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Measures of success

September 2011

The CPI Financial 100 set out to define the parameters of successful management for banks in the Middle East. Islamic Business & Finance looks at how the Islamic banks measured up
The aim of the CPI Financial 100 research was simple: to identify those banks that are performing well, and how their performance compares year on year. The CPI Financial 100 was established as a meaningful measure of performance, focussing specifically on eight countries in the Middle East: the 'GCC six' (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates), Jordan and Lebanon.

It further limited itself to domestic institutions within those countries. Taking these restrictions into account it focused on a total of 158 banks, 30 of which were Islamic institutions, including all of the Saudi banks on its list. However, strictly speaking only Alinma Bank, Al Rajhi Bank , Bank al Jazira and Bank Albilad of the ranked Saudi institutions are fully Shari'ah-compliant.

METHODOLOGY

The CPI Financial 100 is calculated twice a year, tracking performance using both full year and half-year results . The analysis reviewed five basic measures: total assets, total liabilities, total income, net attributable income and return on total assets. This data from the most recent edition of the CPI Financial 100 analysed year-on-year (YoY) performance across 2009 and 2010.

The ranking you see of the Islamic banks within the CPI Financial 100 is not simply a measure of 'size'. It has identified the largest Islamic banks in the region by total assets, total liabilities, total income and net attributable profits but absolute size is not, of itself, a true measure of success. Therefore, it also calculated the YoY change in these measures.

Separately it identified the fast-growing financial institutions by comparing the percentage change (% YoY) between 2009 and 2010 in total assets, total liabilities, total income, net attributable income and return on total assets. By aggregating these five measures, those banks outperforming their peers are indentified.

In the tables that follow you'll see that we have ranked the Islamic banks by their position within the CPI Financial 100 and tabulated all the financial data used in its calculations.

ARABIAN MIGHT

Saudi Arabian banks dominate the top two spots. National Commercial Bank of Saudi Arabia takes the lead for the second time running, followed by Al Rajhi Bank . The ranking bank is the National Commercial Bank (third in the region) although on its website it begs to differ, claiming to be 'The Arab world's largest bank'.

NCB , also known as AlAhli, is the biggest Saudi bank by assets. Headquartered at Jeddah, it is engaged in the Islamic banking sector providing commercial bank services. It distributes its services through a network of ATM's, branches and subsidiaries across Saudi Arabia, Turkey, and the UAE.

The largest four banks in the Kingdom: NCB , Rajhi, Samba and Riyad Bank capture more than 61 per cent of total assets. This year Al Rajhi Bank overtook Samba as the second largest bank in Saudi Arabia. Bank Albilad ranks fifth on the CPI Financial 100 fastest growing banks in the region.

Outside the Kingdom, Abu Dhabi made it into the top three for the first time with Abu Dhabi Islamic Bank (ADIB). ADIB also won the accolade of the fastest growing bank in the UAE in the CPI Financial 100, and is the UAE's fifth largest bank by market capitalisation. The Islamic lender has set its sights on building one of the largest branch and ATM networks in the UAE, by rapidly expanding its network to 60 branches and 256 ATMs. It has also won a clutch of awards as the pace of activity has picked up - most recently 'Best Islamic Bank in the region' and 'Fastest Growing Bank in UAE' at the Banker Middle East Industry Awards 2011.

It main shareholders are Emirates International Investment Company (41 per cent), which is owned by members of the Abu Dhabi ruling family, the Abu Dhabi Investment Council (eight per cent) and the UAE pension fund (2.3 per cent).

GROWING UP FAST

Bahrain's fastest growing banks were led by Islamic institutions. Despite the turbulence in the region, newcomers to the CPI Financial 100 included two Bahraini Islamic banks; Ithmaar Bank and Seera Investment Bank (Seera) . Seera not only took the crown as the fastest growing bank in Bahrain, but also ranked as the fastest growing Islamic bank overall by the CPI Financial 100. Seera , a Shari'ah-compliant investment bank headquartered in the capital Manama, saw liabilities up 279 per cent last year, while total assets gained 36 per cent.

Seera , incorporated in 2006, has investments in the specialty chemicals, industrial manufacturing and transportation sectors in addition to smaller investments in the real estate and utilities sectors.

Seera puts its success down to re-thinking its business strategy after changes in the investment banking environment globally following the financial crisis. Seera used the crisis to critically review its business model and strategy and made necessary certain changes to take account of the new environment and to position the bank for sustainable growth.

Kuwait's fastest growing banks were also led by an Islamic institution. According to the CPI Financial 100, Boubyan Bank is the fastest growing bank in Kuwait, and the second fastest growing Islamic bank overall. Boubyan Bank provides banking and investment services in accordance with Shari'ah law through a network of retail and personal branches across Kuwait. It reported net profit of KWD 2.1 million ($7.6 million) for the first quarter of the year, compared to net profit of KWD 1.6 million ($5.8 million) a year earlier - a 30 per cent rise.

WINDOW OF OPPORTUNITY

Three of the four Islamic banking institutions in Qatar made an appearance on the CPI Financial 100 (Barwa Bank being the only exception). Qatar Islamic Bank and Masraf Al Rayan reported a 24 per cent growth in their cumulative net profits during January to March this year, compared to three per cent growth in the same period a year earlier.

Of course, change is afoot for Qatar's banking sector. In February the Qatar Central Bank made a 'shock' decision to ban conventional banks from offering Islamic banking services and ordered them to wind down their Islamic windows by the end of this year. Considering the country's top three Islamic lenders are all conventional banks; Qatar National Bank, Commercial Bank of Qatar and Doha Bank, the rankings may look very different next year.

Ratings agency Moody's Investors Service predicted that conventional banks would lose between eight per cent and 16 per cent of their deposit base, total assets and profits to Islamic institutions as a result of the Central Bank's ban.

Other Islamic newcomers to the CPI Financial 100 list included two from Kuwait; Ahli United Bank and Kuwait International Bank, Saudi Arabia's Almina Bank and Ajman Bank from the United
Arab Emirates.

© Islamic Business and Finance 2011