18th Annual
A critical reference source for decision makers in the global Islamic finance industry, providing strategic insights from Ernst & Young Dear Banking & Finance Leader, It is with great pleasure that we present to you the 8th annual edition of the World Islamic Banking Competitiveness Report 2011-12. This year’s original research project is developed in collaboration with leading global professional services and advisory firm, Ernst & Young. With a principal focus on “A Brave New World of Sustainable Growth”, the WIBC Competitiveness Report 2011-12 explores the key industry trends and the critical success factors guiding the global Islamic banking and finance industry to the next level of performance and growth. The global Islamic finance industry has undergone major transformations in the last few years in its quest to boost international competitiveness and to build a sustainably profitable business model. There has been a focus on product innovation efforts that aim to provide a more comprehensive array of Shari’ah-based products for the market. The global Islamic finance industry has also seen significant developments in regulatory frameworks and Shari’ah standardization initiatives - making trans-jurisdictional market connectivity that much more achievable. However, both the challenge and the opportunity currently facing leading industry players is how will Islamic banks succeed in making the historical growth curve sustainable and profitable. We would like to express our sincere gratitude to Ernst & Young and their world renowned Islamic Financial Services Team for investing their considerable talent and resources in developing the World Islamic Banking Competitiveness Report 2011-12. The Report is exclusively launched on-site at a special plenary session of the 18th Annual World Islamic Banking Conference (WIBC) where more than 1,200 industry leaders from over 50 countries gather to chart the future of Islamic finance. Established as a critical reference resource for key industry players, thought leaders and policy makers in the global Islamic banking and finance industry, we hope that the analysis in this year’s Report will provide practical, constructive and valuable insights which will be useful in your own strategic planning activities and will assist your organization in its quest for success as the Islamic banking and finance industry enters the next phase of “Competing for Global Growth”. To find out more on how your organization can play a part in this important research initiative in the future, please e-mail sophie@megaevents.net Yours sincerely,
David McLean Managing Director The 18th Annual World Islamic Banking Conference A MEGA Brand
A MEGA Brand: Shaping the Future of the Global Islamic Finance Industry Since 1993 P.O. Box 72045, Dubai, UAE | t. +9714 343 1200 | f+971 4 343 6003 MEGA Brands. MEGA Clients. Market Leaders. www.megaevents.net
World Islamic Banking Competitiveness Report 2011-12 ‘A Brave New World of Sustainable Growth’
Report Structure
2
3
Competitive Landscape
1
Performance Analysis
Executive Brief
Country Spotlight 5
2
COMPETITIVENESS REPORT 2011-2012
Competing to Win: The CEO Agenda 4
A Brave New World of Sustainable Growth
Dear Executive, The global economy, and the financial markets, are at a turning point. Fast growth economies in Asia, Middle East, Africa, Latin America and Eastern Europe now form almost half of global GDP and, in 2010, they contributed 70% to overall global growth. These trends are accelerating. The dramatic developments over the past twelve months – including Arab Spring, Eurozone crises and Occupy Wall Street movement – provide further impetus for the growth of Islamic banking. Industry forecast suggest Islamic banking assets with commercial banks globally, will reach $1.1 trillion in 2012 (2010: $826bn). Now would be the opportune time to consider establishing Islamic sovereign wealth funds to champion the growing internationalization of the industry. The iSWF will further facilitate businesses across OIC markets seeking to transform to Shari’a compliant system and also help deepen the Islamic capital market, in our view. As for MENA, Islamic banking assets increased to $416bn in 2010, representing a five year CAGR of 20% compared to less than 9% for leading conventional banks. As new geographies open up to Islamic banking, the MENA Islamic banking industry is expected to more than double to $990bn by 2015. However, there are significant performance variations across markets. In 2010, average ROE of leading Islamic banks declined to 10%. Also, market valuations appear to be converging to that of regional conventional peers. Our clients agree that business models needed to shape and sustain success in this new landscape are evolving in a fundamental way. Ensuring sustainable growth will require brave, meaningful and decisive Performance Improvement initiatives. Two key themes are starting to emerge: ► Excellence in banking operations – by transforming to a customer centric, efficient and scalable operating model, driven by an enhanced risk and technology orientation; and ► Product innovation – to strengthen the Shari’a differentiation and provide greater integration with the real economy A worrying concern though is the absence of an enabling legislative, regulatory, tax and legal environment in most OIC markets, which adds to the cost and complexity of Islamic banking operation. Where there are guidelines and standards issued by industry infrastructure institutions, their reach and enforceability remains a concern. These must be addressed as priority. Our award-winning global Islamic Finance Center of Excellence continues to work with a diverse range of financial institutions helping them realize the true potential of their business. We trust you will find this report useful.
Ashar M. Nazim Islamic Financial Services Leader Ernst and Young
Imtiaz Ibrahim Senior Director, Islamic Financial Services Ernst and Young
Islamic Banking Competitiveness Report 2011-12 Page 3
COMPETITIVENESS REPORT 2011-2012
3
Executive Brief
Key Messages 1
MENA Islamic banking assets reach $416bn in 2010, globally Islamic banking assets to cross $1.1t by 2012*
2
Expect a permanent change of play in the GCC – customer centric operating model to drive future (sustainable) growth
3
Topping CEOs agenda – Operational Transformation, Risk, Growth and Innovation
* Note: Islamic banking assets with commercial banks 4
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 4
One potential scenario shows global Islamic banking assets with commercial banks to reach $1.1 trillion in 2012 Islamic Banking Asset Growth (US$bn)
114
1,130
38 25
127 826
Global Islamic Banking Assets 2010
GCC
MENA (ex GCC)
Malaysia
Rest of the World
Global Islamic Banking Assets 2012e
Source: IMF, The Banker, Central Bank Websites, EY perspective
Islamic Banking Competitiveness Report 2011-12 Page 5
COMPETITIVENESS REPORT 2011-2012
5
Analysis of leading Islamic commercial banks in the MENA region shows a large variation in the average ROE between 2006-10 Total Assets 2010 KSA
49,304
26.0%
Kuwait
44,498
14.2%
UAE
22,952
Steep Slide
Average ROE (2006-2010) 15.2%
UAE
20,489
8.5%
Qatar
14,238
19.2%
Qatar
9,526
11.6%
UAE
8,915
Long Tail
13.1%
Bahrain
15,880
8,807
KSA
8,703
Kuwait
10.0% 12.2% 15.5%
7,114
KSA
0.1%
6,744
Bahrain
-2.2%
5,633
KSA
5,453
Egypt
5,309
Qatar
4,668
Kuwait
4,538
UAE
4,156
Kuwait
2,482
Bahrain
2,272
Bahrain
1.4% 12.6% 17.4% -1.9% 7.4% 6.7%
Growth
0.20%
(3 Yr CAGR)
10.0%
US$13bn
MENA Islamic Average
15 %
> 20 %
US$38bn
MENA Conventional Average
16%
< 9%
Source: Annual Reports, Zawya, EY analysis (includes sample of leading banks across Middle East and North Africa (MENA) where published information was available) 6
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 6
Globally as mature markets press forward with banking reforms, many others are keen to explore an alternative Islamic finance option
Oman First two Islamic license awarded…potentially a 10% market share play by…
Libya Banking industry to be made Shari’a compliant…
Egypt Considering sovereign sukuk…
Tunisia Central bank mulls Islamic banking regulations…
Switzerland Islamic Bank of Switzerland to open…
Hong Kong HK legislating for Islamic banking…
Banks need US$ 106bn new tier 1 capital by 2012
Kenya Kenya to emerge as the Islamic finance gateway to East Africa…
CIS First Islamic bank conversion…
Source: Published information. Image: Campaigner outside London Stock Exchange in Oct 2011 (Arab News)
Islamic Banking Competitiveness Report 2011-12 Page 7
COMPETITIVENESS REPORT 2011-2012
7
By 2015, the MENA Islamic banking industry is projected to be worth $990bnâ&#x20AC;Ś a significant growth story (2010: $416bn assets) MENA Islamic Banking Assets - 2015 Forecast (US$bn)
The Levant
87
Turkey 5
140
Tunisia
10
7 Syria Lebanon
Morocco
13
Jordan
Iraq
12
Algeria
Libya
13
5
104
Kuwait
GCC
20
79
Bahrain
Egypt
Qatar
34
UAE 156
Saudi Arabia Oman
291
North Africa
8
Yemen 7
Key Projected Islamic banking assets 2015 (US$bn) - the size of the circle denotes relative size Source: 2010 Company Reports, Global Insight, EY perspective 8
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 8
Rediscovering profits - Operational efficiency can increase Islamic banks’ profitability by approximately 25% MENA Islamic Banking - 2015 Combined Net Profit Forecast (US$bn) Current Performance (2010)1
$5bn – $6bn ► Innovation
$7bn- $9bn
Growth Momentum2 Operational Improvements
► Growth Play
$3bn $4bn
► Operational Transformation ► Risk Infrastructure
Potential Combined Islamic Banking Profit Pool (2015)
$15bn - $19bn
Further Potential Growth Opportunities
Emerging Islamic geographies
Integration with real economy
Affluent retail proposition
SME banking
1- Based on ROA of 1.5%, 2 – Based on asset growth projections
Islamic Banking Competitiveness Report 2011-12 Page 9
COMPETITIVENESS REPORT 2011-2012
9
The CEO Agenda – There are four emerging trends that will permanently alter the Islamic banking play, especially in the GCC market
► Scalable, customer centric operating model, achieved through improved risk and technology orientation (winning back the profitability and valuation advantage)
Operational Transformation
► Embracing technology to deepen existing relationships and improve new customer acquisition rates
Innovation
► Product research and structuring, while learning from past experiences (e.g. the sukuk market debacle)
The CEO Agenda
Risk & Compliance
► Economic capital, risk adjusted returns, funds transfer, pricing, regulations, and compliant products and systems to drive the change in business focus
Growth Play
► Shari’a compliant banking to stimulate financial access to previously unbanked – expect 100 plus new Shari’a compliant banks in MENA by 2020 10
COMPETITIVENESS REPORT 2011-2012
► Having achieved 26% market share in GCC, future growth will come from mainstream customer segment; service model to be the primary proposition
Islamic Banking Competitiveness Report 2011-12 Page 10
Report Structure
2
3
Competitive Landscape
1
Performance Analysis
Executive Brief
Competing to Win: The CEO Agenda
Country Spotlight 5
4
Islamic Banking Competitiveness Report 2011-12 Page 11
COMPETITIVENESS REPORT 2011-2012
11
Competitive Landscape
Key Messages 1
Growing asset market share – Shari’a compliant assets represent 14% share of MENA banking market, 26% in GCC*
2
Leading to repositioning – mergers, conversions, regional expansion, and changing business focus
3
But yet to achieve scale – $13bn average asset base for leading Islamic banks, a third of conventional banks
* Note: Islamic banking assets with commercial banks 12
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12
Growth within the Muslim population throughout the emerging markets of MENA and Asia are key drivers behind increasing demand for Islamic financial services… Global Estimated Muslim Populations – Selective Markets (2010)
Turkey 74m Algeria 34m
Muslim Population Density Indicator 100m +
Egypt 80m
Morocco 32m
Iran 74m Pakistan 178m
Nigeria 75m
50 - 100m
China 23m Bangladesh 148m India 177m Malaysia 17m
10 – 50m
Indonesia 204m
5 – 10m 1 – 5m Under 1m
Source: Pew Research Center, Guardian, EY analysis
Islamic Banking Competitiveness Report 2011-12 Page 13
COMPETITIVENESS REPORT 2011-2012
13
The MENA region boasts macroeconomic synergies that bode well for future GDP growth
Turkey
The Levant Tunisia
Syria Lebanon
Morocco
Iraq
Jordan Algeria
Libya
Egypt
Kuwait Bahrain Qatar
Saudi Arabia
North Africa Key Features ► Total Population 374m (2010) ► CAGR Population Growth 2.1% (2007-2010) (EU = 0.4%) ► 61% and 45% of world oil and gas reserves respectively ► Nominal GDP US$2.6tn ► GDP CAGR 6.3% (2007-2010) (EU = 4.3%)
COMPETITIVENESS REPORT 2011-2012
UAE Oman
Yemen
Hydrocarbon Reserves
Population Centers
The GCC, Iraq, Algeria, Libya all have large hydrocarbon reserves and accumulated wealth
Turkey, Egypt, Saudi Arabia, Algeria and Morocco have large population centers and human capital reserves
Source: Global Insight, EY analysis (includes Turkey; excludes Palestine due to lack of data) 14
GCC
Islamic Banking Competitiveness Report 2011-12 Page 14
Governments are utilising their hydrocarbon revenues to stimulate, develop and sustain economic activity within the region MENA Nominal Hydrocarbon GDP (US$bn) 738
Cost of Arab Spring (US$bn) 35
56
682
592 494
21
374
2008
2009
2010
2011f
2012f
Cost to GDP
Cost to Public Finance
Total Cost
Many governments have responded by (i) committing to new spending and (ii) accelerating planned large infrastructure spending
Overall growth expected to moderate in 2012, still significantly higher than levels seen in 2009-10
Source: Geopolicity, IIF
Islamic Banking Competitiveness Report 2011-12 Page 15
COMPETITIVENESS REPORT 2011-2012
15
…but from a generally underpenetrated market position, the banking …but from generally underpenetrated market position, the banking industry hasa considerable growth opportunities when compared to the industry has considerable growth opportunities when compared to the more developed economies more developed economies 1300% 1300%
Banking Asset / Nominal GDP (2010) Banking Asset / Nominal GDP (2010)
600% 600% 500% 500% 400% 400% Average Penetration for Sample Countries1 Average Penetration for Sample Countries1
300% 300% 200% 200% 100% 100% 0% 0%
16
Source: Central Bank Reports, Economist Intelligence Unit, Global Insight, EY analysis (average for EU) 1 – Average Penetration for Sample Countries excludes US Global statisticInsight, to reduce Source: Central Bank Reports, Economist Intelligence Unit, EY skew. analysis (average for EU) 1 – Average Penetration for Sample Countries excludes US statistic to reduce skew.
