Page 1


18th 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 8th annual edition of the World Islamic Banking Competitiveness Report 2011-12. This year’s original research project is developed in collaboration with leading global professional services and advisory firm, Ernst & Young. With a principal focus on “A Brave New World of Sustainable Growth”, the WIBC Competitiveness Report 2011-12 explores the key industry trends and the critical success factors guiding the global Islamic banking and finance industry to the next level of performance and growth. The global Islamic finance industry has undergone major transformations in the last few years in its quest to boost international competitiveness and to build a sustainably profitable business model. There has been a focus on product innovation efforts that aim to provide a more comprehensive array of Shari’ah-based products for the market. The global Islamic finance industry has also seen significant developments in regulatory frameworks and Shari’ah standardization initiatives - making trans-jurisdictional market connectivity that much more achievable. However, both the challenge and the opportunity currently facing leading industry players is how will Islamic banks succeed in making the historical growth curve sustainable and profitable. 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 2011-12. The Report is exclusively launched on-site at a special plenary session of the 18th Annual World Islamic Banking Conference (WIBC) where more than 1,200 industry leaders from over 50 countries gather to chart the future of Islamic finance. 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 enters the next phase of “Competing for Global Growth”. 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 Managing Director The 18th Annual 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


World Islamic Banking Competitiveness Report 2011-12 ‘A Brave New World of Sustainable Growth’


Report Structure

2

3

Competitive Landscape

1

Performance Analysis

Executive Brief

Country Spotlight 5

2

COMPETITIVENESS REPORT 2011-2012

Competing to Win: The CEO Agenda 4


A Brave New World of Sustainable Growth

Dear Executive, The global economy, and the financial markets, are at a turning point. Fast growth economies in Asia, Middle East, Africa, Latin America and Eastern Europe now form almost half of global GDP and, in 2010, they contributed 70% to overall global growth. These trends are accelerating. The dramatic developments over the past twelve months – including Arab Spring, Eurozone crises and Occupy Wall Street movement – provide further impetus for the growth of Islamic banking. Industry forecast suggest Islamic banking assets with commercial banks globally, will reach $1.1 trillion in 2012 (2010: $826bn). Now would be the opportune time to consider establishing Islamic sovereign wealth funds to champion the growing internationalization of the industry. The iSWF will further facilitate businesses across OIC markets seeking to transform to Shari’a compliant system and also help deepen the Islamic capital market, in our view. As for MENA, Islamic banking assets increased to $416bn in 2010, representing a five year CAGR of 20% compared to less than 9% for leading conventional banks. As new geographies open up to Islamic banking, the MENA Islamic banking industry is expected to more than double to $990bn by 2015. However, there are significant performance variations across markets. In 2010, average ROE of leading Islamic banks declined to 10%. Also, market valuations appear to be converging to that of regional conventional peers. Our clients agree that business models needed to shape and sustain success in this new landscape are evolving in a fundamental way. Ensuring sustainable growth will require brave, meaningful and decisive Performance Improvement initiatives. Two key themes are starting to emerge: ► Excellence in banking operations – by transforming to a customer centric, efficient and scalable operating model, driven by an enhanced risk and technology orientation; and ► Product innovation – to strengthen the Shari’a differentiation and provide greater integration with the real economy A worrying concern though is the absence of an enabling legislative, regulatory, tax and legal environment in most OIC markets, which adds to the cost and complexity of Islamic banking operation. Where there are guidelines and standards issued by industry infrastructure institutions, their reach and enforceability remains a concern. These must be addressed as priority. Our award-winning global Islamic Finance Center of Excellence continues to work with a diverse range of financial institutions helping them realize the true potential of their business. We trust you will find this report useful.

Ashar M. Nazim Islamic Financial Services Leader Ernst and Young

Imtiaz Ibrahim Senior Director, Islamic Financial Services Ernst and Young

Islamic Banking Competitiveness Report 2011-12 Page 3

COMPETITIVENESS REPORT 2011-2012

3


Executive Brief

Key Messages 1

MENA Islamic banking assets reach $416bn in 2010, globally Islamic banking assets to cross $1.1t by 2012*

2

Expect a permanent change of play in the GCC – customer centric operating model to drive future (sustainable) growth

3

Topping CEOs agenda – Operational Transformation, Risk, Growth and Innovation

* Note: Islamic banking assets with commercial banks 4

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 4


One potential scenario shows global Islamic banking assets with commercial banks to reach $1.1 trillion in 2012 Islamic Banking Asset Growth (US$bn)

114

1,130

38 25

127 826

Global Islamic Banking Assets 2010

GCC

MENA (ex GCC)

Malaysia

Rest of the World

Global Islamic Banking Assets 2012e

Source: IMF, The Banker, Central Bank Websites, EY perspective

Islamic Banking Competitiveness Report 2011-12 Page 5

COMPETITIVENESS REPORT 2011-2012

5


Analysis of leading Islamic commercial banks in the MENA region shows a large variation in the average ROE between 2006-10 Total Assets 2010 KSA

49,304

26.0%

Kuwait

44,498

14.2%

UAE

22,952

Steep Slide

Average ROE (2006-2010) 15.2%

UAE

20,489

8.5%

Qatar

14,238

19.2%

Qatar

9,526

11.6%

UAE

8,915

Long Tail

13.1%

Bahrain

15,880

8,807

KSA

8,703

Kuwait

10.0% 12.2% 15.5%

7,114

KSA

0.1%

6,744

Bahrain

-2.2%

5,633

KSA

5,453

Egypt

5,309

Qatar

4,668

Kuwait

4,538

UAE

4,156

Kuwait

2,482

Bahrain

2,272

Bahrain

1.4% 12.6% 17.4% -1.9% 7.4% 6.7%

Growth

0.20%

(3 Yr CAGR)

10.0%

US$13bn

MENA Islamic Average

15 %

> 20 %

US$38bn

MENA Conventional Average

16%

< 9%

Source: Annual Reports, Zawya, EY analysis (includes sample of leading banks across Middle East and North Africa (MENA) where published information was available) 6

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 6


Globally as mature markets press forward with banking reforms, many others are keen to explore an alternative Islamic finance option

Oman First two Islamic license awarded…potentially a 10% market share play by…

Libya Banking industry to be made Shari’a compliant…

Egypt Considering sovereign sukuk…

Tunisia Central bank mulls Islamic banking regulations…

Switzerland Islamic Bank of Switzerland to open…

Hong Kong HK legislating for Islamic banking…

Banks need US$ 106bn new tier 1 capital by 2012

Kenya Kenya to emerge as the Islamic finance gateway to East Africa…

CIS First Islamic bank conversion…

Source: Published information. Image: Campaigner outside London Stock Exchange in Oct 2011 (Arab News)

Islamic Banking Competitiveness Report 2011-12 Page 7

COMPETITIVENESS REPORT 2011-2012

7


By 2015, the MENA Islamic banking industry is projected to be worth $990bnâ&#x20AC;Ś a significant growth story (2010: $416bn assets) MENA Islamic Banking Assets - 2015 Forecast (US$bn)

The Levant

87

Turkey 5

140

Tunisia

10

7 Syria Lebanon

Morocco

13

Jordan

Iraq

12

Algeria

Libya

13

5

104

Kuwait

GCC

20

79

Bahrain

Egypt

Qatar

34

UAE 156

Saudi Arabia Oman

291

North Africa

8

Yemen 7

Key Projected Islamic banking assets 2015 (US$bn) - the size of the circle denotes relative size Source: 2010 Company Reports, Global Insight, EY perspective 8

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 8


Rediscovering profits - Operational efficiency can increase Islamic banks’ profitability by approximately 25% MENA Islamic Banking - 2015 Combined Net Profit Forecast (US$bn) Current Performance (2010)1

$5bn – $6bn ► Innovation

$7bn- $9bn

Growth Momentum2 Operational Improvements

► Growth Play

$3bn $4bn

► Operational Transformation ► Risk Infrastructure

Potential Combined Islamic Banking Profit Pool (2015)

$15bn - $19bn

Further Potential Growth Opportunities

Emerging Islamic geographies

Integration with real economy

Affluent retail proposition

SME banking

1- Based on ROA of 1.5%, 2 – Based on asset growth projections

Islamic Banking Competitiveness Report 2011-12 Page 9

COMPETITIVENESS REPORT 2011-2012

9


The CEO Agenda – There are four emerging trends that will permanently alter the Islamic banking play, especially in the GCC market

► Scalable, customer centric operating model, achieved through improved risk and technology orientation (winning back the profitability and valuation advantage)

Operational Transformation

► Embracing technology to deepen existing relationships and improve new customer acquisition rates

Innovation

► Product research and structuring, while learning from past experiences (e.g. the sukuk market debacle)

The CEO Agenda

Risk & Compliance

► Economic capital, risk adjusted returns, funds transfer, pricing, regulations, and compliant products and systems to drive the change in business focus

Growth Play

► Shari’a compliant banking to stimulate financial access to previously unbanked – expect 100 plus new Shari’a compliant banks in MENA by 2020 10

COMPETITIVENESS REPORT 2011-2012

► Having achieved 26% market share in GCC, future growth will come from mainstream customer segment; service model to be the primary proposition

Islamic Banking Competitiveness Report 2011-12 Page 10


Report Structure

2

3

Competitive Landscape

1

Performance Analysis

Executive Brief

Competing to Win: The CEO Agenda

Country Spotlight 5

4

Islamic Banking Competitiveness Report 2011-12 Page 11

COMPETITIVENESS REPORT 2011-2012

11


Competitive Landscape

Key Messages 1

Growing asset market share – Shari’a compliant assets represent 14% share of MENA banking market, 26% in GCC*

2

Leading to repositioning – mergers, conversions, regional expansion, and changing business focus

3

But yet to achieve scale – $13bn average asset base for leading Islamic banks, a third of conventional banks

* Note: Islamic banking assets with commercial banks 12

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12


Growth within the Muslim population throughout the emerging markets of MENA and Asia are key drivers behind increasing demand for Islamic financial services… Global Estimated Muslim Populations – Selective Markets (2010)

Turkey 74m Algeria 34m

Muslim Population Density Indicator 100m +

Egypt 80m

Morocco 32m

Iran 74m Pakistan 178m

Nigeria 75m

50 - 100m

China 23m Bangladesh 148m India 177m Malaysia 17m

10 – 50m

Indonesia 204m

5 – 10m 1 – 5m Under 1m

Source: Pew Research Center, Guardian, EY analysis

Islamic Banking Competitiveness Report 2011-12 Page 13

COMPETITIVENESS REPORT 2011-2012

13


The MENA region boasts macroeconomic synergies that bode well for future GDP growth

Turkey

The Levant Tunisia

Syria Lebanon

Morocco

Iraq

Jordan Algeria

Libya

Egypt

Kuwait Bahrain Qatar

Saudi Arabia

North Africa Key Features ► Total Population 374m (2010) ► CAGR Population Growth 2.1% (2007-2010) (EU = 0.4%) ► 61% and 45% of world oil and gas reserves respectively ► Nominal GDP US$2.6tn ► GDP CAGR 6.3% (2007-2010) (EU = 4.3%)

COMPETITIVENESS REPORT 2011-2012

UAE Oman

Yemen

Hydrocarbon Reserves

Population Centers

The GCC, Iraq, Algeria, Libya all have large hydrocarbon reserves and accumulated wealth

Turkey, Egypt, Saudi Arabia, Algeria and Morocco have large population centers and human capital reserves

Source: Global Insight, EY analysis (includes Turkey; excludes Palestine due to lack of data) 14

GCC

Islamic Banking Competitiveness Report 2011-12 Page 14


Governments are utilising their hydrocarbon revenues to stimulate, develop and sustain economic activity within the region MENA Nominal Hydrocarbon GDP (US$bn) 738

Cost of Arab Spring (US$bn) 35

56

682

592 494

21

374

2008

2009

2010

2011f

2012f

Cost to GDP

Cost to Public Finance

Total Cost

Many governments have responded by (i) committing to new spending and (ii) accelerating planned large infrastructure spending

Overall growth expected to moderate in 2012, still significantly higher than levels seen in 2009-10

Source: Geopolicity, IIF

Islamic Banking Competitiveness Report 2011-12 Page 15

COMPETITIVENESS REPORT 2011-2012

15


…but from a generally underpenetrated market position, the banking …but from generally underpenetrated market position, the banking industry hasa considerable growth opportunities when compared to the industry has considerable growth opportunities when compared to the more developed economies more developed economies 1300% 1300%

Banking Asset / Nominal GDP (2010) Banking Asset / Nominal GDP (2010)

600% 600% 500% 500% 400% 400% Average Penetration for Sample Countries1 Average Penetration for Sample Countries1

300% 300% 200% 200% 100% 100% 0% 0%

16

Source: Central Bank Reports, Economist Intelligence Unit, Global Insight, EY analysis (average for EU) 1 – Average Penetration for Sample Countries excludes US Global statisticInsight, to reduce Source: Central Bank Reports, Economist Intelligence Unit, EY skew. analysis (average for EU) 1 – Average Penetration for Sample Countries excludes US statistic to reduce skew.

