Ernst & Young Report 2011-2012: A Brave New World of Sustainable Growth

Ashar M. Nazim, Imtiaz Ibrahim

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The global economy, and the financial markets, are at a turning point. Fast growth economies in Asia, Middle East, Africa, Latin America and Eastern Europe now form almost half of global GDP and, in 2010, they contributed 70% to overall global growth. These trends are accelerating. The dramatic developments over the past twelve months – including Arab Spring, Eurozone crises and Occupy Wall Street movement – provide further impetus for the growth of Islamic banking. Industry forecast suggest Islamic banking assets with commercial banks globally, will reach $1.1 trillion in 2012 (2010: $826bn). Now would be the opportune time to consider establishing Islamic sovereign wealth funds to champion the growing internationalization of the industry. The iSWF will further facilitate businesses across OIC markets seeking to transform to Shari’a compliant system and also help deepen the Islamic capital market, in our view. As for MENA, Islamic banking assets increased to $416bn in 2010, representing a five year CAGR of 20% compared to less than 9% for leading conventional banks. As new geographies open up to Islamic banking, the MENA Islamic banking industry is expected to more than double to $990bn by 2015. However, there are significant performance variations across markets. In 2010, average ROE of leading Islamic banks declined to 10%. Also, market valuations appear to be converging to that of regional conventional peers.