As the Islamic banking industry continues to navigate its way through the challenges of recent events in the financial markets, The WIBC Competitiveness Report 2009/10, produced in collaboration with McKinsey & Company, was officially launched on the 7th of December 2009 during a special plenary session at the 16th Annual World Islamic Banking Conference (WIBC 2009).

Now in its 6th annual edition, this year’s Report was highly anticipated given recent developments in the financial markets. Analysing the current state of the Islamic finance landscape, the 2009/10 Report showed that though Islamic banking penetration was up in key markets, the banks have also come under pressure with revenues declining significantly from 2008 due to the drop in investing activity and the effect of non-performing loans (NPLs).  Islamic banks continue to face the risk from real estate concentrations and liquidity constraints, while the “war for deposits” is projected to increase. Going forward, Islamic banks will have to enhance and diversify their business mix, improve risk management, lower operational costs, improve service quality as well as explore growth opportunities in the international markets.

According to the 2009/10 WIBC Competitiveness Report, banking asset growth in the GCC has largely been fueled by credit and foreign liabilities. Although the banks depend on customer deposits they too have seen a substantial increase in interbank borrowing. However the aggressive lending by some banks even after the onset of the global crisis has, according to the Report, impacted the liquidity shortage in the GCC as local and foreign interbank markets dried up and customer deposits shrank despite the banks increasing their rates. Short-term liquidity relief by some central banks has not alleviated the overall long term position gap. The 2009/10 Report has recommended that banks develop new funding sources and strategies from the likes of the public sector, wholesale funding, customer deposits, investments, and capital & reserves.  

Leading Islamic banks will also have to improve their internal capabilities to understand and forecast their liquidity needs through improved processes and tools as well as broadened funding sources. 

The 2009/10 Report also explored challenges and opportunities for Shari'ah-compliant assets in North Africa's Islamic banking markets. The Report indicated that the North African courtiers were less affected by the crisis partly due to their limited reliance on international funding. However, profitability levels have been lower than in the GCC markets. More broadly, financial markets in the North African economies have significant room for growth in penetration in the coming years.   Going forward the development of the Islamic banking potential in North Africa will depend on the establishment of laws and regulations and the availability of competitive and attractive offerings. 

On Islamic Investment Management, the Report indicated that opportunities for growth still exist as the total wealth of HNWI has decreased in 2007-2008 by an estimated 14% - a moderate drop compared to other more mature markets. Islamic wealth managers will need to, going forward, focus on three key success factors: asset classes with comparable risk/return patterns, strong offerings of local income-generating and/or high-return products, as well as continuity of relationship management staff (RM) with frequent customer visits.

More than 1,200 delegates from over 50 countries attended the launch of the Report at the 16th Annual World Islamic Banking Conference, the world’s largest and most influential gathering of Islamic finance leaders. The WIBC Competitiveness Report 2009/10 reflected detailed research focused on raising the bar of financial performance and strategic excellence in the industry as well as point towards key directions emerging in the post-crisis landscape.

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