Islamic finance underwent something of a revival in 2018 after a handful of slow years, and this return to growth is reflected in The Banker’s 2018 Islamic Bank of the Year Awards, which rewards the leaders in a field that is enjoying impressive net profits and returns on equity.  

The Banker’s 2018 Islamic Bank of the Year Awards are, if anything, a story of revival. Though sharia-compliant lenders have still posted enviable growth numbers in recent years, their trajectory has been moderated by stalling markets, the impact of lower commodity prices and the natural maturation of the industry itself. 

But as some of these headwinds have eased – oil prices headed north during much of 2017, while growth picked up in key economies – the performance of many banks has improved in tandem. As a result, this year’s winners recorded notable increases to their net profits and return on equity. 

Another encouraging development is a broad improvement to banks’ cost-to-income ratios. Leaner times have also forced many lenders to trim the fat around their operations, meaning this year’s winners profited from an improving business environment in conjunction with lower operating costs. The result, in many ways, is an industry that has emerged from the challenges of the recent past in better shape than ever.

This is not to say that it has been all plain sailing for the 2018 winners. The Islamic finance market is (as it has been for many years) maturing quickly in a number of core markets. This process is diminishing a number of traditional growth outlets for the largest Islamic banks. But as these lenders hunt for new growth opportunities, they are pushing the frontiers of the industry to new horizons. Islamic banks are now genuine heavyweights when it comes to the biggest wholesale and investment banking transactions around the world. They are also structuring some profoundly innovative deals, including the government of Indonesia’s green sukuk, the first to be issued by a sovereign.

Beyond the industry’s core markets, the growth of Islamic banks in frontier jurisdictions, such as Sri Lanka and Nigeria, is another promising trend. The winner of the 2018 best sharia-compliant window, Hatton National Bank, hails from Sri Lanka and was established as recently as 2012. Meanwhile, Sterling Bank’s victory in the Nigeria country award category offers a first-time winner from that country since The Banker began its Islamic Bank of the Year Awards. 

These are both promising developments. Highly populated, untapped markets will define the industry’s future. And the degree of innovation and customer service provided by banks in these markets means their position in the global marketplace is likely to take centre stage before long. 

Taken together, this year’s awards point to a healthy revival of Islamic banking. Next year’s awards promise to be even better. 

Global, Middle East, United Arab Emirates

Winner: Abu Dhabi Islamic Bank 

Abu Dhabi Islamic Bank (ADIB), winner of the 2018 Global Islamic Bank of the Year Award, has displayed the kind of market-leading innovations, geographical expansion and stellar growth numbers commensurate with its status as a global champion of sharia-compliant finance. But the judging panel was particularly impressed with ADIB’s efforts to raise awareness around ethical financial principles to new groups and market segments. In doing so, it is promoting the universality of Islamic finance to people of all faiths and backgrounds. Similarly, the bank continues to raise awareness of Islamic banking among young people and small and medium-sized enterprises (SMEs). These initiatives, and others, helped ADIB to scoop the global award in a highly competitive year. 

This marks the second year running in which a Middle Eastern bank has taken the top honour, after four consecutive years in which south-east Asian banks dominated. Encouragingly, strong growth is returning to the region after a sluggish period in the wake of lower oil prices. In ADIB’s case, its net profits surged in local currency terms by 20% over the 2017 review period. Though total assets declined marginally, by -1.2%, its Tier 1 capital grew by 3.2%. Most impressively, the bank’s return on equity increased from 17.2% in 2016 to 19.5% in 2017. Meanwhile, its cost-to-income ratio fell by 1% to 44.5% over the same period. 

In 2017, ADIB launched a new version of its successful mobile banking application. The new app permits customers to withdraw cash without the use of a card. It also enables the transfer of funds to a UAE mobile phone through a mobile-to-mobile payments system. Today, about 2 million mobile transactions are initiated each month on the bank’s mobile app. In addition, ADIB launched its new class of branch called ADIB Express, which is a digitally optimised location in which customers can execute transactions and open new accounts quickly and efficiently. 