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Islamic Banking Competitiveness Report 2011-12 Page 16

MENA MENA

Rest of the world Rest of the world


Within MENA, the GCC markets are generally more developed with greater lending/financing assets to GDP penetration Total Bank Lending/Financing and Penetration (2010) 2008

300 273

2009

2010

Penetration

180%

268

262

160%

250 140%

US$ bn

200

120% 100%

150 80% 92

100

85

60%

78 59

50

28

43

37

26

15

40% 31 11

6

0

20% 0%

KSA

UAE

Kuwait

Qatar

Oman

Bahrain

Turkey

Lebanon

Jordan

Syria

Iraq

Egypt

Algeria

Tunisia

Libya

Source: Central Bank Reports, Global Insight, EY analysis

Islamic Banking Competitiveness Report 2011-12 Page 17

COMPETITIVENESS REPORT 2011-2012

17


Shariâ&#x20AC;&#x2122;a compliant assets represent a significant portion of the total banking system assets of the region Banking Assets (US$bn) and Islamic Share (%) in 2010 546

The Levant

5% 42

117

Tunisia

0%

Turkey

2% 1%

135

Morocco

4%

269

Syria Lebanon Jordan

Algeria

0% Libya

109

1%

155

Iraq

Kuwait

49

56

Egypt

25%

46

46

12%

Qatar Saudi Arabia

4%

XX

X%

35%

438

41

Yemen

Total banking assets 2010 (US$bn) - the size of the circle denotes relative size

UAE

GCC 22%

Oman

377

Key

156

Bahrain

215

North Africa

27%

31%

0%

8

30%

Total Islamic banking assets as a % of total assets

Source: Central Bank Reports, Press Releases, The Banker - Top 500 Islamic Financial Institutions, EY perspective (Note: Shariâ&#x20AC;&#x2122;a assets with commercial banks) 18

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 18

17%


MENA Islamic banking market share has reached 14%; in the GCC the Islamic banking market share has crossed the all important 25% threshold which means banks are competing in the conventional market as well Banking Asset Penetration (% of Nominal GDP) and Islamic Banking Market Share of Total Assets (%) in 2010

Banking Penetration (% of Nominal GDP)

360% 320%

MENA Average Islamic Banking Market Share

Lebanon

GCC Average Islamic Banking Market Share

280%

Iraq

240%

Size of circles denote the relative size of Islamic banking asset in 2010

UAE Jordan

200%

Bahrain Kuwait

160% 120%

Qatar

Morocco Tunisia

Egypt

80% Libya 40% 0%

KSA

Turkey

Algeria Oman 4%

Yemen Syria 8%

12%

16%

20%

24%

28%

32%

36%

40%

Islamic Banking Market Share of Total Assets (2010) Source: Central Bank Reports, The Banker, Global Insight, EY perspective

Islamic Banking Competitiveness Report 2011-12 Page 19

COMPETITIVENESS REPORT 2011-2012

19


Strong historical growth, driven by core Islamic segment; going forward expect change of play as Islamic banks begin to compete for mainstream customers who are open to Islamic or conventional banking Asset CAGR (2006-2010)

Growth Relative to Conventional Banks 28%

Qatar 7%

Bahrain

26%

16% 13%

14%

Saudi Arabia 0%

5%

10%

15% Islamic Banks

52%

19%

40% 25%

30%

35%

40%

45%

Conventional Banks

Source: Company Reports, EY analysis (sample includes selective Islamic and conventional banks based on asset size and published information) 20

COMPETITIVENESS REPORT 2011-2012

22%

2008

-38%

20%

20%

41%

235%

22%

UAE

Kuwait

39%

Islamic Banking Market Share

Islamic Banking Competitiveness Report 2011-12 Page 20

26%

2010


Industry is still fragmented with most Islamic banks holding less than $13bn assets â&#x20AC;&#x201C; yet to achieve scale, facing pressure on profitability Average Assets and ROE (2006-2010 Average) 80

Average ROE

75

Islamic Banks

Conventional Banks

70 2006-2010 Avg Assets (US$ bn)

65 60 55 50 45 40

35 30 25 20 Average Assets

15 10 5 0

0

1

2

3

4

5

6

7

8

9

10 11 12 13 14 15 Avg ROE 2006-2010 (%)

16

17

18

19

20

21

22

23

24

25

Source: Annual Reports, Analyst Briefings, EY analysis

Islamic Banking Competitiveness Report 2011-12

COMPETITIVENESS REPORT 2011-2012

21


The largest Islamic banks within the region are all leaders in their respective home markets and have expanded internationally to some degree Shariâ&#x20AC;&#x2122;a Compliant Assets and ROA (2008-2010 Average) Assets US$m 45,000

Kuwait Market Leader

Regional Full Fledged Islamic Bank Regional with Islamic Operation

40,000

Global with Islamic Window 35,000

Saudi Retail Banking Leader

UAE Market Leader

30,000 25,000

UAE Islamic Banks

20,000

Saudi Islamic Windows Qatari Islamic Banks

15,000 10,000 5,000 0

0%

0.5%

1%

1.5%

2%

2.5%

3%

3.5%

Source: Annual Reports, The Banker, EY analysis (where data was not available, calculation based on a 2 year average) 22

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 22

4%

4.5%

5%


Bank financing activity appears to be picking up, regulatory requirements may induce banks to raise higher-cost investment/ time deposits

GCC Banks â&#x20AC;&#x201C; Growth in Advances

GCC Banks - Net Financing / Deposits

40% 35%

110% 108%

35%

105%

30%

100%

25%

95%

20%

94% 92%

22% 90% 87%

15%

85%

15%

10%

80%

5%

75%

2007

70%

1%

0% 2008

2009

2006

2010

Islamic Banks

2007

2008

2009

2010

Conventional Banks

Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)

Islamic Banking Competitiveness Report 2011-12 Page 23

COMPETITIVENESS REPORT 2011-2012

23


However, real estate concentration remains a concern for Islamic banks, may affect future growth Islamic Banks 100% 90% 80%

11%

Conventional Banks 100%

18%

15%

80%

20%

70%

25%

24%

60% 50%

33% 25%

25%

16% 12%

11%

11%

16%

16%

32%

33%

70% 60%

40%

50%

33%

35%

32%

36%

20%

Others 39%

41%

40%

2008

2009

2010

10%

0% 2008

2009

2010

0%

Source: Company Reports, Zawya, EY analysis (sample based on selective Islamic and conventional banks) (rounded numbers) COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 24

Real Estate Commercial

30%

10%

24

Banks and FIs

40%

30% 20%

90%


Business repositioning - (M&A, conversions, changing business focus) appear to dominate MENA Islamic banking going into 2012

Qatar Central Bank announces Islamic banking windows to be prohibited by year end

Merger - Al Baraka and Emirates Global announce merger - $582m asset base, 89 branches, 40 cities (Pakistan)

2010

JULY

Goldman Sachs registers a $2bn Islamic bond programme with the Irish Stock Exchange Global sukuk issuance surge to $63bn YTD, GCC a primary contributor after Malaysia

2011

NOV

FEB

MAY

AUG

OCT

DEC

Several countries across Africa announce plans to introduce Islamic banking; amend regulatory and legislative regimes Conversion of Amrah Bank to Islamic

Formation of Warba Bank in Kuwait

$500m sukuk issue by HSBC Middle East Royal Decree passed to allow Islamic finance industry to commence in Oman. First banking license granted in Q2

Bahrain Islamic and Al Salam Bank announce they are exploring merger

International Bank of Qatar announces the sale of its Islamic banking business to Barwa Bank

ENBD acquires Dubai Bank

Source: The Banker, IFN, Maris Strategies, Analyst Briefing

Islamic Banking Competitiveness Report 2011-12 Page 25

COMPETITIVENESS REPORT 2011-2012

25


Report Structure

2

3

Competitive Landscape

1

Performance Analysis

Executive Brief

Competing to Win: The CEO Agenda

Country Spotlight 5

26

COMPETITIVENESS REPORT 2011-2012

4

Islamic Banking Competitiveness Report 2011-12 Page 26


Performance Analysis

Key Messages 1

Painful decline in profitability – industry ROE now appears to be stabilizing around the 10% range (2006: 23%)

2

Structural advantage – better financing margins, higher deposit growth and higher proportion of free deposits

3

Operating model questioned – misaligned people-processes-systems, leading to high cost to income ratio

Islamic Banking Competitiveness Report 2011-12

COMPETITIVENESS REPORT 2011-2012

27


ROE decomposition assists in understanding the key performance indicators of banks

Deposits

Leverage

Cost of Funding

ROE

X Operating Expenses

Return on Assets

28

COMPETITIVENESS REPORT 2011-2012

Provisions

Islamic Banking Competitiveness Report 2011-12 Page 28


Islamic banks have experienced a more painful decline in profitability over recent years but this now appears to be stabilizing Net Income / Equity 40%

Cost of Funding

X

ROE

Return on Assets

Bahrain

Operating Expense Provisions

Kuwait

40%

40% 27%

20%

35% 0%

30% 25%

Deposits

Leverage

2007

-20%

2008

2009

-1% 2010

Qatar

13%

20%

10%

10%

0%

20%

16%

2008

2009

2010

20%

2007

2008

2009

2007

2008

2009

2010

2010

Saudi Arabia 35% 29%

14%

15%

13%

2006

2007

2008

2009

2010

-20%

-20%

2007

2006

0%

2006

5%

5%

0%

40% 22%

15%

12%

19%

-20%

40%

20%

0% 2006

9%

11%

2006

23%

20%

13%

United Arab Emirates 40%

20%

17%

10% 8%

Islamic Banks

Conventional Banks

0% 2006

Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)

2007

2008

2009

2010

-20%

Islamic Banking Competitiveness Report 2011-12 Page 29

COMPETITIVENESS REPORT 2011-2012

29


Islamic banks are able to generate higher financing margins also because of their relatively stronger retail focus

