Iran holds 42.7% of total global Islamic banking assets
3/18/2013 12:10:53 PM
KFH Research Ltd is the world's first Islamic investment research arm to be established by an Islamic Bank. A direct subsidiary of Kuwait Finance House, KFH Research was established in 2007, comprising of industry professionals and star research analysts with broad experience in Islamic finance & global markets.
The report stated that total assets of Islamic banking in the PGCC  region is 34% of assets of Islamic banks worldwide.
The report expected that Islamic banking will continue to grow in the PGCC  region during this year, and that it will manage to enter new markets worldwide, driven by growth factors and increasing demand. Islamic banking assets are expected to reach USD 1.5 trillion by end of this year with an accumulative growth rate of up to 20%.
Islamic banking represents the largest market share (80.3%) in the Islamic finance total assets. The industry has grown rapidly over the past few years and growth is expected to continue in the foreseeable future. 
The Islamic banking industry is not only confined to Muslim-majority countries such as the PGCC  and Malaysia but also into new territories such as the Far East and Europe, many of which are currently in the midst of implementing appropriate regulatory and legal reforms that would facilitate the provision of Islamic finance products.
At present, Islamic banking has become the fastest growing segment in the international financial system. The internationalisation of Islamic finance offers the potential for further means by which cross border financial flows are intermediated between economies worldwide. Since its inception, Islamic banking has been the main driving force of the global Islamic finance industry, with an estimated asset size of USD1.1tln in 2011 representing 80.9% of Islamic finance assets worldwide. Based on a compounded annual growth rate (CAGR) of 21.1% between 2007 and 2011, Islamic banking assets reached USD1.3tln as at end-2012.
Although Islamic banking industry currently constitutes a meagre 1.0% of the global banking assets, we expect to witness further developments in the Islamic banking industry in particular to the development of new products and services as well as the opening up of new markets and jurisdictions in light of the industry's resilience during the global financial crisis.
As such, we believe Islamic banking industry will continue to grow driven by both demand and supply factors. Growing demand for Shariah compliant products rather than its supply is driving the development of Islamic banking industry. The demand for Shariah-compliant investments and financing products was fuelled by a new geopolitical backdrop in the PGCC  region and abundant liquidity flows from the recycling of oil money in the regions' economies. With demand rebuilding in the post Arab spring, Islamic finance is set to grow in its wider appeal.
The changing of demographics of the Muslim countries will also drive the growth of the Islamic banking industry. Regions with sizeable Muslim populations continue to offer the best opportunities for Islamic banks. Although the regions are under-banked in terms of Islamic banking, the potential for growth remains given the customers' growing awareness of the benefits offered by Islamic banks. According to market consensus, Muslim population is expected to increase by approximately 35% in the next 17 years, rising from 1.6bln in 2010 to 2.2bln by 2030.The youthful consumers in these countries are increasingly sophisticated about financial services. As such, the twin effects of population growth and increasing sophistication are likely to result in large number of savvy consumers who require sophisticated and competitive Shariah-compliant financial solutions.
On the supply side, the main driver of growth in Islamic banking is the increasing number of financial institutions offering the Shariah-compliant solutions. Growth of the global halal food industry is expected to have positive implications for the Islamic banking and finance industry in offering Shariah-compliant financial solutions, given that the source of financing for the halal food industry should be from a Shariah-based structure to ensure that the whole production process complies with Shariah rules and regulations. In addition, the low penetration level of Islamic banking in countries with large Muslim populations such as Indonesia, Pakistan and Egypt presents considerable opportunities for further growth and development of Islamic banking.
Government and regulatory push for Islamic financial model have also become one of the factors driving the growth of Islamic banking industry. In some prominent markets such as Malaysia, early growth in the sector was largely regulatory driven, given that the governments introduced initiatives and put in place the necessary infrastructure to hasten the sector's growth. Support provided by these governments has helped foster favourable views of Islamic finance by regulators and supervisory agencies across the world.
The PGCC  Islamic banking sector has experienced remarkable growth in the business/ financing activities and significant demand for Shariah-compliant products and services. The growth of the Islamic banking industry in the region was mainly driven by Saudi Arabia and Qatar. Islamic banks in these two countries are generally well capitalised and profitable with high capital adequacy and low NPF ratios. The Islamic banking industry in the PGCC  is expected to continue growing, underpinned by their strong economic fundamentals, economic stimulants via government sponsored infrastructure projects, consolidation of the Islamic banks in certain jurisdictions (Bahrain and the UAE), growing numbers of Islamic banks (Saudi Arabia and Oman) and changes in regulations (Qatar and the UAE) which will benefit the Islamic banking industry moving forward. Profits will continue to be positive, however growth rates are expected to moderate given uncertainties on the global economic front, potentially impacting domestic economies, trade and business activities, consumer spending and the banking sector in general.
As at September 2012, Islamic banking assets in the PGCC  rose by 16.5% y-o-y to USD307.2bln from USD263.6bln as at September 2011. Growth was led by Qatar (+25.9% y-o-y), followed by Saudi Arabia (+22.0% y-o-y), the UAE (+16.9% y-o-y), Kuwait (+7.8% y-o-y) and Bahrain (+5.5% y-o-y). In terms of market share of the Islamic banking industry by country, Kuwait's Islamic banking sector accounted for 42.3% of the country's total banking sector total assets, the highest in the region. This was followed by Qatar (22.9%), Saudi Arabia (22.9%), the UAE (12.9%) and Bahrain (12.8%). However, in terms of absolute value, Saudi Arabia's Islamic banking sector has the largest total assets of USD99.9bln, followed by Kuwait (USD70.4bln), the UAE (USD61.5bln), Qatar (USD49.7bln) and Bahrain (USD25.7bln).
An analysis of financing and deposits showed that Islamic financing outpaced Islamic deposits across the PGCC  region, underpinned by positive economic growth and much improved operating environment in selected countries. As a result, the financing-to-deposit (FD) ratio of the PGCC  region rose from 84.2% as at September 2011 to 86.6% as at September 2012. Qatar has the highest FD ratio of 97.3%, followed by Kuwait (92.1%) and Saudi Arabia (85.8%), as financing growth was supported by positive economic growth and government-led infrastructure projects in respective countries. Meanwhile, the FD ratio for Bahrain and the UAE was slightly lower at 80.9% and 76.1% respectively, in line with lower financing growth in both countries. On the back of positive financing growth, excess liquidity of the PGCC  Islamic banking industry eased to USD27.8bln as at September 2012 from USD28.1bln as at September 2011.