In partnership with Germany’s Fidor Bank, ADIB has launched the region’s first digital community for personal finance. Known as the MoneySmart community, it is open to anyone and includes tips, commentary, articles and blogs on issues relating to personal finance. Community users can gain cashable reward points based on their input, while independent experts also contribute their knowledge and advice to the discussions taking place. 

These efforts and others are reaping rewards for ADIB in the growth of its retail business. In 2017 the number of active customers served by the bank increased by 62,000 to reach a total of 980,000 in the United Arab Emirates. Of this number about half are expatriates and half are nationals. 

Further afield, the bank has enjoyed considerable success in its overseas markets with ADIB’s International Business Group posting strong revenue growth over 2017. In Sudan, ADIB’s single branch in Khartoum continued to tap new business opportunities in the corporate sector as well as serving several public sector companies. In Iraq, the opening of branches in Baghdad, Irbil and Basra in previous years has enabled ADIB to secure new business in the country as political and security conditions have stabilised. 

In the Islamic capital markets, ADIB has taken a key role on some of the most innovative transactions of recent times. This includes the government of Indonesia’s green sukuk, the first by a sovereign issuer. And on the advisory and equity capital market side, ADIB was the forefront of the Abu Dhabi National Oil Company Dh3.1bn ($844m) initial public offering, as well as that of Emaar Development (Dh4.8bn).

In terms of its wholesale finance business, ADIB has emerged as one of the region’s heavyweights in the Islamic syndicated finance market. The bank acted as mandated lead arranger and bookrunner on about Dh11.7bn-worth of structured and syndicated finance deals in 2017, mostly for government-related enterprises, financial institutions and large corporates. Indeed, the bank’s broader investment banking unit performed well over the review period, executing more than 15 high-profile transactions, despite challenging market conditions. 

Meanwhile, ADIB’s efforts to raise financial literacy and awareness of Islamic finance have been particularly strong. The bank holds regular roadshows at universities across the UAE to promote the financial education of young people, including a range of practical advice sessions on how to budget, save money and avoid debt. In a similar vein, ADIB has partnered Arabian Business’ StartUp Academy on a host of different events tailored towards SMEs. These events focus on the ways in which these businesses can better manage their money and make the best use of fintech to enhance their growth.

These reasons, and others, make Abu Dhabi Islamic Bank the deserved winner of the 2018 Global Islamic Bank of the Year award. 

Asia-Pacific, Malaysia

Winner: Maybank Islamic

Among the heavyweight Islamic banks of south-east Asia, Maybank Islamic has once again scooped the regional award and the Malaysia country award. The judging panel was impressed by the bank’s push to develop new products and services, its commitment to green innovations in Islamic finance and its continued regional expansion. 

In addition, Maybank Islamic has introduced several market-leading digital initiatives, including cashless mobile payments and the introduction of biometric login authentication for the Maybank app, in conjunction with the wider Maybank Group. 

These achievements were underscored by some impressive performance figures over the 2017 review period. In local currency terms, net profits jumped by 29%, while total sharia assets and Tier 1 capital increased by 11% and 12%, respectively. Notably, Maybank Islamic’s return on equity surged to 20%, up from 16% in 2016. This was accompanied by a marginal decline in its cost-to-income ratio, which fell to 35% from 36%, and a relatively stable non-performing loan ratio of 0.8%. 

To bridge the gap between Malaysia’s rental and home financing market, Maybank Islamic has introduced a new offering known as HouzKey. With a three-month rental deposit, customers can move into their chosen home and are given the chance to purchase the property after one year of rental at a pre-agreed price. According to Maybank Islamic, this is the first rent-to-own home ownership plan in Malaysia that is fully enabled on a digital platform, as both the application and document submission process are done online. 

Across the region and further afield, Maybank Islamic enjoyed considerable growth over the review period. This included developing its market share as a global sukuk lead manager by again taking the top spot in Bloomberg’s Global Sukuk League Table, capturing 12.9% of total sukuk market activity. Growth in the bank’s Singaporean and Indonesian units saw them collectively contribute 6.7% to the group’s total Islamic assets at the end of 2017. In Singapore alone, total financing grew by 12% year on year. 