Deposits

Leverage

X

ROE

Return on Assets

Net Financing Income / Financing Assets

5%

Bahrain

4.3%

8%

6%

6% 2.8%

3.7%

0%

3.0%

2.8%

0.6%

2007

2008

2009

2010

Qatar

8%

3.2%

6%

2.7%

2.2%

0%

2% 2006

2006

2007

2008

2009

2010 8%

2007

2008

2009

2010

United Arab Emirates

6% 4% Islamic Banks

Conventional Banks

IBâ&#x20AC;&#x2122;s excluding KSA

2% 0%

Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) 30

COMPETITIVENESS REPORT 2011-2012

3.5%

3.3% 3.1%

3.3%

2.3%

2.7%

2.2%

2006

2007

2008

2009

2010

Islamic Banking Competitiveness Report 2011-12 Page 30

2006

2007

2008

2009

2010

Saudi Arabia 7.1%

6% 2.3%

2%

Provisions

0%

8%

3.8%

4%

4% 2%

1.8%

2006

3%

2.2%

2%

4%

Operating Expense

Kuwait

8%

4%

Cost of Funding

4% 2%

4.9% 3.7%

3.0%

0% 2006

2007

2008

2009

2010


Equity multiplier suggest that Islamic banks have room for further expanding risk weighted assets

Deposits

Leverage

Cost of Funding

X

ROE

Return on Assets

Assets / Equity

Bahrain

8

Deposit CAGR = 13%

4

12

Multiple

10

9 8

6

2 0 2006

2009

2010

2007

2008

2009

2010

2006

2007

2008

2009

2010

12 7

8 5

3

0

8 4

8

8 5

5

0

2006

2007

2008

2009

2010

2006

2007

2008

2009

2010

United Arab Emirates 12

4

Conventional Banks

7

Saudi Arabia

12

8

Islamic Banks

2008

4

Deposit CAGR = 16%

8

8

Qatar

8

5.6

9

0 2007

7.9 6.8

8 4

4

2006

8

4

12

11

0

8.2

Provisions

Kuwait

12

14

Operating Expense

8 8

8 6

0 Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)

2006

2007

2008

2009

2010

Islamic Banking Competitiveness Report 2011-12 Page 31

COMPETITIVENESS REPORT 2011-2012

31


Islamic banks benefit from a higher proportion of free customer deposits but there is a tendency that these are of a short term tenure Islamic Banks

17%

Deposits

Leverage

ROE

Cost of Funding

X

Return on Assets

Operating Expense Provisions

Conventional Banks

10.2%

6.8%

4.9%

3.0%

5% 21.7%

62%

47.7% 65.6% 69.7%

2008-2010 Average

0.1%

Other

78% 15%

45.5% 2.6%

23%

2.6%

Investment/ Time Deposit

29%

Saving

47%

21%

Current

UAE

KSA

Qatar

UAE

KSA

Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) 32

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 32

Qatar


After a painful decline in profitability through the financial crisis the ROA appears to be stabilizing, but now lower than conventional banks Net income / Assets

7%

8%

6%

6%

2%

2.6% 1.1%

-0.2%

2006 -2%

2007

5% 6%

3.0%

4%

2% 1% 0% 2006

2007

2008

2009

1.6%

2%

1.5%

0%

2010

2008

2009

2010

Qatar

8%

4.0%

Operating Expense Provisions

4% 0.9%

0%

6%

3%

Return on Assets

Kuwait

8%

4%

Cost of Funding

X

ROE

Bahrain

8%

4%

Deposits

Leverage

2.6%

2%

1.2%

2.1%

0%

2006

8%

1.0% 2007

2008

2009

2010

Saudi Arabia 7.2%

6%

5.5% 3.0%

3.0% 2.6%

4%

3.8%

2.6%

2%

1.8%

0%

2006

2007

2008

2009

2010

2006

2007

2008

2009

2010

United Arab Emirates

8% 6% 4%

Islamic Banks

2%

Conventional Banks

3.1% 1.7%

2.5%

0.7%

0% Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)

2006

2007

2008

2009

2010

Islamic Banking Competitiveness Report 2011-12 Page 33

COMPETITIVENESS REPORT 2011-2012

33


Higher provisions and operating costs have contributed to the steep decline in profitability of Islamic banks

Deposits

Leverage

ROE

X Return on Assets

Islamic Banks ROA

3.2%

1.6%

Cost of Funding

Operating Expense Provisions

Conventional Banks 1.5%

1.8%

1.6%

1.6%

4% 6% 3% 4%

2.5%

1.5%

1.3%

1.1%

1.1%

1.1%

Other Income

2% Net Financing Income

2%

3.2%

3.4%

2.9%

-2.0% -0.4%

-2.0% -1.4%

-1.8% -1.0%

2.1%

2.0%

0% -1.0% -1%

-0.2%

-1.0%

-0.9%

-0.6%

-0.5%

2009

2010

-2%

-4% 2006-2008 average

2009

2010

Source: Company Reports, EY analysis (numbers rounded off) 34

1.9%

Operating Expenses

0%

-2%

1%

COMPETITIVENESS REPORT 2011-2012

2006-2008 average

Provisions and operating expenses higher than conventional

Islamic Banking Competitiveness Report 2011-12 Page 34

Provisions


Higher cost to income ratio is a combined result of modest core banking revenues and a higher cost base due to misaligned processes and systems

Deposits

Leverage

ROE

Cost of Funding

X Return on Assets

Operating Expense Provisions

Operating Cost / Operating Income 60%

40%

40%

35%

29% 26% 20%

0% 2006

2007

2008

Islamic Banks

2009

2010

Conventional Banks

Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)

Islamic Banking Competitiveness Report 2011-12 Page 35

COMPETITIVENESS REPORT 2011-2012

35


Performance culture â&#x20AC;&#x201C; higher staff cost should translate into better performance but Islamic banks lag behind their conventional peers

59% 58% 57%

3%

58%

3%

3%

3%

57%

2%

56% 55%

54%

54%

2% 1%

53%

0.9%

51%

0% 2009

2010

Islamic Banks

2009

Conventional Banks

Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) COMPETITIVENESS REPORT 2011-2012

0.8%

1%

52%

36

Return on Assets

4%

60%

Islamic Banking Competitiveness Report 2011-12 Page 36

Cost of Funding

X

ROE

Staff Cost / Deposits

Staff Cost / Operating Expenses 60%

Deposits

Leverage

2010

Operating Expense Provisions


Operating costs are impacting Islamic banks across the region â&#x20AC;&#x201C; operating models need to be made scalable

Deposits

Leverage

X

ROE

Return on Assets

Operating Cost / Asset

Bahrain

2% 1%

2.1%

2.2%

1.5%

1.3%

0% 2006

2008

2009

2008

2009

2010

Qatar

2%

2010

4%

2.1% 1.5%

1.3%

2006

2007

2008

2009

2010

1.5%

1.3%

0%

2006

4% 2.2%

2.2%

2.0%

2%

2007

2008

2009

2010

Saudi Arabia

6%

4%

0%

2007

2007

6%

2.1%

1.4%

1.3%

2006

4% 3%

3.8%

2% 0%

Provisions

6%

4%

5%

Operating Expense

Kuwait

6%

6%

Cost of Funding

3.1% 2.4%

2% 1.6%

1.4%

0% 2006

2007

2008

2009

2010

United Arab Emirates 6% 4% 2% Islamic Banks

Conventional Banks

0%

Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks)

1.6%

1.6% 1.0%

0.9%

2006

2007

2008

2009

2010

Islamic Banking Competitiveness Report 2011-12 Page 37

COMPETITIVENESS REPORT 2011-2012

37


Both Islamic and conventional banks have seen a deterioration in the provision to income ratio

Deposits

Leverage

Cost of Funding

X

ROE

Return on Assets

Provisioning / Operating Income 50%

Bahrain

50%

32%

40%

10%

16%

5%

30%

10%

25%

-10% 2006

21%

20% 10%

20%

2009

4%

-10% 2006

2010

Qatar

50%

2007

2008

2009

2010

10% 2007

2008

2009

2010

United Arab Emirates

10%

Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) 38

COMPETITIVENESS REPORT 2011-2012

2009

33% 23% 13% 3%

-10% 2006

2007

2008

2009

2010

Islamic Banking Competitiveness Report 2011-12 Page 38

10%

2010

Saudi Arabia

18% 5%

0.3%

30%

Conventional Banks

2008

30%

50%

Islamic Banks

2007

50%

30%

3.7% -2% -10% 2006

3% 2006

2008

10%

6%

0%

2007

16%

8%

2%

30%

Provisions

Kuwait

50%

30%

Operating Expense

-10% 2006

16%

2% 2007

2008

2009

2010


Leading GCC Islamic banks continue to grow deposit base at a faster pace

Money Supply and Deposit Growth Rates

40% 35%

Annual Growth Rate

30%

While the bigger Islamic banks have seen comfortable deposit growth, the smaller institutions have had to raise expensive investment deposits to meet liquidity and regulatory requirements

25% 20% 15% 10% 5% 0% 2007

2008

2009

2010

2011

2012

2013

2014

2015

Money Supply Money Supply Forecast Islamic Deposit

Source: Central Bank, Company Reports, EY analysis (sample based on selective Islamic and conventional banks)

Islamic Banking Competitiveness Report 2011-12 Page 39

Conventional Deposit

COMPETITIVENESS REPORT 2011-2012

39


Average cost of customer funds is lower for Islamic banks, primarily due to high share of free deposits in the deposit mix

4% 3%

5.0%

X Return on Assets

Operating Expense Provisions

However, cost of return-bearing customer deposits has been increasing relatively faster for a number of Islamic banks, compared to their conventional peers

3.8%

3.0%

2%

1.8% 1.3%

1%

0.4% 0% 2006

2007 Islamic Banks

2008 Conventional Banks

2009

2010

6 months US$ LIBOR (average)

Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks), US$ LIBOR: global-rates.com 40

ROE

Cost of Funding

Average Return on Investment Account Holders Funds/ Deposits

6% 5%

Deposits

Leverage

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 40


Sharp correction in investment asset values, and emerging focus on core banking business has led to significant change in asset mix

26%

Investment / Total Liabilities

24%

24%

22%

22%

22%

20% 18% 16% 14%

13%

12% 10% 2006

2007

2008

2009

2010

Conventional Banks

Islamic Banks

Source: Central Bank, Company Reports, EY analysis (sample based on selective Islamic and conventional banks)

Islamic Banking Competitiveness Report 2011-12 Page 41

COMPETITIVENESS REPORT 2011-2012

41


Islamic banks continue to hold more liquid assets than conventional banks in most markets across the region... Cash & Cash Equivalents / Total Liabilities

Bahrain

20%

20%

18%

15%

15% 12%

12%

10%

2006

2007

2008

2009

2010

14%

10%

33%

29%

20%

22%

18%

2008

2009

2010

2006 0% 2007

2008

2009

2007

2008

2009

2010

United Arab Emirates

2010 30% 20%

21%

17%

10% 8%

0%

Conventional Banks

16%

15%

10%

10%

14%

7%

5% 0%

0%

5%

2006

2007

2008

2009

2010

Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) COMPETITIVENESS REPORT 2011-2012

2007

Saudi Arabia

40%

10%

42

2006

20%

30%

Islamic Banks

13%

Qatar

15%

2006

10%

19%

18% 15%

16%

14%

0%

0% 20%

15%

5%

5%

25%

Kuwait

16%

Islamic Banking Competitiveness Report 2011-12 Page 42

2006

2007

2008

2009

2010


... but as noted earlier, Islamic banks have limited long term liabilities

Islamic Banks 100% 90%

1% 13%

80% 70%

27%

1% 14%

22%

2% 14% 18%

Conventional Banks

1%

2%

14%

14%

17%

15%

100% 90%

70% 60%

50%

50%

30%

59%

63%

66%

68%

69%

30% 20%

10%

10%

0%

0% 2007

2008

2009

2010

13%

6%

2%

5%

5%

20%

23%

19%

17%

12%

12%

13%

14%

Long Term Liabilities

Short term Liabilities

40%

20%

2006

16%

80%

60%

40%

5%

66%

Equity

62%

63%

63%

64% Deposits

2006

2007

2008

2009

2010

As % of Total Liabilities & Equity Source: Central Bank, Company Reports, EY analysis (sample based on selective Islamic and conventional banks)

