World islamic banking competitiveness report 2012 13 - Ernst & Young

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Dear Banking & Finance Leader,
It is with great pleasure that we present to you the 9th annual edition of the World Islamic Banking Competitiveness Report 2012/13, developed in collaboration with leading global professional services and advisory firm Ernst & Young, and exclusively launched onsite at the 19th Annual World Islamic Banking Conference (WIBC 2012) during a specially convened WIBC plenary session held on the 10th of December 2012 in the Kingdom of Bahrain. More than 1,200 industry leaders from over 50 countries attended WIBC 2012 to chart new directions for the global Islamic finance industry, continuing WIBC’s longstanding tradition of shaping the future of Islamic finance.

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World islamic banking competitiveness report 2012 13 - Ernst & Young

  1. 1. 19th 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 9th annual edition of the World Islamic Banking Competitiveness Report 2012/13, developed in collaboration with leading global professional services and advisory firm Ernst & Young, and exclusively launched onsite at the 19th Annual World Islamic Banking Conference (WIBC 2012) during a specially convened WIBC plenary session held on the 10th of December 2012 in the Kingdom of Bahrain. More than 1,200 industry leaders from over 50 countries attended WIBC 2012 to chart new directions for the global Islamic finance industry, continuing WIBC’s longstanding tradition of shaping the future of Islamic finance. Despite the challenging global economic environment, leading Islamic financial institutions have been able to sustain their growth ambitions. The industry, with its increasingly international footprint, continues to demonstrate its resilience and competitiveness, while the range of Shari’ah-compliant products and services available globally has significantly widened and deepened. The rapid growth and the intensification of the industry’s internationalisation highlight the dynamic nature of the industry and underscore the increasing efforts of Islamic financial institutions to meet the growing demands of a global economy. However, in order to sustain growth over the long term, there is a need to put in place prudent legal and regulatory policies together with sound and efficient business frameworks that will further boost the resilience and success of the Islamic financial sector. 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 2012/13. The Report, titled “Growing Beyond: DNA of Successful Transformation”, analyzes key strategies that leading Islamic financial institutions must adopt in order to ensure continued stability and success amidst the challenges of slowing growth and declining profitability. 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 seeks to ‘adapt to the new dynamics of global finance’. 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 Chief Executive The 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
  2. 2. World Islamic Banking Competitiveness Report 2012-2013 Growing Beyond DNA of Successful Transformation December 2012
  3. 3. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt COMPETITIVENESS REPORT 2012-2013 Indonesia Saudi Arabia Turkey Malaysia 2 Qatar Kuwait Country spotlight Pakistan United Arab Emirates
  4. 4. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 3
  5. 5. Executive brief Islamic banking assets with commercial banks globally grew to $1.3 trillion in 2011, suggesting an average annual growth of 19% over past four years (2011: 24%). The top four markets account for 84% of industry assets. The Islamic banking growth story continues to be positive, growing 50% faster than the overall banking sector. High potential international markets – each in different stages of development and therefore requiring different penetration strategies - include Saudi Arabia, Malaysia, Qatar, Turkey and Indonesia. This year, we launch the EY Islamic Banking Universe that tracks industry performance across core Islamic finance markets with a combined GDP of $5 trillion in 2011. Islamic banking assets are forecast to grow beyond the milestone of $2 trillion by 2014. It is however a different story when it comes to profitability. The industry’s average ROE was 12% compared to 15% for conventional in 2011. Islamic banks continue to grapple with multiple challenges relating to sub-scale operation, asset quality, negative operating income from core activities and a weak risk culture. The severity of performance challenge has prompted several institutions to initiate wide-ranging transformation programs. We call it the new 3 R’s for the industry: ► Regulatory transformation – involving compliance risk, capital optimization, integrated balance sheet management and liquidity management ► Risk transformation – around Shari’a governance, single data management framework, segment specific risk models and fund transfer pricing capabilities ► Retail banking transformation – strengthening customer centric operating model, channel integration and technology enablement The turnaround could take 2-3 years and shareholders and management need to be making commitments now to capitalize on the positive outlook. Successful transformation around 3 R’s could potentially increase the profit pool of Islamic banks by 25% by 2015. Beyond numbers, Shari’a governance and responsible innovation require urgent attention, and sukuk is developing to be an effective instrument for capital management and growth. The industry is still in transitory stage and a lot more needs to be done to demonstrate the impact of Shari’a compliant system on businesses and economies. The coming up of populous and diverse markets like Indonesia, Egypt and Pakistan would help and regulatory authorities and multilateral institutions will need to play a more central role to facilitate this transition. Ashar Nazim Partner, Islamic Banking Excellence Center Ernst & Young , MENA 4 COMPETITIVENESS REPORT 2012-2013 Gordon Bennie Partner, Financial Services Leader Ernst & Young , MENA
  6. 6. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 5
  7. 7. One potential scenario shows global Islamic banking assets with commercial banks to reach $1.8 trillion in 2013 (2011: $1.3 trillion), representing average annual growth of 17% Islamic banking asset growth (US$b) 257 1,334 Global Islamic Banking Assets 2011 Source: IMF, The Banker, Central Bank Reports, EY Universe 6 COMPETITIVENESS REPORT 2012-2013 89 South East Asia 1,811 131 GCC Rest of the World Global Islamic Banking Assets 2013e
  8. 8. Islamic banking growth outlook continues to be positive, growing 50% faster than overall banking sector in several core markets. In Saudi Arabia, market share of Islamic banking assets is now over 50% Banking asset penetration (% of Nominal GDP) and Islamic banking market share of total assets (%) in 2011 60% Islamic banking share of total assets (2011) Saudi Arabia 50% 40% Kuwait 30% Bahrain Qatar 20% UAE Malaysia Bangladesh 10% 0% 30% Pakistan Jordan Turkey Egypt Indonesia 80% 130% 180% 230% Banking asset penetration (% of Nominal GDP, 2011) Source: Central Bank Reports, Ernst & Young Analysis Size of circles denote the relative size of Islamic banking assets in 2011 COMPETITIVENESS REPORT 2012-2013 7
  9. 9. Top 20 Islamic banks make up 55% of the total Islamic banking assets and are concentrated in 7 countries, including GCC, Malaysia and Turkey Total Assets 2011 (US$b) Bank’s Home Market Average ROE (2008 – 2011) Saudi Arabia 60 23.1% Kuwait 48 United Arab Emirates 24 13.1% United Arab Emirates 20 10.6% Bahrain 17 11.5% Qatar 16 15.2% Qatar 15 16.2% Malaysia 14 11 Saudi Arabia 10 Saudi Arabia 10 Malaysia 10 Turkey 9 18.3% Malaysia 11 Kuwait 8 United Arab Emirates 7 Saudi Arabia 7 (3Y CAGR) 12.1% Malaysia 22 Growth 8.9% Bahrain 6 3.2% 0.7% 19.2% 13.7% 10.5% Malaysia 7 16.2% Qatar 3.6% 2.4% 7.7% -11.7% 14.5% 16.2 % US$ 17b Leading Islamic Average 11.6% 13.9% US$ 65b Comparable Conventional Average 15.3% Source: Company Reports, EY Universe (Note: analysis excludes Iran assets & institutions) 8 COMPETITIVENESS REPORT 2012-2013
  10. 10. 13 Islamic banks have an equity base of more than $1 billion. Building regional institutions and participating in larger transactions requires the industry to scale up Equity US$ m 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Saudi Arabia Kuwait Saudi Arabia Qatar 4 UAE 3 Bank’s Home Market UAE Qatar Bahrain 7 Qatar Malaysia Saudi Arabia Turkey UAE Kuwait Saudi Arabia 13 Turkey Malaysia Kuwait Kuwait UAE Conventional Banks Qatar Malaysia Saudi Arabia UAE Kuwait Saudi Arabia Saudi Arabia UAE UAE Turkey Indonesia Malaysia UAE Indonesia Jordan Turkey Malaysia Saudi Arabia Indonesia Saudi Arabia Equity US$ m 0 4,000 8,000 12,000 Source: Company Reports, Ernst & Young Analysis, EY Universe COMPETITIVENESS REPORT 2012-2013 9
