Islamic banking in the UAE is growing twice as fast as conventional banking as bumper profits prompt spending on digital banking and overseas expansion, according to a report by the financial services company Ernst and Young.
The assets of Sharia-compliant lenders in the UAE are also set to more than double in the next five years, EY said.
“UAE participation banks are eyeing revenue growth through experience-led transformation of their domestic business,” the report said. “Stronger capital position is also driving international expansion. Initiatives in mobile payments are likely to cause positive disruption to banks’ traditional operating model.” Islamic banks are sometimes referred to as “participation banks”, especially in Turkey. In 2013, Islamic banking assets crossed the US$100 billion mark for the first time in the UAE, capturing a market share of 21.4 per cent. That is a more than 3 percentage point increase from the industry’s share of the total banking market in 2009, according to EY.
EY is not the only one betting on growth Islamic bank growth. The ratings agency Standard & Poor's said in October that Islamic banks in the Arabian Gulf are likely to grow their market share in the next five years to 30 per cent, supported by an increase in demand for sukuk and other forms of financing for both corporations and individuals.
For years Islamic lenders in the UAE have faced the challenging task of making Sharia-compliant lending, where interest is banned and banks offer “profit” rates instead, more palatable to the large non-Muslim population that resides here.
And while the share of Islamic banking in the UAE is poised to grow to 50 per cent of the whole market by 2020, on a global scale the penetration of Islamic lending is statistically negligible at 1 per cent, according to a report this year from Abu Dhabi Islamic Bank, the largest Sharia-compliant lender in the emirate. That leaves a lot of opportunity for Islamic banks successful in their natural constituencies to expand farther afield, offering the same kind of straightforward banking practices.
“The Islamic banking industry has gone mainstream in several core markets,” said Ashar Nazim, global Islamic finance leader at EY.
“This presents new opportunities as well as new challenges, and demands a fundamentally different approach to profitable growth. Customers have mixed emotions about their experiences of dealing with Islamic banks. In the future, growth will be most significant for the banks that are able to strengthen customer experience through the use of digital technology.
“Banks that do not keep pace with technological advances are expected to face serious pushback from mainstream customers who will gravitate toward the larger conventional players who can deliver on digital,” he added.
Globally, Islamic banking assets are expected to more than double to US$1.8 trillion in the next five years amid increased demand for Sharia-compliant finance in the Middle East and Asia, EY said in its report.
From 2009 to 2013, Islamic banking assets grew at a compound rate of 17 per cent and in 2014 exceeded $778 billion from $625bn in 2003, according to its World Islamic Banking Competitiveness Report 2014-15.
“The six rapid-growth markets – Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (Qismut) – commanded 80 per cent of the international Islamic banking assets at US$625bn in 2013,” said Gordon Bennie, Mena financial services leader at EY.
“Qismut Islamic banking assets are expected to continue to grow at a five-year compounded annual growth rate of 19 per cent.”
mkassem@thenational.ae
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COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
The specs: McLaren 600LT
Price, base: Dh914,000
Engine: 3.8-litre twin-turbo V8
Transmission: Seven-speed automatic
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Torque: 620Nm @ 5,500rpm
Fuel economy 12.2.L / 100km
MATCH INFO
Uefa Champions League final:
Who: Real Madrid v Liverpool
Where: NSC Olimpiyskiy Stadium, Kiev, Ukraine
When: Saturday, May 26, 10.45pm (UAE)
TV: Match on BeIN Sports
MATCH INFO
Uefa Champions League final:
Who: Real Madrid v Liverpool
Where: NSC Olimpiyskiy Stadium, Kiev, Ukraine
When: Saturday, May 26, 10.45pm (UAE)
TV: Match on BeIN Sports
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
ORDER OF PLAY ON SHOW COURTS
Centre Court - 4pm (UAE)
Gael Monfils (15) v Kyle Edmund
Karolina Pliskova (3) v Magdalena Rybarikova
Dusan Lajovic v Roger Federer (3)
Court 1 - 4pm
Adam Pavlasek v Novak Djokovic (2)
Dominic Thiem (8) v Gilles Simon
Angelique Kerber (1) v Kirsten Flipkens
Court 2 - 2.30pm
Grigor Dimitrov (13) v Marcos Baghdatis
Agnieszka Radwanska (9) v Christina McHale
Milos Raonic (6) v Mikhail Youzhny
Tsvetana Pironkova v Caroline Wozniacki (5)
Race card:
6.30pm: Baniyas (PA) Group 2 Dh195,000 1,400m.
7.05pm: Maiden (TB) Dh165,000 1,400m.
7.40pm: Handicap (TB) Dh190,000 1,200m.
8.15pm: Maiden (TB) Dh165,000 1,200m.
8.50pm: Rated Conditions (TB) Dh240,000 1,600m.
9.20pm: Handicap (TB) Dh165,000 1,400m.
10pm: Handicap (TB) Dh175,000 2,000m.
KILLING OF QASSEM SULEIMANI
Tips for taking the metro
- set out well ahead of time
- make sure you have at least Dh15 on you Nol card, as there could be big queues for top-up machines
- enter the right cabin. The train may be too busy to move between carriages once you're on
- don't carry too much luggage and tuck it under a seat to make room for fellow passengers
Tips for avoiding trouble online
- Do not post incorrect information and beware of fake news
- Do not publish or repost racist or hate speech, yours or anyone else’s
- Do not incite violence and be careful how to phrase what you want to say
- Do not defame anyone. Have a difference of opinion with someone? Don’t attack them on social media
- Do not forget your children and monitor their online activities
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Three ways to limit your social media use
Clinical psychologist, Dr Saliha Afridi at The Lighthouse Arabia suggests three easy things you can do every day to cut back on the time you spend online.
1. Put the social media app in a folder on the second or third screen of your phone so it has to remain a conscious decision to open, rather than something your fingers gravitate towards without consideration.
2. Schedule a time to use social media instead of consistently throughout the day. I recommend setting aside certain times of the day or week when you upload pictures or share information.
3. Take a mental snapshot rather than a photo on your phone. Instead of sharing it with your social world, try to absorb the moment, connect with your feeling, experience the moment with all five of your senses. You will have a memory of that moment more vividly and for far longer than if you take a picture of it.
The specs
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Transmission: Single-speed automatic
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