The Banker’s Top Islamic Financial Institutions 2022

Islamic banks experienced the same reprieve as their conventional peers in 2021, as Covid-19 restrictions eased and global economic activity – and with it the price of oil – increased significantly compared with 2020. Improved conditions saw profitability rebound across the board, and asset growth remained steady despite slower growth in the key markets of Malaysia and the UAE.

In the main, however, The Banker’s Top Islamic Financial Institutions ranking for 2022 showcases an industry in rude health at the end of the initial pandemic phase. Moreover, the industry’s heartlands of the Middle East and Asia-Pacific look set to avoid the worst of the fallout from Russia’s invasion of Ukraine, at least in the short term.

Total sharia-compliant assets worldwide (excluding Iran) grew by 12.1% to $1.3tn in 2021, two-thirds of which is held by standalone Islamic finance institutions, according to data from The Banker Database. (As part of a new data collection methodology, this figure does not include non-banking institutions or banks’ domestic or foreign subsidiaries, and is therefore lower than figures quoted in previous years). Such growth once again is an order of magnitude higher than that experienced by the global banking sector as a whole, which saw assets increase by 3.8%. Even excluding the dominant market of Saudi Arabia – home to around 30% of sharia-compliant assets – the Islamic banking sector grew by 6.6% in 2021.

Double-digit growth is set to continue into 2023, according to forecasts by S&P Global Ratings, with higher oil prices likely to underpin growth in the key markets of the Middle East and Malaysia, despite predictions of a slowdown in sukuk issuance due to decreasing global liquidity and added complexity related to regulatory standards.

Engine of growth

As with their conventional peers, 2021 marked a return to profitability for Islamic banks. Of the 204 banks in this year’s main rankings, just 14 posted an annual loss, with 65 registering pre-tax profits in excess of $100m. Meanwhile, sharia-only banks continue to report higher profitability than their conventional counterparts; return on assets (ROA) for sharia-only institutions in this year’s rankings stood at 1.43% for 2021, nearly double that of the global industry.

Islamic banking’s heartland remains the Middle East, centred on the six nations of the Gulf Co-operation Council (GCC), which together account for just over two-thirds of all sharia-compliant assets worldwide. The region remains the sector’s main engine of growth, with sharia-compliant assets growing by 15.16% in 2021.

These figures exclude data for Iranian banks, which are once again omitted from this year’s rankings. Iran remains one of the region’s key markets for Islamic banking, with more than 30 sharia-compliant institutions. In recent years, however, the country’s banks have delayed reporting audited financial statements, making accurate figures difficult to come by. Furthermore, a significant divergence has opened up between the country’s official exchange rate and the widely used black market rate since early 2018, making meaningful analysis of the sector alongside banks in other markets virtually impossible.

Lebanese Islamic banks have also been omitted from this year’s rankings, given the country’s economic crisis and the collapse of the Lebanese pound since 2019.

Saudi shows its strength

Saudi Arabia continues to be the dominant Islamic banking market in the Middle East and beyond, with three of the country’s banks represented in this year’s top 10. Riyad Bank, which featured in the previous top 10, is this year excluded due to insufficient available data.

The country’s banks were supported in 2021 by improved economic prospects on the back of a recovery in oil prices, which had risen to exceed pre-pandemic levels by the end of the year, before hitting multi-year highs following Russia’s invasion of Ukraine.

The banking sector continues to reap the benefits of the government drive to increase home ownership among Saudi nationals, prompting a boom in sharia-compliant home lending. Mortgages have transformed the country’s entire banking sector, accounting for 23.8% of loan books in June 2022 compared with less than 1% just six years ago, according to data from Capital Economics, leading to concerns over banks’ exposure to the real estate sector.

While the country’s five largest banks all reported sharia-compliant asset growth of more than 10% in 2021, Saudi Arabia’s Islamic banking sector is very much dominated by Al Rajhi Bank and Saudi National Bank (SNB), the only two banks in the world with sharia-compliant assets of more than $100bn.