  11. 11. Many Islamic banks still face legacy startup issues with higher fixed operating costs as a proportion of their overall income, lower leverage and are behind the curve in technology enablement Islamic Equity vs. ROE Conventional 25.0% Indonesia Average ROE (2008 – 2011) 20.0% Qatar Pakistan Qatar Egypt Turkey Indonesia 15.0% Turkey Malaysia Kuwait Bangladesh UAE Egypt 10.0% Jordan Kuwait 5.0% Saudi Arabia Malaysia Saudi Arabia Jordan UAE Bahrain Pakistan Bahrain 0.0% 0 5,000 10,000 15,000 20,000 Equity US$ m (2011) Source: Company Reports, Ernst & Young Analysis, EY Universe 10 COMPETITIVENESS REPORT 2012-2013 25,000 30,000 35,000 40,000
  12. 12. Performance challenge is further exacerbated due to small size, high proportion of non yielding assets and rather basic risk culture at standalone Islamic banks Islamic Assets vs. ROA Conventional 3.5% Qatar 3.0% Average ROA (2008 – 2011) Saudi Arabia 2.5% Qatar Indonesia Pakistan 2.0% Saudi Arabia Turkey Kuwait 1.5% Brunei Jordan 1.0% Indonesia Pakistan 0 Malaysia Jordan Bangladesh Egypt Egypt 0.5% 0.0% Turkey UAE Malaysia UAE Kuwait Bahrain Bahrain 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 Assets US$ m (2011) Source: Company Reports, Ernst & Young Analysis, EY Universe COMPETITIVENESS REPORT 2012-2013 11
  13. 13. Higher growth in personal financing assets is made up from a number of factors: pricing differential has been reduced or eliminated, customers are more accepting of Islamic finance, and distribution capability has improved Conventional Islamic Financing growth (CAGR, 2008 - 2011) 30.4% 23.5% 12.9% 12.8% 10.0% 10.2% 12.8% 8.5% 8.3% 4.2% Corporate Source: Company Reports, Ernst & Young Analysis, EY Universe 12 COMPETITIVENESS REPORT 2012-2013 Government Personal Real Estate Services
  14. 14. Islamic banks, on the whole, no longer trade at higher valuations despite having better prospects. Regaining investor confidence will require fundamental transformation of business practices Conventional Islamic Price to book and price to earning 30 Price to earnings (November 22, 2012) 25 20 15 10 5 0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Price to book (November 22, 2012) Source: Company Reports, Ernst & Young Analysis, EY Universe COMPETITIVENESS REPORT 2012-2013 13
  15. 15. There remains considerable potential for growth with some strategic quick wins possible; retail specialization, regional diversification, transformation of middle-tier conventional banks to Islamic... Islamic Strategic growth matrix Conventional 45% Indonesia Growth in Islamic assets CAGR 2008 - 2011 40% 35% Higher growth markets with potential for large retail play Turkey Significant variation between similar countries imply different strategies for banks in those markets Qatar 30% 25% 20% Pakistan Bangladesh Jordan 15% 10% Syria Malaysia UAE Egypt Saudi Arabia Bahrain Kuwait 5% 0% 0% 10% 20% 30% Low market share 40% 50% 60% High market share Market share 2011 Source: Company Reports, Ernst & Young Analysis, EY Universe 14 COMPETITIVENESS REPORT 2012-2013 Market Share = Islamic Assets / Total Banking Assets
  16. 16. Several core Islamic finance markets lack regulatory clarity. Recent initiatives by Islamic Development Bank could see more jurisdictions introducing Islamic banking legislation and regulatory framework Relatively developed infrastructure Some infrastructure Weak or no infrastructure In a bold step forward, the draft Islamic banking regulations in Oman disallow commodity murabaha for liquidity management. For a long time now, the (mis)use of synthetic instruments has disillusioned the proponents of Islamic banking COMPETITIVENESS REPORT 2012-2013 15
  17. 17. Since its inception last year, the Islamic Interbank Benchmark Rate (IIBR) has been evolving through a process of regular reviews from the Islamic Benchmark Committee and the Shari’a Committee Key Facts Key Parties Road Ahead • Published for nine price points from overnight to 1 year • USD reference rate applicable based on underlying Murabaha, Mudaraba and Wakala contracts • Calculated by taking price of 18 contributors, excluding top and bottom quartiles and calculating mean of remaining data points • Governed by Islamic Benchmark Committee (which oversees contributions, process and governance) and the Shari’a Committee (which oversees compliance) • Established by 18 major Islamic banks and windows • IDB and Islamic infrastructure institutions are part of the Islamic Benchmark Committee, including AAOIFI, CIBAFI, Bahrain Association of Bank and Association of Islamic Banking Institutions • Central banks of Bahrain, Kuwait, UAE and Qatar are observer members • Continue enhancing governance • Permit more contributions beyond Malaysia and GCC (subject to Islamic Benchmark Committee approval) • Develop benchmarks in more local currencies, SAR, QAR, BAH, EGP • Develop ‘dealt rate’ benchmarks that are derived from actual trades Key Milestone LIBOR governance to be transferred from BBA to the FSA with more stringent reporting requirements IIBR launched on 22 November 2011, after several closed door meetings of the Islamic Benchmark (IB) Committee and Shari’a Committee IB Committee first deliberates on changing rate from Bid to Ask and strengthening rules for admitting new contributors Major global bank fined more than $420 million by US and UK regulators 0.9 IB Committee welcome 3 Malaysian banks 0.8 0.7 0.6 Code of Conduct reviewed by IB Committee Chairman 0.5 0.4 New rules for admitting new banks including a minimum level of Shari’a compliant assets and trades. Mandatory Code of Conduct for all contributors proposed 41214 41183 41153 41122 41091 41061 IIBR is moved from Bid to Ask contributor field 41030 IIBR 3 Months Source: Thomson Reuters 16 COMPETITIVENESS REPORT 2012-2013 LIBOR scandal breaks: US Department of Justice launches criminal investigation 41000 40969 LIBOR 3 Months 40940 0.3 0.2 0.1 40909 40878 0.0 40848
  18. 18. 10 of the world’s 25 Rapid Growth Markets (RGMs) have large Muslim population and offer strong growth prospects for Islamic banking sector (retail, SME, trade finance, wealth management) Rapid Growth Markets GDP CAGR 2000-2010 Qatar China Kazakhstan India Vietnam Nigeria Ghana Russian Federation Indonesia Malaysia 12.8% 10.3% 8.5% 7.4% 7.2% 6.4% 5.6% 5.3% 5.2% 5.0% UAE 4.9% Egypt Ukraine Korea, Rep. Thailand Turkey Colombia Argentina Poland Chile Brazil South Africa Saudi Arabia Mexico 4.9% 4.7% 4.6% 4.4% 4.2% 4.1% 4.1% 3.9% 3.8% 3.7% 3.6% 3.4% 2.3% Leading Islamic finance centers Kuala Lumpur’s audacious financial sector plan could see Islamic financing assets growing to 40% of the total industry by 2020. A vibrant sukuk market, anticipated consolidation among Islamic banks, Shari’a transformation of developmental institutions, private pension scheme, and tax and regulatory reforms are all steps in the same direction. Bahrain’s unique Islamic banking proposition is guided by four strategic priorities: 1) Regulatory clarity across major existing and emerging Islamic finance areas 2) Empowering institutions through skills development 3) Consolidation amongst market players 4) Standard setting initiatives facilitated through industry infrastructure institutions COMPETITIVENESS REPORT 2012-2013 17
  19. 19. Several Arab Spring markets are expected to launch Islamic banking initiatives although progress to-date has been slow Egypt ► Regulatory framework for Islamic banks being considered ► Sovereign sukuk planned ► Launch of Shari’a compliant products by several banks Syria Lebanon Iraq Jordan Morocco Algeria Libya Egypt Tunisia Tunisia Kuwait ► Regulatory framework for Islamic Libya Turkey ► Approval of Islamic banking legislation ► Regulatory framework for Islamic banks being considered ► Sovereign sukuk planned for 2013 Bahrain Qatar UAE Saudi Arabia Oman Hydrocarbon reserves center Population center Yemen banks being considered Iraq ► Islamic banking legislation being 18 COMPETITIVENESS REPORT 2012-2013 considered ► Several existing and new banks considering Islamic banking operations
  20. 20. Demand for sukuk instruments will continue to grow, outpacing global supply and providing opportunities for banks to establish and grow their Islamic fixed income advisory platforms Outstanding Sukuk maturity profile and estimated demand by Islamic banks 400 400 US$ b Islamic financial institutions will require at least US$ 400b of short term, credible, liquid securities for liquidity and capital management purposes, by 2015 350 GAP 300 250  Including other investor classes, global 200 39 150 179 in new issuance – a record year but still short of industry demand 35 100 15 0 55 2012 sukuk demand could be in excess of US$ 600b by 2015  2012 would see in excess of US$ 110b 20 15 50  Based on current growth forecast,  Market opportunity will drive more 2013 2014 2015 2016 2017+ TOTAL Est Dem. O/S '11 '15 Islamic banks to set up international platforms to offer Islamic fixed income advisory services Source: IFIS, Standard & Poors , Bloomberg, ThomsonReuters, EY Analysis COMPETITIVENESS REPORT 2012-2013 19
  21. 21. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt COMPETITIVENESS REPORT 2012-2013 Indonesia Saudi Arabia Turkey Malaysia 20 Qatar Kuwait Country spotlight Pakistan United Arab Emirates
