A look at how The Banker compiled the 2015 Top Islamic Financial Institutions ranking.

Methodology

First created in 2006, The Banker’s Top Islamic Financial Institutions ranking serves as a barometer for the health and growth of the global Islamic banking and financial industry. Since its inception, the Top Islamic Financial Institutions ranking has built a reputation as one of the most credible sources for measuring the development of the global Islamic financial industry.

The methodology employed in the Top Islamic Financial Institutions ranking strives to adapt to market changes while simultaneously maintaining our fundamental approach that preserves the statistical soundness readers expect from The Banker

Data collection and verification

The Banker’s research team has compiled a comprehensive list of institutions providing sharia-compliant financial services and products. In order to complete the list, we have used various sources including central banks, government financial supervisors and other public and private agencies providing accounting and auditing services for Islamic financial organisations.

Once institutions are identified, we then contact them to request their latest audited financial reports. Wherever possible, we use financial information externally audited and reviewed by independent auditing firms and sharia boards. The collected data sets go through a rigorous process of review and verification to ensure that the information used for the ranking maintains stability and consistency. 

The ranking criteria

All the financial information we have used in the ranking is based on annual data. Year-end financial data not only provides figures that are more stable due to the verifications of independent auditors and sharia supervisory boards, but it also enables us to compare key elements such as growth and profitability among institutions on a more equal footing.

The main ranking for Top Islamic Financial Institutions is based on sharia-compliant assets. We acknowledge that using such a measurement primarily provides for deposit-taking institutions. As a yardstick for the industry, it does not fairly recognise the business activities and overall contributions of institutions such as investment banks, insurance companies or other financial services providers to the global Islamic financial industry.

Our intent in the forthcoming years is to work with investment banks and insurance companies to develop a descriptive measure to reflect the role they play and value they generate in the market. In line with our ongoing efforts to explore and experiment with the suitable industry-specific indicators, we have a separate ranking table for insurance companies.

The overall ranking does not include institutions that have not reported data since 2012. This is to ensure that the ranking reflects the rapid changes in the industry in a timely manner. The ranking also uses the annualised foreign exchange rates from the International Monetary Fund’s international financial statistics when converting the reported financials to US dollars. 

New aspects and developments

While the ranking system based on sharia-compliant assets has been at the heart of our approach to measure the size and growth of the industry, we have continued to refine the methodology to improve the quality of our data analysis. Net operating income of Islamic windows, a recent addition to the data columns, has been introduced to demonstrate the performance of the conventional banks’ Islamic banking operations. Net operating income is defined as income after total impairment charges and provisions and before administrative and operating costs, including staff expenses.

Another change recently made to the ranking is the use of data from the highest level of organisational consolidation, a measure used to avoid double counting the asset figures. If a parent company or holding company publishes a consolidated set of figures reporting total sharia-compliant activities, the foreign-owned and domestic subsidiaries of that particular institution are not included in the calculation of total global sharia-compliant assets. If a higher level holding company does not report sharia-compliant assets and is therefore not included in the main ranking, its subsidiaries are included in the ranking individually. The rankings section for individual countries continues to include foreign-owned subsidiaries in the countries in which they operate.

Despite our efforts, our methodology is not free from shortcomings and therefore the rankings should be used with caution: for example, the conversion to US dollars for the rankings could produce misrepresenting results for certain countries, particularly those with high volatilities in currency rates. This year, Iranian banks have experienced a significant drop in the rankings not because their fundamentals have changed, but because its national currency has been severely weakened against the US dollar since 2013. 

Key data point definitions and glossary

The Banker’s ranking for the Top Islamic Financial Institutions include the following key data points and abbreviations:

DOS: Domestically owned subsidiary

FOS: Foreign-owned subsidiary

BHC: Bank holding company

NBF: Non-bank financials

S: Standalone sharia-compliant bank

W: Sharia-compliant window of a conventional bank

Joseph DiVanna is the managing director of Maris Strategies. Dr Jay Jung is a senior researcher at Maris Strategies, specialising in emerging markets economics.

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