Islamic Banking Competitiveness Report 2011-12 Page 43

COMPETITIVENESS REPORT 2011-2012

43


Both Islamic and conventional banks have a negative liquidity gap for short term maturity band Net Liquidity Gap / Total Asset (selected maturity band) 80%

72%

60%

55%

40%

20%

0% Less than one year

Over 1 year

-20%

-40%

-36% -44%

-60%

Conventional Banks

Islamic Banks

Source: Central Bank, Company Reports, EY analysis (sample based on selective Islamic and conventional banks) 44

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 44


Report Structure

2

3

Competitive Landscape

1

Performance Analysis

Executive Brief

Competing to Win: The CEO Agenda

Country Spotlight 5

4

Islamic Banking Competitiveness Report 2011-12 Page 45

COMPETITIVENESS REPORT 2011-2012

45


Competing to Win – The CEO Agenda

Key Messages

46

COMPETITIVENESS REPORT 2011-2012

1

Rebuild to last – operating model to be transformed for quality growth and to create sustainable shareholder value

2

Service driven culture – investing more in customer centric activities, with better use of technology and risk tools

3

Shari’a differentiation – acquire and build specialist product skills, ensure better integration with real economy

Islamic Banking Competitiveness Report 2011-12


Several Islamic banks have initiated a comprehensive transformation agenda for sustainable growth

Operational efficiency and effectiveness

Growth • Emphasis on core businesses • Consolidation, conversions and new start-ups – Next 100 in the making • Relationship growth with key clients, vendors and partners

• Customer centric operating model • Improved data management • Updated Shari’a compliant systems and processes

The Search for A New Business Model Risk and compliance

Innovation

• Risk, compliance and regulation to drive change in business models • Capital management - substantive reallocation involving tools such as risk adjusted returns, fund transfer pricing, economic capital etc.

• Embracing new technology • Product research & structuring – while minimizing reputation, regulatory and commercial risk

Islamic Banking Competitiveness Report 2011-12 Page 47

COMPETITIVENESS REPORT 2011-2012

47


Competing for customers who are not driven by Shariâ&#x20AC;&#x2122;a considerations only â&#x20AC;&#x201C; service quality is likely to replace pricing as the primary proposition

Customer Transformation

Customer Rapid Assessment

48

COMPETITIVENESS REPORT 2011-2012

Customer & market strategy

Sales & channel management

Customer intelligence & economics

Customer service management

Islamic Banking Competitiveness Report 2011-12 Page 48


Bank’s need to review their customer and market strategies to help understand customer requirements and engagement tactics in the new competitive landscape

Customer and market strategy (“the double compliant customer”) New market strategy

Customer segmentation

► Understand the competitive landscape and assess customer trends ► Analysis of regulation, Shari’a, tax and legal requirements

► Specially designed tools to develop deep understanding of segment requirements

Customer service improvement

Customer operating model review

► As-is and to-be analysis of customer experience to enhance customer engagement

► Development of organizational design and spans of control

► Develop the most important Customer moments of truth and develop service

► Data analysis and modelling to develop logical segmentation models

► Shared service analysis ► Provide the linkage between employee, Shari’a & customer engagement

Islamic Banking Competitiveness Report 2011-12 Page 49

Customer service improvement

COMPETITIVENESS REPORT 2011-2012

49


Customer analytics – banks can identify trends in customer behavior and spending to provide suitable products in line with the customers needs – successful rollout has delivered increases in retention and profitability

Customer analytics and economics Single customer view

Customer data architecture

► Developing an analytical single customer view to drive marketing activity ► Developing an operational single customer view to drive service experience

► Assist in the selection and implementation of CRM technology

Customer retention

Customer economics

► Customer profitability and lifetime value analysis

► Development of actionable plans for improving margin or optimizing cost ► Diagnosis of key improvement initiatives to help sustain revenues, & reduce costs whilst improving customer service

► Assist in designing a customer data database

► Cross sales and incentive schemes to assist in both retention and customer value management

Note: CRM (Customer Relationship Management) 50

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 50

Single customer view


Effective and compelling marketing tactics can increase the customer’s consideration to buy. The region is already saturated with loyalty schemes so another new one needs to be carefully thought through

Sales and channel management Customer loyalty management

Sales force effectiveness

► Assess customer data to determine position in the customer lifecycle

► Planning sales activities/ deploying resources to develop an effective sales strategy ► Overhauling the sales process including pipeline management, tender management, risk & regulation

► Analysis of customer needs and internal practices to help match customer expectations with service Channel strategy

Product development

► Use of data models for channel optimisation and defining incentive compensation for channel advocacy

► Developing a product strategy based on Shari’a contracts to assist in revenue growth

► Smooth transition of customers between channels, efficient complaints handling process and effective use of channels

► Product mix optimisation, margin improvement, consumer promotional effectiveness and competitor positioning

Islamic Banking Competitiveness Report 2011-12 Page 51

Customer loyalty management

COMPETITIVENESS REPORT 2011-2012

51


Banks in the region often use costly incentives to attract customers but then spend little on service to retain them – this is unsustainable

Customer service management Contact centre transformation

Service quality management

► Contact centre diagnostic and performance benchmarking

► Assess the impact of the move to self-service on the overall customer profitability

► Developing a detailed understanding of how contact centre fits into the overall service proposition Customer service effectiveness

Service channel transformation

► Assess service capabilities vs. competitors to identify gaps in the service proposition

► Developing an integrated approach to servicing via multiple channels

► Map the high level processes and identify the key issues from a customer’s perspective

52

► Identify hot-spots and instigate process changes

COMPETITIVENESS REPORT 2011-2012

► Determining the impact of service failures on customer experience

Islamic Banking Competitiveness Report 2011-12 Page 52

Contact centre transformation


In our experience, a customer-centric operating model which has processes built around the customer are the biggest drivers of benefits, as illustrated below

Benefits

5% 7% 8%

Typically three levers deliver the majority of the benefits

8% 11%

11%

100%

19% 60%

30%

Structural Rationalisation

Process & Productivity Improvement

Off shoring / Outsourcing

Business Portfolio Rationalisation

Purchasing Compliance / Governance

Supplier Rationalisation

Demand Challenge

Islamic Banking Competitiveness Report 2011-12 Page 53

Infrastructure Rationalisation & Efficiency

Total

COMPETITIVENESS REPORT 2011-2012

53


Several Islamic banks have initiated a comprehensive transformation agenda for sustainable growth

Operational efficiency and effectiveness

Growth • Emphasis on core businesses • Consolidation, conversions and new start-ups – Next 100 in the making • Relationship growth with key clients, vendors and partners

• Customer centric operating model • Improved data management • Updated Shari’a compliant systems and processes

The Search for A New Business Model Innovation

Risk and compliance

• Embracing new technology • Product research & structuring – while minimizing reputation, regulatory and commercial risk

• Risk, compliance and regulation to drive change in business models • Capital management - substantive reallocation involving tools such as risk adjusted returns, fund transfer pricing, economic capital etc.

54

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 54


Reduced profits and valuations are amongst the biggest business risks facing Islamic banks

Financial

Compliance

Top Risks for Islamic Banks Liquidity and cost

Managing the transformation, to customer centric business model

7 Reduced profits and valuations

Geopolitical, macroeconomi c shocks

3

2 1

Managing the transformation, to customer centric business model

Product risk, balancing innovation, law of the land and Shariâ&#x20AC;&#x2122;a compliance

5

6 4

Technology risk, incl. absence of fully compliant/ certified systems

Reduced profits and valuations Geopolitical, macroeconomic shocks Human capital, including misaligned compensation structures Product risk, balancing innovation, law of the land and Shariâ&#x20AC;&#x2122;a compliance Technology risk, including absence of fully compliant/ certified systems

Human capital, including misaligned compensation structures

Liquidity and associated cost Strategic

Operational

Islamic Banking Competitiveness Report 2011-12 Page 55

COMPETITIVENESS REPORT 2011-2012

55


Three way constraint on strategy – banking industry in general feeling the pressure, Islamic banks are no exception

56

Business focus will have to change

Spreads will need to rise

Higher capital requirement for trading book

Large, long-term corporate financing will need to be repriced

COMPETITIVENESS REPORT 2011-2012

Cost of more capital

Leverage constraint

Islamic Banking Competitiveness Report 2011-12 Page 56

Cost of liquid assets buffer


Liquidity â&#x20AC;&#x201C; challenges and needed improvements

Product innovation (e.g. credible, compliant alternatives to Commodity Murabaha)

Contingent commitments

New data hubs needed

Systems Process

Better consolidated/ group wide data

Funds transfer pricing

Governance

Collateral tracking systems

Enhanced analytic capability

Islamic Banking Competitiveness Report 2011-12 Page 57

COMPETITIVENESS REPORT 2011-2012

57


As with conventional institutions, Islamic banks will find it challenging to return to pre 2007 profitability levels – question is how big will the cuts be?

Rate of return on equity

Estimates of cut pre-mitigating actions – reduction around 5-9 percentage points Components of the reduction Capital quality Capital increase Leverage ratio Liquid assets

0.8 1.3 0.1 0.6

Strategic issue for the banks – how much disclosure is needed to convince equity investors they are safer 58

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 58

ILLUSTRATION ONLY

Pre-crisis, 15 - 25%


It is now even more important to link remuneration code with institutions’ performance, and to retain scarce talent

Remuneration Committee – Bank wide remuneration policy (NEDs + External Advisors) Oversight of reward protocols + Reward framework Bonus decision (form and amount)

“Golden handshakes” “parachute” payments Payout decision (timing and amount) Board level executives

“High end” employees

Individuals with significant influence on direction and risk profile ►

Human capital

Risk

Tax

Short term incentive plans Long term incentive plans

► ►

Human capital Risk Tax

► ►

Assessment Line Mgmnt/ HR

Balanced Score Card Salary

Key challenges

CRO

People Quality Customer Risk

Risk

Talent retention Corporate culture Shares vs. cash/ deferrals Data availability and quality

Current practices All other employees

Performance measurement framework Salary / Bonus Short term incentive plans

► ►

Human capital

Risk

Tax

Long term incentive plans

Islamic Banking Competitiveness Report 2011-12 Page 59

Reviewing new rules and guidance on remuneration Revising compensation policies, processes and systems Update balanced scorecards and new incentive plans

COMPETITIVENESS REPORT 2011-2012

59


MI framework with risk adjusted performance tools will be central to directing quality growth Business Strategy

Value Drivers

Performance Measures Income per Account

Operating Measures

Action Plans

Net Profit Income per Account Cost of Funding

Finance Income

Sales (# of New Accounts)

Volume

Investment Income

Long Term Embedded Value

Number of Existing Account Number of Closed Account

Investment Return Cost of Funding

Operating Expenses Improve Economic Profit

Write - Offs

Bad & Doubtful Debts

Recovery Revenue

Bad Debt Provision

# Fraudulent Accounts Value of Delinquency

# of Deceased Account Provision Estimate

Probability of Default

Value Deterioration

Loss Given Default

FX Volatility

Credit Risk Capital

Risk Capital

Operational Risk Capital Other Risks

Cost of Risk Capital

Risk free rate

Hurdle Rate

Beta Market premium

60

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 60

# of Delinquent Account

Exposure at Default Portfolio Diversification

ILLUSTRATION ONLY

Investment Impairment

Cure Rate


One potential scenario shows that risk practices at Islamic banks need to evolve significantly to achieve sustainable growth

ERM FRAMEWORK

Business Strategy Risk Appetite Risk Adjusted Performance Measurement

Capital Planning and Management

Risk Control & Limit Setting Scenario Analysis & Stress Testing Risk Aggregation & Economic Capital Risk Measurement Risk Identification Credit Risk

Market Risk

Opâ&#x20AC;&#x2122;s Risk

Liquidity Risk

Profit Rate Risk

Strategic Risk

Risk Universe Islamic Banking Competitiveness Report 2011-12

Catastrophe Risks

Data & IT Infrastructure

Risk Monitoring & MI

Risk Organisation & Governance

Active Portfolio Management

Policies, Standards, People & Culture

Risk Based Pricing

Comparable to conventional Need Enhancement Weak

COMPETITIVENESS REPORT 2011-2012

61


Several Islamic banks have initiated a comprehensive transformation agenda for sustainable growth

Operational efficiency and effectiveness

Growth • Emphasis on core businesses • Consolidation, conversions and new start-ups – Next 100 in the making • Relationship growth with key clients, vendors and partners

• Customer centric operating model • Improved data management • Updated Shari’a compliant systems and processes

The Search for A New Business Model Innovation

Risk and compliance

• Embracing new technology • Product research & structuring – while minimizing reputation, regulatory and commercial risk

• Risk, compliance and regulation to drive change in business models • Capital management - substantive reallocation involving tools such as risk adjusted returns, fund transfer pricing, economic capital etc.