Sharia-compliant window

Winner: Hatton National Bank

The success of Hatton National Bank’s (HNB’s) Islamic banking unit, which was established in Sri Lanka in 2012, speaks volumes about the demand for sharia-compliant financial services in a relatively underserved market. Starting out with a skeleton staff of five, who were looking to retain the bank’s existing Muslim customers and canvas new corporate business, HNB’s Islamic unit has since expanded to cover the retail and small and medium-sized enterprise sectors as demand for these services has boomed. For a market such as Sri Lanka, with its relatively nascent Islamic finance sector, HNB’s success offers a good litmus test for the wider industry. 

Profit and asset growth of HNB’s Islamic business has surged in recent years. In 2016 and 2017 net profits increased by 91% and 78%, respectively. Total sharia assets jumped by 37% in 2016 before increasing by 33% in 2017. While these kind of growth figures to some extent reflect the low base from which HNB’s Islamic unit has started, they nevertheless point to an encouraging future. 

Recognising the profound growth of its Islamic banking unit, HNB launched its first dedicated Islamic banking branch in November 2017. With a staff of 24, the branch has been fitted with a sophisticated layout and high visibility to ensure a premium customer experience. This has been supplemented by the development of three specialised Islamic finance units in the central, eastern and western regions of the country to tap into Sri Lanka’s rich sharia-compliant banking potential. 

HNB’s Islamic banking unit is also playing a growing role in project finance at home and abroad. In Uganda, the bank provided $4m in financing for a $12m hydropower project. Its contribution was delivered in the form of a diminishing musharakah, in which the financier and client participate in the joint ownership of a project or property. The deal marked the first time that HNB’s Islamic banking arm had participated in an overseas project. At home, the bank has played a role in financing high-level hydropower and biomass projects.

Jordan

Winner: Jordan Islamic Bank

Jordan Islamic Bank (JIB) has an almost peerless track record of success in The Banker’s Islamic Bank of the Year awards, and for good reason. It has consistently displayed outstanding growth numbers backed by a commitment to product and service innovation and a customer focus. Over the 2017 review period it increased its Tier 1 capital by 8.8%, while assets increased by 2.7%. Though net profit was slower, at just 0.2%, the bank kept its return on equity relatively stable at just over 15%. 

The judges were impressed with JIB’s commitment to customer outreach, particularly the growth of its digital offerings. Its SMS (text messaging) banking service, which launched in 2015, grew by 24% in 2017 to reach 342,084 users. This followed a similar increase of 25% in 2016. In 2017, JIB also launched a fully fledged mobile banking offering, enabling customers to conduct direct banking using a dedicated app. 

Staff training and education initiatives have contributed to JIB’s continuing success. In 2017, the bank enrolled 4570 employees on training courses under the auspices of its academy for human resources development. These included specialist banking, finance and administrative activities, such as managerial skills, financial analysis and English language training, among others. JIB also offers courses covering sharia compliance, anti-money laundering and combating the financing of terrorism, and renewable energy lending. 

Meanwhile, JIB has pioneered the use of renewable energy systems among Jordanian financial institutions. From 2013, the bank started to install solar panels on its branches to cut electricity consumption and alleviate the load on the country’s overburdened electrical grid. By the end of 2017, 18 branches had been fitted with solar cells, while an additional five were in the process of doing so. 

In 2018, JIB plans to open two new branches, including one in Amman and another in the Zarqa governorate. 

In addition, a number of JIB’s branches now operate beyond normal working hours, as well as on public holidays, to ensure that its customers can use the bank’s services at their convenience. This is an tandem with JIB’s extensive ATM network.

Kuwait

Winner: Boubyan Bank

Boubyan Bank scooped the Kuwait country award for its impressive growth figures over the review period, coupled with its innovative approach to the provision of sharia-compliant products and services. In local currency terms the bank enjoyed an 18% increase to its net profits, while total sharia assets climbed by 13% and Tier 1 capital grew by 44%. Boubyan Bank’s return on equity remained stable at 11.8%, while its cost-to-income ratio was 42% and non-performing loans stood at 0.8%. 