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Islamic Banking Competitiveness Report 2011-12 Page 16
MENA MENA
Rest of the world Rest of the world
Within MENA, the GCC markets are generally more developed with greater lending/financing assets to GDP penetration Total Bank Lending/Financing and Penetration (2010) 2008
300 273
2009
2010
Penetration
180%
268
262
160%
250 140%
US$ bn
200
120% 100%
150 80% 92
100
85
60%
78 59
50
28
43
37
26
15
40% 31 11
6
0
20% 0%
KSA
UAE
Kuwait
Qatar
Oman
Bahrain
Turkey
Lebanon
Jordan
Syria
Iraq
Egypt
Algeria
Tunisia
Libya
Source: Central Bank Reports, Global Insight, EY analysis
Islamic Banking Competitiveness Report 2011-12 Page 17
COMPETITIVENESS REPORT 2011-2012
17
Shariâ&#x20AC;&#x2122;a compliant assets represent a significant portion of the total banking system assets of the region Banking Assets (US$bn) and Islamic Share (%) in 2010 546
The Levant
5% 42
117
Tunisia
0%
Turkey
2% 1%
135
Morocco
4%
269
Syria Lebanon Jordan
Algeria
0% Libya
109
1%
155
Iraq
Kuwait
49
56
Egypt
25%
46
46
12%
Qatar Saudi Arabia
4%
XX
X%
35%
438
41
Yemen
Total banking assets 2010 (US$bn) - the size of the circle denotes relative size
UAE
GCC 22%
Oman
377
Key
156
Bahrain
215
North Africa
27%
31%
0%
8
30%
Total Islamic banking assets as a % of total assets
Source: Central Bank Reports, Press Releases, The Banker - Top 500 Islamic Financial Institutions, EY perspective (Note: Shariâ&#x20AC;&#x2122;a assets with commercial banks) 18
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 18
17%
MENA Islamic banking market share has reached 14%; in the GCC the Islamic banking market share has crossed the all important 25% threshold which means banks are competing in the conventional market as well Banking Asset Penetration (% of Nominal GDP) and Islamic Banking Market Share of Total Assets (%) in 2010
Banking Penetration (% of Nominal GDP)
360% 320%
MENA Average Islamic Banking Market Share
Lebanon
GCC Average Islamic Banking Market Share
280%
Iraq
240%
Size of circles denote the relative size of Islamic banking asset in 2010
UAE Jordan
200%
Bahrain Kuwait
160% 120%
Qatar
Morocco Tunisia
Egypt
80% Libya 40% 0%
KSA
Turkey
Algeria Oman 4%
Yemen Syria 8%
12%
16%
20%
24%
28%
32%
36%
40%
Islamic Banking Market Share of Total Assets (2010) Source: Central Bank Reports, The Banker, Global Insight, EY perspective
Islamic Banking Competitiveness Report 2011-12 Page 19
COMPETITIVENESS REPORT 2011-2012
19
Strong historical growth, driven by core Islamic segment; going forward expect change of play as Islamic banks begin to compete for mainstream customers who are open to Islamic or conventional banking Asset CAGR (2006-2010)
Growth Relative to Conventional Banks 28%
Qatar 7%
Bahrain
26%
16% 13%
14%
Saudi Arabia 0%
5%
10%
15% Islamic Banks
52%
19%
40% 25%
30%
35%
40%
45%
Conventional Banks
Source: Company Reports, EY analysis (sample includes selective Islamic and conventional banks based on asset size and published information) 20
COMPETITIVENESS REPORT 2011-2012
22%
2008
-38%
20%
20%
41%
235%
22%
UAE
Kuwait
39%
Islamic Banking Market Share
Islamic Banking Competitiveness Report 2011-12 Page 20
26%
2010
Industry is still fragmented with most Islamic banks holding less than $13bn assets â&#x20AC;&#x201C; yet to achieve scale, facing pressure on profitability Average Assets and ROE (2006-2010 Average) 80
Average ROE
75
Islamic Banks
Conventional Banks
70 2006-2010 Avg Assets (US$ bn)
65 60 55 50 45 40
35 30 25 20 Average Assets
15 10 5 0
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 Avg ROE 2006-2010 (%)
16
17
18
19
20
21
22
23
24
25
Source: Annual Reports, Analyst Briefings, EY analysis
Islamic Banking Competitiveness Report 2011-12
COMPETITIVENESS REPORT 2011-2012
21
The largest Islamic banks within the region are all leaders in their respective home markets and have expanded internationally to some degree Shariâ&#x20AC;&#x2122;a Compliant Assets and ROA (2008-2010 Average) Assets US$m 45,000
Kuwait Market Leader
Regional Full Fledged Islamic Bank Regional with Islamic Operation
40,000
Global with Islamic Window 35,000
Saudi Retail Banking Leader
UAE Market Leader
30,000 25,000
UAE Islamic Banks
20,000
Saudi Islamic Windows Qatari Islamic Banks
15,000 10,000 5,000 0
0%
0.5%
1%
1.5%
2%
2.5%
3%
3.5%
Source: Annual Reports, The Banker, EY analysis (where data was not available, calculation based on a 2 year average) 22
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 22
4%
4.5%
5%
Bank financing activity appears to be picking up, regulatory requirements may induce banks to raise higher-cost investment/ time deposits
GCC Banks â&#x20AC;&#x201C; Growth in Advances
GCC Banks - Net Financing / Deposits
40% 35%
110% 108%
35%
105%
30%
100%
25%
95%
20%
94% 92%
22% 90% 87%
15%
85%
15%
10%
80%
5%
75%
2007
70%
1%
0% 2008
2009
2006
2010
Islamic Banks
2007
2008
2009
2010
Conventional Banks
Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)
Islamic Banking Competitiveness Report 2011-12 Page 23
COMPETITIVENESS REPORT 2011-2012
23
However, real estate concentration remains a concern for Islamic banks, may affect future growth Islamic Banks 100% 90% 80%
11%
Conventional Banks 100%
18%
15%
80%
20%
70%
25%
24%
60% 50%
33% 25%
25%
16% 12%
11%
11%
16%
16%
32%
33%
70% 60%
40%
50%
33%
35%
32%
36%
20%
Others 39%
41%
40%
2008
2009
2010
10%
0% 2008
2009
2010
0%
Source: Company Reports, Zawya, EY analysis (sample based on selective Islamic and conventional banks) (rounded numbers) COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 24
Real Estate Commercial
30%
10%
24
Banks and FIs
40%
30% 20%
90%
Business repositioning - (M&A, conversions, changing business focus) appear to dominate MENA Islamic banking going into 2012
Qatar Central Bank announces Islamic banking windows to be prohibited by year end
Merger - Al Baraka and Emirates Global announce merger - $582m asset base, 89 branches, 40 cities (Pakistan)
2010
JULY
Goldman Sachs registers a $2bn Islamic bond programme with the Irish Stock Exchange Global sukuk issuance surge to $63bn YTD, GCC a primary contributor after Malaysia
2011
NOV
FEB
MAY
AUG
OCT
DEC
Several countries across Africa announce plans to introduce Islamic banking; amend regulatory and legislative regimes Conversion of Amrah Bank to Islamic
Formation of Warba Bank in Kuwait
$500m sukuk issue by HSBC Middle East Royal Decree passed to allow Islamic finance industry to commence in Oman. First banking license granted in Q2
Bahrain Islamic and Al Salam Bank announce they are exploring merger
International Bank of Qatar announces the sale of its Islamic banking business to Barwa Bank
ENBD acquires Dubai Bank
Source: The Banker, IFN, Maris Strategies, Analyst Briefing
Islamic Banking Competitiveness Report 2011-12 Page 25
COMPETITIVENESS REPORT 2011-2012
25
Report Structure
2
3
Competitive Landscape
1
Performance Analysis
Executive Brief
Competing to Win: The CEO Agenda
Country Spotlight 5
26
COMPETITIVENESS REPORT 2011-2012
4
Islamic Banking Competitiveness Report 2011-12 Page 26
Performance Analysis
Key Messages 1
Painful decline in profitability – industry ROE now appears to be stabilizing around the 10% range (2006: 23%)
2
Structural advantage – better financing margins, higher deposit growth and higher proportion of free deposits
3
Operating model questioned – misaligned people-processes-systems, leading to high cost to income ratio
Islamic Banking Competitiveness Report 2011-12
COMPETITIVENESS REPORT 2011-2012
27
ROE decomposition assists in understanding the key performance indicators of banks
Deposits
Leverage
Cost of Funding
ROE
X Operating Expenses
Return on Assets
28
COMPETITIVENESS REPORT 2011-2012
Provisions
Islamic Banking Competitiveness Report 2011-12 Page 28
Islamic banks have experienced a more painful decline in profitability over recent years but this now appears to be stabilizing Net Income / Equity 40%
Cost of Funding
X
ROE
Return on Assets
Bahrain
Operating Expense Provisions
Kuwait
40%
40% 27%
20%
35% 0%
30% 25%
Deposits
Leverage
2007
-20%
2008
2009
-1% 2010
Qatar
13%
20%
10%
10%
0%
20%
16%
2008
2009
2010
20%
2007
2008
2009
2007
2008
2009
2010
2010
Saudi Arabia 35% 29%
14%
15%
13%
2006
2007
2008
2009
2010
-20%
-20%
2007
2006
0%
2006
5%
5%
0%
40% 22%
15%
12%
19%
-20%
40%
20%
0% 2006
9%
11%
2006
23%
20%
13%
United Arab Emirates 40%
20%
17%
10% 8%
Islamic Banks
Conventional Banks
0% 2006
Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)
2007
2008
2009
2010
-20%
Islamic Banking Competitiveness Report 2011-12 Page 29
COMPETITIVENESS REPORT 2011-2012
29
Islamic banks are able to generate higher financing margins also because of their relatively stronger retail focus
Deposits
Leverage
X
ROE
Return on Assets
Net Financing Income / Financing Assets
5%
Bahrain
4.3%
8%
6%
6% 2.8%
3.7%
0%
3.0%
2.8%
0.6%
2007
2008
2009
2010
Qatar
8%
3.2%
6%
2.7%
2.2%
0%
2% 2006
2006
2007
2008
2009
2010 8%
2007
2008
2009
2010
United Arab Emirates
6% 4% Islamic Banks
Conventional Banks
IBâ&#x20AC;&#x2122;s excluding KSA
2% 0%
Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) 30
COMPETITIVENESS REPORT 2011-2012
3.5%
3.3% 3.1%
3.3%
2.3%
2.7%
2.2%
2006
2007
2008
2009
2010
Islamic Banking Competitiveness Report 2011-12 Page 30
2006
2007
2008
2009
2010
Saudi Arabia 7.1%
6% 2.3%
2%
Provisions
0%
8%
3.8%
4%
4% 2%
1.8%
2006
3%
2.2%
2%
4%
Operating Expense
Kuwait
8%
4%
Cost of Funding
4% 2%
4.9% 3.7%
3.0%
0% 2006
2007
2008
2009
2010
Equity multiplier suggest that Islamic banks have room for further expanding risk weighted assets
Deposits
Leverage
Cost of Funding
X
ROE
Return on Assets
Assets / Equity
Bahrain
8
Deposit CAGR = 13%
4
12
Multiple
10
9 8
6
2 0 2006
2009
2010
2007
2008
2009
2010
2006
2007
2008
2009
2010
12 7
8 5
3
0
8 4
8
8 5
5
0
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
United Arab Emirates 12
4
Conventional Banks
7
Saudi Arabia
12
8
Islamic Banks
2008
4
Deposit CAGR = 16%
8
8
Qatar
8
5.6
9
0 2007
7.9 6.8
8 4
4
2006
8
4
12
11
0
8.2
Provisions
Kuwait
12
14
Operating Expense
8 8
8 6
0 Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)
2006
2007
2008
2009
2010