62

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 62


At current pace, MENA Islamic banking assets with commercial banks are set to grow by an additional $575 billion by 2015 2015 Forecast (US$b)

The Levant

87

Turkey 5

140

Tunisia

10

Syria Lebanon 7

Morocco

13

Algeria

Jordan

Iraq

12

Libya

13

5

104

Kuwait

GCC

20

79

Bahrain

Egypt

Qatar

34

UAE 156

Saudi Arabia Oman

~ 291

North Africa

8

Yemen 7

Key Total ISLAMIC banking assets 2015 (US$b) - the size of the circle denotes relative size

Source: Central Bank Reports, The Banker, Analyst Briefings, EY analysis

Islamic Banking Competitiveness Report 2011-12 Page 63

COMPETITIVENESS REPORT 2011-2012

63


While most Islamic banks remain localized to their GCC base, there is potential demand for an estimated 100 new Islamic financial institutions across MENA by 2020

America

America

1%

2%

Europe

Europe

5%

8%

GCC Islamic Banks

MENA

MENA

85%

87%

GCC Conventional Banks

Source: Company Reports, EY analysis (sample based on selective Islamic and conventional banks) 64

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 64

Asia

Asia

3%

1%


However, a major impediment to growth is the weak Islamic finance enabling infrastructure in several OIC markets Enabling infrastructure would include legislative, regulatory, legal, accounting, tax, human capital, and Shariâ&#x20AC;&#x2122;a business framework

Further, Islamic finance standard setting institutions have limited geographic reach / enforceability remains a challenge

Bahrain, Malaysia and UAE are amongst the major Islamic finance centers Relatively Developed Infrastructure

Some Infrastructure

Weak or No Infrastructure

OIC (Organization of Islamic Countries)

Islamic Banking Competitiveness Report 2011-12 Page 65

COMPETITIVENESS REPORT 2011-2012

65


Repositioning â&#x20AC;&#x201C; through conversions and mergers â&#x20AC;&#x201C; will be an important theme, in some instances driven by market pressures

Transaction announced date

Oct-09

Jan-10

Oct-10

Jul-10*

Target company

Bahraini Saudi Bank

Ahli United Bank Egypt

Royal Bank of Scotland (UAE) (Retail Banking business)

Islamic Bank of Britain Plc

Bahrain

Egypt

UAE

UK

Al-Salam Bank

Ahli United Bank

Abu Dhabi Commercial Bank

Qatar International Islamic Bank

Bahrain

Bahrain

UAE

Qatar

N/A

53

100

40

Al-Salam Bank acquired a 90.31% stake in Bahraini Saudi Bank BSC. Salam issued 227.8m new shares for BHD 0.112 each

Ahli United Bank Egypt's 54.7% stake to be acquired by Ahli United Bank in a share swap transaction.*

Abu Dhabi Commercial Bank (ADCB), agreed to acquire the retail banking business of Royal Bank of Scotland (UAE).*

Qatar International Islamic Bank (QIIB) agreed to acquire 78.5% stake in Islamic Bank of Britain Plc.

Target country

Bidder company Bidder country Deal value ($ m)

Key details

Source: Mergermarket, Company annual reports, * Conventional banks 66

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 66


In GCC, the pricing multiples of Islamic banks have converged over recent months – now broadly in line with conventional banks

Average P/E of Banks in GCC – Sep 2011

Average P/BV of Banks in GCC – Sep 2011 4

24 20

3

3.4

1.6

1.9

1.4 N/A

0.8

N/A

0

N/A

1.4

1.8

2.1

1

10.1

1.6

0.9

(times)

2.0

2

16.3 11.5

13.0 8.5

6.8

N/A

0

N/A

4

11.1

15.2

8

N/A

12

12.8 12.2

20.7

(times)

16

Islamic

Conventional

Islamic

Conventional

Avg. Islamic

Avg. conventional

Avg. Islamic

Avg. conventional

Banks include all listed retail banks excluding those having P/E of less than 0 or greater than 30; UAE banks include Dubai & Abu Dhabi based banks only; N/A – No bank with P/E within specified range in the respective country; Source: Bloomberg, OneSource & EY perspective

Islamic Banking Competitiveness Report 2011-12 Page 67

COMPETITIVENESS REPORT 2011-2012

67


…with Kuwait and UAE having the highest and lowest pricing multiples respectively Kuwait

KSA Average Conventional

Average Conventional

2.1

Conventional

1.9

Conventional

14.0

2.4

1.4

Average Islamic

20.7

27.4

10

0

10

20

11.1

3.4 1.2

Conventional

1.5

Conventional

1.1

Conventional

1.5

12.3

Conventional

1.8

12.6

Conventional

1.2

12.0

Conventional

1.5

5

0.9

Average Islamic

0.8

Conventional

0.7

Islamic

0.8

Conventional

0.9

Conventional

1.2

Conventional

0.9

Conventional

0.6

7.5 9.9 13.9

9.3

3.4 10

30

Average Conventional

15.2

Conventional

Islamic

Qatar

UAE

15.2 0

5

10

15

20

10

Oman

Average Conventional

1.9

Average Islamic

1.8

Conventional

2.4

14.0

Islamic

1.8

13.4

Islamic

1.8

13.2

Islamic

2.4

Conventional

11.5 13.0

14.4

1.2

10.9

Conventional

1.9

11.1

Conventional

1.5

11.1

Conventional

2.0 10

5

10.0 0

5

10

15

20

Average Conventional

1.4

Conventional

1.4

Conventional

1.8

Conventional

1.6

Conventional

1.3 10

5

COMPETITIVENESS REPORT 2011-2012

16.3

Average Conventional

1.6

Conventional

1.9

Conventional

1.5

Conventional

1.4

14.4

5.1 8.5 7.0 8.4 6.0 7.4 0

5

10

10.1

8.6

12.2 9.8

15.0 11.3 0

5

10

15

20

Islamic Banking Competitiveness Report 2011-12 Page 68

8.5

Bahrain

Banks include all listed retail banks excluding those having P/E of less than 0 or greater than 30; UAE banks include Dubai & Abu Dhabi based banks only; Source: Bloomberg, OneSource & EY perspective 68

5

6.8

10

5

12.0

0

5

10

P/BV (Sep 2011) P/E (Sep 2011)

15


Islamic banks constitute approximately 9% of market capitalization in GCC

Break-up of Total Market Capitalization of GCC indices (Sep 2011) 100% 90% 80%

43%

70%

40%

77%

18%

35%

4%

11%

6% 31%

30%

5%

20% 10%

50%

53% 69%

60% 50%

27%

30%

48%

29%

14% 21%

0% Kuwait Non-financial sector

11% KSA

4% UAE

12% Qatar

Other financial sector

1%

30%

34%

22% 9%

3% Oman

Conventional retail banks

Bahrain

Average

Islamic retail banks

*Share of other financial sector estimated at December 2010 level; Source: Bloomberg, OneSource & EY analysis (rounded numbers)

Islamic Banking Competitiveness Report 2011-12 Page 69

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69


M&A decision for Islamic banks come with certain motivations, and challenges

Key motivators ►

Market pressure – threat of being left out in the new wave of M&A in some economies

Aggressive due diligence

Reverse due diligence

Challenges

Retention of key employees

Potential synergistic

Pricing – Difficulty in finding pricing benchmarks Post integration issues

Internal &external efficiencies

Business model transformation/ realignment

Bigger scale – expansion to exploit upcoming infrastructure projects

Negotiation

Regulatory approvals

Inorganic growth – strategic mergers & acquisitions

Willingness to accept transactions structured with significant contingent payment provisions

70

Buyers/ sellers considerations

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 70


Several Islamic banks have initiated a comprehensive transformation agenda for sustainable growth

Operational efficiency and effectiveness

Growth • Emphasis on core businesses • Consolidation, conversions and new start-ups – Next 100 in the making • Relationship growth with key clients, vendors and partners

• Customer centric operating model • Improved data management • Updated Shari’a compliant systems and processes

The Search for A New Business Model Risk and compliance

Innovation

• Risk, compliance and regulation to drive change in business models • Capital management - substantive reallocation involving tools such as risk adjusted returns, fund transfer pricing, economic capital etc.

• Embracing new technology • Product research & structuring – while minimizing reputation, regulatory and commercial risk

Islamic Banking Competitiveness Report 2011-12 Page 71

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71


Customer adoption of digital technology is growing exponentially

Worldwide Audience of

1bn

2bn internet users globally 700m Facebook users 30bn iTunes downloads 8bn SMS send every day

50m

7 hours per day spend using digital technology $60bn peer-to-peer mobile payments by 2013

10m

2 Years

10 Years

50 Years

Sources: www.internetworldstats.com; The World Factbook, CIA, EY perspectives 72

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 72


Digital touchpoints are now critically important for engagement, sales & service delivery and retention strategies

► Each customer will expect a bespoke service from their bank at whichever touchpoint they use

Personalised Experience

Deeper Relationships

Customer Expectations

►With technology on handheld devices, customers will expect to undertake banking whenever and wherever they need Anytime, Anw here

►Security and trust will be important factors customers will review when choosing which digital channels they will use ►Bank’s product and marketing teams need to maximise intelligence gathered from all types of customer transaction data to forecast customer needs

Security & Trust

Islamic Banking Competitiveness Report 2011-12 Page 73

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73


MENA wide, there has been a considerable increase in the number of users of smartphones and social media over the last 12 months. This bodes well for banks embracing digital technologyâ&#x20AC;Ś. Government stimulus packages & Nationalisation programmes Wealth distribution & Wealth acquisition A young population already inclined to use digital technology Middle East Internet Usage and Population Statistics

Bahrain Iran Iraq Jordan Kuwait Lebanon Oman Palestine (West Bk.) Qatar Saudi Arabia Syria United Arab Emirates Yemen Gaza Strip Middle East

Population Median Age Users, in Internet Usage, % Population Facebook ( 2011 Est. ) of Population 2001 Latest Data (Penetration) Subscribers 1,214,705