  22. 22. ROE decomposition assists in understanding the key performance indicators of banks Leverage Deposits Cost of funding ROE X Return on assets Operating expenses Provisions Source: Company Reports, Ernst & Young Analysis, EY Universe COMPETITIVENESS REPORT 2012-2013 21
  23. 23. Islamic banks continue to develop their non-retail banking assets. With the sukuk market development continuing, we expect to see a rapid increase in both Corporate and Treasury & Investments assets Islamic banks 32% 41% 32% 23% 28% Conventional banks 18% 20% 38% 43% 18% 61% 40% Treasury & investment 37% Corporate 22% 22% Retail UAE Turkey 44% 57% 39% 36% Malaysia 36% Saudi Arabia 45% 30% UAE 21% 17% Turkey Malaysia Saudi Arabia Segment assets Source: Company Reports, Ernst & Young Analysis, EY Universe 22 COMPETITIVENESS REPORT 2012-2013 Includes selected banks from each country based on the availability of data
  24. 24. After a difficult few years, banking profitability looks to be stabilizing in major Islamic banking markets. However, Islamic banks have experienced a mixed recovery across markets Conventional Islamic Return on equity 19% 17% 15% 18% 5% 13% 10% 2008 2009 2010 2011 17% 15% South East Asia 20% 18% 19% 15% 13% 12% 11% 10% 5% 9% 7% 15% 2008 2009 2010 2011 10% 14% 15% 2008 2009 2010 2011 Rest of the world 20% 5% Based on weighted average 14% 10% 15% 5% GCC 20% 16% 14% 12% 13% 2008 2009 2010 2011 Source: Company Reports, Ernst & Young Analysis, EY Universe COMPETITIVENESS REPORT 2012-2013 23
  25. 25. With underperforming assets being disposed and capital replenished, banks have seen ROA stabilize or improve. However, Islamic banks must address others factors too… Conventional Islamic GCC 2.5% Return on assets (ROA) 2.4% 2.0% 2.6% 2.4% 1.0% 1.8% 1.5% 1.6% 1.5% 2008 2009 2010 2011 2.2% South East Asia 2.0% 1.8% 2.5% 2.0% 1.7% 1.7% 1.6% 1.0% 1.5% 1.4% 1.0% 1.2% 2008 1.3% 1.2% 1.8% 1.4% 1.5% 1.1% 2009 2010 Rest of the world 2.5% 2008 2009 2010 2011 2.0% 1.6% 1.6% 1.5% 1.0% Based on weighted average 24 COMPETITIVENESS REPORT 2012-2013 2011 1.2% 2008 2009 2010 2011 Source: Company Reports, Ernst & Young Analysis, EY Universe
  26. 26. … a more detailed analysis shows operating expenses as a proportion of assets are 50% higher for Islamic banks. For mid to smaller sized banks, this proportion would be higher still Islamic banks ROA 2.9% 1.4% Conventional banks 1.3% 2.2% 6% 1.7% 6% 5% 1.8% 5% 4% 2.6% 4% 1.4% 3% 1.0% 3% 1.4% 1.2% 1.1% Other income Net financing income 2% 2% 2.7% 2.7% 2.9% 1% -2% -3% 2.4% -1.0% -1.2% Operating expenses -0.6% Provisions 0% 0% -1% 2.1% -0.8% 1% 2.6% -2.1% -1.8% -1.8% -0.3% -0.9% -0.8% 2007 2010 2011 -1% -0.2% -0.7% -2% -3% 2007 2010 2011 Return on assets Numbers may not add up due to rounding Source: Company Reports, Ernst & Young Analysis, EY Universe COMPETITIVENESS REPORT 2012-2013 25
  27. 27. Cost of funds remains lower for Islamic banks overall, although smaller banks and those in distressed markets have seen this advantage erode sharply post financial crises Conventional Islamic GCC 9.0% Cost of funds 7.0% 9.0% 5.0% 3.0% 8.0% 1.0% 3.5% 2.8% 1.6% 2008 2009 2010 1.2% 2011 7.0% South East Asia 6.0% 5.0% 4.0% 9.0% 7.0% 5.1% 5.0% 3.0% 3.5% 1.0% 3.1% 2.8% 3.0% 2.0% 1.0% 9.0% COMPETITIVENESS REPORT 2012-2013 2008 2009 2010 2011 8.8% 7.0% 2008 2009 2010 2011 5.0% 1.0% 26 2.3% 2.1% Rest of the world 3.0% Based on weighted average 3.2% 5.6% 4.5% 5.5% 2008 2009 2010 2011 Source: Company Reports, Ernst & Young Analysis, EY Universe
  28. 28. The largest operational cost tends to be for human capital. Inefficient operating models need urgent reform to increase technology enablement Conventional Islamic GCC Operating cost / operating income 60% 50% 40% 60% 30% 20% 10% 50% 45% 40% 39% 40% 32% 33% 2008 47% 43% 42% 2009 2010 2011 South East Asia 60% 50% 40% 46% 48% 45% 45% 30% 30% 20% 10% 2008 20% 2010 2011 Rest of the world 60% 10% 2009 50% 2008 2009 2010 2011 40% 57% 50% 43% 45% 30% 20% 10% Based on weighted average 2008 2009 2010 2011 Source: Company Reports, Ernst & Young Analysis, EY Universe COMPETITIVENESS REPORT 2012-2013 27
  29. 29. Asset quality still needs better management with risk and governance often a complex and sensitive factor in deciding revaluations or disposals Conventional Islamic GCC Provisions / operating income 30% 30% 25% 20% 15% 10% 25% 5% 22% 19% 15% 13% 2008 2009 2010 2011 South East Asia 20% 19% 17% 30% 25% 20% 18% 18% 15% 15% 14% 10% 12% 5% 10% 13% 2008 8% 2009 2010 2011 Rest of the world 30% 5% 2008 2009 2010 2011 25% 20% 15% 10% 5% Based on weighted average 28 COMPETITIVENESS REPORT 2012-2013 17% 16% 15% 2008 10% 2009 2010 2011 Source: Company Reports, Ernst & Young Analysis, EY Universe
  30. 30. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 29
  31. 31. The severity of performance challenge demands wide-ranging transformation of business practices around the 3 R’s Regulatory Transformation Risk Transformation Retail Transformation Faced with mounting pressure to improve sub-par ROE, many institutions are tempted to cut or delay the much needed change agenda.The danger is that banks will miss the limited window they have to implement their future blueprint 30 COMPETITIVENESS REPORT 2012-2013
  32. 32. Regulatory transformation – will deepen the divide between weaker and stronger banks. The impact of reforms will force the industry to adapt to radically different ROE expectations Basel III & IFSB Capital Transformation Agenda Impact on Business Model Risk weighted assets & revenue levers 2 Capital and funding pressure Unique Islamic banking framework Shari’a rulings Cost of funds and operational cost Sukuk as growth and capital instrument Capital optimization Dynamic liquidity forecasting 3 Integrated balance sheet management 4 Data management 5 Basel III & IFSB Liquidity 1 Regulatory reporting 6 Compliance risk management COMPETITIVENESS REPORT 2012-2013 31
  33. 33. The risk agenda has been elevated significantly as regulators require banks to implement comprehensive reforms. Islamic banks require more attention Areas of greatest progress* 83% 89% Increased board oversight of risk Strengthen CRO mandate 65% active role in setting organizational risk policies and parameters and spending more time on risk Liquidity risk management 93% Enhanced stress testing * Source: Selected responses from Ernst & Young’s survey on risk management practices COMPETITIVENESS REPORT 2012-2013 Compensation schemes 92% Attention on risk culture 96% Risk Officers has been elevated, and CROs are now actively participating in strategy planning and product development Clearly defined risk appetite 59% Enhanced risk transparency ► Clearly defining organizational risk appetite and risk strategy for the businesses to follow ► Embedding the risk culture throughout the organization 32 78% ► The influence of the Chief Capital reallocation 92% ► Boards playing a more Areas requiring more progress*
  34. 34. Risk transformation – balancing models and judgment 1 Data & IT infrastructure Fund transfer pricing Integrated data and reporting Transformation Agenda Risk governance Strengthening risk governance to integrate risk appetite, stress testing, strategic planning, capital and liquidity management 2 Longer term strategy to eliminate redundancies across data initiatives, and development of a single data management framework to meet business, Shari’a and regulatory demands 3 Using granular data and enhanced funds transfer pricing to segment and price products effectively 4 Building capacity for granular risk, finance and treasury data analysis to improve development and pricing of products COMPETITIVENESS REPORT 2012-2013 33
  35. 35. Retail – developing a ‘whole-customer’ view of requirements and profitability will be an essential capability for Islamic banks to improve performance Banking activities customers most want their bank to improve* Transformation Agenda 1 Customer centric operating model Trust 22% 2 Customer acquisition model (integrated onboarding strategy & process definition) Specific service offering 22% 3 Product portfolio management (up sell and cross sell at customer level) 4 Sales force effectiveness 5 Integrated channel strategy (channel proposition, segment alignment, migration) 6 Customer data design and advanced pricing management Branch proximity 22% Product offering Price Service Quality 31% 36% 41% * Source: Selected responses from Ernst & Young’s global consumer banking survey 34 COMPETITIVENESS REPORT 2012-2013
  36. 36. Retail – technology will emerge as both an enabler and a differentiator despite all forms of capital expenditure being under heavy scrutiny Technology to comply As new regulatory requirements take effect, Islamic banks will need to become more data intensive. The quality and extent of data expected, the connectivity between functions, the level of risk assessment and the speed of delivery will prompt organization-wide change programs Technology to understand Islamic banks need to implement new systems for effective collection, management and mining of customer data Technology to deliver Although some security concerns remain, technology will play an increasing role in the interaction between bank and customer via multiple channels. Increasing importance of smartphones in Islamic banking markets can no longer be ignored COMPETITIVENESS REPORT 2012-2013 35
