UAE Islamic Banks Outgrow Conventional Banks

As per data gathered from the Central Bank of UAE, Sharia complaint banks have decreased in growth yet they are still expanding faster than conventional banks. As of July 2016 the Islamic financial institutions growth rate was at an impressive 10.6%. Even though this year growth dropped to 6.9%, the sector is performing better than the conventional banking sector that just saw a 4.1% growth for the same period.

“We expect the slow down at Islamic banks in the GCC will persist in 2017 after asset growth declined to 5.3% in 2016 from 10.7% in 2014. In our base-case scenario, we assume that asset growth will stabilize at about 5% as governments’ spending cuts and revenue-boosting initiatives, such as new taxes, reduce Islamic banks growth opportunities in the corporate and retail sectors,” one rating agency stated in a report.

Credit to business expansion was one of many categories to take a hit during this decline as it dropped by 7.7 % points from 14.2% as of July 2016 to 6.5% the subsequent year. If a study was carried out into the other categories like deposits, domestic credit, gross credit, individual credit and so on; you would learn that Islamic institutions are now out performing conventional banks however at a slower pace than before.

A simple reason behind the slowdown is due to the UAE Islamic banking sector gaining more maturity and depth. Sharia banking assets have grown to a fifth of UAE’s total banking assets and about 24.12% of conventional bank’s assets. This has earned the UAE the title of being one of the world’s core markets for Islamic Financial Services (IFS). Abu Dhabi which is home to the Islamic Financial Institutions has now emerged as a center for sharia compliant banking, asset management and insurance.

Incorporated in 1997, ADIB is one of the major players in the Islamic Financial banking industry with over $32.2bn (Dh118.4bn) in total assets as of December 2015. Headquartered in Abu Dhabi, it served as the first Islamic bank in the emirate making it one of the older players.  ADIB has grown over the years to earn its name in the global market.

In the year 2000, it was listed in the Abu Dhabi Securities Exchange (ADX) and by 2015, 46,000 UAE nationals and companies had bought stakes in the bank. The private company – National Holding – was the bank’s main shareholder via the EIIC (Emirates International Investment Company). The UAE general pension and social security are amongst other government backed investments in the bank. Good leadership encouraged a new leadership team in 2008 to focus on a fresh brand identity which gave birth to a new strategy revolving around three pillars.

Firstly they were keen on establishing ADIB as the market leader in the UAE. The resolve is to develop the bank’s primary customer service sectors through private banking, personal banking as well as business and wholesale banking. Plans are afoot to support activities of transaction banking, treasury, cards, investment banking and wealth management.

The bank intends to implement an integrated financial services group and take advantage of the synergies to be found within its diversified offerings. A perfect example of such thinking is evident in the bank’s acquisition of a 51% stake in sharia-compliant consumer financing outfit, Saudi Finance Company in 2012.

Outside the emirate and well beyond the GCC zone, the bank has acquired a large wholesale and retail operation in Egypt, launched a corporate foothold in Iraq, the UK, Sudan and Qatar in its drive to remain a leader in the Islamic Financial Services industry.

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