|From Komfie Manalo, Opalesque Asia: A report by Celent, a Boston-based financial research and consulting firm, sees fast growth in the Islamic banking industry in the Asia-Pacific region, second only with the phase in the Middle East.
The report adds assets of Islamic banks in the Asia-Pacific region is now estimated to reach $450bln, representing 60% of the total Islamic bank assets across the globe.
Key points of the report
The economic crunch facing Western markets has resulted in emerging countries in the Asia-Pacific region that investors find more attractive. The growing Muslim population that expands at a rate of 2 percent annually, are mostly potential clients for these Islamic banks. Muslims now number around 1.7bln or 28.4% of the global population. At least 1 billion of them are in the Asia-Pacific region making it the next big market for Islamic banks.
Global assets of Islamic banks is estimated between $700 billion and $750 billion. Notably, Islamic banks are enjoying a faster growth rate and profit margins compared with their conventional counterparts. However, since the Islamic banking sector is a relatively new concept, the industry is facing challenges, particularly in areas of technology adoption, lack of Islamic banking experts, differences in tax treatment of various Islamic banking products and integration with global financial standards.
At least 35% of the top 100 Islamic banks are based in the Asia-Pacific region. In 2007, the top Islamic banks posted a growth rate of 26.7% with its assets totaling $350 billion, outrunning the 19.7% growth rate achieved by the top conventional banks in the same period.
Iran owns 52% of the global Islamic banking assets making it the biggest market of Islamic bank. The region also has the world’s most developed and mature market, complying with the Shari’ah principles. Iran’s banking sector has grown at a CAGR of 30% and in 2007, posted assets reaching $376 billion. It is 3.1 times bigger than the next big market, Saudi Arabia, with Islamic banking assets of $120.7% Islamic banking assets.
Analysts see Malaysia as the next big market for Islamic banks, with Islamic banking assets estimated at $43 billion at the end of 2007, and with 12.8% penetration, although many sees this level as limited. The Islamic banking industry in Malaysia is seen to be in a growth-to-mature phase. Bank Negara Malaysia is credited for developing the market in the region.
Several global financial banks, including HSBC and Deutsche Bank has signified intend to enter the local Islamic banking system, although currently, Malaysia only as 12 pure play Islamic banks, with foreign banks offering Islamic banking products.
Indonesia, the largest Muslim-populated country in the world, Pakistan and Bangladesh, are also seen as a potential market to push Islamic banking growth. Although Islamic banking in Pakistan only comprises less than 4% of the entire banking system, the State Bank of Pakistan is trying to encourage growth of the industry through more participation. Only six Islamic banks are open in Pakistan.
The industry also sees a lot of growth potential in Bangladesh, a heavily-Muslim populated country with very low Islamic banking penetration. The central bank is currently drafting Islamic banking policies and guidelines in the absence of existing ones in an effort to improve the sector. These set of policies are seen to be key in the development of Islamic banking in the region.
There are 27 Islamic banks in Indonesia making it host to the largest number of Islamic banks in the region. Although the industry’s assets is only $3.5 billion or 1.6% of the total banking system. The reason given is the lack of proper regulatory framework and the limited geographic coverage of the country. There is also lack of awareness among the population so the growth of the Islamic banking sector is stagnated. Islamic banking in Indonesia has grown at a CAGR of 42% between 2003 and 2007.
With an estimated 153 million Muslim population, India holds a very promising growth for Islamic banking. The Islamic banking industry in India is currently operating as non-banking financial corporations. A decision by the Reserve Bank of India to allow Islamic banking in the country, is seen to boost the industry.
The tiny but rich country of Brunei is also showing great growth promise for Islamic banks. Brunei has attracted global financial institutions that offer Islamic banking products and services.
Although small in size in terms of assets, there is also potential for Islamic banks in the Philippines, Singapore and Thailand where the Muslim population comprise less than 20 percent of the populace. Source
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