Islamic Banking Competitiveness Report 2011-12 Page 31
COMPETITIVENESS REPORT 2011-2012
31
Islamic banks benefit from a higher proportion of free customer deposits but there is a tendency that these are of a short term tenure Islamic Banks
17%
Deposits
Leverage
ROE
Cost of Funding
X
Return on Assets
Operating Expense Provisions
Conventional Banks
10.2%
6.8%
4.9%
3.0%
5% 21.7%
62%
47.7% 65.6% 69.7%
2008-2010 Average
0.1%
Other
78% 15%
45.5% 2.6%
23%
2.6%
Investment/ Time Deposit
29%
Saving
47%
21%
Current
UAE
KSA
Qatar
UAE
KSA
Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) 32
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 32
Qatar
After a painful decline in profitability through the financial crisis the ROA appears to be stabilizing, but now lower than conventional banks Net income / Assets
7%
8%
6%
6%
2%
2.6% 1.1%
-0.2%
2006 -2%
2007
5% 6%
3.0%
4%
2% 1% 0% 2006
2007
2008
2009
1.6%
2%
1.5%
0%
2010
2008
2009
2010
Qatar
8%
4.0%
Operating Expense Provisions
4% 0.9%
0%
6%
3%
Return on Assets
Kuwait
8%
4%
Cost of Funding
X
ROE
Bahrain
8%
4%
Deposits
Leverage
2.6%
2%
1.2%
2.1%
0%
2006
8%
1.0% 2007
2008
2009
2010
Saudi Arabia 7.2%
6%
5.5% 3.0%
3.0% 2.6%
4%
3.8%
2.6%
2%
1.8%
0%
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
United Arab Emirates
8% 6% 4%
Islamic Banks
2%
Conventional Banks
3.1% 1.7%
2.5%
0.7%
0% Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)
2006
2007
2008
2009
2010
Islamic Banking Competitiveness Report 2011-12 Page 33
COMPETITIVENESS REPORT 2011-2012
33
Higher provisions and operating costs have contributed to the steep decline in profitability of Islamic banks
Deposits
Leverage
ROE
X Return on Assets
Islamic Banks ROA
3.2%
1.6%
Cost of Funding
Operating Expense Provisions
Conventional Banks 1.5%
1.8%
1.6%
1.6%
4% 6% 3% 4%
2.5%
1.5%
1.3%
1.1%
1.1%
1.1%
Other Income
2% Net Financing Income
2%
3.2%
3.4%
2.9%
-2.0% -0.4%
-2.0% -1.4%
-1.8% -1.0%
2.1%
2.0%
0% -1.0% -1%
-0.2%
-1.0%
-0.9%
-0.6%
-0.5%
2009
2010
-2%
-4% 2006-2008 average
2009
2010
Source: Company Reports, EY analysis (numbers rounded off) 34
1.9%
Operating Expenses
0%
-2%
1%
COMPETITIVENESS REPORT 2011-2012
2006-2008 average
Provisions and operating expenses higher than conventional
Islamic Banking Competitiveness Report 2011-12 Page 34
Provisions
Higher cost to income ratio is a combined result of modest core banking revenues and a higher cost base due to misaligned processes and systems
Deposits
Leverage
ROE
Cost of Funding
X Return on Assets
Operating Expense Provisions
Operating Cost / Operating Income 60%
40%
40%
35%
29% 26% 20%
0% 2006
2007
2008
Islamic Banks
2009
2010
Conventional Banks
Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)
Islamic Banking Competitiveness Report 2011-12 Page 35
COMPETITIVENESS REPORT 2011-2012
35
Performance culture â&#x20AC;&#x201C; higher staff cost should translate into better performance but Islamic banks lag behind their conventional peers
59% 58% 57%
3%
58%
3%
3%
3%
57%
2%
56% 55%
54%
54%
2% 1%
53%
0.9%
51%
0% 2009
2010
Islamic Banks
2009
Conventional Banks
Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) COMPETITIVENESS REPORT 2011-2012
0.8%
1%
52%
36
Return on Assets
4%
60%
Islamic Banking Competitiveness Report 2011-12 Page 36
Cost of Funding
X
ROE
Staff Cost / Deposits
Staff Cost / Operating Expenses 60%
Deposits
Leverage
2010
Operating Expense Provisions
Operating costs are impacting Islamic banks across the region â&#x20AC;&#x201C; operating models need to be made scalable
Deposits
Leverage
X
ROE
Return on Assets
Operating Cost / Asset
Bahrain
2% 1%
2.1%
2.2%
1.5%
1.3%
0% 2006
2008
2009
2008
2009
2010
Qatar
2%
2010
4%
2.1% 1.5%
1.3%
2006
2007
2008
2009
2010
1.5%
1.3%
0%
2006
4% 2.2%
2.2%
2.0%
2%
2007
2008
2009
2010
Saudi Arabia
6%
4%
0%
2007
2007
6%
2.1%
1.4%
1.3%
2006
4% 3%
3.8%
2% 0%
Provisions
6%
4%
5%
Operating Expense
Kuwait
6%
6%
Cost of Funding
3.1% 2.4%
2% 1.6%
1.4%
0% 2006
2007
2008
2009
2010
United Arab Emirates 6% 4% 2% Islamic Banks
Conventional Banks
0%
Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)
1.6%
1.6% 1.0%
0.9%
2006
2007
2008
2009
2010
Islamic Banking Competitiveness Report 2011-12 Page 37
COMPETITIVENESS REPORT 2011-2012
37
Both Islamic and conventional banks have seen a deterioration in the provision to income ratio
Deposits
Leverage
Cost of Funding
X
ROE
Return on Assets
Provisioning / Operating Income 50%
Bahrain
50%
32%
40%
10%
16%
5%
30%
10%
25%
-10% 2006
21%
20% 10%
20%
2009
4%
-10% 2006
2010
Qatar
50%
2007
2008
2009
2010
10% 2007
2008
2009
2010
United Arab Emirates
10%
Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) 38
COMPETITIVENESS REPORT 2011-2012
2009
33% 23% 13% 3%
-10% 2006
2007
2008
2009
2010
Islamic Banking Competitiveness Report 2011-12 Page 38
10%
2010
Saudi Arabia
18% 5%
0.3%
30%
Conventional Banks
2008
30%
50%
Islamic Banks
2007
50%
30%
3.7% -2% -10% 2006
3% 2006
2008
10%
6%
0%
2007
16%
8%
2%
30%
Provisions
Kuwait
50%
30%
Operating Expense
-10% 2006
16%
2% 2007
2008
2009
2010
Leading GCC Islamic banks continue to grow deposit base at a faster pace
Money Supply and Deposit Growth Rates
40% 35%
Annual Growth Rate
30%
While the bigger Islamic banks have seen comfortable deposit growth, the smaller institutions have had to raise expensive investment deposits to meet liquidity and regulatory requirements
25% 20% 15% 10% 5% 0% 2007
2008
2009
2010
2011
2012
2013
2014
2015
Money Supply Money Supply Forecast Islamic Deposit
Source: Central Bank, Company Reports, EY analysis (sample based on selective Islamic and conventional banks)
Islamic Banking Competitiveness Report 2011-12 Page 39
Conventional Deposit
COMPETITIVENESS REPORT 2011-2012
39
Average cost of customer funds is lower for Islamic banks, primarily due to high share of free deposits in the deposit mix
4% 3%
5.0%
X Return on Assets
Operating Expense Provisions
However, cost of return-bearing customer deposits has been increasing relatively faster for a number of Islamic banks, compared to their conventional peers
3.8%
3.0%
2%
1.8% 1.3%
1%
0.4% 0% 2006
2007 Islamic Banks
2008 Conventional Banks
2009
2010
6 months US$ LIBOR (average)
Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks), US$ LIBOR: global-rates.com 40
ROE
Cost of Funding
Average Return on Investment Account Holders Funds/ Deposits
6% 5%
Deposits
Leverage
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 40
Sharp correction in investment asset values, and emerging focus on core banking business has led to significant change in asset mix
26%
Investment / Total Liabilities
24%
24%
22%
22%
22%
20% 18% 16% 14%
13%
12% 10% 2006
2007
2008
2009
2010
Conventional Banks
Islamic Banks
Source: Central Bank, Company Reports, EY analysis (sample based on selective Islamic and conventional banks)
Islamic Banking Competitiveness Report 2011-12 Page 41
COMPETITIVENESS REPORT 2011-2012
41
Islamic banks continue to hold more liquid assets than conventional banks in most markets across the region... Cash & Cash Equivalents / Total Liabilities
Bahrain
20%
20%
18%
15%
15% 12%
12%
10%
2006
2007
2008
2009
2010
14%
10%
33%
29%
20%
22%
18%
2008
2009
2010
2006 0% 2007
2008
2009
2007
2008
2009
2010
United Arab Emirates
2010 30% 20%
21%
17%
10% 8%
0%
Conventional Banks
16%
15%
10%
10%
14%
7%
5% 0%
0%
5%
2006
2007
2008
2009
2010
Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) COMPETITIVENESS REPORT 2011-2012
2007
Saudi Arabia
40%
10%
42
2006
20%
30%
Islamic Banks
13%
Qatar
15%
2006
10%
19%
18% 15%
16%
14%
0%
0% 20%
15%
5%
5%
25%
Kuwait
16%
Islamic Banking Competitiveness Report 2011-12 Page 42
2006
2007
2008
2009
2010
... but as noted earlier, Islamic banks have limited long term liabilities
Islamic Banks 100% 90%
1% 13%
80% 70%
27%
1% 14%
22%
2% 14% 18%
Conventional Banks
1%
2%
14%
14%
17%
15%
100% 90%
70% 60%
50%
50%
30%
59%
63%
66%
68%
69%
30% 20%
10%
10%
0%
0% 2007
2008
2009
2010
13%
6%
2%
5%
5%
20%
23%
19%
17%
12%
12%
13%
14%
Long Term Liabilities
Short term Liabilities
40%
20%
2006
16%
80%
60%
40%
5%
66%
Equity
62%
63%
63%
64% Deposits
2006
2007
2008
2009
2010
As % of Total Liabilities & Equity Source: Central Bank, Company Reports, EY analysis (sample based on selective Islamic and conventional banks)
Islamic Banking Competitiveness Report 2011-12 Page 43
COMPETITIVENESS REPORT 2011-2012
43
Both Islamic and conventional banks have a negative liquidity gap for short term maturity band Net Liquidity Gap / Total Asset (selected maturity band) 80%
72%
60%
55%
40%
20%
0% Less than one year
Over 1 year
-20%
-40%
-36% -44%
-60%
Conventional Banks
Islamic Banks
Source: Central Bank, Company Reports, EY analysis (sample based on selective Islamic and conventional banks) 44
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 44
Report Structure
2
3
Competitive Landscape
1
Performance Analysis
Executive Brief
Competing to Win: The CEO Agenda
Country Spotlight 5
4
Islamic Banking Competitiveness Report 2011-12 Page 45
COMPETITIVENESS REPORT 2011-2012
45
Competing to Win – The CEO Agenda
Key Messages
46
COMPETITIVENESS REPORT 2011-2012
1
Rebuild to last – operating model to be transformed for quality growth and to create sustainable shareholder value
2
Service driven culture – investing more in customer centric activities, with better use of technology and risk tools
3
Shari’a differentiation – acquire and build specialist product skills, ensure better integration with real economy
Islamic Banking Competitiveness Report 2011-12
Several Islamic banks have initiated a comprehensive transformation agenda for sustainable growth
Operational efficiency and effectiveness
Growth • Emphasis on core businesses • Consolidation, conversions and new start-ups – Next 100 in the making • Relationship growth with key clients, vendors and partners
• Customer centric operating model • Improved data management • Updated Shari’a compliant systems and processes
The Search for A New Business Model Risk and compliance
Innovation
• Risk, compliance and regulation to drive change in business models • Capital management - substantive reallocation involving tools such as risk adjusted returns, fund transfer pricing, economic capital etc.