Al Rajhi Bank cemented its position as the world’s largest Islamic bank in 2021, reinforcing its market dominance in retail, auto and mortgage lending. The bank’s sharia-compliant asset base increased by 33% to $166.3bn, the largest organic increase of any bank in the top 30. The bank’s ROA stood at 2.36% for the year, higher than any other bank in the top 50.

Despite the dominance of Al Rajhi and SNB – formed in 2021 by the merger of National Commercial Bank and Samba Financial Group – it is Alinma Bank that ranks as Saudi Arabia’s number one Islamic bank in the performance table (which compares the performance of fully sharia-compliant banks only), thanks to its strong scores in leverage, soundness and operational efficiency.

UAE and Qatar stay on course

Banks in the UAE – the region’s second largest Islamic banking market and the third largest in the world behind Saudi Arabia and Malaysia – experienced a mixed year in 2021, with the country’s sharia-compliant asset base virtually unchanged on the previous year.

Dubai Islamic Bank (DIB), which remains the world’s third largest Islamic bank, saw its asset base decrease by 3.6% to $76bn – the biggest drop among the top 10 banks – attributable to early settlements and large repayments of Dh45bn ($12.25bn) during the year. 

While the country’s second largest Islamic bank Abu Dhabi Islamic Bank increased its asset base by 7.1% to $37.3bn, the Islamic windows of Emirates NBD and Abu Dhabi Commercial Bank decreased by 5.7% and 12%, respectively.

Of the country’s largest Islamic-only banks, Sharjah Islamic Bank is the best performer, thanks to high scores for growth, asset quality and soundness.

Qatar’s Masraf Al-Rayan saw its sharia-compliant asset base increase by 43.7% to $47.8bn, the largest increase of any bank in the Middle East’s top 10, thanks to its acquisition of domestic rival Al Khaliji, completed in November 2021. The deal – which sees Masraf Al-Rayan move up to seventh place in the overall rankings – narrows the gap between the bank and Qatar Islamic Bank, the country’s largest Islamic bank, which saw its asset base increase 11.2% to $53.3bn.

The merger is the second in the country’s recent history, following the creation of Dukhan Bank in 2019 from the merger between Barwa Bank and International Bank of Qatar. Dukhan recorded a 28.3% growth in its asset base in 2021, lifting it to 11th position.

Yet it is the country’s fifth largest Islamic bank, Qatar First Bank, that is the country’s best-performing sharia-compliant bank for 2022, thanks to table-topping scores for profitability, return on risk, liquidity, soundness.

Varied results in Asia-Pacific

Islamic banks in the Asia-Pacific region, the sector’s second largest market after the Middle East, had a mixed year in 2021, belying the differing stages of development in the region’s largest markets.

Banks in Malaysia, the world’s most developed Islamic banking market, had a comparatively quiet year in 2021, together registering asset growth of just 3.5% for the year in dollar terms, subdued in part by the falling value of the Malaysian ringgit.

Just one of the six Malaysian banks in this year’s top 20 – the country’s fourth largest bank, RHB Bank – registered a double-digit increase in its sharia-compliant asset base.

Maybank Islamic, the sharia-compliant wing of the country’s largest bank, remains the largest Islamic bank outside the Middle East and is the fifth largest bank in the rankings. The bank posted only marginal growth in its sharia-compliant asset base for the year in local currency terms, translating into a slight decrease in dollar terms. Second-placed CIMB, ninth in the overall ranking,  saw its asset base grow by 4.9% for the year.

Of the country’s sharia-only banks, Kuwait Finance House Malaysia tops the country’s performance table, thanks to strong showings in profitability, operational efficiency, return on risk, soundness and leverage.

Indonesia soars

While sharia-compliant financing accounts for around 40% of banks’ total financing in Malaysia, Islamic banking remains at an earlier development stage in Indonesia and Pakistan, home to the world’s largest and second largest Muslim populations respectively. Government initiatives in both countries, together with growing enthusiasm for sharia-compliant finances among their populations, have prompted a surge in growth in each country.

