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15:19 GMT
KUWAIT, Sept 26 (KUNA) -- The Islamic banking sector in the Gulf Cooperation Council (GCC) member states grows by 20 percent a year representing 17 percent of the total assets of the banking industry in the region, a report said here on Sunday.
Kuwait ranked first among the GCC countries in terms of total assets while Saudi Arabia and the United Arab Emirates (UAE) have risen among the countries that promote Islamic finance products and services, according to the report issued by KFH Research Ltd - the Islamic investment research arm of Kuwait Finance House (KFH).
The Islamic banking industry accounted for 35 percent of the total banking assets of Kuwait and about 17 percent of the GCC banking system total assets as a whole. It is expected that this industry will to continue to grow at an annual average rate of 15 - 20 percent, should four main factors, including the regulatory framework, increase in the GDP and government development plans, continue to drive growth rates forward and add momentum represented in increased demand and further expansion of related areas of business.
The report pointed out that there are many opportunities still available for Islamic finance solutions in the region where real estate finance tops other areas of interest prevalent in the UAE and Saudi Arabia.
Over the years, the GCC's Islamic banking sector has witnessed remarkable growth in business and tremendous demand for its products and services. The share of Islamic banking sector continued to increase to account for around 16.
6 percent of the region's banking system's total assets as at end-March 2010. Saudi Arabia and the UAE emerged as the two largest markets for Islamic banking in the GCC, with total assets of full-fledged Islamic banks accounting for 27.4 percent and 27.0 percent, respectively, of the region's total Islamic banking assets.
The GCC's Islamic banking is currently at the heart of the Islamic banking industry, with some of the world's largest Islamic banks originating from the region. This includes Al Rajhi Bank in Saudi Arabia and Kuwait Finance House in Kuwait with total assets amounting to a staggering USD 46.0 billion and USD 40.
4 billion respectively, as at end-1Q 10.
In terms of the share of Islamic banking industry by country, Kuwait's Islamic banking sector accounted for 34.3 percent of the country's total banking assets, followed by Qatar (19.3percent), Saudi Arabia (15.9 percent), the UAE (14.0 percent), and Bahrain (10.9 percent).
The Banker Top 500 Islamic Institutions reported that the GCC's Islamic banks' total assets contributed over USD 350 billion or 43.0 percent of total global Islamic banking assets in 2009, and this is expected to trend higher on the back of increased demand for Islamic banking products and services in the region. To meet the growing needs of Sharia-compliant financing in the region, most conventional banks have either opened a new subsidiary or introduced an Islamic window within the existing infrastructure. A few banks have also converted themselves into Islamic banks such as Dubai Bank in the UAE and Saudi Bank in Bahrain. In 2009, the Central Bank of Kuwait gave the green light for the Bank of Kuwait and the Middle East to fully convert into an Islamic bank.
In terms of financing, opportunities for Islamic banks in the GCC include residential mortgages, underpinned by a high level of demand for home mortgages within the local market. In the UAE, around 70 percent of investors require a mortgage to finance their property purchase. Elsewhere in Saudi Arabia, the passing of a new mortgage law is expected to encourage commercial bank mortgage lending. Several banks have already started to offer Sharia-compliant home financing with tenures extending up to 25 years.
In general, the Islamic banking industry in the GCC is expected to remain strong moving forward, growing by 15 -20 percent year-on-year in 2010, underpinned by the following factors: Robust supervisory and regulatory framework, and stable banking system with comparatively strong funding and capital positions, The region's high GDP (PPP) per capita at USD 27,937, coupled with its young population (30 percent of the population falls under 15 years and 66.7 percent of the population is between 15-64 years of age) which will help prod consumer spending and investment, thus increasing demand for Islamic financial products and services, And the governments' various development plans to diversify their respective economy, according to the report.
This will create growth opportunities for Islamic banks to further expand their project financing portfolios. The existence of financial centers in Bahrain, Qatar and the UAE, as well as a number of Islamic finance organizations such as the Accounting and Auditing Organization for Islamic Financial Institutions, Liquidity Management Centre, and the International Islamic Financial Market will continue to attract new players to the region and further propel the Islamic banking industry to greater heights. (end) fnk.tb.gb KUNA 261819 Sep 10NNNN