• Embracing new technology • Product research & structuring – while minimizing reputation, regulatory and commercial risk
Islamic Banking Competitiveness Report 2011-12 Page 47
COMPETITIVENESS REPORT 2011-2012
47
Competing for customers who are not driven by Shariâ&#x20AC;&#x2122;a considerations only â&#x20AC;&#x201C; service quality is likely to replace pricing as the primary proposition
Customer Transformation
Customer Rapid Assessment
48
COMPETITIVENESS REPORT 2011-2012
Customer & market strategy
Sales & channel management
Customer intelligence & economics
Customer service management
Islamic Banking Competitiveness Report 2011-12 Page 48
Bank’s need to review their customer and market strategies to help understand customer requirements and engagement tactics in the new competitive landscape
Customer and market strategy (“the double compliant customer”) New market strategy
Customer segmentation
► Understand the competitive landscape and assess customer trends ► Analysis of regulation, Shari’a, tax and legal requirements
► Specially designed tools to develop deep understanding of segment requirements
Customer service improvement
Customer operating model review
► As-is and to-be analysis of customer experience to enhance customer engagement
► Development of organizational design and spans of control
► Develop the most important Customer moments of truth and develop service
► Data analysis and modelling to develop logical segmentation models
► Shared service analysis ► Provide the linkage between employee, Shari’a & customer engagement
Islamic Banking Competitiveness Report 2011-12 Page 49
Customer service improvement
COMPETITIVENESS REPORT 2011-2012
49
Customer analytics – banks can identify trends in customer behavior and spending to provide suitable products in line with the customers needs – successful rollout has delivered increases in retention and profitability
Customer analytics and economics Single customer view
Customer data architecture
► Developing an analytical single customer view to drive marketing activity ► Developing an operational single customer view to drive service experience
► Assist in the selection and implementation of CRM technology
Customer retention
Customer economics
► Customer profitability and lifetime value analysis
► Development of actionable plans for improving margin or optimizing cost ► Diagnosis of key improvement initiatives to help sustain revenues, & reduce costs whilst improving customer service
► Assist in designing a customer data database
► Cross sales and incentive schemes to assist in both retention and customer value management
Note: CRM (Customer Relationship Management) 50
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 50
Single customer view
Effective and compelling marketing tactics can increase the customer’s consideration to buy. The region is already saturated with loyalty schemes so another new one needs to be carefully thought through
Sales and channel management Customer loyalty management
Sales force effectiveness
► Assess customer data to determine position in the customer lifecycle
► Planning sales activities/ deploying resources to develop an effective sales strategy ► Overhauling the sales process including pipeline management, tender management, risk & regulation
► Analysis of customer needs and internal practices to help match customer expectations with service Channel strategy
Product development
► Use of data models for channel optimisation and defining incentive compensation for channel advocacy
► Developing a product strategy based on Shari’a contracts to assist in revenue growth
► Smooth transition of customers between channels, efficient complaints handling process and effective use of channels
► Product mix optimisation, margin improvement, consumer promotional effectiveness and competitor positioning
Islamic Banking Competitiveness Report 2011-12 Page 51
Customer loyalty management
COMPETITIVENESS REPORT 2011-2012
51
Banks in the region often use costly incentives to attract customers but then spend little on service to retain them – this is unsustainable
Customer service management Contact centre transformation
Service quality management
► Contact centre diagnostic and performance benchmarking
► Assess the impact of the move to self-service on the overall customer profitability
► Developing a detailed understanding of how contact centre fits into the overall service proposition Customer service effectiveness
Service channel transformation
► Assess service capabilities vs. competitors to identify gaps in the service proposition
► Developing an integrated approach to servicing via multiple channels
► Map the high level processes and identify the key issues from a customer’s perspective
52
► Identify hot-spots and instigate process changes
COMPETITIVENESS REPORT 2011-2012
► Determining the impact of service failures on customer experience
Islamic Banking Competitiveness Report 2011-12 Page 52
Contact centre transformation
In our experience, a customer-centric operating model which has processes built around the customer are the biggest drivers of benefits, as illustrated below
Benefits
5% 7% 8%
Typically three levers deliver the majority of the benefits
8% 11%
11%
100%
19% 60%
30%
Structural Rationalisation
Process & Productivity Improvement
Off shoring / Outsourcing
Business Portfolio Rationalisation
Purchasing Compliance / Governance
Supplier Rationalisation
Demand Challenge
Islamic Banking Competitiveness Report 2011-12 Page 53
Infrastructure Rationalisation & Efficiency
Total
COMPETITIVENESS REPORT 2011-2012
53
Several Islamic banks have initiated a comprehensive transformation agenda for sustainable growth
Operational efficiency and effectiveness
Growth • Emphasis on core businesses • Consolidation, conversions and new start-ups – Next 100 in the making • Relationship growth with key clients, vendors and partners
• Customer centric operating model • Improved data management • Updated Shari’a compliant systems and processes
The Search for A New Business Model Innovation
Risk and compliance
• Embracing new technology • Product research & structuring – while minimizing reputation, regulatory and commercial risk
• Risk, compliance and regulation to drive change in business models • Capital management - substantive reallocation involving tools such as risk adjusted returns, fund transfer pricing, economic capital etc.
54
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 54
Reduced profits and valuations are amongst the biggest business risks facing Islamic banks
Financial
Compliance
Top Risks for Islamic Banks Liquidity and cost
Managing the transformation, to customer centric business model
7 Reduced profits and valuations
Geopolitical, macroeconomi c shocks
3
2 1
Managing the transformation, to customer centric business model
Product risk, balancing innovation, law of the land and Shariâ&#x20AC;&#x2122;a compliance
5
6 4
Technology risk, incl. absence of fully compliant/ certified systems
Reduced profits and valuations Geopolitical, macroeconomic shocks Human capital, including misaligned compensation structures Product risk, balancing innovation, law of the land and Shariâ&#x20AC;&#x2122;a compliance Technology risk, including absence of fully compliant/ certified systems
Human capital, including misaligned compensation structures
Liquidity and associated cost Strategic
Operational
Islamic Banking Competitiveness Report 2011-12 Page 55
COMPETITIVENESS REPORT 2011-2012
55
Three way constraint on strategy – banking industry in general feeling the pressure, Islamic banks are no exception
56
►
Business focus will have to change
►
Spreads will need to rise
►
Higher capital requirement for trading book
►
Large, long-term corporate financing will need to be repriced
COMPETITIVENESS REPORT 2011-2012
Cost of more capital
Leverage constraint
Islamic Banking Competitiveness Report 2011-12 Page 56
Cost of liquid assets buffer
Liquidity â&#x20AC;&#x201C; challenges and needed improvements
Product innovation (e.g. credible, compliant alternatives to Commodity Murabaha)
Contingent commitments
New data hubs needed
Systems Process
Better consolidated/ group wide data
Funds transfer pricing
Governance
Collateral tracking systems
Enhanced analytic capability
Islamic Banking Competitiveness Report 2011-12 Page 57
COMPETITIVENESS REPORT 2011-2012
57
As with conventional institutions, Islamic banks will find it challenging to return to pre 2007 profitability levels – question is how big will the cuts be?
Rate of return on equity
Estimates of cut pre-mitigating actions – reduction around 5-9 percentage points Components of the reduction Capital quality Capital increase Leverage ratio Liquid assets
0.8 1.3 0.1 0.6
Strategic issue for the banks – how much disclosure is needed to convince equity investors they are safer 58
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 58
ILLUSTRATION ONLY
Pre-crisis, 15 - 25%
It is now even more important to link remuneration code with institutions’ performance, and to retain scarce talent
Remuneration Committee – Bank wide remuneration policy (NEDs + External Advisors) Oversight of reward protocols + Reward framework Bonus decision (form and amount)
►
“Golden handshakes” “parachute” payments Payout decision (timing and amount) Board level executives
“High end” employees
Individuals with significant influence on direction and risk profile ►
Human capital
►
Risk
►
Tax
Short term incentive plans Long term incentive plans
►
► ►
Human capital Risk Tax
► ►
Assessment Line Mgmnt/ HR
Balanced Score Card Salary
►
Key challenges
CRO
People Quality Customer Risk
Risk
Talent retention Corporate culture Shares vs. cash/ deferrals Data availability and quality
Current practices All other employees
Performance measurement framework Salary / Bonus Short term incentive plans
► ►
Human capital
►
Risk
►
Tax
Long term incentive plans
Islamic Banking Competitiveness Report 2011-12 Page 59
►
►
Reviewing new rules and guidance on remuneration Revising compensation policies, processes and systems Update balanced scorecards and new incentive plans
COMPETITIVENESS REPORT 2011-2012
59
MI framework with risk adjusted performance tools will be central to directing quality growth Business Strategy
Value Drivers
Performance Measures Income per Account
Operating Measures
Action Plans
Net Profit Income per Account Cost of Funding
Finance Income
Sales (# of New Accounts)
Volume
Investment Income
Long Term Embedded Value
Number of Existing Account Number of Closed Account
Investment Return Cost of Funding
Operating Expenses Improve Economic Profit
Write - Offs
Bad & Doubtful Debts
Recovery Revenue
Bad Debt Provision
# Fraudulent Accounts Value of Delinquency
# of Deceased Account Provision Estimate
Probability of Default
Value Deterioration
Loss Given Default
FX Volatility
Credit Risk Capital
Risk Capital
Operational Risk Capital Other Risks
Cost of Risk Capital
Risk free rate
Hurdle Rate
Beta Market premium
60
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 60
# of Delinquent Account
Exposure at Default Portfolio Diversification
ILLUSTRATION ONLY
Investment Impairment
Cure Rate
One potential scenario shows that risk practices at Islamic banks need to evolve significantly to achieve sustainable growth
ERM FRAMEWORK
Business Strategy Risk Appetite Risk Adjusted Performance Measurement
Capital Planning and Management
Risk Control & Limit Setting Scenario Analysis & Stress Testing Risk Aggregation & Economic Capital Risk Measurement Risk Identification Credit Risk
Market Risk
Opâ&#x20AC;&#x2122;s Risk
Liquidity Risk
Profit Rate Risk
Strategic Risk
Risk Universe Islamic Banking Competitiveness Report 2011-12
Catastrophe Risks
Data & IT Infrastructure
Risk Monitoring & MI
Risk Organisation & Governance
Active Portfolio Management
Policies, Standards, People & Culture
Risk Based Pricing
Comparable to conventional Need Enhancement Weak
COMPETITIVENESS REPORT 2011-2012
61
Several Islamic banks have initiated a comprehensive transformation agenda for sustainable growth
Operational efficiency and effectiveness
Growth • Emphasis on core businesses • Consolidation, conversions and new start-ups – Next 100 in the making • Relationship growth with key clients, vendors and partners
• Customer centric operating model • Improved data management • Updated Shari’a compliant systems and processes
The Search for A New Business Model Innovation
Risk and compliance
• Embracing new technology • Product research & structuring – while minimizing reputation, regulatory and commercial risk
• Risk, compliance and regulation to drive change in business models • Capital management - substantive reallocation involving tools such as risk adjusted returns, fund transfer pricing, economic capital etc.
