Moody’s Analysis Of Islamic Banking In GCC - Needs Innovation
Doha, Qatar
11 March 2008
The GCC countries’ Islamic banking sector, which has been growing at double-digit rate over the past decade, accounts for 25% of the Shariah-compliant banking assets globally and 15% of the region’s banking system’s assets, according to Moody’s.
Although Islamic banks’ ratings in the Gulf are usually driven by robust financial fundamentals and benefit from external support, Moody’s said maturing operating environments and imperfect risk positioning tend to weigh on Islamic banks’ risk profiles and ultimately on their stand-alone credit ratings.
In its special report ‘Islamic Banks in the GCC: A Comparative Analysis’, the rating agency evaluated 23 leading Islamic banks, including Qatar Islamic Bank, International Islamic and Masraf Al Rayan.
“The pure commercial-banking model in GCC Islamic banking, although still dominant, is being increasingly complemented by other recently developed forms of more specialised Shariah-compliant financial intermediation,” it said.
Moody’s said competition has been heating up, forcing Islamic banks to enhance their commercial entrenchment, develop relevant business models, strengthen their brands and reputation and provide innovative solutions to a growing number of clients attracted by the concept of interest-free banking.
Up to the mid-1990s, Islamic banking institutions in the GCC were mainly handling plain-vanilla financial intermediation, raising deposit-like liabilities (in the form of current accounts and profit-sharing investment accounts) to recycle them into Shariah-compliant credit exposures.
The commercial-banking business model, dominated by both the corporate and retail business lines, was now being enhanced by the emergence of two new activities, it observed.
“On the one hand, Shariah-compliant investment banking has grown as a viable, profitable and successful way to manage alternative Islamic asset classes,” said Anouar Hassoune, a Moody’s analyst and author of the report.
On the other hand, the analyst said, specialised financial institutions focusing on mortgage, housing and consumer banking have been providing financing solutions to households facing unprecedented needs in terms of accession to consumption and property.
Islamic banks generated an average asset yield of 5.6% in 2006, but their funding cost was capped at 3%, translating into a NAM (ratio of net intermediate income to total assets) of 3.1% for the year, which is “robust” by international and even regional standards, Moody’s said.
The size of non-intermediation revenues, although unsustainable in the long term, reflected a positive development in that Islamic banks were no longer pure commercial banks, it said.
Business diversification into investment banking (including private equity), brokerage and fund and asset management has grown to the point where, if sustained, these sources of income might represent about half of gross operating income (as opposed to the inflated two-thirds recorded in 2006), it added.
Source : www.gulf-times.com
11 March 2008
The GCC countries’ Islamic banking sector, which has been growing at double-digit rate over the past decade, accounts for 25% of the Shariah-compliant banking assets globally and 15% of the region’s banking system’s assets, according to Moody’s.Although Islamic banks’ ratings in the Gulf are usually driven by robust financial fundamentals and benefit from external support, Moody’s said maturing operating environments and imperfect risk positioning tend to weigh on Islamic banks’ risk profiles and ultimately on their stand-alone credit ratings.
In its special report ‘Islamic Banks in the GCC: A Comparative Analysis’, the rating agency evaluated 23 leading Islamic banks, including Qatar Islamic Bank, International Islamic and Masraf Al Rayan.
“The pure commercial-banking model in GCC Islamic banking, although still dominant, is being increasingly complemented by other recently developed forms of more specialised Shariah-compliant financial intermediation,” it said.
Moody’s said competition has been heating up, forcing Islamic banks to enhance their commercial entrenchment, develop relevant business models, strengthen their brands and reputation and provide innovative solutions to a growing number of clients attracted by the concept of interest-free banking.
Up to the mid-1990s, Islamic banking institutions in the GCC were mainly handling plain-vanilla financial intermediation, raising deposit-like liabilities (in the form of current accounts and profit-sharing investment accounts) to recycle them into Shariah-compliant credit exposures.
The commercial-banking business model, dominated by both the corporate and retail business lines, was now being enhanced by the emergence of two new activities, it observed.
“On the one hand, Shariah-compliant investment banking has grown as a viable, profitable and successful way to manage alternative Islamic asset classes,” said Anouar Hassoune, a Moody’s analyst and author of the report.
On the other hand, the analyst said, specialised financial institutions focusing on mortgage, housing and consumer banking have been providing financing solutions to households facing unprecedented needs in terms of accession to consumption and property.
Islamic banks generated an average asset yield of 5.6% in 2006, but their funding cost was capped at 3%, translating into a NAM (ratio of net intermediate income to total assets) of 3.1% for the year, which is “robust” by international and even regional standards, Moody’s said.
The size of non-intermediation revenues, although unsustainable in the long term, reflected a positive development in that Islamic banks were no longer pure commercial banks, it said.
Business diversification into investment banking (including private equity), brokerage and fund and asset management has grown to the point where, if sustained, these sources of income might represent about half of gross operating income (as opposed to the inflated two-thirds recorded in 2006), it added.
Source : www.gulf-times.com
