Contrary to the commonly held perception, Islamic banks have to some extent been affected by the global financial crisis, a report said.They have been affected especially due to the inherent risks of Islamic finance such as a higher maturity mismatch than conventional banks and many players having significant exposure to real estate sector, said the 2008/09 World Islamic Banking Conference Competitiveness Report.
“The impact of the financial crisis has, however, been lower in comparison to conventional banks. Islamic banks are less debt reliant and more dependent on customer deposits for liquidity, thus limiting their exposure to credit markets,” said the report prepared by McKinsey & Company.
The report indicated that Islamic banking seemed set on the path to strong growth and profitability, outperforming conventional banks in most of its core markets.
However, it highlighted three fronts that Islamic banks need to act upon: sound risk management, a rethinking of their positioning and value propositions, and more stringent management of growth of their top and bottom lines.
The report was launched today (Nov 23) at the 15th Annual World Islamic Banking Conference (WIBC) Executive Briefing which was led by McKinsey partners from key international centres.
The workshop, which took the form of a dynamic and interactive discussion of the strategic challenges facing the leadership of Islamic financial institutions, was led by Ozgur Tanrikulu, Partner, McKinsey & Company.
Results from the report showed that GCC retail banks are between the emerging and consolidated phases of development and are expected to grow and contribute 50 per cent of GCC banking revenue by 2011.
The report also indicated that Sukuk issuance has grown phenomenally across all markets, though this has recently ground to a halt across various countries, primarily as a result of the current financial crisis.
On Islamic wealth management, the report indicated that revenue margins in private wealth and asset management are higher in the GCC than in other regions.
The report also stated that the world Takaful premium is still relatively small at $7.2 billion in 2007 driven partly by under penetration in main Islamic finance markets in the P&C segment, as well as in the life segment. Takaful operators are also generally less profitable and have demonstrated slower growth compared to their peers offering conventional insurance.
The Competitiveness Report will be further discussed at the WIBC which opens tomorrow (November 24) at the Gulf Hotel in Bahrain. –
