(MENAFN - Gulf Times) Islamic retail and commercial banking assets continued to grow at 16% in 2015, at the same rate they did in 2014. This is one of the key findings of the recently issued World Islamic Banking Competitiveness Report 2016 by consultancy EY.
The study says that Islamic banking assets in six main markets are set to exceed 801bn in 2015. Those markets are Qatar, Indonesia, Saudi Arabia, Malaysia, the UAE and Turkey, where around 80% of international banking assets are being held. Altogether, global Islamic banking assets are expected to reach or cross 1tn in 2015 and by 2020 to reach a profit pool of approximately 30.3bn.
Gulf Cooperation Council (GCC) countries added 91bn in Shariah-compliant assets in 2015, representing a year-on-year growth of 18%, the study found.
If Bahrain, Kuwait and Pakistan are added to the core markets, altogether they account for 93% of global industry assets in Islamic banking which are estimated to exceed 920bn in 2015.
Iran is not included in the study. Although the country also has a huge Islamic banking industry, it is unique as it is almost entirely domestic and not (yet) connected to the international banking channels.
Muzammil Kasbati, director of EY's Bahrain-based Global Islamic Banking Center, says that despite the operating environment of banks is generally "getting tougher given the prevailing [low] oil price and the resulting impact on banking system liquidity and infrastructure spend," Islamic banks were in a better position to weather this storm "due to the simpler nature of their balance sheets, basic products and localized operations." They, however, in line with conventional banks would need to innovate and introduce new products and technologies to be ready for the changes that are impacting the way customers engage with banks.
"A fundamental review of their operating models at this stage will be critical to the success of Islamic banking across the Organization of Islamic Cooperation markets," Kasbati says.
The study also forecast the development of the industry up to 2020. By that year, total Islamic banking assets of commercial banks in the six core markets are expected to reach 1.6tn, and their overall profit pool is expected to reach 27.8bn.
In terms of Islamic banking market share, Saudi Arabia, Kuwait, Bahrain and Qatar are expected to be the major players by 2020, with the GCC providing additional acceleration for future growth of the industry. Turkey is expected to recover from the current temporary setback due to political volatility.
"There is still a lot of opportunity for Islamic banking," the study notes, adding that "the industry today is yet to reach 100mn customers."
Looking specifically at Qatar, the report says that while the national market share of Islamic banking plateaued in the recent past, this changed during 2014 when it achieved a noticeable increase and became the third largest contributor towards global growth in Islamic banking. Shariah-compliant assets of Qatar's banks grew three times higher than in conventional banking. However, supply-side initiatives or the launch of new Islamic banks would be needed if Islamic banking in Qatar wishes to go mainstream, EY notes.
In total, Qatar in 2014 had a national market share of Islamic banking assets of 20.8%, or72bn, and a global share of 8.1%.