62
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 62
At current pace, MENA Islamic banking assets with commercial banks are set to grow by an additional $575 billion by 2015 2015 Forecast (US$b)
The Levant
87
Turkey 5
140
Tunisia
10
Syria Lebanon 7
Morocco
13
Algeria
Jordan
Iraq
12
Libya
13
5
104
Kuwait
GCC
20
79
Bahrain
Egypt
Qatar
34
UAE 156
Saudi Arabia Oman
~ 291
North Africa
8
Yemen 7
Key Total ISLAMIC banking assets 2015 (US$b) - the size of the circle denotes relative size
Source: Central Bank Reports, The Banker, Analyst Briefings, EY analysis
Islamic Banking Competitiveness Report 2011-12 Page 63
COMPETITIVENESS REPORT 2011-2012
63
While most Islamic banks remain localized to their GCC base, there is potential demand for an estimated 100 new Islamic financial institutions across MENA by 2020
America
America
1%
2%
Europe
Europe
5%
8%
GCC Islamic Banks
MENA
MENA
85%
87%
GCC Conventional Banks
Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) 64
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 64
Asia
Asia
3%
1%
However, a major impediment to growth is the weak Islamic finance enabling infrastructure in several OIC markets Enabling infrastructure would include legislative, regulatory, legal, accounting, tax, human capital, and Shariâ&#x20AC;&#x2122;a business framework
Further, Islamic finance standard setting institutions have limited geographic reach / enforceability remains a challenge
Bahrain, Malaysia and UAE are amongst the major Islamic finance centers Relatively Developed Infrastructure
Some Infrastructure
Weak or No Infrastructure
OIC (Organization of Islamic Countries)
Islamic Banking Competitiveness Report 2011-12 Page 65
COMPETITIVENESS REPORT 2011-2012
65
Repositioning â&#x20AC;&#x201C; through conversions and mergers â&#x20AC;&#x201C; will be an important theme, in some instances driven by market pressures
Transaction announced date
Oct-09
Jan-10
Oct-10
Jul-10*
Target company
Bahraini Saudi Bank
Ahli United Bank Egypt
Royal Bank of Scotland (UAE) (Retail Banking business)
Islamic Bank of Britain Plc
Bahrain
Egypt
UAE
UK
Al-Salam Bank
Ahli United Bank
Abu Dhabi Commercial Bank
Qatar International Islamic Bank
Bahrain
Bahrain
UAE
Qatar
N/A
53
100
40
Al-Salam Bank acquired a 90.31% stake in Bahraini Saudi Bank BSC. Salam issued 227.8m new shares for BHD 0.112 each
Ahli United Bank Egypt's 54.7% stake to be acquired by Ahli United Bank in a share swap transaction.*
Abu Dhabi Commercial Bank (ADCB), agreed to acquire the retail banking business of Royal Bank of Scotland (UAE).*
Qatar International Islamic Bank (QIIB) agreed to acquire 78.5% stake in Islamic Bank of Britain Plc.
Target country
Bidder company Bidder country Deal value ($ m)
Key details
Source: Mergermarket, Company annual reports, * Conventional banks 66
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 66
In GCC, the pricing multiples of Islamic banks have converged over recent months – now broadly in line with conventional banks
Average P/E of Banks in GCC – Sep 2011
Average P/BV of Banks in GCC – Sep 2011 4
24 20
3
3.4
1.6
1.9
1.4 N/A
0.8
N/A
0
N/A
1.4
1.8
2.1
1
10.1
1.6
0.9
(times)
2.0
2
16.3 11.5
13.0 8.5
6.8
N/A
0
N/A
4
11.1
15.2
8
N/A
12
12.8 12.2
20.7
(times)
16
Islamic
Conventional
Islamic
Conventional
Avg. Islamic
Avg. conventional
Avg. Islamic
Avg. conventional
Banks include all listed retail banks excluding those having P/E of less than 0 or greater than 30; UAE banks include Dubai & Abu Dhabi based banks only; N/A – No bank with P/E within specified range in the respective country; Source: Bloomberg, OneSource & EY perspective
Islamic Banking Competitiveness Report 2011-12 Page 67
COMPETITIVENESS REPORT 2011-2012
67
…with Kuwait and UAE having the highest and lowest pricing multiples respectively Kuwait
KSA Average Conventional
Average Conventional
2.1
Conventional
1.9
Conventional
14.0
2.4
1.4
Average Islamic
20.7
27.4
10
0
10
20
11.1
3.4 1.2
Conventional
1.5
Conventional
1.1
Conventional
1.5
12.3
Conventional
1.8
12.6
Conventional
1.2
12.0
Conventional
1.5
5
0.9
Average Islamic
0.8
Conventional
0.7
Islamic
0.8
Conventional
0.9
Conventional
1.2
Conventional
0.9
Conventional
0.6
7.5 9.9 13.9
9.3
3.4 10
30
Average Conventional
15.2
Conventional
Islamic
Qatar
UAE
15.2 0
5
10
15
20
10
Oman
Average Conventional
1.9
Average Islamic
1.8
Conventional
2.4
14.0
Islamic
1.8
13.4
Islamic
1.8
13.2
Islamic
2.4
Conventional
11.5 13.0
14.4
1.2
10.9
Conventional
1.9
11.1
Conventional
1.5
11.1
Conventional
2.0 10
5
10.0 0
5
10
15
20
Average Conventional
1.4
Conventional
1.4
Conventional
1.8
Conventional
1.6
Conventional
1.3 10
5
COMPETITIVENESS REPORT 2011-2012
16.3
Average Conventional
1.6
Conventional
1.9
Conventional
1.5
Conventional
1.4
14.4
5.1 8.5 7.0 8.4 6.0 7.4 0
5
10
10.1
8.6
12.2 9.8
15.0 11.3 0
5
10
15
20
Islamic Banking Competitiveness Report 2011-12 Page 68
8.5
Bahrain
Banks include all listed retail banks excluding those having P/E of less than 0 or greater than 30; UAE banks include Dubai & Abu Dhabi based banks only; Source: Bloomberg, OneSource & EY perspective 68
5
6.8
10
5
12.0
0
5
10
P/BV (Sep 2011) P/E (Sep 2011)
15
Islamic banks constitute approximately 9% of market capitalization in GCC
Break-up of Total Market Capitalization of GCC indices (Sep 2011) 100% 90% 80%
43%
70%
40%
77%
18%
35%
4%
11%
6% 31%
30%
5%
20% 10%
50%
53% 69%
60% 50%
27%
30%
48%
29%
14% 21%
0% Kuwait Non-financial sector
11% KSA
4% UAE
12% Qatar
Other financial sector
1%
30%
34%
22% 9%
3% Oman
Conventional retail banks
Bahrain
Average
Islamic retail banks
*Share of other financial sector estimated at December 2010 level; Source: Bloomberg, OneSource & EY analysis (rounded numbers)
Islamic Banking Competitiveness Report 2011-12 Page 69
COMPETITIVENESS REPORT 2011-2012
69
M&A decision for Islamic banks come with certain motivations, and challenges
Key motivators ►
Market pressure – threat of being left out in the new wave of M&A in some economies
►
Aggressive due diligence
►
Reverse due diligence
Challenges
►
Retention of key employees
►
Potential synergistic
Pricing – Difficulty in finding pricing benchmarks Post integration issues
►
Internal &external efficiencies
►
Business model transformation/ realignment
►
Bigger scale – expansion to exploit upcoming infrastructure projects
►
Negotiation
►
Regulatory approvals
Inorganic growth – strategic mergers & acquisitions
►
Willingness to accept transactions structured with significant contingent payment provisions
►
70
Buyers/ sellers considerations
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 70
Several Islamic banks have initiated a comprehensive transformation agenda for sustainable growth
Operational efficiency and effectiveness
Growth • Emphasis on core businesses • Consolidation, conversions and new start-ups – Next 100 in the making • Relationship growth with key clients, vendors and partners
• Customer centric operating model • Improved data management • Updated Shari’a compliant systems and processes
The Search for A New Business Model Risk and compliance
Innovation
• Risk, compliance and regulation to drive change in business models • Capital management - substantive reallocation involving tools such as risk adjusted returns, fund transfer pricing, economic capital etc.
