World Islamic Banking Competitiveness Report 2012-2013

The Islamic banking growth story continues to be positive, growing 50% faster than the overall banking sector.

Islamic banking assets with commercial banks globally grew to $1.3 trillion in 2011, and are forecast to grow beyond $2 trillion by 2014.

This year, we launch the EY Islamic Banking Universe that tracks industry performance across core Islamic finance markets with a combined GDP of $5 trillion in 2011.

However, it is a different story when it comes to profitability. The industry’s average return on equity (ROE) was 12% compared to 15% for conventional in 2011. Islamic banks continue to grapple with multiple challenges relating to:

•    Sub-scale operation
•    Asset quality
•    Negative operating income from core activities
•    A weak risk culture

These have prompted several institutions to initiate wide-ranging transformation programs:

•    Regulatory transformation
•    Risk transformation
•    Retail banking transformation

Successful transformation around the 3 R’s could potentially increase the profit pool of Islamic banks by 25% by 2015.

Shari’a governance and responsible innovation require urgent attention, and sukuk is developing to be an effective instrument for capital management and growth. A lot more needs to be done to demonstrate the impact of Shari’a compliant system on businesses and economies.

The coming up of populous and diverse markets like Indonesia, Egypt and Pakistan would help and regulatory authorities and multilateral institutions will need to play a more central role to facilitate this transition.

pdf- Download: World Islamic Banking Competitiveness Report 2012-2013 as a printable document