In 2017, the bank introduced several improvements to its services. This included the introduction of near-field communication (contactless) technology to its ATMs, permitting customers to withdraw cash by simply tapping the reader and entering their pin code. As a result, customer interactions with Boubyan ATMs have become quicker while the potential for skimming fraud (whereby card data is captured) has been reduced.

In September 2017, Boubyan Bank launched a digital murabaha offering. Through the bank’s mobile application, customers can apply for personal finance and change the amount requested and the duration of the facility, among other options. Customers only need to upload an income document to receive the contract and repayment schedule to their mobile app, then choose when to visit a branch to sign the physical paperwork. This has cut the time it takes to secure a loan from two separate branch visits coupled and a 48-hour wait to just one branch visit and a 15-minute wait. 

Meanwhile, in May 2017, Boubyan Bank launched a service enabling customers to collect debit cards through its ATMs and interactive teller machines (ITMs). Under a self-service method, customers can request a new card via mobile app, internet banking platform or call centre, and collect a new debit card and set up a pin at an ATM/ITM of their choice. This offering has been a big success: today, 65% of all new cards are issued outside its branch banking hours. 

After focusing on upper-tier Kuwaiti nationals in the retail segment, Boubyan Bank has launched a business banking business tailored towards Kuwaiti entrepreneurs. To this end, it is co-operating with the National Fund for SME Development.

Nigeria

Winner: Sterling Bank

Recent years have not been kind to Nigeria. Lower oil prices have hit economic growth and contributed to a shortage of foreign exchange. The country’s banks have not been immune from these troubles and the winner of the 2018 country award, Sterling Bank’s Islamic unit, is no exception. But a solid uptick in profitability, asset growth and Tier 1 capital over the 2017 review period was accompanied by a range of notable innovations throughout the bank’s Islamic offering. 

Sterling Bank’s Retail Shop offering is a case in point. Under a murabaha financing structure, customers can purchase a range of home appliance and household needs, including furniture and electronics, on a credit sale basis by which Sterling Bank buys the goods from authorised dealers before selling them to customers at a pre-agreed mark-up. The Retail Shop premise is geared towards salary earners and covers goods with a value between N20,000 ($55) and N2,000,000. 

Sterling Bank plans to aggressively expand its Retail Shop offering by using an online e-commerce platform to reach new customers and corporate accounts. In doing so, the bank aims to become the leading market player in the e-commerce space in Nigeria. 

In addition, Sterling Bank is working hard to raise the profile of Islamic finance in the Nigerian market. Considered one of the more frontier jurisdictions for sharia-compliant banking and with a large unbanked Muslim population, the country is likely to emerge as an Islamic finance heavyweight in the coming years. To capitalise on its early-mover status, Sterling Bank partnered the Islamic Corporation for the Development of the Private Sector to deliver the 3rd Africa Islamic Finance Forum in Lagos. 

The bank has also provided public lectures on Islamic finance in Nigeria, including the role that non-interest finance can play in reducing poverty. Held in Lagos and Kano, these lectures offered a glimpse of the role that sharia-compliant banking can play in supporting education, housing, health and employment initiatives in Nigeria and beyond.

Pakistan

Winner: Meezan Bank

Meezan Bank has once again emerged as the Pakistan country winner. In an increasingly competitive country category, the judges reached this decision based on Meezan’s outstanding growth numbers over the past few years coupled with its launch of innovative new products and its role in facilitating sharia-compliant funding for major projects across Pakistan. In 2017, the bank saw its net profits increase by 13.5% in local currency terms, while total sharia assets and Tier 1 capital grew by 18% and 22%, respectively. 

Encouragingly, Meezan’s return on equity remained steady at 20% while its cost-to-income ratio improved to 59% from 62% year on year. Non-performing loans were healthy at 1.5% by the end of 2017. 

In recent times the bank has launched a new offering known as the Meezan Express Account. This product is designed to route remittance payments directly to the bank for those individuals and families that receive remittances from abroad. In the past, beneficiaries would typically receive these funds through over-the-counter cash payments. In doing so, Meezan Bank has simplified the process of sending and receiving remittances for its customers. 