• Embracing new technology • Product research & structuring – while minimizing reputation, regulatory and commercial risk
Islamic Banking Competitiveness Report 2011-12 Page 71
COMPETITIVENESS REPORT 2011-2012
71
Customer adoption of digital technology is growing exponentially
Worldwide Audience of
1bn
2bn internet users globally 700m Facebook users 30bn iTunes downloads 8bn SMS send every day
50m
7 hours per day spend using digital technology $60bn peer-to-peer mobile payments by 2013
10m
2 Years
10 Years
50 Years
Sources: www.internetworldstats.com; The World Factbook, CIA, EY perspectives 72
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 72
Digital touchpoints are now critically important for engagement, sales & service delivery and retention strategies
► Each customer will expect a bespoke service from their bank at whichever touchpoint they use
Personalised Experience
Deeper Relationships
Customer Expectations
►With technology on handheld devices, customers will expect to undertake banking whenever and wherever they need Anytime, Anw here
►Security and trust will be important factors customers will review when choosing which digital channels they will use ►Bank’s product and marketing teams need to maximise intelligence gathered from all types of customer transaction data to forecast customer needs
Security & Trust
Islamic Banking Competitiveness Report 2011-12 Page 73
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73
MENA wide, there has been a considerable increase in the number of users of smartphones and social media over the last 12 months. This bodes well for banks embracing digital technologyâ&#x20AC;Ś. Government stimulus packages & Nationalisation programmes Wealth distribution & Wealth acquisition A young population already inclined to use digital technology Middle East Internet Usage and Population Statistics
Bahrain Iran Iraq Jordan Kuwait Lebanon Oman Palestine (West Bk.) Qatar Saudi Arabia Syria United Arab Emirates Yemen Gaza Strip Middle East
Population Median Age Users, in Internet Usage, % Population Facebook ( 2011 Est. ) of Population 2001 Latest Data (Penetration) Subscribers 1,214,705
30.4
40,000
649,300
53.50%
77,891,220
27.6
250,000
36,500,000
46.90%
n/a
30,399,572
20.6
12,500
860,400
2.80%
860,400
6,508,271
21.8
127,300
1,741,900
26.80%
1,675,780
2,595,628
26.4
150,000
1,100,000
42.40%
822,640
4,143,101
29.4
300,000
1,201,820
29.00%
1,201,820
3,027,959
23.9
90,000
1,465,000
48.40%
285,080
2,568,555
20.9
35,000
1,379,000
53.70%
599,520
287,020
848,016
30.8
30,000
563,800
66.50%
245,580
26,131,703
21.6
200,000
11,400,000
43.60%
4,034,740
22,517,750
21.5
30,000
4,469,000
19.80%
n/a
5,148,664
30.2
735,000
3,555,100
69.00%
2,340,880
24,133,492 1,657,155
16.4 17.5
15,000 n/a
2,349,000 n/a
9.70% n/a
329,040 n/a
67,234,320
32.20%
12,682,500
208,785,791
23.6
2,014,800
Banks have a customer base that is ready to embrace the products and service offeringâ&#x20AC;&#x2122;s that will meet their expectations of personalised experience, anytime anywhere, security and trust and deeper relationships. Sources: www.internetworldstats.com; The World Factbook, CIA, EY perspectives 74
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 74
Product innovation - Shari’a structures are only now being tested (for example sukuk market) Discussion on Sukuk Structures Assets Backed Structures
Asset Based Structures
• Typically structured as an Ijarah (sale and lease back) or a Sharikat al Melk (co-ownership)
• Structured as a Musharaka (Partnership), a Wakala (Agency) or a Mudaraba (Fund Management)
• Involves a sales contract where a beneficial interest is acquired in certain assets
• Allows for future asset creation from funds raised. Consequently, 33% tangible asset requirement does not apply
• Funds are immediately invested in Shari’a compliant assets
• Requires investment of funds according to an approved, Shari’a compliant investment plan
• Minimum requirement is to have at least 33% (increasingly 51%) tangible assets at the outset
• Suitable structure for development projects where assets are to be developed in the future and are not immediately cash generative
• Provides the greatest discretion in use of proceeds as initial investment has already occurred Source: Norton Rose
Islamic Banking Competitiveness Report 2011-12 Page 75
COMPETITIVENESS REPORT 2011-2012
75
Real life case study of a restructured sukuk issue
Sukuk Holders
Musharaka Purchase Undertaking
Issuer as Investor Partner/ Lessor/ Trustee
Obligor as Commercial Partner
Mushraaka Sale Undertaking
Lease of Issuer Assets
1% Profit
Units Cash contributions
99%Profit
Musharaka with Business Plan
Rental Payment during Rental Period and Final Rental Payment
Project Co as Lessee
Units Contribution in kind (land)
Management Agreement
Obligor as Manager
ILLUSTRATION Source: Norton Rose 76
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 76
General stages of the sukuk restructuring exercise (see Appendix for detailed description)
1 Existing arrangement 2 Sukuk holder accord
3
►
A thorough understanding of the underlying Sukuk structure together with the corresponding agreements is required
►
Care shall be taken that the restructuring would not cause a cross default
►
Sukuk holders have to be on board with respect to the key features of the restructuring, this shall also include a comparison of existing core provisions of the Sukuk structure with the restructured one Sukuk holder agreement shall be required for the revised structure
►
►
Exit option
4 Benefits & Compliance
►
Dissenting sukuk holders shall be provided with an exit route without any breach to the effective provisions of the existing sukuk structure Sukuk holders who opt to buy the portion of dissenting sukuk holders may be given some additional benefits
►
The revised structure shall benefit both parties for it to be economically efficient
►
The revised documentation shall comply with existing laws and regulations
►
The trail of restructuring shall be documented
Source: Norton Rose
Islamic Banking Competitiveness Report 2011-12 Page 77
COMPETITIVENESS REPORT 2011-2012
77
Report Structure
2
3
Competitive Landscape
1
Performance Analysis
Executive Brief
Competing to Win: The CEO Agenda
Country Spotlight 5
78
COMPETITIVENESS REPORT 2011-2012
4
Islamic Banking Competitiveness Report 2011-12 Page 78
Country Spotlight – Introducing selective Islamic banking markets
Key Messages 1
Malaysia – significant budget incentives to develop capital market products, SME business and venture financing
2
Turkey – Unique participation banking model, $25bn value, growing at CAGR of 30% plus for 2006-2010
3
Oman – potentially a $6-10bn Islamic banking market over next five years, first two licenses awarded
Islamic Banking Competitiveness Report 2011-12
COMPETITIVENESS REPORT 2011-2012
79
Country focus - Salient features
Malaysia
80
Turkey
Oman
Banking Parameters ► Total banking assets 2010: US$505bn CAGR (06-10): 9.1% ► Islamic banking market share 2010: 17.3% ► Total banking deposits 2010: US$ 360bn and CAGR [06-10]– 9.5% ► Banking asset penetration 2010: 220% ► Deposit penetration 2010 : 156%
Banking Parameters ► Total banking assets 2010: US$ 652bn CAGR (06-10): 25% ► Islamic banking market share 2010: 4.3% ► Total banking deposits for 2010: US$ 399bn and CAGR [06-10] – 25% ► Banking asset penetration 2010: 85% ► Deposit penetration 2010: 52%
Banking Parameters ► Total banking assets 2010: US$41bn CAGR (08-10): 6.6% ► Islamic banking market share 2010: 0% ► Total banking deposits 2010: US$27bn CAGR (06-10): 22% ► Banking asset penetration 2010: 70% ► Deposit penetration 2010: 47%
Islamic finance commentary ► Regulators recognise the profit and loss sharing concept of Islamic banks ► There are currently 17 Islamic banks and four international Islamic banks ► Conventional banks are encouraged by the Central Bank to establish Islamic windows ► Various incentives (legal & tax) are provided by the government (e.g. up to 100% foreign equity ownership for Islamic banks
Islamic finance commentary ► Turkey has a total of 49 banks, and 4 of them are Participation Banks ► Currently a law is in place which recognises the participation features of Islamic banks ► Total number of branches of Participation Banks has increased by 8% in 2010 to reach 607
Islamic finance commentary ► Royal Decree to introduce Islamic banking ► Central Bank of Oman expected to allow full Islamic banks and Islamic windows, new regulatory regime for Islamic banking business expected ► Two licenses awarded for full Islamic banks; most conventional banks expected to compete for Shari’a banking business through window operation
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 80
Malaysian Islamic banking sector registered a four year CAGR of 19.3% to reach US$ 87bn in 2010
0.25
600 US$bn
500
0.2
400
0.15
300 0.1
200 100
51
43
63
76
87
0.05
0
0 2006
2007
Total Banking Assets
2008 Total Islamic Banking Assets
2009
2010 Islamic Banking Growth
17% 83%
Source: BNM Annual Report 2010
Islamic Banking Competitiveness Report 2011-12 Page 81
COMPETITIVENESS REPORT 2011-2012
81
Islamic banking assets and deposits registered healthy growth rate Malaysia's Islamic Banking Sector Total Financing (US$ bn) 60
80
53
50
CAGR of 19.9%
40 30
Malaysia's Islamic Banking Sector Total Deposits (US$ bn)
44
62
60
35 26
71
CAGR of 21.6%
70
50
50
29
40
40 32
30
20
20
10
10
0
0
2006
2007
2008
2009
2006
2010
2007
Source: BNM Annual Report 2010 82
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 82
2008
2009
2010
The five largest banks in the country account for approximately 58% of the market share Market Share 2010
Maybank Islamic 18% Other 41%
CIMB Islamic 13%
Public Islamic 9% AmIslamic 7%
Bank Islam 12%
• Malaysia's long track record of building a successful domestic Islamic financial industry of over 30 years gives the country a solid foundation - financial bedrock of stability that adds to the richness, diversity and maturity of the financial system • Islamic banks in Malaysia are regulated by the Islamic Banking Act of 1983 and are governed by the Central Bank of Malaysia, Bank Negara Malaysia (BNM) • There are currently 17 Islamic banks and four international Islamic banks
Source: BNM Annual Report 2010
Islamic Banking Competitiveness Report 2011-12 Page 83
COMPETITIVENESS REPORT 2011-2012
83
Household sector benefits the most from Islamic financingâ&#x20AC;Ś whereas deposits are mainly generated from business enterprises and financial institutions Financing by sector
Communicati ons 4%
Deposit by customer
Other 13%
Real estate 3% Construction 4% Trade 4% Commercial 5%
Individuals 21%
Household sector 62%
Business enterprises 31%
Healthcare 5%
Source: BNM Annual Report 2010 84
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 84
Government 18%
Financial Institutions 30%
Key messages
1
Liberal measures such as issuance of licenses and increased limits of foreign equity ownership for Islamic financial institutions will help to attract and create a diverse community of local and foreign Islamic financial institutions
2
The growth of halal food industry in Malaysia has positive implications for the Islamic banking and finance industry, as the source of financing for the halal food industry should be from a Shari’a-based source
3
The country’s large and young Muslim population (60.4% of the country’s total population) provides impetus for continued strong growth of Islamic banking
Islamic Banking Competitiveness Report 2011-12 Page 85
COMPETITIVENESS REPORT 2011-2012
85
Participation banking in Turkey has grown at a four year CAGR of 33% and now accounts for approximately US$ 25bn in asset
45%
700
40%
600 US$bn
35%
500
30%
400
25%
300
20% 15%
200
10%
100
5%
0
0% 2006
2007 Total Assets
2008 Islamic Assets
2009
Islamic Banking Growth
4%
96%
Source: Company Reports, Analyst Briefings, Central Bank 86
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 86
2010
Healthy growth in participation banking assets and deposits
Turkey Islamic Banking Sector Total Financing (US$ bn) 20
18
18 CAGR of 32.3%
16 14 10 6
25 19
20
14
11
12 8
Turkey Islamic Banking Sector Total Deposits (US$ bn)
CAGR of 31.7%
15
15
11
9 10
6
9 6
5
4 2
0
0 2006
2007
2008
2009
2006
2010
2007
2008
2009
2010
Source: Company Reports, Analyst Briefings, Central Bank
Islamic Banking Competitiveness Report 2011-12 Page 87
COMPETITIVENESS REPORT 2011-2012
87
Participation branches increased by approximately 8% in 2007 alone
Employees and Branches
Market Share Branches
Employees
14,000
700
12,000
600
10,000
500
8,000
400
6,000
300
4,000
200
2,000
100
0
0 2005 2006 2007 2008 2009 2010 Employees
7% 6% 5% 4% 3% 2% 1% 0%
2005
2006
Total Assets
Branches
Source: Company Reports, Analyst Briefings, Central Bank 88
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 88
2007
2008
Funds Collected
2009
2010
Funds Invested
Key Messages
1
Participation banking is expected to more than double its market share to 10% in the next decade. A number of new applications have already been made with the Turkish banking authorities
2
The core Shariâ&#x20AC;&#x2122;a sensitive segment constitutes approximately 20% of the bankable market
3
Turkish National Assembly in February passed tax and other measures to facilitate the introduction of sukuk in Turkey
Islamic Banking Competitiveness Report 2011-12 Page 89
COMPETITIVENESS REPORT 2011-2012
89
With the exception of 2009, Omanâ&#x20AC;&#x2122;s banking sector has seen steady growth in total assets, deposits, credit and net profits between 2005 and 2010 Omani Banks â&#x20AC;&#x201C; Key Indicators (2004-2010) Total assets
Total deposits
Total credit
Net Profit
300
18,000 16,000
250 14,000 200
12,000 10,000
150 8,000 100
6,000 4,000
50 2,000 0
0 2004
2005
2006
2007
2008
Source: Company Reports, Analyst Briefings, Central Bank 90
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 90
2009
2010
Retail lending constitute 40% of total credit in 2010, personal loans grew at a CAGR of 24% between 2005 & 2010 Loan Segmentation (% of total loans) in 2010
Credit distribution by sector (RO million)
12,000 Other
9%
10,000 Mining and Quarrying Wholesale & Retail Trade
8,000
Import Trade 6,000
Manufacturing
50% 41%
Services
4,000
Construction 2,000
Personal
Personal Loans
Government
0 2008
2009
Business
2010
Source: Company Reports, Analyst Briefings, Central Bank
Islamic Banking Competitiveness Report 2011-12 Page 91
COMPETITIVENESS REPORT 2011-2012
91
Bank deposits have grown at CAGR of 23% from 2005 to 2010
Bank Deposits (RO million) Total deposits
12,000
Deposit Split
y-o-y growth % 10,517
10,000 8,579
9,091
Demand
45%
90% 80%
30% 6,491
70%
25%
60%
20%
50%
6,000 4,685 4,000
3,762
40%
15%
30%
10%
20%
2,000 5%
10%
0%
0 2005
2006
2007
2008
2009
0%
2010
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Company Reports, Analyst Briefings, Central Bank 92
COMPETITIVENESS REPORT 2011-2012
Time
100%
40% 35%
8,000
Saving
Islamic Banking Competitiveness Report 2011-12 Page 92
Key Messages
1
Islamic banking was introduced in Oman in 2010 through a Royal Decree
2
Central Bank has awarded two Islamic banking licenses, to Bank Nizwa and Bank Izz. Most of the conventional banks are expected to launch Islamic windows
3
Islamic banking could potentially gain up to 10% market share over next five years, also facilitating Shariâ&#x20AC;&#x2122;a compliant foreign investment
Islamic Banking Competitiveness Report 2011-12 Page 93
COMPETITIVENESS REPORT 2011-2012
93
Appendices
94
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 94
The case study draws upon a real life restructuring involving an amendment of the terms and conditions of the sukuk certificates (the “Certificates”) and the underlying capital markets and Islamic documentation (the “Restructuring”). Below is a simplified diagram of the sukuk structure
Sukuk Holders
Mushraka Purchase Undertaking
Issuer as Investor Partner/Lessor/ Trustee
Obligor as Commercial Partner
Mushraka Sale Undertaking
Lease of Issuer Assets
1% Profit
Units Cash contributions
99%Profit
Musharaka with Business Plan
Rental Payment during Rental Period and Final Rental Payment
Units Contribution in kind (land)
Management Agreement
Project Co as Lessee
Obligor as Manager
Source: Norton Rose
Islamic Banking Competitiveness Report 2011-12 Page 95
COMPETITIVENESS REPORT 2011-2012
95
Sukuk restructuring case study (cont’d)
The principal features of the structure are as follows: 1.