30.4

40,000

649,300

53.50%

77,891,220

27.6

250,000

36,500,000

46.90%

n/a

30,399,572

20.6

12,500

860,400

2.80%

860,400

6,508,271

21.8

127,300

1,741,900

26.80%

1,675,780

2,595,628

26.4

150,000

1,100,000

42.40%

822,640

4,143,101

29.4

300,000

1,201,820

29.00%

1,201,820

3,027,959

23.9

90,000

1,465,000

48.40%

285,080

2,568,555

20.9

35,000

1,379,000

53.70%

599,520

287,020

848,016

30.8

30,000

563,800

66.50%

245,580

26,131,703

21.6

200,000

11,400,000

43.60%

4,034,740

22,517,750

21.5

30,000

4,469,000

19.80%

n/a

5,148,664

30.2

735,000

3,555,100

69.00%

2,340,880

24,133,492 1,657,155

16.4 17.5

15,000 n/a

2,349,000 n/a

9.70% n/a

329,040 n/a

67,234,320

32.20%

12,682,500

208,785,791

23.6

2,014,800

Banks have a customer base that is ready to embrace the products and service offeringâ&#x20AC;&#x2122;s that will meet their expectations of personalised experience, anytime anywhere, security and trust and deeper relationships. Sources: www.internetworldstats.com; The World Factbook, CIA, EY perspectives 74

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 74


Product innovation - Shari’a structures are only now being tested (for example sukuk market) Discussion on Sukuk Structures Assets Backed Structures

Asset Based Structures

• Typically structured as an Ijarah (sale and lease back) or a Sharikat al Melk (co-ownership)

• Structured as a Musharaka (Partnership), a Wakala (Agency) or a Mudaraba (Fund Management)

• Involves a sales contract where a beneficial interest is acquired in certain assets

• Allows for future asset creation from funds raised. Consequently, 33% tangible asset requirement does not apply

• Funds are immediately invested in Shari’a compliant assets

• Requires investment of funds according to an approved, Shari’a compliant investment plan

• Minimum requirement is to have at least 33% (increasingly 51%) tangible assets at the outset

• Suitable structure for development projects where assets are to be developed in the future and are not immediately cash generative

• Provides the greatest discretion in use of proceeds as initial investment has already occurred Source: Norton Rose

Islamic Banking Competitiveness Report 2011-12 Page 75

COMPETITIVENESS REPORT 2011-2012

75


Real life case study of a restructured sukuk issue

Sukuk Holders

Musharaka Purchase Undertaking

Issuer as Investor Partner/ Lessor/ Trustee

Obligor as Commercial Partner

Mushraaka Sale Undertaking

Lease of Issuer Assets

1% Profit

Units Cash contributions

99%Profit

Musharaka with Business Plan

Rental Payment during Rental Period and Final Rental Payment

Project Co as Lessee

Units Contribution in kind (land)

Management Agreement

Obligor as Manager

ILLUSTRATION Source: Norton Rose 76

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 76


General stages of the sukuk restructuring exercise (see Appendix for detailed description)

1 Existing arrangement 2 Sukuk holder accord

3

A thorough understanding of the underlying Sukuk structure together with the corresponding agreements is required

Care shall be taken that the restructuring would not cause a cross default

Sukuk holders have to be on board with respect to the key features of the restructuring, this shall also include a comparison of existing core provisions of the Sukuk structure with the restructured one Sukuk holder agreement shall be required for the revised structure

Exit option

4 Benefits & Compliance

Dissenting sukuk holders shall be provided with an exit route without any breach to the effective provisions of the existing sukuk structure Sukuk holders who opt to buy the portion of dissenting sukuk holders may be given some additional benefits

The revised structure shall benefit both parties for it to be economically efficient

The revised documentation shall comply with existing laws and regulations

The trail of restructuring shall be documented

Source: Norton Rose

Islamic Banking Competitiveness Report 2011-12 Page 77

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77


Report Structure

2

3

Competitive Landscape

1

Performance Analysis

Executive Brief

Competing to Win: The CEO Agenda

Country Spotlight 5

78

COMPETITIVENESS REPORT 2011-2012

4

Islamic Banking Competitiveness Report 2011-12 Page 78


Country Spotlight – Introducing selective Islamic banking markets

Key Messages 1

Malaysia – significant budget incentives to develop capital market products, SME business and venture financing

2

Turkey – Unique participation banking model, $25bn value, growing at CAGR of 30% plus for 2006-2010

3

Oman – potentially a $6-10bn Islamic banking market over next five years, first two licenses awarded

Islamic Banking Competitiveness Report 2011-12

COMPETITIVENESS REPORT 2011-2012

79


Country focus - Salient features

Malaysia

80

Turkey

Oman

Banking Parameters ► Total banking assets 2010: US$505bn CAGR (06-10): 9.1% ► Islamic banking market share 2010: 17.3% ► Total banking deposits 2010: US$ 360bn and CAGR [06-10]– 9.5% ► Banking asset penetration 2010: 220% ► Deposit penetration 2010 : 156%

Banking Parameters ► Total banking assets 2010: US$ 652bn CAGR (06-10): 25% ► Islamic banking market share 2010: 4.3% ► Total banking deposits for 2010: US$ 399bn and CAGR [06-10] – 25% ► Banking asset penetration 2010: 85% ► Deposit penetration 2010: 52%

Banking Parameters ► Total banking assets 2010: US$41bn CAGR (08-10): 6.6% ► Islamic banking market share 2010: 0% ► Total banking deposits 2010: US$27bn CAGR (06-10): 22% ► Banking asset penetration 2010: 70% ► Deposit penetration 2010: 47%

Islamic finance commentary ► Regulators recognise the profit and loss sharing concept of Islamic banks ► There are currently 17 Islamic banks and four international Islamic banks ► Conventional banks are encouraged by the Central Bank to establish Islamic windows ► Various incentives (legal & tax) are provided by the government (e.g. up to 100% foreign equity ownership for Islamic banks

Islamic finance commentary ► Turkey has a total of 49 banks, and 4 of them are Participation Banks ► Currently a law is in place which recognises the participation features of Islamic banks ► Total number of branches of Participation Banks has increased by 8% in 2010 to reach 607

Islamic finance commentary ► Royal Decree to introduce Islamic banking ► Central Bank of Oman expected to allow full Islamic banks and Islamic windows, new regulatory regime for Islamic banking business expected ► Two licenses awarded for full Islamic banks; most conventional banks expected to compete for Shari’a banking business through window operation

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 80


Malaysian Islamic banking sector registered a four year CAGR of 19.3% to reach US$ 87bn in 2010

0.25

600 US$bn

500

0.2

400

0.15

300 0.1

200 100

51

43

63

76

87

0.05

0

0 2006

2007

Total Banking Assets

2008 Total Islamic Banking Assets

2009

2010 Islamic Banking Growth

17% 83%

Source: BNM Annual Report 2010

Islamic Banking Competitiveness Report 2011-12 Page 81

COMPETITIVENESS REPORT 2011-2012

81


Islamic banking assets and deposits registered healthy growth rate Malaysia's Islamic Banking Sector Total Financing (US$ bn) 60

80

53

50

CAGR of 19.9%

40 30

Malaysia's Islamic Banking Sector Total Deposits (US$ bn)

44

62

60

35 26

71

CAGR of 21.6%

70

50

50

29

40

40 32

30

20

20

10

10

0

0

2006

2007

2008

2009

2006

2010

2007

Source: BNM Annual Report 2010 82

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 82

2008

2009

2010


The five largest banks in the country account for approximately 58% of the market share Market Share 2010

Maybank Islamic 18% Other 41%

CIMB Islamic 13%

Public Islamic 9% AmIslamic 7%

Bank Islam 12%

• Malaysia's long track record of building a successful domestic Islamic financial industry of over 30 years gives the country a solid foundation - financial bedrock of stability that adds to the richness, diversity and maturity of the financial system • Islamic banks in Malaysia are regulated by the Islamic Banking Act of 1983 and are governed by the Central Bank of Malaysia, Bank Negara Malaysia (BNM) • There are currently 17 Islamic banks and four international Islamic banks

Source: BNM Annual Report 2010

Islamic Banking Competitiveness Report 2011-12 Page 83

COMPETITIVENESS REPORT 2011-2012

83


Household sector benefits the most from Islamic financingâ&#x20AC;Ś whereas deposits are mainly generated from business enterprises and financial institutions Financing by sector

Communicati ons 4%

Deposit by customer

Other 13%

Real estate 3% Construction 4% Trade 4% Commercial 5%

Individuals 21%

Household sector 62%

Business enterprises 31%

Healthcare 5%

Source: BNM Annual Report 2010 84

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 84

Government 18%

Financial Institutions 30%


Key messages

1

Liberal measures such as issuance of licenses and increased limits of foreign equity ownership for Islamic financial institutions will help to attract and create a diverse community of local and foreign Islamic financial institutions

2

The growth of halal food industry in Malaysia has positive implications for the Islamic banking and finance industry, as the source of financing for the halal food industry should be from a Shari’a-based source

3

The country’s large and young Muslim population (60.4% of the country’s total population) provides impetus for continued strong growth of Islamic banking

Islamic Banking Competitiveness Report 2011-12 Page 85

COMPETITIVENESS REPORT 2011-2012

85


Participation banking in Turkey has grown at a four year CAGR of 33% and now accounts for approximately US$ 25bn in asset

45%

700

40%

600 US$bn

35%

500

30%

400

25%

300

20% 15%

200

10%

100

5%

0

0% 2006

2007 Total Assets

2008 Islamic Assets

2009

Islamic Banking Growth

4%

96%

Source: Company Reports, Analyst Briefings, Central Bank 86

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 86

2010


Healthy growth in participation banking assets and deposits

Turkey Islamic Banking Sector Total Financing (US$ bn) 20

18

18 CAGR of 32.3%

16 14 10 6

25 19

20

14

11

12 8

Turkey Islamic Banking Sector Total Deposits (US$ bn)

CAGR of 31.7%

15

15

11

9 10

6

9 6

5

4 2

0

0 2006

2007

2008

2009

2006

2010

2007

2008

2009

2010

Source: Company Reports, Analyst Briefings, Central Bank

Islamic Banking Competitiveness Report 2011-12 Page 87

COMPETITIVENESS REPORT 2011-2012

87


Participation branches increased by approximately 8% in 2007 alone

Employees and Branches

Market Share Branches

Employees

14,000

700

12,000

600

10,000

500

8,000

400

6,000

300

4,000

200

2,000

100

0

0 2005 2006 2007 2008 2009 2010 Employees

7% 6% 5% 4% 3% 2% 1% 0%

2005

2006

Total Assets

Branches

Source: Company Reports, Analyst Briefings, Central Bank 88

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 88

2007

2008

Funds Collected

2009

2010

Funds Invested


Key Messages

1

Participation banking is expected to more than double its market share to 10% in the next decade. A number of new applications have already been made with the Turkish banking authorities

2

The core Shariâ&#x20AC;&#x2122;a sensitive segment constitutes approximately 20% of the bankable market

3

Turkish National Assembly in February passed tax and other measures to facilitate the introduction of sukuk in Turkey

Islamic Banking Competitiveness Report 2011-12 Page 89

COMPETITIVENESS REPORT 2011-2012

89


With the exception of 2009, Omanâ&#x20AC;&#x2122;s banking sector has seen steady growth in total assets, deposits, credit and net profits between 2005 and 2010 Omani Banks â&#x20AC;&#x201C; Key Indicators (2004-2010) Total assets

Total deposits

Total credit

Net Profit

300

18,000 16,000

250 14,000 200

12,000 10,000

150 8,000 100

6,000 4,000

50 2,000 0

0 2004

2005

2006

2007

2008

Source: Company Reports, Analyst Briefings, Central Bank 90

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 90

2009

2010


Retail lending constitute 40% of total credit in 2010, personal loans grew at a CAGR of 24% between 2005 & 2010 Loan Segmentation (% of total loans) in 2010

Credit distribution by sector (RO million)