  37. 37. Retail – the digital channel must now be at the heart of an integrated multichannel offering to improve accessibility, cross sales and servicing Develop joint sales & marketing strategy optimizing sales capture Reassure customers with robust but simple security measures Develop integrated channel development plan with cost –benefit by channel Instigate fast track approval & change processes to exploit online channel flexibility 36 COMPETITIVENESS REPORT 2012-2013 Optimizing the value of digital channels Key Segments Mass market HNW Marketing Sales & Distribution Management Customer & Product Management SME Retail Marketing Branches Contact centers Internet Direct sales force Intermediarie s Joint ventures RMs ATM / self Customer product design & propositions Consumer products and propositions HNW Products & Propositions SME Products & Propositions Divisional Supports Strategy & Planning Change Operational Efficiency Credit Policy & Risk Shari’a support Group Manufacturing Prod Service Fulfillment Customer Servicing Technology Credit operations Payments Group Supports HR Legal Risk & Compliance Credit Finance & Tax Design end to end experience and operating model for online services, to understand full costs and operating implications Build online capabilities once, for use by all products and brands Understand the real needs of your target customers and keep the online offering & experience as simple as possible Partner with innovative companies to fuel creative channel design Use champion challenger testing to improve channel performance
  38. 38. A well executed transformation program would take 2-3 years to be implemented and embedded, and could improve Islamic banks’ profitability by approximately 25% Global Islamic banking – estimated combined profit pool, 2015 (US$ b) Current performance (2011) Growth momentum (2012 – 2015) 17 - 18 15 - 17 ► Regulatory transformation 3 R’s driven improvements ~9 ► Risk transformation ► Retail transformation Potential combined Islamic banking profit pool (2015) 41 - 44 COMPETITIVENESS REPORT 2012-2013 37
  39. 39. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt COMPETITIVENESS REPORT 2012-2013 Indonesia Saudi Arabia Turkey Malaysia 38 Qatar Kuwait Country spotlight Pakistan United Arab Emirates
  40. 40. Banking sector overview – Bahrain Banking sector 2011 Macroeconomic 2011 Total domestic assets (US$b) 47 Real GDP growth 1.9% Total loans (US$b) 17 Nominal GDP (US$b) Total deposits (US$b) 32 Nominal GDP per capita (US$) Total equity (US$b) 27 Total population (m) 1.2 1.1 29 24,939 Assets CAGR (2007-2011) 6.0% Total Muslim population (m) Loans CAGR (2007-2011) 11.4% Population (0-14) 20.2% Deposits CAGR (2007-2011) 12.8% Population (15-64) 77.2% Total Islamic assets (US$b) 13 Population (65 & over) 2.6% Islamic asset market share 26.9% Population growth -1.9% Islamic assets CAGR (2007-2011) 7.4% Inflation -0.4% Total number of commercial banks 23 Unemployment rate 3.7% Total number of Islamic retail banks 6 Policy interest rate 1.0% Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Limitation: Impact of consolidation, off-shore business and window operation COMPETITIVENESS REPORT 2012-2013 39
  41. 41. Banking sector snapshot – Bahrain Total domestic banking assets (US$b) 30 60 49 50 40 Total equity (US$b) 42 38 46 47 25 23 27 27 2010 2011 20 30 15 20 10 10 5 - 2007 2008 2009 2010 2011 - 2007 18 16 16 14 12 16 2008 2009 Total banking deposits (US$b) Total advances (US$b) 17 15 35 29 30 25 11 10 20 8 25 25 2008 2009 32 20 15 6 10 4 5 2 - 2007 2008 2009 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 40 21 25 COMPETITIVENESS REPORT 2012-2013 2010 2011 - 2007 2010 2011 Limitation: Impact of consolidation, off-shore business and window operation
  42. 42. Top five banks – Bahrain Total assets (US$b) Total equity (US$b) 30 3.0 25 2.5 20 2.0 15 1.5 10 1.0 5 0.5 0 Bank A Bank B Bank C Bank D Bank E 0.0 Bank A Market share (Assets) 16% Bank C Bank D Bank E Return on equity 20% 14% 15% 14% 12% 16.8% 11.5% 11.8% Bank A Bank B 13.4% 10% 10% 9% 5% 8% 6% 4% 4% 0% 3% 3% 2% 0% Bank B -5% Bank C Bank D Bank E -10% Bank A Bank B Bank C Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Bank D Bank E -15% Limitation: Impact of consolidation, off-shore business and window operation -10.7% 2011 Figures COMPETITIVENESS REPORT 2012-2013 41
  43. 43. Islamic banking sector snapshot – Bahrain Total assets of top 3 Islamic banks (US$b) 21 18 15 12 9 6 3 0 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Bank A Bank B 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Market share of top 3 Islamic banks Bank A Bank B Bank C ROE of top 3 Islamic banks 15% 8.7% 12% 10% 5% 0% 3.5% 2.1% 3% -11% Bank A Bank B Bank C -5% -10% Bank A Bank B Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 42 Bank C Total equity of top 3 Islamic banks (US$b) COMPETITIVENESS REPORT 2012-2013 Bank C -15% Limitation: Impact of consolidation, off-shore business and window operation 2011 Figures
  44. 44. Islamic banks in Bahrain need to take a fresh look at their business model Islamic Strategic growth matrix Conventional 20% Bank D Bank E Bank A 15% Growth in assets CAGR 2008 - 2011 Undifferentiated business models will need to be reconfigured to be specialized (retail, SME) and diversified (regional, trade finance, wealth management, etc.) 10% Bank B Bank B Bank C 5% 0% Bank A Bank C 0% 2% Bank F Bank G 4% 6% 8% 10% 12% 14% 16% 18% 20% -5% -10% Low market share High market share Market share 2011 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Banks are ranked based on asset size 2011 COMPETITIVENESS REPORT 2012-2013 43
  45. 45. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt COMPETITIVENESS REPORT 2012-2013 Indonesia Saudi Arabia Turkey Malaysia 44 Qatar Kuwait Country spotlight Pakistan United Arab Emirates
  46. 46. Banking sector overview – Egypt Banking sector 2011 Macroeconomic 2011 Total assets (US$b) 215 Real GDP growth 1.8% Total loans (US$b) 80 Nominal GDP (US$b) Total deposits (US$b) 162 Nominal GDP per capita (US$) Total equity (US$b) 14 Total population (m) 82 78 229 2,783 Assets CAGR (2007-2011) 8.7% Total Muslim population (m) Loans CAGR (2007-2011) 8.5% Population (0-14) 32.5% Deposits CAGR (2007-2011) 10.7% Population (15-64) 62.8% Total Islamic assets (US$b) 8 Population (65 & over) 4.7% Islamic asset market share 3.8% Population growth 1.7% Islamic assets CAGR (2007-2011) 9.5% Inflation 10.1% Total number of banks 39 Unemployment rate 12.0% Total number of Islamic retail banks 4 Policy interest rate 9.5% Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Limitation: Impact of consolidation, off-shore business and window operation Note: Only commercial banks COMPETITIVENESS REPORT 2012-2013 45
  47. 47. Banking sector snapshot – Egypt Total domestic banking assets (US$b) 250 200 150 154 172 189 211 215 Total equity (US$b) 16 14 14 12 11 2007 10 10 2008 14 2010 2011 12 8 100 6 4 50 - 2 2007 2008 2009 2010 2011 - Total banking deposits (US$b) Total advances (US$b) 180 100 80 60 2009 70 71 75 80 150 120 58 108 124 135 148 162 90 40 60 20 - 30 2007 2008 2009 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 46 COMPETITIVENESS REPORT 2012-2013 2010 2011 - 2007 Limitation: Impact of consolidation, off-shore business and window operation 2008 2009 2010 2011 Note: Only commercial banks
  48. 48. Top five banks – Egypt Total assets (US$b) Total equity (US$b) 30 1.5 25 1.2 20 0.9 15 0.6 10 0.3 5 0 15% Bank A Bank B Bank C Bank D Bank E Market share (Assets) 0.0 Bank A 12% Bank D Bank E 22.7% 20.2% 20% 9% Bank C Return on equity 25% 12.7% Bank B 15% 15.7% 6.1% 6% 10% 4.8% 3.5% 3% 0% Bank A Bank B Bank C Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Bank D 2.9% Bank E 9.0% 7.2% 5% 0% Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C Bank D Bank E 2011 Figures COMPETITIVENESS REPORT 2012-2013 47
  49. 49. Post Arab spring, Egypt is expected to be a key market for Islamic banking although pace may be slow initially Islamic Strategic growth matrix Conventional 15% Bank B Growth in assets CAGR 2008 - 2011 13% Great potential for Islamic banking but key challenges related to fiscal stability remain Regulatory clarity will be key to development of Islamic banking in Egypt 11% 9% Bank B Bank A 7% 5% 3% Bank A 0% 2% 4% 6% 8% Low market share 10% 12% 14% High market share Market share 2011 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 48 COMPETITIVENESS REPORT 2012-2013 Banks are ranked based on asset size 2011
  50. 50. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 49
