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The Banker's Top Islamic GCC Banks ranking 2019: Al Rajhi heads a healthy table

In The Banker's first Top Islamic GCC Banks ranking, a healthy picture emerges, with asset growth and profitability impressive by any standards. James King assesses what the industry is getting right.
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The Gulf Co-operation Council’s (GCC's) Islamic banks are in excellent health. Despite the less favourable operating environment of recent years, most sharia-compliant lenders have continued to go from strength to strength. Asset growth, profitability and capitalisation, as well as other key metrics, are robust and in most cases outstrip those of conventional peers. The Banker’s Top Islamic GCC Banks ranking for 2019 shows, for instance, that between 2006 and 2018 Islamic institutions in the region recorded a compound annual growth rate of 15.09%.

More impressively, this development was barely impacted by either the global financial crisis or the collapse of oil prices that followed. That sharia-compliant banks have started, in growth terms, from a lower base relative to conventional lenders accounts for some of this outstanding trajectory. But so does the industry’s culture of prudence, as well as its emphasis on forging lasting partnerships with customers. In addition, the success of Islamic banks in the GCC region, and elsewhere, is also a function of an ever increasing demand for sharia-compliant products and services.

Al Rajhi dominates

The Banker’s Top Islamic GCC Banks ranking offers a snapshot of an industry that remains one of the region’s most enduring growth stories. This covers both fully sharia-compliant institutions as well as Islamic windows and provides a helpful take on where the market’s regional centre of gravity lies. On this point, Saudi Arabia emerges as the clear winner with 10 of the country's Islamic banks and windows securing places among the top 20 institutions. In first place is Al Rajhi Bank, the world’s largest Islamic lender, with total assets of $91.50bn at the end of 2017. This positions the bank well clear of any competition; the next largest institution, Kuwait Finance House, has $57.86bn in assets based on its 2017 figures.

Al Rajhi’s dominant position in the ranking is mirrored in its recent growth trajectory. The bank’s chief executive, Steve Bertamini, has presided over a wholesale transformation of the institution's development in recent years. This includes its ‘back to basics’ strategy and strategic roadmap for 2020. Information sourced from www.thebankerdatabase.com – which includes conventional banks – indicates that over the 2017 review period, Al Rajhi Bank came in at number one for Saudi Arabia in terms of its return on capital and return on assets, which reached 16.36% and 2.66%, respectively. This compares with a country average of 12.65% and 2.03%, and a Middle East and north Africa average of 13.89% and 1.65%, over the same period.

The only other fully sharia-compliant Saudi institution in the top 10 is Alinma Bank, with $30.67bn in assets. Founded in 2006, it is one of the youngest financial institutions in the country. Nevertheless, it has enjoyed swift growth in recent years. Over the 2017 review period, Alinma’s net profits surged by 34% while its assets increased by 10%. With no legacy infrastructure, the bank has pushed ahead with innovative digital products and services and the development of a first-rate information technology infrastructure. This cutting-edge approach to banking has gone a long way to supporting the bank's recent success.

KFH's renewed focus 

Outside of Saudi Arabia, Kuwait Finance House (KFH) comes in at number two in The Banker’s ranking. KFH is one of the world’s oldest Islamic banks and has in recent times emerged as a genuine global player in sharia-compliant finance. Under the leadership of Mazin Al-Nahedh, its chief executive, KFH has been undergoing a restructuring through the disposal of non-core assets and a renewed focus on the bank’s core business lines. The lender is currently in discussions with Bahrain’s Ahli United Bank (AUB), which is placed 17th in the ranking, for what would be the region’s first cross-border banking merger.

If executed, this deal would buttress KFH’s standing as the region’s second largest Islamic bank. However, with a balance sheet of increased scale and the combination of AUB’s strong regional footprint and KFH’s market making status in global sukuk, the merged entity would certainly stand apart from Al Rajhi Bank’s Saudi-focused operations. Meanwhile, other mergers that are likely to impact the rankings down the line include the tie-up between the Saudi British Bank, in ninth position, and Alawwal Bank in 23rd.

Another Kuwaiti lender, Boubyan Bank, features in the top 20 Islamic banks in the region, with assets of $13.14bn and a rank of 19th. Despite being, in relative terms, something of a newcomer to the regional Islamic finance market – it was established in 2004 – it has presided over one of the industry’s most dynamic growth stories in that time. The bank’s share of Kuwait’s retail finance market is about 12%, while its overall financing market share is close to 9%.

A quieter time in the UAE 

Islamic lenders from the United Arab Emirates have made less of an impact on the ranking. With the exception of Dubai Islamic Bank and Abu Dhabi Islamic Bank, which feature in fourth and sixth, respectively, the country’s remaining Islamic banks and windows lie largely outside of the top 20. Though the UAE’s wider Islamic economy is flourishing, it is notable that the region’s largest and most sophisticated banking sector is lightly represented among the upper tier of big-hitting Islamic lenders. As Dubai, in particular, looks to position itself as the preeminent hub of global Islamic finance, this dearth of commercial banks with meaningful scale will not help its cause.

Nevertheless, Dubai Islamic Bank (DIB), which bills itself as the first full-service sharia-compliant lender in the world, has produced a stellar set of results in recent years. Over the review period its net profits grew by 11% while its total income increased by 18%. Total assets climbed by 19% as its share of total financing in the UAE market hit 9%. This performance was no small feat in an economy that is ticking over at a suboptimal pace and in a deeply crowded banking market. DIB’s in-country peer, Abu Dhabi Islamic Bank, saw its net profits surge by 17.7% over the same period.

Elsewhere in the GCC, Qatari lenders have posted a strong performance in the rankings. Qatar Islamic Bank and Masraf Al Rayan both appear in the top 10, at fifth and eighth, respectively. Two other Qatari banks, Barwa Bank and Qatar International Islamic Bank, are placed in 17th and 20th, respectively, meaning that four of the gas-rich country's Islamic banks feature in the overall ranking.

Looking at the performance of Islamic windows, the appearance of First Abu Dhabi Bank’s (FAB's) Islamic operations seems significant. Though the total sharia-compliant assets of this unit are relatively small, at $7.20bn, there is every chance that its growth will be swift in the coming years. As the wider group gradually matures in the aftermath of its merger, FAB’s additional scale and reach could will bring new opportunities for its Islamic business. Meanwhile, the Islamic window of Bank Dhofar of Oman is also a standout performer. Though it is small in regional terms, with about $997m in assets, it is one of the fastest growing Islamic businesses in the region. Over the review period its asset base expanded by nearly 25%, reflecting the strong demand for sharia-compliant financial services in the country.

The Banker’s first ranking of the GCC’s Islamic commercial banks reveals an industry that has weathered the challenges of recent years and is finding new opportunities to grow in less favourable economic conditions. Even as the development of the wider Islamic finance market around the world begins to mature, and slowly converges with the growth rates of conventional financial markets, Islamic banks in the GCC are demonstrating that stellar growth stories can still be found. Expect more of the same in next year’s ranking.

GCC 2019

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