12,000 Other

9%

10,000 Mining and Quarrying Wholesale & Retail Trade

8,000

Import Trade 6,000

Manufacturing

50% 41%

Services

4,000

Construction 2,000

Personal

Personal Loans

Government

0 2008

2009

Business

2010

Source: Company Reports, Analyst Briefings, Central Bank

Islamic Banking Competitiveness Report 2011-12 Page 91

COMPETITIVENESS REPORT 2011-2012

91


Bank deposits have grown at CAGR of 23% from 2005 to 2010

Bank Deposits (RO million) Total deposits

12,000

Deposit Split

y-o-y growth % 10,517

10,000 8,579

9,091

Demand

45%

90% 80%

30% 6,491

70%

25%

60%

20%

50%

6,000 4,685 4,000

3,762

40%

15%

30%

10%

20%

2,000 5%

10%

0%

0 2005

2006

2007

2008

2009

0%

2010

2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Company Reports, Analyst Briefings, Central Bank 92

COMPETITIVENESS REPORT 2011-2012

Time

100%

40% 35%

8,000

Saving

Islamic Banking Competitiveness Report 2011-12 Page 92


Key Messages

1

Islamic banking was introduced in Oman in 2010 through a Royal Decree

2

Central Bank has awarded two Islamic banking licenses, to Bank Nizwa and Bank Izz. Most of the conventional banks are expected to launch Islamic windows

3

Islamic banking could potentially gain up to 10% market share over next five years, also facilitating Shariâ&#x20AC;&#x2122;a compliant foreign investment

Islamic Banking Competitiveness Report 2011-12 Page 93

COMPETITIVENESS REPORT 2011-2012

93


Appendices

94

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 94


The case study draws upon a real life restructuring involving an amendment of the terms and conditions of the sukuk certificates (the “Certificates”) and the underlying capital markets and Islamic documentation (the “Restructuring”). Below is a simplified diagram of the sukuk structure

Sukuk Holders

Mushraka Purchase Undertaking

Issuer as Investor Partner/Lessor/ Trustee

Obligor as Commercial Partner

Mushraka Sale Undertaking

Lease of Issuer Assets

1% Profit

Units Cash contributions

99%Profit

Musharaka with Business Plan

Rental Payment during Rental Period and Final Rental Payment

Units Contribution in kind (land)

Management Agreement

Project Co as Lessee

Obligor as Manager

Source: Norton Rose

Islamic Banking Competitiveness Report 2011-12 Page 95

COMPETITIVENESS REPORT 2011-2012

95


Sukuk restructuring case study (cont’d)

The principal features of the structure are as follows: 1.

On the issue date of the Certificates (the “Issue Date”), the Sukuk holders paid the issuance proceeds to the Issuer SPV, which in turn contributed such proceeds into a Musharaka in its capacity as Investor Partner (the “Issuer’s Contribution”). On the Issue Date, the Obligor contributed certain land in the Musharaka in its capacity as Commercial Partner (the “Obligor’s Contribution”), which together with the Issuer’s Contribution constituted the initial Musharaka assets, which were co-owned by the Issuer and the Obligor (as Musharaka partners) in the proportions in which each contributed capital to the Musharaka.

2.

On the Issue Date, the Issuer as lessor and the Obligor as lessee entered into an agreement for the lease of the Issuer Assets to the lessee (the “Lease Agreement”). “Issuer Assets” were essentially the Issuer’s undivided share, rights, title, interests and entitlements in the Musharaka assets.

3.

Pursuant to a Management Agreement, the Musharaka partners appointed the Obligor as manager to develop a certain project and conduct the Musharaka business on their behalf in accordance with the terms and conditions of the Musharaka Agreement and the Management Agreement. The objectives of the Musharaka included the development of the said project and the sale of the developed land in accordance with the musharaka business plan appended to the Musharaka Agreement.

4.

Not withstanding the proportion in which each Musharaka partner made its respective contributions, the Musharaka Business Plan contemplated that the profit derived from the Musharaka assets would be distributed between the Musharaka partners in the proportions 99 per cent. to the Obligor and 1 per cent. to the Issuer. The profit derived from the Musharaka assets and the rental payments made under the Lease Agreement were used to fund payments of Periodic Distribution (profit) Amounts to Sukuk holders.

5.

Pursuant to a Musharaka Purchase Undertaking, the Obligor irrevocably undertook to the Issuer that upon the Issuer exercising, at any time between the date of the undertaking and the expiry date of the Musharaka, its option to oblige the Obligor to buy all of the Issuer’s Musharaka units as a result of: (i) the occurrence of an event of default or (ii) on the expiry date of the Musharaka (being the scheduled dissolution date in respect of the Certificates), the Obligor would buy the Issuer’s units on an “as is, where is” basis for the Termination Sum (essentially, an amount representing the principal amount of the Certificates plus accrued but unpaid profit), on the terms and subject to the conditions of the Musharaka Purchase Undertaking. The Musharaka Purchase Undertaking operated in tandem with a Lease Purchase Undertaking such that exercise by the lessor of the Lease Purchase Undertaking automatically resulted in a deemed exercise by the Issuer of its rights under the Musharaka Purchase Undertaking. Payment by the lessee of the “Termination Sum” under the Lease Purchase Undertaking would be deemed to discharge the obligation of the Obligor to pay the Termination Sum under the Musharaka Purchase Undertaking.

6.

A mortgage over the land (or certain parts thereof) in favour of a security agent was taken as security in respect of the Certificates. The ratio expressed (as a percentage) of the aggregate value as reasonably determined by the lessee of the assets subject to the trust constituted pursuant to the Trust and Agency Deed in respect of the Certificates, less any further permitted financial indebtedness (as defined in the Transaction Documents) incurred by the Obligor, to the aggregate of all amounts outstanding to the Sukuk holders at the corresponding point in time (the “Security Cover Ratio”) was set at a ratio equal to or greater than 150 per cent.

Source: Norton Rose 96

COMPETITIVENESS REPORT 2011-2012

Islamic Banking Competitiveness Report 2011-12 Page 96


Key terms of the restructuring / incentives offered to investors

The key elements of the Restructuring the proposals put forward to investors were as follows: 1.

The Transaction Administrator (the de facto trustee acting on behalf of and in the interests of Sukuk holders) informed investors (via a series of notifications sent through the clearing systems and through publications in relevant local newspapers) that the ultimate obligor in the structure (the “Obligor”) and the Issuer SPV intended to restructure aspects of the Sukuk and amend the terms of the Certificates. A bank (the “Dealer”) was chosen to assist with and coordinate the implementation of the Restructuring. For the Restructuring to take place, it was necessary to amend certain key terms of the Certificates as well as the underlying documentation in respect of the Sukuk structure, more importantly the Musharaka Agreement and the Lease Agreement and the security documentation.

2.

Sukuk holders were informed that the Obligor and the Issuer wished to extend, in whole or in part, the term of the Certificates. The Sukuk holders were also informed that the Obligor and the Issuer wished to increase the rate at which existing profit amounts (the “Periodic Distribution Amounts”) on the Certificates would be calculated to be equal to a fixed rate of 6 per cent. and that the Issuer was willing to pay to the Sukuk holders accepting to participate in the Restructuring an extraordinary (one-off) Periodic Distribution Amount equal to roughly between 1 and 2 per cent. of the principal amount of the Certificates held by the Sukuk holders. Finally, the Sukuk holders were informed that the Obligor and the Issuer were willing to enhance the security granted to the Sukuk holders by increasing the Security Coverage Ratio to 200 per cent.. The increase in the collateral security package supporting the Certificates and consequent increase in the Security Coverage Ratio of the Certificates to 200 per cent. would be effected by authorising the Issuer to procure that the Obligor subdivided the existing mortgaged land and sold the subdivided plots to third parties while maintaining the Security Coverage Ratio to 200 per cent..

3.

Sukuk holders were asked to approve a number of amendments relating to the Sukuk structure and the Certificates, including: i.

extending the original maturity by 3 years;

ii.

approving the increase in Periodic Distribution Amounts as well as the offer of an extraordinary Periodic Distribution Amount (essentially, a restructuring fee) to those Sukuk holders who accepted the terms of the Restructuring of roughly between 100 and 200 basis points calculated on the principal amount of Certificates held by such investors following the Restructuring; and

iii.

extending the Security Coverage Ratio in respect of the Certificates to 200 per cent..

4.

The Sukuk holders were asked to vote, by way of signing an Extraordinary Resolution, in respect of the matters mentioned in the preceding paragraph. However, participation in the Restructuring was not compulsory. Sukuk holders were notified that if they chose not to participate in the Restructuring they would have the option to be repaid in full on the Scheduled Dissolution Date (the original maturity date). Dissenting Sukuk holders would be repaid at maturity through the exercise (in part) of the purchase undertakings in the structure and otherwise in accordance with the original terms and conditions set out in the Offering Circular prior to any amendments effected pursuant to the Extraordinary Resolution.

5.

In addition, Sukuk holders were given the option, while agreeing to participate in the Restructuring, to increase their participations in the Sukuk and purchase Certificates from those Sukuk holders who wished to obtain full repayment on the scheduled dissolution date. Source: Norton Rose

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Procedural aspects of the restructuring

6.

Sukuk holders were asked to waive the requirements in respect of notice of time, place and purpose of Sukuk holders meetings set out in the terms and conditions of the Certificates and in the Trust and Agency Deed and to agree to the terms of the Restructuring by signing an extraordinary resolution of Sukuk holders holding in aggregate 90 per cent. of the principal amount of the Certificates.

7.

Sukuk holders were informed that a consultation period (the “Initial Consultation Period”) would be put in place (running from the effective date of the Extraordinary Resolution and expiring one week prior to the scheduled dissolution date) during which each Sukuk holder would be asked to return to the Issuer an extension subscription form substantially in the form prescribed in the Extraordinary Resolution indicating the number of the Certificates held by the Sukuk holder and the aggregate principal amount thereof, and irrevocably confirming whether: i.

the Sukuk holder accepts the extension of maturity and the amendment of the Certificates with respect to all the Certificates held by it;

ii.

the Sukuk holder rejects the extension of maturity and the amendment of the Certificates with respect to all the Certificates held by it and requests the payment to it of the scheduled dissolution amount (essentially, principal plus profit) on or before the original scheduled dissolution date;

iii.

the Sukuk holder accepts the extension of maturity and the amendment with respect to a portion of the Certificates held by it and requests a repayment of the scheduled dissolution amount with respect to the remainder of the Certificates held by it; or

iv.

the Sukuk holder accepts the extension of maturity and the amendment of the Certificates with respect to all the Certificates held by it and that the Sukuk holder wishes to increase its participation in the Sukuk by purchasing additional Certificates and the principal amount of the increased participation which the Sukuk holder wishes to purchase.

8.

The Sukukholders were informed and asked to agree that, following the expiry of the Initial Consultation Period, there would follow an optional participation increase period (lasting three days) (the “Optional Participation Increase Period”) during which the Dealer would match the Sukuk holders who, during the Initial Consultation Period, delivered an extension subscription form requesting repayment of their scheduled dissolution amount on or prior to the scheduled dissolution date (the “Exiting Sukuk holders”) and the Sukuk holders who during the Initial Consultation Period delivered an extension subscription form accepting the extension of maturity and amendment of the Certificates and requesting to purchase additional Certificates (the “Increasing Participation Sukuk holders”) in order to intermediate the transfer of the Certificates from the Exiting Sukuk holders to the Increasing Participation Sukuk holders. Following the expiration of the Optional Participation Increase Period, the Issuer and/or the Dealer would determine the “continuing principal amount”, being an amount equal to the aggregate principal amount specified by the Sukuk holders who, during the Initial Consultation Period, delivered the extension subscription form confirming their participation in the Restructuring plus the aggregate principal amount (if any) corresponding to the Certificates purchased by the Increasing Participation Sukuk holders from the Exiting Sukuk holders during the Optional Participation Increase Period.

9.

