Transcript Islamic Finance Driving Forces The Management Team Perspective

Islamic Finance Driving Forces
The Management Team Perspective
March 2010, Dead Sea, Jordan
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of Al Rajhi Bank is strictly prohibited
Contents
▪
Islamic Banking Trends & Challenges
▪
Al Rajhi in Jordan
1
Islamic Finance represents 1% of global assets. The market has been growing
over 30% annually since 2000 and is set for continued strong growth.
Sarrafs
▪
Prior to 1990
▪
Financiers in
the Islamic
world as early
as the 8th
century
Mostly Retail
Banking
1990s
▪
2000s
▪
Commercial
Banking
▪
▪
Retail
Future
Project finance
& Syndication
Capital
Markets
Leasing
▪
▪
▪
Advanced
treasury services
Innovative asset
management
Investment
Banking
Corporate
470
1,000
175
20
420
50
Source: Oliver Wyman; Figures are in Billions
28
60
2
Islamic banks outperform market growth in core geographies
% in 2003
% in 2008
30%
20%
17%
12%
12%
17%
16%
10%
13%
*
**
4%
Notes: * Malaysia at 16%, Indonesia at 2% ; ** Estimated total (including Islamic windows) around 40 - 50%
Source: Bankscope, CIA Fact Book and Oliver Wyman analysis
3
Top ten largest Muslim populations
Source: CIA Factbook and Oliver Wyman Analysis
4
Islamic banking players increasing interest to become global
NOT EXHAUSTIVE
2007- Oct 2009
France
Islamic banks from
Bahrain and Qatar
reportedly applied for
licenses
Kuwait Finance House,
Al-Baraka, Gatehouse
also reported to be
interested
Jordan
2 new entrants:
Dubai Islamic
Bank and Al-Rajhi
Bank.
Turkey
3 out of 4 Turkish
Islamic Banks
(Turkiye Finans,
AlBaraka, Kuveyt
Turk) have a
strategic GCC
partner
Azerbaijan
2008: International
Investment Bank
(Bahrain) bought 49%
of Amrahbank and
converting it to an
Islamic bank
Morocco
2007: Government
authorizes segments of
Islamic finance; 10
banks reported to have
express interest
Egypt
2008: Abu Dhabi
Islamic Bank buys 51%
of Egypt’s National
Bank for Development
This year’s report will discuss
potential expansion
opportunities in North Africa
Pakistan
2009: Unicorn increases
stake in Dawood Islamic
Bank to 37%. Dubai
Islamic banks have
started operations.
(Emirates Global Islamic
Bank, Dubai Islamic
Bank)
Malaysia
2005-7: New Entrants: KFH,
Al-Rajhi Bank, AFB (QIB)
2009: Two new foreign
players reportedly
shortlisted for licenses &
takaful license available
India
2009: Government
issues its first
Islamic banking
license; operations
to commence in
2010.
Bangladesh
2009: Sonali and
Janata banks,
state players, to
open Islamic
windows.
Indonesia
2008: Asian Finance Bank
of Malaysia announces
investment, operations to
commence in 2010
Al-Baraka Group (12 countries): Jordan, Egypt, Tunisia, Sudan, Turkey, Bahrain, Pakistan, South Africa, Algeria, Lebanon, Syria, Indonesia
KFH Group (4 countries): Kuwait, Malaysia, Bahrain, Turkey
5
Reported profitability remains higher for Islamic banks
especially in the GCC region
Return on Average Assets for Top 5 banks versus Islamic banks1
Percent , 2008
SELECTED MARKETS
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
Kuwait
Qatar
Saudi
Arabia
UAE
Malaysia
GCC
1 Top 3 Islamic banks by assets considered for all countries except the UAE (top 5) Malaysia and Indonesia (top 4).
Source: Central banks; annual reports; Bankscope; McKinsey
Indonesia
Non-GCC
6
There are still four main priority areas which Islamic banks should focus
on going forward
Priority area
Enhanced and
1 diversified
business mix
Potential actions for Islamic banks
▪ Change business mix in product areas where Islamic banks have not been
traditionally focused or where there is growth potential such as
– Credit cards / Personal Loans
– Fee-based businesses such as Asset Management, Treasury operations,
Capital Market
– Islamic Investment Banking(as an upcoming growth area)
▪ Make efforts to lower cost of operation and improve service quality in order
Efficiency in
2 operations
to improve competitiveness
▪ Well positioned Islamic banks can consider international growth
Explore global
3 growth options
opportunities in countries with
– Sufficient target population and strong un-met demand
– Feasible market entry based on competitive environment and regulatory
climate
▪ Upgrade risk management systems and capabilities in anticipation of
Risk
4 management
required capability to manage in crisis environments, i.e. focus on
– Credit risk as an important area of focus given high real estate
concentration and potential for increased non-performing loans.
– Liquidity risk via improved sources of funding, new hedging tools and
enhanced infrastructure. Critical to manage liquidity in light of limited
sources of funding for Islamic banks.
7
Robust Business Model is a prerequisite to success in any business
Performance Measures
Products
&
Services
Robust Risk
Management
Channels
Customer
Stable IT
infrastructure
Brand
Efficient
Processes
Talent
Good
Governance
8
Contents
▪
Islamic Banking Trends & Challenges
▪
Al Rajhi in Jordan
9
The Islamic market in Jordan is smaller than peer countries,
but is growing quickly
Size of Islamic banking
market based on assets, 2008
$b
Total Jordanian Islamic assets
$m
9.8
25
Bahrain
Share of
total market;
%
3,886
+17%
29.3
42
Kuwait
3,091
2,878
Qatar
20.3
23
2,420
IIAB
Malaysia
61
UAE
Jordan
Turkey
66
812
1,279
838
553
15.9
16.9
JIB
2,607
1,867
2,066
2,253
2005
06
07
2008
8.9
8.8
8.8
10.7
10.7
4
17
3.5
SOURCE: Company annual reports; Zawya; Association of banks in Jordan
10
Al Rajhi Bank in Jordan
Regional
Presence
▪ Our expansion to Jordan is an integral part of our regional strategy
▪ We estimate that 700K Jordanian expatriates will be residing in GCC by 2012
(out of which 350K are in KSA / Kuwait)
▪ Trade between KSA / Jordan is increasing with export flows reaching
KSA / Jordan
ties
approximately 3.5 Billion $ in 2008
▪ Seats on flights between KSA / Jordan are increasing by 12% YoY
▪ Jordanian government continuously shows significant progress by reducing
Regulation /
Macro Climate
debt to GDP, increasing privatizations & public investment as well as opening
trade routes.
▪ Central Bank of Jordan has significantly upgraded banking regulations in
recent years
▪ Increasing bankable population
Installation of innovative Islamic Banking solutions and products
already proven successful in KSA and Malaysia
11
We are on track to launch operation in Jordan by end of 2010
1
Business / Operating Model Design
Sep 2009
2
Registration with CBJ
Nov 2009
3
Systems development kick-off
Jan 2010
4
HO / Main Branch location finalization
Mar 2010
5
CEO in place
Apr 2010
6
Launch of Commercial Operations
Nov 2010
12