Islamic finance is in particular gaining momentum in Indonesia. Sharia-compliant assets in the country grew by 11.9% in 2021, the highest growth for any country outside the Middle East and fourth fastest overall.

Although sharia assets accounted for only around 7% of total banking assets in late 2021, growth in Islamic banks’ gross funding outstrips that of their conventional counterparts by more than 300% for the nine months to the end of September 2021, according to Fitch Ratings.

While growing interest in halal lifestyles among Indonesia’s Muslim population has underpinned growth in the sector thus far, authorities are increasingly taking action to promote growth in the sector and strengthen its foundations.

To this end, the authorities mandated the merger of three Islamic banks in early 2021 to create Bank Syariah Indonesia (BSI) as the country’s flagship sharia-compliant bank. A subsidiary of Bank Mandiri (not included in this year’s ranking due to insufficient available data), BSI’s sharia-compliant asset base of $18.6bn at the end of 2021 would make it the seventh largest bank in Asia-Pacific in the ranking and 20th overall. However, as a domestically owned subsidiary, it is not included in the main ranking.

The asset base of BSI puts it just behind Bangladesh’s Islami Bank Bangladesh Limited (IBBL), the highest-ranked non-Malaysian Asia-Pacific bank in the main ranking.

Beyond BSI, Indonesian banks recorded impressive asset gains for the year; the country’s six largest banks all improved their positions in this year’s rankings, with four of the six recording double-digit asset growth. CIMB Niaga led the way, its asset base increasing 30.8%, rising 10 places to 53rd overall.

Bank Aceh Syariah is the country’s best-performing bank in this year’s rankings, thanks to high scores for return on risk, profitability and soundness.

Pakistan’s government aid

Islamic finance in Pakistan continues to thrive amid initiatives to increase financial inclusion via sharia-compliant offerings, alongside efforts to increase sharia-compliant borrowing by the government.

Sharia-compliant assets grew by 16.2% during the year and accounted for 18.6% of banking sector assets in the country at the end of 2021, up from 12.4% in 2017, with the government seeking to increase this figure to 30% of assets and deposits by 2025.

Meezan Bank, the country’s largest bank, saw its assets increase by 13% in 2021, putting it at 29th position in the overall rankings. Allied Bank, the country’s ninth largest Islamic bank, saw its asset base grow by 81.9% for the year, the single highest growth figure for any bank with more than $500m in sharia-compliant assets.

While Bangladesh’s sharia-compliant lending sector trails that of Pakistan and Indonesia in terms of annual growth in assets, the country is the second largest Islamic banking market in Asia-Pacific after Malaysia, befitting its relative maturity compared with its faster-growing neighbours. Sharia-compliant deposits grew by 20.3% in 2021 and accounted for 27.9% of total deposits in the country, according to data from the country’s central bank.

IBBL remains the dominant player in the sector and the highest ranked Asian Islamic bank outside Malaysia. Its asset base increased by 14.1% to $19.1bn. However, all the country’s other 25 banks listed posted both an increase in their sharia-compliant asset base and their overall ranking position.

On the performance front, Shahjalal Islami Bank is the pick of the country’s sharia-only banks, thanks to high scores for profitability, operational efficiency, return on risk, soundness and leverage.

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. The ranking uses the annualised foreign exchange rates from the International Monetary Fund’s international financial statistics when converting the reported financials to US dollars.

Treatment of foreign and domestic subsidiaries

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.

New aspects and developments

In 2022, the decision was made to focus exclusively on commercial banks and to remove non-banking institutions from our data sets. The regional classifications used in the presentation of the data have been adjusted to correspond with the main regional classifications used elsewhere in The Banker and The Banker Database. Data for Iranian and Lebanese banks remain excluded due to the unavailability of reliable data for the period from Iranian lenders and the widening difference between official and actual currency exchange rates in both Iran and Lebanon.

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. As in recent years, a number of emerging market banks have experienced a significant drop in the rankings not because their fundamentals have changed, but because their national currencies have been severely weakened against the US dollar.

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
F Fully sharia-compliant bank
W Sharia-compliant window of a conventional bank.