In accordance with the terms and conditions of the Certificates, the Restructuring was approved by an extraordinary written resolution of the Sukuk holders who, in aggregate, held more than 90 per cent. of the principal amount of the Certificates.

Source: Norton Rose 98

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Islamic Banking Competitiveness Report 2011-12 Page 98


Amendments to documentation

10.

In order to give effect to the resolutions set out in the Extraordinary Resolution, the Sukuk holders were required to give their assent to the modification of the transaction documents, as well as to waive any potential breaches of the terms of the existing Certificates and thus waive the occurrence of an event of default.

11.

The transaction documents that were amended and restated included the following:

12.

i.

the terms and conditions of the Certificates as well as the Trust and Agency Deed were amended and restated in order to give effect to the extension of the maturity and the changes to the Periodic Distribution Amounts payable to investors;

ii.

the offering circular in respect of the Certificates was amended by a supplemental offering circular to reflect the new terms of the securities;

iii.

the Musharaka Agreement and the Lease Agreement, together with the underlying Undertakings, were amended and restated in order to reflect the increased profit payments derived from the Sukuk assets and to deal with the partial redemption of Certificates on the scheduled dissolution date;

iv.

the Security Agency Agreement was amended and restated to reflect the increase in the collateral supporting the Certificates.

In addition, the Sukuk holders were asked to waive any potential breach of Condition 10 (the Condition specifying which events constitute dissolution events (events of default) in respect of the Certificates) occasioned by: i.

the proposals contained in the Extraordinary Resolution; and

ii.

the extension, in whole or in part, of the scheduled dissolution date of the Certificates,

and any preliminary or incidental steps to the Restructuring. 13.

Care was also taken to ensure that the Restructuring and the proposals contained in the Extraordinary Resolution would not in any way trigger any crossdefault provisions contained in other unrelated financing agreements to which the Obligor was a party.

14.

Finally, the Sukuk holders authorised and requested the Issuer to take all steps considered in its sole discretion to be necessary, desirable or expedient to carry out and give effect to the Extraordinary Resolution, acknowledged the limitation of liability provisions set out in the Trust and Agency Deed in respect of the Issuer and absolved the Issuer from any liability in respect of any act or omission for which it may have become responsible under the Trust and Agency Deed with respect to the proposals contained in the Extraordinary Resolution, save in respect of the gross negligence or wilful default of the Issuer. * Note: the structure discussed above pre-dated the AAOIFI statement in 2008 in respect of the use of purchase undertakings in Sukuk structures. The Restructuring was conducted on the basis of the originally approved structure. Had the deal been structured afresh today, a different approach may have been taken in respect of the use of purchase undertakings. Source: Norton Rose

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Team, Sources & Contributors

Competitive Landscape

Performance Analysis

Executive Brief

Competing to Win: The CEO Agenda

Country Spotlight

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Islamic Banking Competitiveness Report 2011-12 Page 100


ErnstErnst & Young & Young Leadership Leadership

IslamicIslamic Financial Financial Services Services CenterCenter of Excellence of Excellence

MENAMENA Executives Executives

Ashar Nazim Ashar Nazim Islamic Finance IslamicLeader Finance Leader ashar.nazim@bh.ey.com ashar.nazim@bh.ey.com

Abid Shakeel Abid Shakeel abid.shakeel@bh.ey.com abid.shakeel@bh.ey.com

Sohaib Umar Sohaib Umar sohaib.umar@bh.ey.com sohaib.umar@bh.ey.com

Tariq Sadiq Tariq Sadiq Advisory Leader Advisory Leader

Noor AbidNoor Abid Assurance Assurance Leader Leader

Sherif El-Kilany Sherif El-Kilany Tax Leader Tax Leader

Phil Gandier Phil Gandier TAS Leader TAS Leader

Gordon Bennie Gordon Bennie FS Leader FS Leader

Andrew Barstow Andrew Barstow FS Advisory FS Leader Advisory Leader

Sameer Abdi Sameer Abdi Partner, Qatar Partner, Qatar

Robert Abboud Robert Abboud Partner, Qatar Partner, Qatar

Fawad Laique Fawad Laique Partner, Saudi Partner, Arabia Saudi Arabia

Nader Rahimi Nader Rahimi Partner, Bahrain Partner, Bahrain

Maged Fanous Maged Fanous Partner, Kuwait Partner, Kuwait

Imtiaz Ibrahim Imtiaz Ibrahim Senior Director, Senior Bahrain Director, Bahrain

Shahid Mughal Shahid Mughal shahid.mughal@bh.ey.com shahid.mughal@bh.ey.com

Mustafa Adil Mustafa Adil mustafa.adil@bh.ey.com mustafa.adil@bh.ey.com

Islamic Banking Islamic Banking Competitiveness Competitiveness Report Report 2011-12 2011-12 Page 101 Page 101

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Report methodology and our interviews

Survey Methodology ► Our survey sought to identify key trends and business risks for the Islamic banking industry through in-depth interviews with executives and industry observers. ► These discussions were used to gauge business sentiment and identify key areas for inquiry. ► The top Islamic and conventional banks in the region were selected for our sample with the break down of banks selected country wise being: ► Bahrain – 4 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 – 4 Islamic and 4 conventional banks ► Egypt – 1 Islamic bank ► Jordan – 1 conventional bank Business Risk Ratings ► Ernst & Young subject matter experts from the Middle East, Asia and Europe developed a list of banking business risks and contributing factors. ► All interviewees were provided with a list of business risks and requested to rate each to reflect its severity to their respective business over the coming 12 months. Interviewees were also asked to add any additional risks they felt were important. ► The results of this rating process were tabulated and a relative ranking assigned to each. This rank formed the basis for our comparative.

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COMPETITIVENESS REPORT 2011-2012

Business Performance Indicator ► The Performance Indicator is a simple device that allows us to present how Islamic banks are faring in comparison to conventional banks Business Risk Categories ► The Performance Indicator is split into tree categories: ► Red Light denotes that Islamic banks are not on par with conventional banks ► Amber Light denotes that Islamic banks are on par with conventional banks ► Green Light denotes that Islamic banks are above par Anonymity and Quotes ► All interviewees were assured of anonymity and minutes documented during our discussions ► Quotations have been used to support arguments made in the report.

Islamic Banking Competitiveness Report 2011-12 Page 102


Sample of Islamic and conventional banks

Islamic banks that contributed data to our sample: Bahrain ► ► ► ►

Al Baraka Banking Group Ithmaar Bank Bahrain Islamic Bank Al Salam Bank

Saudi Arabia ► ► ► ►

Al Rajhi Bank Bank Al Jazira Alinma Bank Bank AlBilad

Conventional banks that contributed data to our sample: Bahrain ► ► ► ►

Saudi Arabia ► ► ► ► ►

Kuwait ► ► ► ►

Kuwait Finance House Ahli United Bank Boubyan Bank Kuwait International Bank

Qatar ► ► ►

Qatar Islamic Bank Masraf Al Rayan Qatar International Islamic Bank

UAE ► ► ► ►

Dubai Islamic Bank Abu Dhabi Islamic Bank Emirates Islamic Bank Sharjah Islamic Bank

Egypt ►

Faisal Islamic Bank of Egypt

Arab Banking Corporation Ahli United Bank Bank of Bahrain and Kuwait National Bank of Bahrain

National Commercial Bank Samba Financial Group Riyad Bank SABB Arab National Bank

Kuwait ► ► ►

National Bank of Kuwait Burgan Bank Commercial Bank of Kuwait

Qatar ► ► ►

Doha Bank Qatar National Bank Commercial Bank of Qatar

UAE ► ► ► ►

Emirates NBD Abu Dhabi Commercial Bank National Bank of Abu Dhabi First Gulf Bank

Jordan ►

Arab Bank

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References and acknowledgments

Sources ► Global Insight - comparative world overview tables ► Zawya ► Central bank reports ► Economist intelligence unit ► Maris Strategies ► The Banker ► Islamic Finance News ► Morgan Stanley ► Bank annual reports Ernst & Young’s Project Team Ashar Nazim ► Abid Shakeel ► Fawaz Siddiqui ► Saad Qureshi ► Mohammed Al Felaij ► Mubashar Haroon ► Assad Butt ► Yasman Moghaddam ► Mustaqim Zain ►

► ► ► ► ► ► ► ► ►

Our industry awards

Best Takaful Advisory Firm 2010, 2011 International Takaful Summit, London

Nader Rahimi Imtiaz Ibrahim Maged Fanous Hammad Younas Asad Jafree Murat Hatipoglu Merisha Kassie Mohd Husin Venkat Subramanian

Best IFN Awards 2009/2010

WIBC Leading Islamic Financial Services Provider 2008 World Islamic Banking Awards, Bahrain

Contributions ► Norton Rose ► Alun Williams©

COMPETITIVENESS REPORT 2011-2012

Best Islamic Consulting Firm 2006 Sheikh Mohammed Bin Rashid Al Maktoum Award

Most Outstanding Business Advisory & Consulting Firm 2006/2007 Kuala Lumpur Islamic Finance Forum, Malaysia

Consistently ranked the best Islamic Advisory firm with awards every year since 2006

For questions or comments, please contact : Fawaz Siddiqui: fawaz.siddiqui@bh.ey.com Saad Qureshi: saad.qureshi@bh.ey.com 104

Best Islamic Advisory Firm/Best Islamic Research 2010 CPI Financial Islamic Finance Award

Islamic Banking Competitiveness Report 2011-12 Page 104


Ernst & Young Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 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. 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. © 2011 Ernst & Young. All rights reserved. www.ey.com 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. 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.

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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 and the Economic Development Board of Bahrain. These and our other strategic alliances with international thought leaders including Ernst & Young and global strategy advisory firm McKinsey & Company 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 18 British-based banks. 2008 saw us further extending this programme to Asia, in partnership with the Monetary Authority of Singapore, which resulted in a high-profile Singapore delegation led by the MAS Governor. 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 18 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

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WIBC: 19 Years of Market Leadership 19 Years of shaping the future of the global Islamic finance industry 19 Years of gathering industry thought leaders in dynamic debate 19 Years of bringing together more than 1,200 international industry leaders 19 Years of successfully working with the market leaders 19 Years of delivering a one-of-a-kind spectacle to the Islamic finance industry

In collaboration with

1,200 Industry leaders. 50+ Countries. 1 Gathering: WIBC 2012 The Worldâ&#x20AC;&#x2122;s Largest Annual Gathering of Islamic Finance Leaders

WIBC is a MEGA Brand MEGA Brands. MEGA Clients. Market Leaders. | Shaping the Future of the Global Islamic Finance Industry Since 1993 To participate in this prestigious event contact: sophie@megaevents.net | t:+971 4 343 1200 | f:+971 4 343 6003 | P.O. Box 72045, Dubai | www.megaevents.net/Islamic_banking


MEGA BRANDS. MEGA CLIENTS. MARKET LEADERS. MEGA is the market leading business information firm focused on achieving business results for the global Islamic banking & finance industry since 1993. The portfolio of MEGA brands represents the landmark industry conferences and our clients are the leading players in the international financial markets.

WIBC is a MEGA Brand Shaping the Future of the Global Islamic Finance Industry Since 1993 P.O. Box 72045, Dubai | t:+971 4 343 1200 | f:+971 4 343 6003 www.megaevents.net MEGA Brands. MEGA Clients. Market Leaders.

Š 2011 The World Islamic Banking Competitiveness Report is documented for the World Islamic Banking Conference. No part of this document may be republished, distributed, retransmitted, cited or quoted without the prior written permission from MEGA or Ernst & Young.

World Islamic Banking Competitiveness Report 2011-12.  

The WIBC Competitiveness Report 2011-12 explores the key industry trends and the critical success factors guiding the global Islamic banking...

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