On the issue date of the Certificates (the “Issue Date”), the Sukuk holders paid the issuance proceeds to the Issuer SPV, which in turn contributed such proceeds into a Musharaka in its capacity as Investor Partner (the “Issuer’s Contribution”). On the Issue Date, the Obligor contributed certain land in the Musharaka in its capacity as Commercial Partner (the “Obligor’s Contribution”), which together with the Issuer’s Contribution constituted the initial Musharaka assets, which were co-owned by the Issuer and the Obligor (as Musharaka partners) in the proportions in which each contributed capital to the Musharaka.
2.
On the Issue Date, the Issuer as lessor and the Obligor as lessee entered into an agreement for the lease of the Issuer Assets to the lessee (the “Lease Agreement”). “Issuer Assets” were essentially the Issuer’s undivided share, rights, title, interests and entitlements in the Musharaka assets.
3.
Pursuant to a Management Agreement, the Musharaka partners appointed the Obligor as manager to develop a certain project and conduct the Musharaka business on their behalf in accordance with the terms and conditions of the Musharaka Agreement and the Management Agreement. The objectives of the Musharaka included the development of the said project and the sale of the developed land in accordance with the musharaka business plan appended to the Musharaka Agreement.
4.
Not withstanding the proportion in which each Musharaka partner made its respective contributions, the Musharaka Business Plan contemplated that the profit derived from the Musharaka assets would be distributed between the Musharaka partners in the proportions 99 per cent. to the Obligor and 1 per cent. to the Issuer. The profit derived from the Musharaka assets and the rental payments made under the Lease Agreement were used to fund payments of Periodic Distribution (profit) Amounts to Sukuk holders.
5.
Pursuant to a Musharaka Purchase Undertaking, the Obligor irrevocably undertook to the Issuer that upon the Issuer exercising, at any time between the date of the undertaking and the expiry date of the Musharaka, its option to oblige the Obligor to buy all of the Issuer’s Musharaka units as a result of: (i) the occurrence of an event of default or (ii) on the expiry date of the Musharaka (being the scheduled dissolution date in respect of the Certificates), the Obligor would buy the Issuer’s units on an “as is, where is” basis for the Termination Sum (essentially, an amount representing the principal amount of the Certificates plus accrued but unpaid profit), on the terms and subject to the conditions of the Musharaka Purchase Undertaking. The Musharaka Purchase Undertaking operated in tandem with a Lease Purchase Undertaking such that exercise by the lessor of the Lease Purchase Undertaking automatically resulted in a deemed exercise by the Issuer of its rights under the Musharaka Purchase Undertaking. Payment by the lessee of the “Termination Sum” under the Lease Purchase Undertaking would be deemed to discharge the obligation of the Obligor to pay the Termination Sum under the Musharaka Purchase Undertaking.
6.
A mortgage over the land (or certain parts thereof) in favour of a security agent was taken as security in respect of the Certificates. The ratio expressed (as a percentage) of the aggregate value as reasonably determined by the lessee of the assets subject to the trust constituted pursuant to the Trust and Agency Deed in respect of the Certificates, less any further permitted financial indebtedness (as defined in the Transaction Documents) incurred by the Obligor, to the aggregate of all amounts outstanding to the Sukuk holders at the corresponding point in time (the “Security Cover Ratio”) was set at a ratio equal to or greater than 150 per cent.
Source: Norton Rose 96
COMPETITIVENESS REPORT 2011-2012
Islamic Banking Competitiveness Report 2011-12 Page 96
Key terms of the restructuring / incentives offered to investors
The key elements of the Restructuring the proposals put forward to investors were as follows: 1.
The Transaction Administrator (the de facto trustee acting on behalf of and in the interests of Sukuk holders) informed investors (via a series of notifications sent through the clearing systems and through publications in relevant local newspapers) that the ultimate obligor in the structure (the “Obligor”) and the Issuer SPV intended to restructure aspects of the Sukuk and amend the terms of the Certificates. A bank (the “Dealer”) was chosen to assist with and coordinate the implementation of the Restructuring. For the Restructuring to take place, it was necessary to amend certain key terms of the Certificates as well as the underlying documentation in respect of the Sukuk structure, more importantly the Musharaka Agreement and the Lease Agreement and the security documentation.
2.
Sukuk holders were informed that the Obligor and the Issuer wished to extend, in whole or in part, the term of the Certificates. The Sukuk holders were also informed that the Obligor and the Issuer wished to increase the rate at which existing profit amounts (the “Periodic Distribution Amounts”) on the Certificates would be calculated to be equal to a fixed rate of 6 per cent. and that the Issuer was willing to pay to the Sukuk holders accepting to participate in the Restructuring an extraordinary (one-off) Periodic Distribution Amount equal to roughly between 1 and 2 per cent. of the principal amount of the Certificates held by the Sukuk holders. Finally, the Sukuk holders were informed that the Obligor and the Issuer were willing to enhance the security granted to the Sukuk holders by increasing the Security Coverage Ratio to 200 per cent.. The increase in the collateral security package supporting the Certificates and consequent increase in the Security Coverage Ratio of the Certificates to 200 per cent. would be effected by authorising the Issuer to procure that the Obligor subdivided the existing mortgaged land and sold the subdivided plots to third parties while maintaining the Security Coverage Ratio to 200 per cent..
3.
Sukuk holders were asked to approve a number of amendments relating to the Sukuk structure and the Certificates, including: i.
extending the original maturity by 3 years;
ii.
approving the increase in Periodic Distribution Amounts as well as the offer of an extraordinary Periodic Distribution Amount (essentially, a restructuring fee) to those Sukuk holders who accepted the terms of the Restructuring of roughly between 100 and 200 basis points calculated on the principal amount of Certificates held by such investors following the Restructuring; and
iii.
extending the Security Coverage Ratio in respect of the Certificates to 200 per cent..
4.
The Sukuk holders were asked to vote, by way of signing an Extraordinary Resolution, in respect of the matters mentioned in the preceding paragraph. However, participation in the Restructuring was not compulsory. Sukuk holders were notified that if they chose not to participate in the Restructuring they would have the option to be repaid in full on the Scheduled Dissolution Date (the original maturity date). Dissenting Sukuk holders would be repaid at maturity through the exercise (in part) of the purchase undertakings in the structure and otherwise in accordance with the original terms and conditions set out in the Offering Circular prior to any amendments effected pursuant to the Extraordinary Resolution.
5.
In addition, Sukuk holders were given the option, while agreeing to participate in the Restructuring, to increase their participations in the Sukuk and purchase Certificates from those Sukuk holders who wished to obtain full repayment on the scheduled dissolution date. Source: Norton Rose
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Procedural aspects of the restructuring
6.
Sukuk holders were asked to waive the requirements in respect of notice of time, place and purpose of Sukuk holders meetings set out in the terms and conditions of the Certificates and in the Trust and Agency Deed and to agree to the terms of the Restructuring by signing an extraordinary resolution of Sukuk holders holding in aggregate 90 per cent. of the principal amount of the Certificates.
7.
Sukuk holders were informed that a consultation period (the “Initial Consultation Period”) would be put in place (running from the effective date of the Extraordinary Resolution and expiring one week prior to the scheduled dissolution date) during which each Sukuk holder would be asked to return to the Issuer an extension subscription form substantially in the form prescribed in the Extraordinary Resolution indicating the number of the Certificates held by the Sukuk holder and the aggregate principal amount thereof, and irrevocably confirming whether: i.
the Sukuk holder accepts the extension of maturity and the amendment of the Certificates with respect to all the Certificates held by it;
ii.
the Sukuk holder rejects the extension of maturity and the amendment of the Certificates with respect to all the Certificates held by it and requests the payment to it of the scheduled dissolution amount (essentially, principal plus profit) on or before the original scheduled dissolution date;
iii.
the Sukuk holder accepts the extension of maturity and the amendment with respect to a portion of the Certificates held by it and requests a repayment of the scheduled dissolution amount with respect to the remainder of the Certificates held by it; or
iv.
the Sukuk holder accepts the extension of maturity and the amendment of the Certificates with respect to all the Certificates held by it and that the Sukuk holder wishes to increase its participation in the Sukuk by purchasing additional Certificates and the principal amount of the increased participation which the Sukuk holder wishes to purchase.
8.
The Sukukholders were informed and asked to agree that, following the expiry of the Initial Consultation Period, there would follow an optional participation increase period (lasting three days) (the “Optional Participation Increase Period”) during which the Dealer would match the Sukuk holders who, during the Initial Consultation Period, delivered an extension subscription form requesting repayment of their scheduled dissolution amount on or prior to the scheduled dissolution date (the “Exiting Sukuk holders”) and the Sukuk holders who during the Initial Consultation Period delivered an extension subscription form accepting the extension of maturity and amendment of the Certificates and requesting to purchase additional Certificates (the “Increasing Participation Sukuk holders”) in order to intermediate the transfer of the Certificates from the Exiting Sukuk holders to the Increasing Participation Sukuk holders. Following the expiration of the Optional Participation Increase Period, the Issuer and/or the Dealer would determine the “continuing principal amount”, being an amount equal to the aggregate principal amount specified by the Sukuk holders who, during the Initial Consultation Period, delivered the extension subscription form confirming their participation in the Restructuring plus the aggregate principal amount (if any) corresponding to the Certificates purchased by the Increasing Participation Sukuk holders from the Exiting Sukuk holders during the Optional Participation Increase Period.
9.
In accordance with the terms and conditions of the Certificates, the Restructuring was approved by an extraordinary written resolution of the Sukuk holders who, in aggregate, held more than 90 per cent. of the principal amount of the Certificates.
Source: Norton Rose 98
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Islamic Banking Competitiveness Report 2011-12 Page 98
Amendments to documentation
10.
In order to give effect to the resolutions set out in the Extraordinary Resolution, the Sukuk holders were required to give their assent to the modification of the transaction documents, as well as to waive any potential breaches of the terms of the existing Certificates and thus waive the occurrence of an event of default.
11.
