01 May 2012
Muscat: Traditionally, Islamic banks have outperformed their conventional peers in most markets. However, a closer look suggests the market dynamics are changing, demonstrating a new trend. Two key indicators are cause for reflection slowing growth rates and eroding profitability, according to A.T. Kearney.
Declining growth rates are occurring in key geographies including KSA, Bahrain and the UAE, where growth rates have dropped to between 3 and 8 per cent from double-digit figures. In parallel cost income ratios are increasing in most markets, putting pressure on profitability.
Up until now, Islamic banks have typically emulated the conventional bank offer, but the eroding profitability trend suggests it is now time for a new approach. Inorder to sustain profitable growth a more sophisticated leveraging of the Islamic Banking potential is required. "Strategically, Islamic banks need to revisit their positioning and decide whether they want to fully exploit the Islamic banking niche or compete head on with conventional banks," said Cyril Garbois, Partner, A.T. Kearney Middle East. "Operationally Islamic banks need to seek greater efficiency across the value chain."
Fully exploiting the Islamic banking means targeting customer segments that care most deeply about Sharia compliance in their financial dealings, as well as offering products and services that meet not only general financing but also Muslim-specific customer needs. While Islamic banking products abound in auto finance and credit cards, there are limited products available in more sophisticated segments, such as asset management and wealth management. In addition, products tailored to Muslim-specific needs provide a platform for true differentiation.
Muscat: Traditionally, Islamic banks have outperformed their conventional peers in most markets. However, a closer look suggests the market dynamics are changing, demonstrating a new trend. Two key indicators are cause for reflection slowing growth rates and eroding profitability, according to A.T. Kearney.
Declining growth rates are occurring in key geographies including KSA, Bahrain and the UAE, where growth rates have dropped to between 3 and 8 per cent from double-digit figures. In parallel cost income ratios are increasing in most markets, putting pressure on profitability.
Up until now, Islamic banks have typically emulated the conventional bank offer, but the eroding profitability trend suggests it is now time for a new approach. Inorder to sustain profitable growth a more sophisticated leveraging of the Islamic Banking potential is required. "Strategically, Islamic banks need to revisit their positioning and decide whether they want to fully exploit the Islamic banking niche or compete head on with conventional banks," said Cyril Garbois, Partner, A.T. Kearney Middle East. "Operationally Islamic banks need to seek greater efficiency across the value chain."
Fully exploiting the Islamic banking means targeting customer segments that care most deeply about Sharia compliance in their financial dealings, as well as offering products and services that meet not only general financing but also Muslim-specific customer needs. While Islamic banking products abound in auto finance and credit cards, there are limited products available in more sophisticated segments, such as asset management and wealth management. In addition, products tailored to Muslim-specific needs provide a platform for true differentiation.
© Times of Oman 2012