  51. 51. Banking sector overview – Indonesia Banking sector 2011 Macroeconomic 2011 Total assets (US$b) 408 Real GDP growth 6.5% Total loans (US$b) 381 Nominal GDP (US$b) Total deposits (US$b) 345 Nominal GDP per capita (US$) Total equity (US$b) 68 Total population (m) 242 847 3,495 Assets CAGR (2007-2011) 16.5% Total Muslim population (m) 213 Loans CAGR (2007-2011) 14.1% Population (0-14) 27% Deposits CAGR (2007-2011) 11.8% Population (15-64) 66.6% Total Islamic assets (US$b) 16 Population (65 & over) 6.4% Islamic asset market share 4.2% Population growth Islamic assets CAGR (2007-2011) 40.5% Inflation 5.4% 1% Total number of banks 120 Unemployment rate 6.6% Total number of Islamic retail banks 11 Policy interest rate 6.0% Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 50 COMPETITIVENESS REPORT 2012-2013 Limitation: Impact of consolidation, off-shore business and window operation Note: Only commercial banks
  52. 52. Banking sector snapshot – Indonesia Total domestic banking assets (US$b) 450 408 400 300 250 222 258 80 68 70 336 350 Total equity (US$b) 54 60 283 50 40 200 32 43 35 30 150 100 20 50 10 - 2007 2008 2009 2010 2011 - 2007 381 400 350 300 250 309 225 225 2009 2010 2011 Total banking deposits (US$b) Total advances (US$b) 450 2008 400 345 350 286 300 255 250 243 221 222 2007 2008 200 200 150 150 100 100 50 50 - 2007 2008 2009 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 2010 2011 - 2009 2010 2011 Limitation: Impact of consolidation, off-shore business and window operation COMPETITIVENESS REPORT 2012-2013 51
  53. 53. Top five banks – Indonesia Total assets (US$b) Total equity (US$b) 8 70 60 6 50 40 4 30 20 2 10 0 Bank A Bank B Bank C Bank D Bank E Market share (Assets) 18% 16% 0 Bank A 16% 14% 9% 10% 8% 20% Bank E 25.8% 19.5% 15.4% 6% 6% Bank D 30.3% 30% 11% 12% Bank C Return on equity 40% 13% Bank B 13.3% 10% 4% 2% 0% Bank A Bank B Bank C Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 52 COMPETITIVENESS REPORT 2012-2013 Bank D Bank E 0% Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C Bank D Bank E 2011 Figures
  54. 54. Islamic banking sector snapshot – Indonesia Total assets of top 3 Islamic banks (US$b) 6 Total equity of top 3 Islamic banks (US$b) 0.4 0.3 4 0.2 2 0 1.5% 0.1 Bank A Bank B Bank C Market share of top 3 Islamic banks 1.3% 0.0 20% Bank A Bank C ROE of top 3 Islamic banks 17.9% 15% 1.0% Bank B 13.2% 0.9% 10% 0.5% 0.3% 5% 1.7% 0.0% 0% Bank A Bank B Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Bank C Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C 2011 Figures COMPETITIVENESS REPORT 2012-2013 53
  55. 55. With population approaching 250 million, and a positive stable economic outlook, Indonesia is likely to be the next major growth market for Islamic banking Islamic Strategic growth matrix 80% Growth in assets CAGR 2008 - 2011 While political and economic risks remain, Indonesia’s nascent Islamic banking industry is forecast to grow five folds to $83 billion by 2015 Bank D 70% Conventional With local banks focused on retail customers, foreign institutions are developing significant presence in wholesale and corporate banking 60% 50% A regulatory proposal seeks to limit foreign ownership to less than 50% Bank A Bank B 40% Bank B 30% Bank C 20% Bank C Bank D Bank A 10% 0% 0% 2% 4% 6% 8% 10% 12% Low market share 14% 16% 18% 20% High market share Market share 2011 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 54 COMPETITIVENESS REPORT 2012-2013 Banks are ranked based on asset size 2011
  56. 56. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 55
  57. 57. Banking sector overview – Kuwait Banking sector 2011 Macroeconomic 2011 Total assets (US$b) 159 Real GDP growth 5.7% Total loans (US$b) 108 Nominal GDP (US$b) Total deposits (US$b) 116 Nominal GDP per capita (US$) Total equity (US$ b) 22 Total population (m) 2.8 2.6 161 57,102 Assets CAGR (2007-2011) 5.5% Total Muslim population (m) Loans CAGR (2007-2011) 6.1% Population (0-14) 25.7% Deposits CAGR (2007-2011) 8.7% Population (15-64) 72.3% Total Islamic assets (US$b) 52 Population (65 & over) 2.1% Islamic asset market share 33% Population growth 2.6% Islamic assets CAGR (2007-2011) 6.5% Inflation 4.7% Total number of banks 22 Unemployment rate 2.1% Total number of Islamic retail banks 5 Policy interest rate 2.5% Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 56 COMPETITIVENESS REPORT 2012-2013 Limitation: Impact of consolidation, off-shore business and window operation Note: Only commercial banks
  58. 58. Banking sector snapshot – Kuwait Total domestic banking assets (US$b) 180 160 140 128 141 145 149 159 Total equity (US$b) 25 20 120 21 17 17 2007 2008 22 18 15 100 80 10 60 40 5 20 - 2007 2009 2010 2011 - 99 104 106 2009 2010 2011 Total banking deposits (US$b) Total advances (US$b) 120 100 2008 108 140 99 120 85 80 100 60 104 109 2008 2009 2010 116 80 60 40 40 20 - 83 20 2007 2008 2009 2010 2011 - 2007 2011 COMPETITIVENESS REPORT 2012-2013 57
  59. 59. Top five banks – Kuwait Total assets (US$b) Total equity (US$b) 50 10 40 8 30 6 20 4 10 2 0 35% Bank A Bank B Bank C Bank D Bank E Market share (Assets) 31% 30% 0 14% 31% Bank B Bank D Bank E Return on equity 10.2% 10% 20% Bank C 13.0% 12% 25% 9.1% 8% 15% 10% 10% 6% 8% 6% 4% 5% 0% 2.4% 2% 0% Bank A Bank B Bank C Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 58 Bank A COMPETITIVENESS REPORT 2012-2013 Bank D Bank E 0.2% Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C Bank D Bank E 2011 Figures
  60. 60. Islamic banking sector snapshot – Kuwait Total assets of top 3 Islamic banks (US$b) Total equity of top 3 Islamic banks (US$b) 60 6.0 50 5.0 40 4.0 30 3.0 20 2.0 10 1.0 0 Bank A Bank B Bank C Market share of top 3 Islamic banks 35% 30.9% 10% Bank A Bank B Bank C ROE of top 3 Islamic banks 9% 8% 30% 25% 6% 20% 4% 15% 10% 6.0% 5% 0% 0.0 Bank A Bank B Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 3% 2% 3.6% Bank C 2% 0% Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C 2011 Figures COMPETITIVENESS REPORT 2012-2013 59
  61. 61. Search for a differentiated business model to reignite growth Islamic Strategic growth matrix Conventional 27% Retail banking transformation, wealth management solutions and regional expansion will drive the next phase of growth for Islamic banks in Kuwait Bank C Growth in assets CAGR 2008 - 2011 22% 17% 12% Bank A Bank B 7% Bank B Bank A Bank D 2% 0% 5% -3% 10% 15% 20% 25% 30% 35% Bank C -8% Low market share High market share Market share 2011 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 60 COMPETITIVENESS REPORT 2012-2013 Banks are ranked based on asset size 2011
  62. 62. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 61
  63. 63. Banking sector overview – Malaysia Banking sector 2011 Macroeconomic 2011 Total assets (US$b) 579 Real GDP growth 5.1% Total loans (US$b) 325 Nominal GDP (US$b) Total deposits (US$b) 411 Nominal GDP per capita (US$) 9,977 Total equity (US$b) 48 Total population (m) 28.9 17.3 288 Assets CAGR (2007-2011) 9.9% Total Muslim population (m) Loans CAGR (2007-2011) 11.8% Population (0-14) 29.4% Deposits CAGR (2007-2011) 11.4% Population (15-64) 65.5% Total Islamic assets (US$b) 106 Population (65 & over) 5.1% Islamic asset market share 18.9% Population growth 1.6% Islamic assets CAGR (2007-2011) 21.3% Inflation 3.2% Total number of banks 27 Unemployment rate 3.1% Total number of Islamic retail banks 16 Policy interest rate 3% Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 62 COMPETITIVENESS REPORT 2012-2013 Limitation: Impact of consolidation, off-shore business and window operation Note: Only commercial banks
  64. 64. Banking sector snapshot – Malaysia Total domestic banking assets (US$b) 700 579 600 500 400 397 435 464 504 60 50 30 44 48 34 28 20 200 10 100 2007 2008 2009 2010 2011 - 2007 350 2008 2009 2010 325 500 411 286 300 208 235 2011 Total banking deposits (US$b) Total advances (US$b) 250 40 40 300 - Total equity (US$b) 254 400 200 300 150 267 304 334 359 200 100 100 50 2007 2008 2009 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 2010 2011 2007 2008 2009 2010 2011 Limitation: Impact of consolidation, off-shore business and window operation COMPETITIVENESS REPORT 2012-2013 63
  65. 65. Top five banks – Malaysia Total assets (US$b) Total equity (US$b) 150 12 120 10 8 90 6 60 4 30 0 2 Bank A Bank B Bank C Bank D Bank E 0 Bank A Market share (Assets) 30% 25% 25% 25% Bank D 14% 15% 13% 4% 5% Bank A Bank B Bank C Source: Central Bank Report, Industry Sources, Ernst & Young Analysis COMPETITIVENESS REPORT 2012-2013 Bank D 14.2% 14.1% 14.8% Bank C Bank D 15.8% 10% 8% 10% Bank E 22.4% 20% 15% 64 Bank C Return on equity 20% 0% Bank B Bank E 5% 0% Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank E 2011 Figures
  66. 66. Islamic banking sector snapshot – Malaysia Total assets of top 3 Islamic banks (US$b) 25 1.4 20 1.2 1.0 15 0.8 10 0.6 0.4 5 0 Total equity of top 3 Islamic banks (US$b) 0.2 Bank A Bank B Bank C 0.0 Market share of top 3 Islamic banks 4.0% Bank A ROE of top 3 Islamic banks 20% 16% 2.3% 18% 15% 13% 1.8% 2.0% 10% 1.0% 0.0% Bank C 25% 3.7% 3.0% Bank B 5% Bank A Bank B Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Bank C 0% Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C 2011 Figures COMPETITIVENESS REPORT 2012-2013 65
