Post on 27-Dec-2015
Islamic Finance Driving ForcesThe Management Team Perspective
March 2010, Dead Sea, Jordan
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of Al Rajhi Bank is strictly prohibited
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Contents
▪ Islamic Banking Trends & Challenges
▪ Al Rajhi in Jordan
Islamic Finance represents 1% of global assets. The market has been growing over 30% annually since 2000 and is set for continued strong growth.
3
470
50
175
20
22%
Retail
1,000
60
420
28
34%
Corporate
Source: Oliver Wyman; Figures are in Billions
▪ Advanced treasury services
▪ Innovative asset management
▪ Investment Banking
Future
▪ Project finance & Syndication
▪ Capital Markets
▪ Leasing
2000s
▪ Commercial Banking
1990s
▪ Mostly Retail Banking
Prior to 1990
▪ Financiers in the Islamic world as early as the 8th century
Sarrafs
Islamic banks outperform market growth in core geographies
Source: Bankscope, CIA Fact Book and Oliver Wyman analysis 4
Notes: * Malaysia at 16%, Indonesia at 2% ; ** Estimated total (including Islamic windows) around 40 - 50%
% in 2003
% in 2008
17%20%
30%
10%
17%
12% 12%16%
13%
*
4%
Top ten largest Muslim populations
5 Source: CIA Factbook and Oliver Wyman Analysis
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Islamic banking players increasing interest to become global NOT EXHAUSTIVE
2007- Oct 2009
FranceIslamic banks from Bahrain and Qatar reportedly applied for licensesKuwait Finance House, Al-Baraka, Gatehouse also reported to be interested
Indonesia2008: Asian Finance Bank of Malaysia announces investment, operations to commence in 2010
Morocco2007: Government authorizes segments of Islamic finance; 10 banks reported to have express interest
Turkey3 out of 4 Turkish Islamic Banks (Turkiye Finans, AlBaraka, Kuveyt Turk) have a strategic GCC partner
Egypt2008: Abu Dhabi Islamic Bank buys 51% of Egypt’s National Bank for Development
Bangladesh2009: Sonali and Janata banks, state players, to open Islamic windows.
Malaysia2005-7: New Entrants: KFH, Al-Rajhi Bank, AFB (QIB)2009: Two new foreign players reportedly shortlisted for licenses & takaful license available
This year’s report will discuss potential expansion opportunities in North Africa
Azerbaijan2008: International Investment Bank (Bahrain) bought 49% of Amrahbank and converting it to an Islamic bank
India2009: Government issues its first Islamic banking license; operations to commence in 2010.
Pakistan2009: Unicorn increases stake in Dawood Islamic Bank to 37%. Dubai Islamic banks have started operations. (Emirates Global Islamic Bank, Dubai Islamic Bank)
Al-Baraka Group (12 countries): Jordan, Egypt, Tunisia, Sudan, Turkey, Bahrain, Pakistan, South Africa, Algeria, Lebanon, Syria, IndonesiaKFH Group (4 countries): Kuwait, Malaysia, Bahrain, Turkey
Jordan2 new entrants: Dubai Islamic Bank and Al-Rajhi Bank.
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Reported profitability remains higher for Islamic banksespecially in the GCC region
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
GCC Non-GCC
0
0.5
1.0
1.5
2.0
2.53.0
3.5
4.0
4.5
5.0
5.5
6.0
Indonesia Malaysia UAE Saudi Arabia
Qatar Kuwait
Return on Average Assets for Top 5 banks versus Islamic banks1
Percent , 2008 SELECTED MARKETS
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There are still four main priority areas which Islamic banks should focus on going forward
Potential actions for Islamic banksPriority area
▪ Make efforts to lower cost of operation and improve service quality in order to improve competitivenessEfficiency in
operations Efficiency in operations 2
▪ Well positioned Islamic banks can consider international growth opportunities in countries with– Sufficient target population and strong un-met demand– Feasible market entry based on competitive environment and regulatory
climate
Explore global growth optionsExplore global growth options3
▪ Upgrade risk management systems and capabilities in anticipation of 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.
Risk managementRisk management4
▪ 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)
Enhanced and diversified business mix
Enhanced and diversified business mix
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Performance Measures
Robust RiskManagement
Stable ITinfrastructure
Efficient Processes
GoodGovernance
TalentBrandCustomerChannelsProducts
& Services
Robust Business Model is a prerequisite to success in any business
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Contents
▪ Islamic Banking Trends & Challenges
▪ Al Rajhi in Jordan
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The Islamic market in Jordan is smaller than peer countries, but is growing quickly
SOURCE: Company annual reports; Zawya; Association of banks in Jordan
Total Jordanian Islamic assets $m
553
812838
1,279
1,867
2,420
2005
2,066
2,878
06
2,253
3,091
07
2,607
3,886
2008
IIAB
JIB
+17%
Share of total market; %
8.98.9 8.88.8 8.88.8 10.710.717
4
66
61
23
42
25
Size of Islamic banking market based on assets, 2008 $b
9.89.8
29.329.3
20.320.3
15.915.9
16.916.9
3.53.5
10.710.7
Bahrain
Turkey
Jordan
Kuwait
Qatar
Malaysia
UAE
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Al Rajhi Bank in Jordan
▪ 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 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 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
Regional Presence
KSA / Jordan ties
Regulation / Macro Climate
Installation of innovative Islamic Banking solutions and products already proven successful in KSA and Malaysia
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We are on track to launch operation in Jordan by end of 2010
Business / Operating Model Design
Registration with CBJ
Systems development kick-off
HO / Main Branch location finalization
CEO in place
Launch of Commercial Operations
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Sep 2009
Nov 2009
Jan 2010
Mar 2010
Apr 2010
Nov 2010