Islamic Banking Soundness and Growth from 17 Countries

The Islamic Financial Services Board (IFSB) is pleased to announce the fourth dissemination of data on financial soundness and growth of the Islamic banking systems from 17 IFSB member jurisdictions, covering quarterly data from December 2013 to Q3 of 2015. The dissemination is part of the IFSB’s Prudential and Structural Islamic Financial Indicators (PSIFIs) project, which currently compiles data from 17 member countries including Afghanistan, Bahrain, Bangladesh, Brunei, Egypt, Indonesia, Iran, Jordan, Kuwait, Malaysia, Nigeria, Oman, Pakistan, Saudi Arabia, Sudan, Turkey, and United Arab Emirates.

The IFSB Task Force on PSIFIs includes representatives from all 17 participating jurisdictions as well as three international organisations – the International Monetary Fund (IMF), Islamic Development Bank (IDB) and the Asian Development Bank (ADB). The international collaboration between the IFSB, multilateral institutions and participating countries has greatly facilitated the collection of Islamic banks’ data and enhanced the clarity and consistency of indicators across jurisdictions. A summary on key PSIFI indicators are given below

Growth of Islamic Banking

Based on the available data, the total assets of the Islamic banking industry grew from USD 1,216 billion in 2014Q3 to USD 1,245 billion in 2015Q3 (calculated from country-wise aggregated data converted into USD terms using end-period exchange rates). Total funding/liabilities declined from USD 1,007 billion in 2014Q3 to USD 946 billion in 2015Q3. Financing by Islamic banks from the jurisdictions participating in the PSIFIs project reached USD 710 billion in 2015Q3 from USD 681 billion in 2014Q3. The data on “financing by type of Shariah-compliant contracts” reveals that five major financing contracts used by the Islamic banking industry as on 2015Q3 were: Murabahah (42.4%), commodity Murabahah/Tawwaruq (15.6%), Ijarah/Ijarah Muntahia Bittamlik (14.8%), Bay Bithaman Ajil (13.6%) and Salam (7.9%).

Capital Adequacy

Capital adequacy provides an important indication of the health and financial soundness of the banking industry in a jurisdiction. As of third quarter of 2015, the average capital adequacy ratio and average Tier 1 capital ratio from 16 jurisdictions were 18.9% and 17.1 % respectively, significantly higher than the regulatory requirements, though lower than the same period of the previous year (2014:Q3) when these ratios were 21.5% and 19.9% respectively.

Asset Quality

On asset quality indicators, gross non-performing financing ratio (gross non-performing financing to total financing) showed a slight deterioration with an increase from 5.4% in 2014:Q3 to 5.6% in 2015:Q3 on an average. A stronger trend is apparent in the net non-performing financing to capital ratio which increased from 10.0% in 2014:Q3 to 13.6% in 2015:Q3.

Earnings

Islamic banks and Islamic windows in the PSIFIs member countries maintained comparable rates of return on assets (ROA) and return on equity (ROE) during the periods under report. Overall, the ROA and ROE were 1.3% and 13.2% in 2015:Q3 as compared to 1.2% and 11.3% in 2014:Q3 respectively.

Liquidity

On the liquidity indicators, the liquid assets ratio (liquid assets to total assets) and liquid assets to short-term liabilities ratio improved over the period from 24.1% and 11.5% in 2014:Q3 to 39.6% and 15.1% in 2015:Q3 respectively. Three PSIFIs member countries reported the newly introduced Liquidity Coverage Ratio (LCR) which exceeded the 100 percent benchmark.

Size of Islamic Banking

The number of full-fledged Islamic banks and Islamic windows of conventional banks in 17 countries stood at 169 and 86 in 2015:Q3 as compared to 165 and 85 in 2014:Q3 respectively. At the end of 2015:Q3, a total of 388,976 staff members were working in 29,490 branches of full-fledged Islamic banks, an increase of 1,090 branches and 22,357 staff over the year from 2014:Q3.

The first set of PSIFIs data was released on 27 April 2015 covering the period of December 2013. The second and third sets of data released on 24 November 2015 and 14 March 2016, included indicators for the four quarters of 2014 and two quarters of 2015 respectively.

The PSIFIs Database (full set of data with metadata) is available on the PSIFIs portal at the IFSB website http://psifi.ifsb.org.