  67. 67. Malaysia is seeking to double the share of Islamic banking assets by 2020. The game changer would be conversion of conventional banks Islamic Strategic growth matrix 40% Conventional Bank B Growth in Assets CAGR 2008 - 2011 35% Bank A Consolidation will help create larger Islamic banks with capacity to grow regionally Bank D Operational transformation of Islamic banks and windows is a pre requisite for meaningful growth 30% 25% Bank E 20% Bank G 15% 10% Bank D Bank D Bank C Bank A Bank C Bank B Bank F 5% 0% 0% 5% 10% 15% 20% 25% 30% High market share Low market share Market share 2011 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 66 COMPETITIVENESS REPORT 2012-2013 Banks are ranked based on asset size 2011
  68. 68. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 67
  69. 69. Banking sector overview – Pakistan Banking sector 2011 Macroeconomic 2011 Total assets (US$b) 124 Real GDP growth 2.4% Total loans (US$b) 35 Nominal GDP (US$b) Total deposits (US$b) 58 Nominal GDP per capita (US$) Total equity (US$b) 7 Total population (m) 177 170 209 1,184 Assets CAGR (2007-2011) 7.7% Total Muslim population (m) Loans CAGR (2007-2011) 8.1% Population (0-14) 34.7% Deposits CAGR (2007-2011) 12.9% Population (15-64) 61% Total Islamic assets (US$b) 7 Population (65 & over) 4.2% Islamic asset market share 5.7% Population growth 1.8% Islamic assets CAGR (2007-2011) 20.7% Inflation 12% Total number of banks 38 Unemployment rate 6.2% Total number of Islamic retail banks 5 Policy interest rate 12% Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 68 COMPETITIVENESS REPORT 2012-2013 Limitation: Impact of consolidation, off-shore business and window operation Note: Only commercial banks
  70. 70. Banking sector snapshot – Pakistan Total domestic banking assets (US$b) 140 112 120 100 92 93 124 99 Total equity (US$b) 8 6 6 80 4 60 40 7 7 4 4 2 20 0 0 2007 2008 2009 2010 2007 2011 30 30 33 34 2009 2010 2011 Total banking deposits (US$b) Total advances (US$b) 40 2008 35 70 58 60 26 50 40 20 36 44 41 50 30 20 10 10 0 0 2007 2008 2009 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 2010 2011 2007 2008 2009 2010 2011 Limitation: Impact of consolidation, off-shore business and window operation COMPETITIVENESS REPORT 2012-2013 69
  71. 71. Top five banks – Pakistan Total assets (US$b) Total equity (US$b) 14 1.6 12 1.4 10 1.2 8 1.0 6 0.8 0.6 4 0.4 2 0.2 0 Bank A Bank B Bank C Bank D Bank E 0.0 Bank A Market share (Assets) 12% 10% 10% 25% 15% 6% 4% 4% Bank E 21.0% 23.3% 17.3% 13.1% 10% 0% Bank A Bank B Bank C Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 70 Bank D 5% 2% 0% 22.2% 20% 7% 6% Bank C Return on equity 10% 8% Bank B COMPETITIVENESS REPORT 2012-2013 Bank D Bank E Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C Bank D Bank E 2011 Figures
  72. 72. Islamic banking sector snapshot – Pakistan Total assets of top 3 Islamic banks (US$b) 2.5 Total equity of top 3 Islamic banks (US$b) 0.18 2.0 0.12 1.5 1.0 0.06 0.5 0.0 Bank A Bank B Bank C Market share of top 3 Islamic banks 2.0% 1.8% 0.00 Bank A 25% Bank B Bank C ROE of top 3 Islamic banks 20.4% 20% 1.5% 15% 1.0% 0.6% 0.5% 10% 0.5% 6.3% 5% -1.2% 0% Bank A 0.0% Bank A Bank B Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Bank C Bank B Bank C -5% Limitation: Impact of consolidation, off-shore business and window operation 2011 Figures COMPETITIVENESS REPORT 2012-2013 71
  73. 73. Islamic banks will continue to experience high growth as they build their distribution capacity Islamic Strategic growth matrix Conventional 70% Bank B Industry leader Islamic bank has thrived on differentiating itself from conventional peers Growth in assets CAGR 2008 - 2011 60% Strong potential for organic growth but Islamic banks need to build distribution capacity and scale 50% Bank C 40% 30% Bank A 20% 10% Bank B Bank C 0% 0% 2% 4% 6% Low market share Bank A 8% 10% 12% High market share Market share 2011 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 72 COMPETITIVENESS REPORT 2012-2013 Banks are ranked based on asset size 2011
  74. 74. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 73
  75. 75. Banking sector overview – Qatar Banking sector 2011 Macroeconomic 2011 Total assets (US$b) 187 Real GDP growth 14.8% Total loans (US$b) 109 Nominal GDP (US$b) Total deposits (US$b) 98 Nominal GDP per capita (US$) Total equity (US$b) 26 Total population (m) 1.7 1.3 174 101,340 Assets CAGR (2007-2011) 23.9% Total Muslim population (m) Loans CAGR (2007-2011) 25.9% Population (0-14) 12.5% Deposits CAGR (2007-2011) 21.4% Population (15-64) 86.7% Total Islamic assets (US$b) 44 Population (65 & over) 0.8% Islamic asset market share 23% Population growth 5.8% Islamic assets CAGR (2007-2011) 30% Inflation 1.9% Total number of banks 18 Unemployment rate 0.6% Total number of Islamic retail banks 4 Policy interest rate 4.5% Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 74 COMPETITIVENESS REPORT 2012-2013 Limitation: Impact of consolidation, off-shore business and window operation Note: Only commercial banks
  76. 76. Banking sector snapshot – Qatar Total domestic banking assets (US$b) 200 187 153 150 30 126 20 13 15 79 10 50 15 17 9 5 - 2007 2008 2009 2010 2007 2011 120 109 100 66 2009 2010 2011 120 98 100 85 80 2008 Total banking deposits (US$b) Total advances (US$b) 60 26 25 109 100 Total equity (US$b) 73 83 80 60 43 40 67 45 40 20 57 20 - 2007 2008 2009 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 2010 2011 2007 2008 2009 2010 2011 Limitation: Impact of consolidation, off-shore business and window operation COMPETITIVENESS REPORT 2012-2013 75
  77. 77. Top five banks – Qatar Total assets (US$b) Total equity (US$b) 90 14 12 10 60 8 6 30 4 2 0 Bank A Bank B Bank C Bank D Bank E Market share (Assets) 50% 0 20% 43.5% 40% Bank D Bank E 16.5% 17.5% 8% 10.3% 10% 0% Bank A Bank B 8.4% 8.0% 7.5% Bank C Bank D Bank E Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 76 Bank C 17.7% 12% 20% Bank B Return on equity 16% 30% Bank A COMPETITIVENESS REPORT 2012-2013 13.2% 12.2% 4% 0% Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C Bank D Bank E 2011 Figures
  78. 78. Islamic banking sector snapshot – Qatar Total assets of top 3 Islamic banks (US$b) Total equity of top 3 Islamic banks (US$b) 18 3.5 15 3.0 2.5 12 2.0 9 1.5 6 1.0 3 0.5 0 0.0 Bank A 9% Bank B Bank C Market share of top 3 Islamic banks 8.4% 8.0% Bank A 18% Bank B ROE of top 3 Islamic banks 16.5% 15% 12% 6% 3.4% Bank C 13.3% 12.2% 9% 6% 3% 3% 0% 0% Bank A Bank B Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Bank C Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C 2011 Figures COMPETITIVENESS REPORT 2012-2013 77
  79. 79. Regulatory clarity has helped Islamic banks in Qatar to achieve scale in the high growth market. There is also potential for a strong Islamic capital market play in future Islamic Strategic growth matrix 50% Bank B 40% Barring the conventional industry leader, Islamic banks are comparable in size to conventional peers 35% Large infrastructure spend will fuel continued profitable growth for the banking industry 45% Growth in Assets CAGR 2008 - 2011 Conventional 30% Bank A 25% Bank C 20% Bank A 15% Bank C 10% 5% 0% Bank B 0% 5% 10% 15% 20% 25% Low Market Share 30% 35% 40% 45% 50% High Market Share Market Share 2011 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 78 COMPETITIVENESS REPORT 2012-2013 Banks are ranked based on asset size 2011
  80. 80. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 79
  81. 81. Banking sector overview – Saudi Arabia Banking sector 2011 Macroeconomic 2011 Total assets (US$b) 417 Real GDP growth 7.1% Total loans (US$b) 232 Nominal GDP (US$b) Total deposits (US$b) 298 Nominal GDP per capita (US$) Total equity (US$b) 51 Total population (m) 28 27 597 21,262 Assets CAGR (2007-2011) 9.5% Total Muslim population (m) Loans CAGR (2007-2011) 9.5% Population (0-14) 29% Deposits CAGR (2007-2011) 11.4% Population (15-64) 68% Total Islamic assets (US$b) 207 Population (65 & over) 3% Islamic asset market share 49% Population growth 2.2 % Inflation 5.0% Islamic assets CAGR (2007-2011) 12.5% Total number of banks 12 Unemployment rate 5.8% Total number of Islamic retail banks 4 Policy interest rate 2% Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 80 COMPETITIVENESS REPORT 2012-2013 Limitation: Impact of consolidation, off-shore business and window operation Note: Only commercial banks
  82. 82. Banking sector snapshot – Saudi Arabia Total domestic banking assets (US$b) 450 400 350 300 352 370 383 417 Total equity (US$b) 60 50 291 40 250 30 200 150 36 29 20 100 10 50 2007 2008 2009 2010 2011 2007 250 201 199 210 2008 2009 2010 2011 Total banking deposits (US$b) Total advances (US$b) 200 44 51 48 232 300 229 250 161 200 150 254 266 298 194 150 100 100 50 50 - 2007 2008 2009 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 2010 2011 2007 2008 2009 2010 2011 Limitation: Impact of consolidation, off-shore business and window operation COMPETITIVENESS REPORT 2012-2013 81
  83. 83. Top five banks – Saudi Arabia Total assets (US$b) Total equity (US$b) 90 12 9 60 6 30 3 0 0 Bank A Bank C Bank D Bank E 19.5% 20% 14.3% 12.5% Bank C Bank D Bank E 22.5% 17.2% 15.2% 15% 11.7% 9.0% 10% Bank B Return on equity 25% 15% 14.8% 10.4% 10% 5% 5% 0% 0% Bank A Bank B Bank C Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 82 Bank A Market share (Assets) 25% 20% Bank B COMPETITIVENESS REPORT 2012-2013 Bank D Bank E Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C Bank D Bank E 2011 Figures
