Islamic banks post 26.7% growth rate

The world's 100 largest Islamic banks have outpaced conventional banks with an annual asset growth rate of 26.7 per cent, according to a new study.

The Islamic institutions reported a growth to nearly $350 billion (Dh1.28 trillion) in assets, beating the 19.3 per cent growth rate of mainstream banks, says the Asian Banker research group. This growth rate is well above previous estimates of 15 to 20 per cent."We've seen a rise in the number and size of Islamic banks across the world and they are growing popular in non-Muslim countries as well," Asian Banker research manager Benny Zhang Wei told Emirates Business.

"I do not expect any slowdown in growth in the long term. There is enormous wealth coming from oil and gas in the Middle East and 1.5 billion Muslims worldwide make a good customer base."

Dr Taha El Tayeb - who heads Mashreq's Islamic banking division, Badr Al Islami, in the UAE is a little cautious about the reported growth rate. "I'm a little surprised by the 26 per cent figure because I thought it was about 20 per cent," he told Emirates Business.

"I believe this growth rate is sustainable in the short term but it may come down owing to the growing base of Islamic banking. Overall the prospects seem bright as a large number of corporates and family businesses in the region are moving to Islamic banking for religious reasons," he added.

Zhang Wei said: "The potential [of Islamic banks] to eat into a conventional bank's business model is huge and should not be underestimated. The threat will only get worse as Islamic banks grow organically or as a result of intensive mergers and acquisitions."

Islamic banks' expansion plans are paying off. The most successful international Islamic banking player, Albaraka Banking Group, is a good example. It has 11 Islamic banking licences in 10 countries in the Middle East, North Africa, South Asia and Europe. It has 11 Islamic banking licences in 10 countries in the Middle East, North Africa, South Asia and Europe.

Albaraka sources more than 90 per cent of its revenue from overseas a ratio even higher than Citi's, said Zhang Wei. An analyst at Standard & Poor's in Singapore believes that Islamic finance has reached a critical mass and the level of interest means it makes sense to reach out beyond the predominantly Muslim countries.

Asia is a lucrative market for Islamic banks. According to Merrill Lynch and Capgemini the total wealth of high-net-worth individuals in the Asia-Pacific region may grow by 8.5 per cent a year to $12.7trn by 2011, the second-fastest increase after the Middle East, making it highly lucrative for Islamic banks.

Islamic banks are performing well in financial centres such as Singapore and London where they are trying to earn oil and gas dollars by encouraging the handling of cross-border financial deals through Shariah-compliant instruments. But despite the impressive growth of Islamic banking in recent years it remains a niche segment in the global financial services industry. The largest company in the Asian Banker's list of the top-100 Islamic banks is Iran's state-owned BMI, which has total assets of $39.4bn.

Read full articel: "Islamic banks post 26.7% growth rate" by Shuchita Kapur in Business Emirates 24/7.