The transaction documents that were amended and restated included the following:
12.
i.
the terms and conditions of the Certificates as well as the Trust and Agency Deed were amended and restated in order to give effect to the extension of the maturity and the changes to the Periodic Distribution Amounts payable to investors;
ii.
the offering circular in respect of the Certificates was amended by a supplemental offering circular to reflect the new terms of the securities;
iii.
the Musharaka Agreement and the Lease Agreement, together with the underlying Undertakings, were amended and restated in order to reflect the increased profit payments derived from the Sukuk assets and to deal with the partial redemption of Certificates on the scheduled dissolution date;
iv.
the Security Agency Agreement was amended and restated to reflect the increase in the collateral supporting the Certificates.
In addition, the Sukuk holders were asked to waive any potential breach of Condition 10 (the Condition specifying which events constitute dissolution events (events of default) in respect of the Certificates) occasioned by: i.
the proposals contained in the Extraordinary Resolution; and
ii.
the extension, in whole or in part, of the scheduled dissolution date of the Certificates,
and any preliminary or incidental steps to the Restructuring. 13.
Care was also taken to ensure that the Restructuring and the proposals contained in the Extraordinary Resolution would not in any way trigger any crossdefault provisions contained in other unrelated financing agreements to which the Obligor was a party.
14.
Finally, the Sukuk holders authorised and requested the Issuer to take all steps considered in its sole discretion to be necessary, desirable or expedient to carry out and give effect to the Extraordinary Resolution, acknowledged the limitation of liability provisions set out in the Trust and Agency Deed in respect of the Issuer and absolved the Issuer from any liability in respect of any act or omission for which it may have become responsible under the Trust and Agency Deed with respect to the proposals contained in the Extraordinary Resolution, save in respect of the gross negligence or wilful default of the Issuer. * Note: the structure discussed above pre-dated the AAOIFI statement in 2008 in respect of the use of purchase undertakings in Sukuk structures. The Restructuring was conducted on the basis of the originally approved structure. Had the deal been structured afresh today, a different approach may have been taken in respect of the use of purchase undertakings. Source: Norton Rose
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Team, Sources & Contributors
Competitive Landscape
Performance Analysis
Executive Brief
Competing to Win: The CEO Agenda
Country Spotlight
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Islamic Banking Competitiveness Report 2011-12 Page 100
ErnstErnst & Young & Young Leadership Leadership
IslamicIslamic Financial Financial Services Services CenterCenter of Excellence of Excellence
MENAMENA Executives Executives
Ashar Nazim Ashar Nazim Islamic Finance IslamicLeader Finance Leader ashar.nazim@bh.ey.com ashar.nazim@bh.ey.com
Abid Shakeel Abid Shakeel abid.shakeel@bh.ey.com abid.shakeel@bh.ey.com
Sohaib Umar Sohaib Umar sohaib.umar@bh.ey.com sohaib.umar@bh.ey.com
Tariq Sadiq Tariq Sadiq Advisory Leader Advisory Leader
Noor AbidNoor Abid Assurance Assurance Leader Leader
Sherif El-Kilany Sherif El-Kilany Tax Leader Tax Leader
Phil Gandier Phil Gandier TAS Leader TAS Leader
Gordon Bennie Gordon Bennie FS Leader FS Leader
Andrew Barstow Andrew Barstow FS Advisory FS Leader Advisory Leader
Sameer Abdi Sameer Abdi Partner, Qatar Partner, Qatar
Robert Abboud Robert Abboud Partner, Qatar Partner, Qatar
Fawad Laique Fawad Laique Partner, Saudi Partner, Arabia Saudi Arabia
Nader Rahimi Nader Rahimi Partner, Bahrain Partner, Bahrain
Maged Fanous Maged Fanous Partner, Kuwait Partner, Kuwait
Imtiaz Ibrahim Imtiaz Ibrahim Senior Director, Senior Bahrain Director, Bahrain
Shahid Mughal Shahid Mughal shahid.mughal@bh.ey.com shahid.mughal@bh.ey.com
Mustafa Adil Mustafa Adil mustafa.adil@bh.ey.com mustafa.adil@bh.ey.com
Islamic Banking Islamic Banking Competitiveness Competitiveness Report Report 2011-12 2011-12 Page 101 Page 101
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Report methodology and our interviews
Survey Methodology ► Our survey sought to identify key trends and business risks for the Islamic banking industry through in-depth interviews with executives and industry observers. ► These discussions were used to gauge business sentiment and identify key areas for inquiry. ► The top Islamic and conventional banks in the region were selected for our sample with the break down of banks selected country wise being: ► Bahrain – 4 Islamic and 4 conventional banks ► Saudi Arabia – 4 Islamic and 5 conventional banks ► Kuwait – 4 Islamic and 3 conventional banks ► Qatar – 3 Islamic and 3 conventional banks ► UAE – 4 Islamic and 4 conventional banks ► Egypt – 1 Islamic bank ► Jordan – 1 conventional bank Business Risk Ratings ► Ernst & Young subject matter experts from the Middle East, Asia and Europe developed a list of banking business risks and contributing factors. ► All interviewees were provided with a list of business risks and requested to rate each to reflect its severity to their respective business over the coming 12 months. Interviewees were also asked to add any additional risks they felt were important. ► The results of this rating process were tabulated and a relative ranking assigned to each. This rank formed the basis for our comparative.
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Business Performance Indicator ► The Performance Indicator is a simple device that allows us to present how Islamic banks are faring in comparison to conventional banks Business Risk Categories ► The Performance Indicator is split into tree categories: ► Red Light denotes that Islamic banks are not on par with conventional banks ► Amber Light denotes that Islamic banks are on par with conventional banks ► Green Light denotes that Islamic banks are above par Anonymity and Quotes ► All interviewees were assured of anonymity and minutes documented during our discussions ► Quotations have been used to support arguments made in the report.
Islamic Banking Competitiveness Report 2011-12 Page 102
Sample of Islamic and conventional banks
Islamic banks that contributed data to our sample: Bahrain ► ► ► ►
Al Baraka Banking Group Ithmaar Bank Bahrain Islamic Bank Al Salam Bank
Saudi Arabia ► ► ► ►
Al Rajhi Bank Bank Al Jazira Alinma Bank Bank AlBilad
Conventional banks that contributed data to our sample: Bahrain ► ► ► ►
Saudi Arabia ► ► ► ► ►
Kuwait ► ► ► ►
Kuwait Finance House Ahli United Bank Boubyan Bank Kuwait International Bank
Qatar ► ► ►
Qatar Islamic Bank Masraf Al Rayan Qatar International Islamic Bank
UAE ► ► ► ►
Dubai Islamic Bank Abu Dhabi Islamic Bank Emirates Islamic Bank Sharjah Islamic Bank
Egypt ►
Faisal Islamic Bank of Egypt
Arab Banking Corporation Ahli United Bank Bank of Bahrain and Kuwait National Bank of Bahrain
National Commercial Bank Samba Financial Group Riyad Bank SABB Arab National Bank
Kuwait ► ► ►
National Bank of Kuwait Burgan Bank Commercial Bank of Kuwait
Qatar ► ► ►
Doha Bank Qatar National Bank Commercial Bank of Qatar
UAE ► ► ► ►
Emirates NBD Abu Dhabi Commercial Bank National Bank of Abu Dhabi First Gulf Bank
Jordan ►
Arab Bank
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References and acknowledgments
Sources ► Global Insight - comparative world overview tables ► Zawya ► Central bank reports ► Economist intelligence unit ► Maris Strategies ► The Banker ► Islamic Finance News ► Morgan Stanley ► Bank annual reports Ernst & Young’s Project Team Ashar Nazim ► Abid Shakeel ► Fawaz Siddiqui ► Saad Qureshi ► Mohammed Al Felaij ► Mubashar Haroon ► Assad Butt ► Yasman Moghaddam ► Mustaqim Zain ►
► ► ► ► ► ► ► ► ►
Our industry awards
Best Takaful Advisory Firm 2010, 2011 International Takaful Summit, London
Nader Rahimi Imtiaz Ibrahim Maged Fanous Hammad Younas Asad Jafree Murat Hatipoglu Merisha Kassie Mohd Husin Venkat Subramanian
Best IFN Awards 2009/2010
WIBC Leading Islamic Financial Services Provider 2008 World Islamic Banking Awards, Bahrain
Contributions ► Norton Rose ► Alun Williams©
COMPETITIVENESS REPORT 2011-2012
Best Islamic Consulting Firm 2006 Sheikh Mohammed Bin Rashid Al Maktoum Award
Most Outstanding Business Advisory & Consulting Firm 2006/2007 Kuala Lumpur Islamic Finance Forum, Malaysia
Consistently ranked the best Islamic Advisory firm with awards every year since 2006
For questions or comments, please contact : Fawaz Siddiqui: fawaz.siddiqui@bh.ey.com Saad Qureshi: saad.qureshi@bh.ey.com 104
Best Islamic Advisory Firm/Best Islamic Research 2010 CPI Financial Islamic Finance Award
Islamic Banking Competitiveness Report 2011-12 Page 104
Ernst & Young Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. The Middle East practice of Ernst & Young has been operating in the region since 1923. For over 85 years, we have evolved to meet the legal and commercial developments of the region. Across the Middle East, we have over 4,200 people united across 20 offices and 15 Arab countries, sharing the same values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. © 2011 Ernst & Young. All rights reserved. www.ey.com This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
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MEGA: Shaping the Future of the Global Islamic Finance Industry Since 1993 2 Decades of Supporting the Market Leaders MEGA is the leading international information firm focused on achieving business results for the Islamic banking & finance industry since 1993. Our exclusive focus on Islamic finance has enabled us to create significant value for the leading players in the Islamic banking, finance and investment markets. The portfolio of MEGA brands represents the landmark industry conferences and our clients are the leading players in the international financial markets. Partnering with Governments and the Industry Thought Leaders Our Strategic Partners are world leaders in their respective fields and include key government finance and regulatory agencies such as the Central Bank of Bahrain, Dubai International Financial Centre, UK Trade & Investment, the Monetary Authority of Singapore and the Economic Development Board of Bahrain. These and our other strategic alliances with international thought leaders including Ernst & Young and global strategy advisory firm McKinsey & Company further strengthen MEGA’s brand leadership position by providing original new research insights on the Islamic finance industry worldwide. Investing in Our Brands: Number 1 in Each of Our Markets MEGA continues to grow its portfolio of Islamic finance brands to further extend our leadership position across the Banking, Takaful, Funds, Capital Markets, and Project Finance segments. Each brand is successfully developed over many years in order to further cement its number 1 position in its respective market. In 1994 we founded the World Islamic Banking Conference (WIBC), which at the time was one of the first conferences in the world to focus on this nascent industry. That first year we had 120 pioneering delegates and one sponsor. Today, fast approaching 2 decades later and with more than 1,200 delegates from over 50 countries attending the conference each year, WIBC is an iconic brand internationally recognised as the world’s largest gathering of Islamic finance leaders. A World Stage: Genuinely Global Dialogues MEGA brands have a genuinely global reach across the Islamic finance industry. An initiative to further broaden this international representation ‘The World Comes to WIBC’ was launched at WIBC 2007 and has grown to now feature a British Pavilion led by UKTI and comprising 18 British-based banks. 2008 saw us further extending this programme to Asia, in partnership with the Monetary Authority of Singapore, which resulted in a high-profile Singapore delegation led by the MAS Governor. A number of leading international Islamic banking groups also now convene their annual board meetings along the sidelines of WIBC. Understanding Client Needs & Delivering Long-Term Value MEGA’s leadership position has come as a result of our relentless focus on the constantly changing needs of our clients as the Islamic finance industry has grown and matured. Whether it be the challenges of launching a new bank, a new investment fund, an innovative new retail financial product or raising corporate profile in a key target market, we ensure that our offerings are closely aligned to the immediate business priorities of our clients. Then we make sure that we deliver on our promises and that is why the market leaders come back and work with us year after year. Our genuine value creation is highlighted by our long-term relationship with Ernst & Young who have worked with us continuously since the inception of the World Islamic Banking Conference 18 years ago - and who are also now our partners across the portfolio of MEGA brands.
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