  84. 84. Islamic banking sector snapshot – Saudi Arabia Total assets of top 3 Islamic banks (US$b) 60 Total equity of top 3 Islamic banks (US$b) 10 50 8 40 6 30 4 20 2 10 0 0 Bank A 15% Bank B Bank C Bank A Market share of top 3 Islamic banks 14.3% Bank B Bank C ROE of top 3 Islamic banks 25% 12% 20% 9% 15% 6% 22.5% 10% 2.5% 3% 2.4% Bank B Bank C 6.4% 5% 2.7% 0% 0% Bank A Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C 2011 Figures COMPETITIVENESS REPORT 2012-2013 83
  85. 85. With more than 50% share of the banking system assets in 2012, Islamic banking is in fact mainstream banking in Saudi Arabia Islamic Strategic growth matrix 35% Bank C Conventional banks have large Islamic banking book which is more than just a ‘window’ operation 30% Growth in assets CAGR 2008 - 2011 Conventional Housing finance will be reconfigured based on new mortgage law and (draft) regulations and offers significant growth opportunity 25% Bank D 20% A key systemic challenge is to safeguard and strengthen Shari’a governance framework 15% Bank B Bank A Bank A 10% Bank C 5% 0% Bank D 0% 5% Bank E Bank B 10% 15% 20% -5% Low market share High market share Market share 2011 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 84 COMPETITIVENESS REPORT 2012-2013 Banks are ranked based on asset size 2011
  86. 86. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 85
  87. 87. Banking sector overview – Turkey Banking sector 2011 Macroeconomic 2011 Total assets (US$b) 631 Real GDP growth 8.5% Total loans (US$b) 354 Nominal GDP (US$b) Total deposits (US$b) 378 Nominal GDP per capita (US$) Total equity (US$b) 88 Total population (m) 74 Total Muslim population (m) 72 775 10,524 Assets CAGR (2007-2011) 20% Loans CAGR (2007-2011) 27.2% Population (0-14) 26.2% Deposits CAGR (2007-2011) 18.9% Population (15-64) 67.4% Total Islamic assets (US$b) 31 Population (65 & over) 6.4% Islamic asset market share 4.9% Population growth 1.2% Islamic assets CAGR (2007-2011) 30% Inflation 6.5% Total number of banks 62 Unemployment rate 8.8% Total number of Islamic retail banks 4 Policy interest rate 5.8% Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 86 COMPETITIVENESS REPORT 2012-2013 Limitation: Impact of consolidation, off-shore business and window operation Note: Only commercial banks
  88. 88. Banking sector snapshot – Turkey Total domestic banking assets (US$b) 700 631 600 520 500 400 300 374 427 299 200 100 2007 2008 2009 2010 2011 Total equity (US$b) 100 90 80 70 60 50 40 30 20 10 - 354 350 300 200 150 136 168 2010 2011 71 50 2007 54 2008 2009 400 378 325 350 300 268 250 88 Total banking deposits (US$b) Total advances (US$b) 400 86 250 189 200 239 270 189 150 100 100 50 50 - 2007 2008 2009 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 2010 2011 2007 2008 2009 2010 2011 Limitation: Impact of consolidation, off-shore business and window operation COMPETITIVENESS REPORT 2012-2013 87
  89. 89. Top five banks – Turkey Total assets (US$b) Total equity (US$b) 14 120 12 100 10 80 8 60 6 40 4 20 0 2 Bank A Bank B Bank C Bank D Bank E 0 Bank A Market share (Assets) 20% 15% 15% Bank E 24.8% 25% 13% 10% 20% 15% 18.3% 16.5% 13.9% 11.8% 10% 5% 5% Bank A Bank B Bank C Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 88 Bank D 30% 11% 0% Bank C Return on equity 17% 15% Bank B COMPETITIVENESS REPORT 2012-2013 Bank D Bank E 0% Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C Bank D Bank E 2011 Figures
  90. 90. Islamic banking sector snapshot – Turkey Total assets of top 3 Islamic banks (US$b) 10 Total equity of top 3 Islamic banks (US$b) 1.4 1.2 8 1.0 6 0.8 4 0.6 0.4 2 0.2 0 0.0 Bank A Bank B Bank C Bank A Market share of top 3 Islamic banks 1.6% 1.3% 1.2% 1.2% Bank C ROE of top 3 Islamic banks 16% 1.5% Bank B 12% 0.8% 14.6% 9.9% 8% 0.4% 13.6% 4% 0.0% 0% Bank A Bank B Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Bank C Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C 2011 Figures COMPETITIVENESS REPORT 2012-2013 89
  91. 91. Turkey’s 2023 financial services vision could see Islamic banking industry tripling in size to more than $100 billion (approximately where Malaysia is today) Islamic Strategic growth matrix 40% Bank B 35% Growth in assets CAGR 2008 - 2011 Conventional Bank D 30% Islamic banks will continue to post strong growth helped by regulatory clarity and new liquidity management solutions Bank E Bank A 25% Possible entry of more foreign Islamic banks through acquisition & conversion Bank C 20% Bank C Bank D Bank A 15% Bank B 10% 5% 0% 0% 2% 4% 6% 8% 10% 12% Low market share 14% 16% 18% 20% High market share Market share 2011 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 90 COMPETITIVENESS REPORT 2012-2013 Banks are ranked based on asset size 2011
  92. 92. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 91
  93. 93. Banking sector overview – UAE Banking sector 2011 Macroeconomic 2011 Total assets (US$b) 450 Real GDP growth Total loans (US$b) 268 Nominal GDP (US$b) Total deposits (US$b) 289 Nominal GDP per capita (US$) Total equity (US$b) 76 Total population (m) 4.2% 339 42,921 7.9 Assets CAGR (2007-2011) 8.5% Total Muslim population (m) 6 Loans CAGR (2007-2011) 12.2% Population (0-14) 20.5% Deposits CAGR (2007-2011) 10.6% Population (15-64) 78.5% Total Islamic assets (US$b) 75 Population (65 & over) 0.9% Islamic asset market share 16.7% Population growth 5.0% Islamic assets CAGR (2007-2011) 14.8% Inflation 0.9% Total number of banks 50 Unemployment rate 4.6% Total number of Islamic retail banks 7 Policy interest rate 1.0% Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 92 COMPETITIVENESS REPORT 2012-2013 Limitation: Impact of consolidation, off-shore business and window operation Note: Only commercial banks
  94. 94. Banking sector snapshot – UAE Total domestic banking assets (US$b) 500 400 391 411 434 450 Total equity (US$b) 80 74 76 2010 2011 66 60 325 45 300 40 35 200 20 100 - 2007 2008 2010 2011 2007 250 259 262 2008 2009 Total banking deposits (US$b) Total advances (US$b) 300 200 2009 268 350 300 246 250 169 200 265 283 289 2010 2011 193 150 100 100 50 - 2007 2008 2009 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 2010 2011 2007 2008 2009 Limitation: Impact of consolidation, off-shore business and window operation COMPETITIVENESS REPORT 2012-2013 93
  95. 95. Top five banks – UAE Total assets (US$b) Total equity (US$b) 80 10 8 60 6 40 4 20 2 0 Bank A Bank B Bank C Bank D Bank E 0 Bank A Market share (Assets) 18% 17.1% 16% 16% 14% Bank D 14.0% 13.8% 9.5% 8% 8% Bank E 13.9% 12% 11.0% 10% Bank C Return on equity 15.4% 12% Bank B 10.4% 7.1% 5.4% 6% 4% 4% 2% 0% 0% Bank A Bank B Bank C Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 94 COMPETITIVENESS REPORT 2012-2013 Bank D Bank E Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C Bank D Bank E 2011 Figures
  96. 96. Islamic banking sector snapshot – UAE Total assets of top 3 Islamic banks (US$b) Total equity of top 3 Islamic banks (US$b) 30 3.0 25 2.5 20 2.0 15 1.5 10 1.0 5 0.5 0.0 0 Bank A Bank B Bank A Bank C Market share of top 3 Islamic banks 6% 5% 4.5% 12% 4% 13.5% 10.4% 8% 3% Bank C ROE of top 3 Islamic banks 16% 5.4% Bank B 6.7% 1.7% 2% 4% 1% 0% 0% Bank A Bank B Source: Central Bank Report, Industry Sources, Ernst & Young Analysis Bank C Bank A Limitation: Impact of consolidation, off-shore business and window operation Bank B Bank C 2011 Figures COMPETITIVENESS REPORT 2012-2013 95
  97. 97. Regaining momentum through retail banking transformation is essential for Islamic banks in UAE Islamic Strategic Growth Matrix Conventional 20% Bank B Growth in assets CAGR 2008 - 2011 15% Bank B Bank D 10% Bank C 5% Bank D Bank A 0% 0% 2% 4% 6% Bank A 8% 10% 12% 14% 16% 18% 20% Undifferentiated business models will need to be reconfigured to be specialized (retail & SME) and diversified (regional, infrastructure, wealth management, etc.) -5% Bank C -10% Low market share High market share Market share 2011 Source: Central Bank Report, Industry Sources, Ernst & Young Analysis 96 COMPETITIVENESS REPORT 2012-2013 Banks are ranked based on asset size 2011
  98. 98. Report structure Opening Executive brief Competitive positioning Global industry insights Performance analysis CEO agenda Bahrain Egypt Country spotlight Pakistan Qatar Indonesia Saudi Arabia Kuwait Turkey Malaysia United Arab Emirates COMPETITIVENESS REPORT 2012-2013 97
  99. 99. Ernst & Young Leadership – Islamic Banking Center of Excellence (and what they have to say) Game changer for us would be bold, fresh thinking that drives responsible innovation Ashar Nazim ashar.nazim@bh.ey.com Successful strategy execution is dependant on a bank's operating model being realigned to deliver on the new strategy Abid Shakeel abid.shakeel@bh.ey.com Islamic banking is no rocket science but structuring real Islamic products requires sophisticated thinking Nida Raza nida.raza@bh.ey.com Industry may potentially face an existential threat if it cannot manage its most important risk, i.e. Shari'a noncompliance Sohaib Umar sohaib.umar@bh.ey.com 98 COMPETITIVENESS REPORT 2012-2013 Real progress will only come from greater integration with the real economy Shoaib Qureshi shoaib.qureshi@sa.ey.com If the change does not happen at the right time, there will be nothing left to change Shahid Mughal shahid.mughal@om.ey.com Market leadership will belong to those who can meet both commercial and Shari'a needs of their customers Mustafa Adil mustafa.adil@bh.ey.com I wish my Islamic bank could deliver the same service levels that my previous conventional bank had to offer! Noman Mubashir noman.mubashir@bh.ey.com
