Islamic banking, which accounts for 17% of the GCC banking assets, is expected to grow annually at 15%-20%, according to Kuwait Finance House (KFH).
“It is expected that this industry will to continue to grow at an annual average rate of 15%-20%, should four main factors including the regulatory framework, increase in the gross domestic product, government development plans, continue to drive growth rates forward and add momentum representing increased demand and further expanding related areas of business,” KFH said in its latest report.
Over the years, Islamic banking in the Gulf Co-operation Council region has witnessed remarkable growth and seen tremendous demand for its products and services, the report said. The share of Islamic banking sector continues to increase, accounting for around 16.6% of the total assets of the region’s banking system as of end-March 2010.
Kuwait’s Islamic banking sector accounted for 34.3% of the country’s total banking assets, followed by Qatar (19.3%), Saudi Arabia (15.9%), the UAE (14.0%), and Bahrain (10.9%).
‘The Banker Top 500 Islamic Institutions’ had reported that Islamic banks’ total assets contributed over $350bn or 43% of total global Islamic banking assets in 2009 in the GCC region.
In order to meet the growing needs of Shariah-compliant financing in the region, most conventional banks have either opened a new subsidiary or introduced an Islamic window within the existing infrastructure, according to KFH.
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.
The Gulf region’s high GDP per capita (based on purchasing power parity) at $27,937, coupled with its young population (30% of the population falls under 15 years and 66.7% of the population between 15-64 years), will help support consumer spending and investment which would in turn increase the demand for Islamic financial products and services moving forward, the report said.
The existence of financial centers in Bahrain, Qatar and the UAE, as well as a number of Islamic finance organisations such as the Accounting and Auditing Organisation 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, the report said.