In 2017, Meezan Bank acted as joint financial adviser in the government of Pakistan’s Rs71bn ($614m) ijara sukuk issuance. Using the country’s M1 motorway, including all constructions and improvements, as the underlying asset, the transaction helped to address the government’s rising fiscal deficit while also offering Pakistan’s Islamic banks with additional liquidity management tools. Meezan Bank also acted as the sharia structuring agent, along with two other lenders.

Elsewhere, Meezan Bank’s investment banking business continues to thrive. In 2017 it led the arrangement of more than Rs232bn in financing and capital market transactions. This brings the overall volume of investment banking transactions arranged by the bank to Rs780bn. One of the most notable deals of 2017 was Meezan Bank’s role as mandated lead arranger, adviser and sharia structuring agent on the Rs144bn facility for the Water and Power Development Authority’s new Dasu hydropower project. 

Qatar

Winner: Qatar Islamic Bank

Qatar Islamic Bank (QIB) has performed well in the Islamic Bank of the Year awards in recent times. This is down to its stellar growth figures, as well its unique approach to developing in a highly competitive market. That it scooped the 2018 country category award is therefore no surprise. 

Net profits at the bank were up by 11% in US dollar terms, while total sharia assets and Tier 1 capital increased by 7% and 9%, respectively. In addition, QIB’s return on equity remained steady at 15%, while its cost-to-income ratio was 26% and non-performing loans were 1.2% over the review period.

In 2017, the bank launched a number of market leading initiatives, products and services. This included the inauguration of its first 24/7 branch at Qatar’s Hamad International Airport. QIB also launched its Misks Savings Account, which allocates weekly prizes to customers, as well as an annual grand prize of QR1m ($275,000). This account is designed to promote a savings culture in Qatar and the development of positive financial habits among the country’s consumers.

Meanwhile, the launch of a new pre-paid card has been one QIB’s standout success stories from 2017. Offered in two versions, the ‘Hadiyati Gift Card’ and the ‘Reloadable Multi-purpose Card’, the cards are designed to help customers better manage their family and business expenses both at home and abroad. According to QIB, the Hadiyati Gift Card is now widely used instead of cash for anniversaries, celebrations and during festive periods including Eid. 

QIB also participated in a number of headline syndicated financing transactions in 2017. This included a QR1.6bn financing deal with AlJaber Engineering Company to support the company’s project execution and the development of facilities at Qatar’s Hamad Port. Similarly, QIB signed a QR1bn financing deal with Daewoo Engineering and Construction to support the company’s current projects, including the upgrade of public roads as well as a $925m sharia-compliant facility with Gulf Drilling International. 

Saudi Arabia

Winner: Alinma Bank

Alinma Bank may be young – it was established in 2009 – but in a few short years it has had a notable impact on Saudi Arabia’s banking landscape. Starting from a relatively low base, it has enjoyed successive years of market-beating growth. And 2017 was no exception. Net profits at the bank surged by 33% in local currency terms, while total sharia assets and Tier 1 capital increased by 10% and 7%, respectively. The bank’s average return on equity climbed to 10% over the review period, up from 8% in 2016, while its cost-to-income ratio fell to 40% from 45%. Non-performing loans, meanwhile, were at 1%. 

Beyond the numbers, Alinma Bank distinguished itself in a competitive country category thanks to its market-leading initiatives and commitment to product and service innovation. Among other accomplishments, the introduction of the sharia-compliant closed end real estate fund in the Saudi market is down to Alinma Bank’s pioneering work. This format was used to launch of the Alinma Makkah Real Estate Fund by the bank’s subsidiary, Alinma Investment Company. Despite a targeted size of SR6.09bn ($1.62bn) the fund received about SR13bn in subscriptions. 

Alinma Bank is also playing a vital role in the development of Saudi Arabia’s sukuk market. This includes the bank’s contributions in terms of structuring the government’s first ever sukuk programme, in which it has issued more than SR64bn. Similarly, Alinma was involved in the structuring of Saudi Aramco’s SR37.5bn sukuk programme, while the bank’s subsidiary, Alinma Investment Company, acted as arranger. 

