Islamic banks to expand, compete for mainstream clients

Published: December 11, 2012

Pakistan ranks 17 out of 57 OIC nations, with a total asset base of $6.8b.

KUALA LUMPUR / MANAMA: 

Islamic banks are set to expand as they compete increasingly with conventional lenders in attracting mainstream customers, according to a report by consultancy Ernst & Young released on Monday.

Pakistan ranked 17 out of the 57 Organisation of Islamic Cooperation (OIC) Islamic finance markets in terms of assets, according to statistics from the OIC. Its total asset base is $6.8 billion or 7.7% of the total banking assets in March 2012, according to the State Bank of Pakistan.

The total of all commercial banks’ Islamic assets is estimated to reach $1.55 trillion this year, $1.8 trillion in 2013 and over $2-trillion mark, the report said. Gulf-based Islamic banks now have $450 billion in assets, about 30% of the total.

Islamic banks will grow as they focus on customers who expect more than just Shariah-compliance in terms of products and service and have traditionally relied on conventional banks.

“Success will be defined in the core markets through the transformation of Islamic banks so they are able to compete with the much bigger, conventional boys for mainstream customers,” Ashar Nazim, Islamic financial services leader at Ernst & Young, said.

Islamic finance follows religious guidelines such as a ban on interest and on pure monetary speculation, with its core markets in the Middle East and Southeast Asia.

The role of pure Islamic banks will also become important by comparison with banks that deliver products just through Islamic windows at their existing branch networks.

“There is no truly fully fledged Islamic bank (that stretches) across international markets or even regional,” Nazim said.

He identified a group of 20 Islamic banks as likely candidates to become significant regional institutions. They now account for 55% of total Islamic banking assets after having grown over the past three years at an average rate of 16.2% a year, Nazim said.

“It is a lopsided industry at this point … only 13 Islamic banks have $1 billion or more in equity,” Nazim said, adding that the difference between small and large Islamic banks will widen.

Published in The Express Tribune, December 11th, 2012.

Reader Comments (2)

  • Usman786
    Dec 11, 2012 - 10:28PM

    they shd not exploit the innocent people and give equal returns to depositors or charge more to borrowers for God’s sake

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  • Zain
    Dec 14, 2012 - 10:47AM

    I think it is good that Islamic banking is growing, but the article has some serious mathematical errors. It reports Pakistan has $6 Billion in Total Islamic Banking Assets which are 1.5 Trillion, and Pakistan’s share is less than 0.4 % and not 7.7% of total Islamic banking assets as the article states, and that is very small amount and we should be in the bottom of the 57 nation and not top 17 with only 0.4%. Please make that correction. Correct facts are very critical in accurate and balanced journalism.

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