grow but may miss out on global footprint: study

Tue Dec 2, 2014 3:25am EST
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By Bernardo Vizcaino

(Reuters) - 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 on Tuesday.

Islamic banks across six core markets of Qatar, Indonesia, Saudi Arabia, Malaysia, the United Arab Emirates and Turkey held $625 billion at the end of 2013 or 80 percent of the global Islamic finance market, the report said. The figure was 95 percent when Bahrain, Pakistan and Kuwait are included. Estimates exclude Iran which has a distinct model for Islamic finance, which follows religious guidelines such as a ban on interest and on pure monetary speculation.

The report estimated the combined Islamic banking assets in the six core markets will reach $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 percent of the global industry, and this could rise even further, said Ashar Nazim, a partner at EY's global Islamic banking center.

"As the populous centers of Turkey and Malaysia gain momentum and Saudi banks continue their transformation to sharia compliance, we expect the market share to account for between 80 percent to 90 percent of the global market."

Beyond these markets, the industry is expected to make some gains in Egypt, Pakistan and North African countries such as Tunisia, Algeria and Morocco, Nazim 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.   Continued...

An Iranian gold coin is placed next to bank notes at a gold shop in Tehran, Iran April 19, 2006.  REUTERS/Morteza Nikoubazl