Transcript Why Islamic Banking?

Islamic Banking in Oman
Oman First Islamic Finance and Banking Conference
January 23rd 2012
Today’s discussion points
 Pent-up demand
Why Islamic Banking?
 Availability of Islamic liquidity, particularly internationally
 Potential for innovation
Size of the prize?
 Up to USD 15 Bn, next 4-5 years
 Favourable macro-economics
Growth drivers?
 Attractive demographics
 New entrants
Main opportunities?
How to win?
Booz & Company
 Mass-affluent, mortgages and personal credit
 Infrastructure and real estate, SMEs




First mover advantage; source deposits
Cross border funding
Selective, innovative strategies
Sharia’h credibility with customers
1
Why Islamic banking?
 Religious sentiment among large consumer segment
Pent-up demand
 Recent survey ~ 70% of customers likely to switch to Islamic
banks
Availability of Islamic
liquidity, particularly
internationally
 Large (~ USD 800 Bn) and fast growing (25-30%) liquidity in
Islamic finance globally
 Islamic banks can ‘bridge’ Islamic liquidity to the Sultanate
 Excess capacity and heightened competition…
Potential for innovation
Booz & Company
 … drives greater product, service and channel innovation to build
customer and deposit base and boost profitability
2
Size of the Price?
Asset
Credit
GDP
Penetration Penetration Penetration
38%
37%
35%
45%
57%
29%
2016
28%
34%
27%
17%
25%
GCC Avg.
Booz & Company
30%
Up to USD 15 Bn
Penetration/
Total Assets
15-20%
Penetration/
GDP
12-15%
28%
24%
4%
Islamic
Assets
225%
18%
17%
3%
34%
31%
1%
38%
35 %
3
Growth drivers?
Favorable macro-economic
outlook
Attractive demographics
New entrants
Booz & Company
 Economic diversification and greater infrastructure spend
 Higher capital inflows, vibrant private sector
 Growing FDIs and trading volumes
 Young population (62% under the age of 30), large and
growing middle class ( >60% of total income)
 Growing affluence and income levels - improving education
infrastructure and Omanization
 Two new licensed banks (Nizwa and Al-Izz), sizeable
capitalization (USD 600-800 Mn)
 Main incumbents launching windows (Bank Muscat, Al Ahli,
NBO, Oman Arab Bank etc.)
4
Main opportunities? - Personal banking
Segments
Affluent
(incl. mass
affluent)
 ~25-30% of bankable population; 10-15%
growth; ~40-50% of revenue pool
 Underserved; needs differentiated/
tailored services/ channels
Products
% of 2016
Revenue Pool
Personal
Credit
60-65%
 High growth segment
 Future feeder for affluent
AUMs and
Bankatakaful
Credit Cards
High networth
Booz & Company
 Sizeable wallet and cross-sell potential
(~20-30% of revenue pool)
 Needs offshore center and dedicated
onshore coverage team
Remittances
And Others
10-15%
15-20%
Mortgages
Young
Growth
(2011-2016)
10%
7%
5%
15-20%
15-20%
10-15%
7-10%
2016 Revenues ~ USD 1.5-2.0 Bn
5
Main opportunities? Infrastructure financing
Project Finance
Commitments
Expected Project Finance
Commitments
2005 - 2011 YTD
2011 - 2016 YTD
Capabilities needed
 Long-term, stable funding
New Players
Potential
Domestic
20%
– Structuring/ advisory,
industry-specific (e.g.,
utilities, LNG, transport)
25-30%
– Syndications(Sukuks/
securitization)
Foreign 50-60%
15-25%
80%
Local
Foreign
Total Financing
~ USD 25-27 Bn
Booz & Company
 End-to-end project finance
solutions:
– Banking solutions (e.g.,
supplier financing,
payment management)
Total Financing
~ USD 45-50 Bn
6
Main opportunities? Real estate and construction sector
Demand
 Construction finance fastest
growing sector (~ 41% CAGR over
past 5 years), ~ USD 3 Bn in 2010
 Real estate and construction
projects continuing ~ USD 6 Bn
(next five years)
 Growth drivers: Need for
affordable/ modern housing,
urbanization (e.g., Sohar, Duqam,
Salalah), and large Integrated
Tourism Complexes
Capabilities needed
 Shariah-compliant tailored solutions across the
real estate value chain
 One-stop-shop for financing projects of local/
regional developers, offering:
– Capital raising and distribution/ placement
with own affluent/ HNW customers and
regional investors (retail and institutional)
– Channeling liquidity through funds, DCM,
direct equity and/ or long-term financing
vehicles (Istisnaa, Ijara, Musharaka)
– Asset management
– Financing for customers and investors
Booz & Company
7
Main opportunities? SMEs
Demand
Capabilities needed
 10,000 – 15,000 SMEs in the
Sultanate
 SME contribution to grow given
private sector boost (particularly in
manufacturing, trade, logistics)
 SME financing to grow
(SME financing in GCC still
limited: 2-5% of total loan book vs.
10-15% in OECD)
 Easy and timely access to financing
Tailored
Solutions
Superior
Service
Technology
Innovation
Booz & Company
 SME packages and bundles
 Advisory center
 Dedicated RMs
 Dedicated SME areas and contract center
 Simplified processes and custom pricing
 SME e-Platform
 Alternative and innovative channels
8
How to win?





Launch early (First mover advantage)

Focus on sourcing deposits early-on

Build cross border funding and FI
relationships

Attract long-term funding (e.g.,
government deposits)
Tough to generate returns from
mainstream segments (personal and
corporate)

Be selective on where to play

Adopt innovative strategies
‘Man on the street’ is demanding
stricter Shariah-compliance

Build-up appropriate Shariah skills rapidly

Use proven products to gain credibility
There will be losers - excess capital
and rapid switching of deposits
Pressure on local balance sheets to
provide large-scale and long-term
funding (infrastructure, real estate)
Booz & Company
9
Recap
 Pent-up demand
Why Islamic Banking?
 Availability of Islamic liquidity, particularly internationally
 Potential for innovation
Size of the prize?
 Up to USD 15 Bn, next 4-5 years
 Favourable macro-economics
Growth drivers?
 Attractive demographics
 New entrants
Main opportunities?
How to win?
Booz & Company
 Mass-affluent, mortgages and personal credit
 Infrastructure and real estate, SMEs




First mover advantage; source deposits
Cross border funding
Selective, innovative strategies
Sharia’h credibility with customers
10