03/05/2015 17:42 AST
Saudi Arabia is expected to dominate the asset growth in the Islamic banking industry over the next five years, according to the World Islamic Banking Competitiveness report by EY [Ernst & Young].
According to the study, the Islamic banking industry in Qatar, Indonesia, Saudi Arabia, Malaysia, the UAE and Turkey (QISMUT) along with Bahrain will continue to drive most of the asset growth and internationalisation of Islamic banking.
QISMUT countries commanded 80 per cent of the Islamic banking assets in 2013 at $625 billion (Dh2.29 trillion). At the close of 2014, the combined Islamic banking assets of these markets are estimated to have crossed $750 billion.
Growing at a five year compounded average growth rate of 19 per cent, the combined Islamic banking assets of these six markets are expected to cross $1.8 trillion in 2019. Saudi Arabia is projected to account for more than one third of the total with $683 billion of Sharia-compliant assets by 2019, according to EY.
Saudi Arabia has been a key market for growth in the Islamic banking industry. A strong demand from customers, both retail and corporate, has led to significant growth in Islamic banking in Saudi Arabia resulting in 54 per cent of all financing being Sharia-compliant in 2013. Overall, the size of Islamic banking assets in Saudi has nearly doubled between 2009 and 2013.
“The Islamic banking industry is preparing to go main stream globally. Saudi Arabia is the largest Islamic banking market in the world, representing 31.7 per cent of the global market share. The country has been a pioneer in the Islamic banking industry and we expect it to continue being a driving market for the industry, as Malaysia, Turkey and Indonesia also establish themselves as populous Islamic banking centres,” said Ashar Nazim, Global Islamic Finance Leader at EY.
Total Islamic banking assets in the UAE are estimated at $127 billion at the close of 2014 and is projected to reach $263 million in 2019. Other key growth markets include Malaysia, Indonesia and Turkey.
Customer experience
In its study, EY monitored 567,071 Islamic banking customer sentiments in Saudi on social media, which looked at 2.2 million customer sentiments dispersed across various online sources in nine key markets such as Saudi Arabia, Bahrain, Kuwait, the UAE, Malaysia, Indonesia, Turkey, Qatar and Oman.
Out of the sentiments analysed in Saudi Arabia, one in three of the positive sentiments were about branch experience, indicating that customers were generally satisfied in this area of service.
“The experience however varies by banks and types of customers. The younger customers are openly challenging the status quo and asking for more digital solutions,” says Muzammil Kasbati, Director, Global Islamic Banking Centre of Excellence, EY.
While online and mobile banking services has taken off well in Saudi Arabia, it’s sustainability remains a cause of concern.
“The retail banking proposition of several banks was found struggling between the legacy people culture and the tech-savvy business model required to win new customers. Islamic retail proposition of conventional and Islamic banks still appears to be operating in silos, which unfortunately hampers their customer satisfaction ratings,” says Muzammil.
“Saudi retail banking customers like the fact that some banks are investing to improve the branch experience. There appears to be a healthy take-up of digital banking on offer, and there is anticipation for more. Islamic banks will need to increasingly shift their expenditure from running the bank to developing the bank. Learning from the customer’s journey can provide very important insight that can be applied in everyday operations. Digital adaptation will be vital when upgrading services,” said Ashar.
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