  100. 100. Report methodology and tools ► Global Islamic banking assets are estimated based on publicly available data from 22 Islamic banking markets ► The research and insights are primarily based on EY Islamic Banking Universe (EY Universe), which is proprietary, based on sample, and is not meant to be fully exhaustive ► The EY Universe analysis covers 62 Islamic banks and 42 conventional banks across 12 Islamic banking markets, with a total asset base of $2.6 trillion (2011) ► For the purpose of this report, the analysis excludes Iran market due to its unique characteristics (except when reporting estimated global industry assets) ► EY Universe covers approximately 80% of the estimated global Islamic banking assets (excluding Iran market) ► Insights are also based on industry survey, including interviews with executives and industry observers, to identify key trends, risks and priorities ► ► ► ► ► ► The break down of banks selected country wise in the EY Universe is: ► ► ► ► ► ► ► Bahrain – 7 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 – 8 Islamic and 4 conventional banks Indonesia – 5 Islamic and 4 conventional banks Malaysia – 13 Islamic and 4 conventional banks Pakistan – 5 Islamic and 3 conventional banks Bangladesh – 5 Islamic and 2 conventional banks Jordan – 2 Islamic and 1 conventional banks Egypt – 2 Islamic and 4 conventional banks Turkey – 4 Islamic and 5 conventional banks Anonymity and Quotes ► Limited disclosures on Islamic windows, subsidiary operation and offshore businesses was a limiting factor ► All interviewees were assured of anonymity and minutes documented during our discussions ► The EY Universe is categorized as follows: ► GCC – Bahrain, Kuwait, Qatar, Saudi Arabia, UAE ► South East Asia – Indonesia, Malaysia ► Rest of the World – Bangladesh, Egypt, Jordan, Pakistan, Turkey ► Quotations have been used to support arguments made in the report. COMPETITIVENESS REPORT 2012-2013 99
  101. 101. Ernst & Young universe of Islamic and conventional banks Islamic banks that contributed data to Universe: Bahrain ► ► ► ► ► ► ► Al Baraka Banking Group (ex subsidiaries) Al Baraka Bank Bahrain Ithmaar Bank Al Salam Bank Bahrain Islamic Bank Khaleeji Commercial Bank Kuwait Finance House Bahrain Saudi Arabia ► ► ► ► Al Rajhi Bank Bank Al Jazira Alinma Bank Bank AlBilad Conventional banks that contributed data to our Universe : Bahrain ► ► ► ► Saudi Arabia ► ► ► ► ► Kuwait ► ► ► ► Kuwait Finance House Ahli United Bank Boubyan Bank Kuwait International Bank Qatar ► ► ► 100 Qatar Islamic Bank Masraf Al Rayan Qatar International Islamic Bank COMPETITIVENESS REPORT 2012-2013 Arab Banking Corporation Ahli United Bank Bank of Bahrain and Kuwait National Bank of Bahrain National Commercial Bank Samba Financial Group Riyad Bank The Saudi British Bank Arab National Bank Kuwait ► ► ► National Bank of Kuwait Burgan Bank Commercial Bank Kuwait Qatar ► ► ► Doha Bank Qatar National Bank Commercial Bank of Qatar
  102. 102. Ernst & Young universe of Islamic and conventional banks UAE ► ► ► ► ► ► ► Abu Dhabi Islamic Bank Ajman Islamic Bank Al Hilal Bank Dubai Islamic Bank Emirates Islamic Bank Noor Islamic Bank Sharjah Islamic Bank Indonesia ► ► ► ► ► Bank Bri Syariah Bank Muamalat Bank Syariah Mandiri Bank Syariah Mega Bank Syariah Bukopin Malaysia ► ► ► ► ► ► ► ► ► ► ► ► Affin Bank Al Rajhi Bank Alliance Bank Asian Finance Bank Islam Bank Muamalat CIMB Islamic Bank Hong Leong Islamic Bank Kuwait Finance House Malaysia Maybank Islamic Bank Public Islamic bank RHB Islamic Bank UAE ► ► ► ► ► Abu Dhabi Commercial Bank Emirates NBD First Gulf Bank Mashreq Bank National Bank of Abu Dhabi Indonesia ► ► ► ► Bank Central Asia Bank Mandiri Bank Negara Indonesia Bank Rakyat Indonesia Malaysia ► ► ► ► CIMB Bank Maybank Bank RHB Bank Public Bank COMPETITIVENESS REPORT 2012-2013 101
  103. 103. Ernst & Young universe of Islamic and conventional banks Pakistan ► ► ► ► ► Al Baraka Pakistan Bank Islami Burj Bank Dubai Islamic Bank Pakistan Meezan Bank Bangladesh ► ► ► ► ► Al Arafah Bank First Security Bank ICB Islamic Bank Islami Bank Bangladesh Shahjalal Islamic Bank Jordan ► ► Jordan Dubai Bank Jordan Islamic Bank Egypt ► ► Al Baraka Egypt Faisal Islamic Bank of Egypt Pakistan ► ► ► Bangladesh ► ► ► ► ► ► Al Baraka Turk Bank Asya Kuveyt Turk Turkiye Finanse ► COMPETITIVENESS REPORT 2012-2013 Arab Cairo Bank Banque Misr Commercial International Bank Union National Bank Egypt Turkey ► ► ► ► ► 102 Arab Bank Egypt ► ► ► Agrani bank Rupali Bank Jordan ► Turkey MCB Bank National Bank United Bank Turkiye Vakiflar Bankasi Yapi ve Kredi Bankasi Turk Economi Bankasi Turkiye Garanti Bankasi AK Bank
  104. 104. References and acknowledgments Sources ► Making the right moves – Global banking outlook 2012-13 ► Financial regulatory reform – What it means for bank business models ► Rapid Growth Markets (RGMs) forecast ► DNA of the CIO ► Trading places - the emergence of new patterns of international trade ► Central bank reports ► Global Insight - comparative world overview tables ► Zawya ► Economist intelligence unit ► The Banker ► Islamic Finance News ► Bloomberg ► Bank annual reports Ernst & Young’s Project Team ► Shoaib Qureshi ► Noman Mubashir ► Saad Qureshi ► Zahid Awan ► Ali Al Musawi Our industry awards 18TH Annual World Islamic Conference 2011, Bahrain ► ► ► ► ► ► ► Nader Rahimi Ashar Nazim Abid Shakeel Nida Raza Sohaib Umar Mohd Husin Murat Hatipola Best Islamic Advisory Firm, 2011/2010/2009 WIBC Leading Islamic Financial Services Provider, 2008 Best Takaful Advisory Firm, 2011/2009 CPI Financial Islamic Finance Awards, Dubai ► World Islamic Banking Awards, Bahrain ► Best Islamic Finance Advisory Firm, 2009/2008/2007 Kuala Lumpur Islamic Finance Forum, Malaysia World Islamic Banking Awards, Bahrain ► For questions or comments, please contact : Shoaib Qureshi: shoaib.qureshi@bh.ey.com ► CPI Financial Islamic Finance Awards ► ► Thought Leadership Award, 2011 3rd International Takaful Summit, London ► Most Outstanding Business Advisory & consulting Firm, 2007/2006 Best Islamic Research, 2011 World Islamic Banking Awards, Bahrain ► Best Islamic Finance Advisory Firm, 2009/2008/2007/2006 Sheikh Mohammed Bin Rashid Al Maktoum Award ► Best Islamic Consulting Firm, 2006 Consistently ranked the best Islamic Advisory firm with awards every year since 2006 COMPETITIVENESS REPORT 2012-2013 103
  105. 105. Ernst & Young Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 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. 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. For more information about our organization, please visit www.ey.com. 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. © 2012 EYGM Limited. All Rights Reserved. EYG no. AU1369 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. 104 COMPETITIVENESS REPORT 2012-2013
  106. 106. Celebrating 20 Years of Leadership and Innovation in the Islamic Finance World 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, the Economic Development Board of Bahrain, the Qatar Financial Centre Authority, Luxembourg for Finance, Business Bermuda, the U.S. Chamber of Commerce and Invest in Mauritius. These and our other strategic alliances with international thought leaders including Ernst & Young 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 leading British-based banks. Over the years, the World Comes to Initiative has expanded and now features a series of Country Pavilions, Country Interfaces and Country Focus Roundtable Debates showcasing exciting new high-growth markets for Islamic finance. 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 19 years ago - and who are also now our partners across the portfolio of MEGA brands. 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
  107. 107. 20th Annual Supported by 8, 9 & 10 December 2013, The Gulf Hotel, Kingdom of Bahrain WIBC: Celebrating 2 Decades of Supporting Growth, Excellence & Innovation in the Global Islamic Finance Industry 20 Years of shaping the future of the global Islamic finance industry 20 Years of gathering industry thought leaders in dynamic debate 20 Years of bringing together more than 1,200 international industry leaders 20 Years of successfully working with the market leaders 20 Years of delivering a one-of-a-kind spectacle to the Islamic finance industry In collaboration with WIBC is a MEGA Brand 1,200 Industry leaders. 50+ Countries. 1 Gathering: WIBC 2013 The World’s Largest Annual Gathering of International Islamic Finance Leaders To be a part of the 2 decades of WIBC celebrations please contact: sophie@megaevents.net | t:+971 4 343 1200 | f:+971 4 343 6003 | P.O. Box 72045, Dubai | www.megaevents.net/Islamic_banking

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