To bolster its suite of small and medium-sized enterprise (SME) offerings, Alinma Bank launched a range of new products targeted at this segment in 2017. This included Alinma’s Business Billing service which offered simple, electronic accounts payable settlements. In addition, the launch of Alinma’s E-Payment Gateway offers additional support to SMEs and corporates alike by allowing merchants to view sales and payment reports and daily updates on transfers and deposits made on the business account. 

Sri Lanka

Winner: Amãna Bank

Sri Lanka is a relatively frontier Islamic finance market. Having only been formalised in legislation in 2005, the industry has some way to go before it matches the scale and sophistication of its global peers. But leading Sri Lanka’s Islamic finance charge is Amãna Bank, which has again scooped The Banker’s country award for 2018. The judges were impressed not only by the bank’s stellar growth story and the figures that underpin it, but also with its commitment to digital innovation and the introduction of pioneering services to improve the experiences of its customers.

As a young bank, Amãna’s financial results have taken some time to mature. But from the perspective of the 2017 review period, they are heading in the right direction. Its return on equity reached 5.8%, up from the 3.1% recorded two years earlier in 2015. The bank’s cost-to-income ratio fell further, to 60% in 2017 from 82% in 2015. Non-performing loans were a relatively low 1.8%. In local currency terms net profits, total sharia assets and Tier 1 capital all enjoyed huge increases in 2017 after what had been a relatively slower year in 2016. 

To better serve its customers in the Sri Lankan capital, Colombo, Amãna Bank’s main branch in the city expanded its banking services to 365 days per year. With opening hours from 9am to 7pm on weekdays and 9am to 1pm on weekends and holidays, customers can now benefit from year-round access to key banking services. In the digital sphere, the bank launched SMS alerts for key banking transactions. For customers opting for this service, they can receive updates on a range of transactions including but not limited to debit card transactions, cash deposits and withdrawals and inward foreign remittances, among many others. 

Amãna Bank has also enabled online account opening for both new and existing customers. Facilitated through its website and as part of its wider digital strategy, this service is helping to ease the challenges associated with opening an account and reducing the time it takes for customers to complete the process. 

Turkey

Winner: Albaraka Turk Participation Bank

Albaraka Turk Participation Bank has gonefrom strength to strength in recent times. This performance is reflected in the growth of its return on equity that, between 2016 and 2017, climbed from 13% to 17%. Net profits, total sharia assets and Tier 1 capital all registered large increases over the review period, while the bank’s cost-to-income ratio declined. 

This performance was underscored by several market-leading initiatives. In 2017, Albaraka Turk successfully converted an existing $200m Basel II-compliant sukuk in accordance with Basel III regulations to make it eligible as Tier 2 capital. This was the first conversion of its kind by an Islamic bank in Turkey and has helped to strengthen the bank’s capital adequacy ratio. 

Meanwhile, Albaraka Turk recently issued Turkey’s first ever Tier 1 perpetual sukuk and the first ever Basel III-compliant publicly listed Tier 1 instrument. This pioneering transaction is a key milestone for the country’s booming Islamic finance market. 

Beyond the sukuk market, Albaraka Turk has expanded its digital offerings. This includes the launch of the Albaraka Mobile Wallet, which allows customers to make digital payments without the need for their bank card through the use of near-field communication (NFC or contactless) technology on mobile phones. The mobile wallet works with both Visa and Mastercard and allows the customer to view recent purchases and manage credit limits. 

To support the growth of sharia-compliant banking globally, Albaraka Turk regularly hosts a correspondents orientation programme in Turkey. Designed for existing and prospective correspondent banks, it offers in-depth information on Albaraka Turk’s products and services to better acquaint its correspondent partners with Islamic banking and ensure these institutions can play a role in fostering Islamic finance in their respective home markets. 

Albaraka Turk has also updated its offering for small and medium-sized enterprises (SMEs), by offering specialised support functions for SME clients, as well as a dedicated website that lists new business opportunities both at home and abroad. 

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