The Islamic Financial Services Board (IFSB) has launched the Islamic Financial Services Industry (IFSI) Stability Report 2019 at the IFN Forum in Singapore. The launch was officiated by the Secretary-General of the IFSB, Dr Bello Lawal Danbatta.
This is the seventh IFSB IFSI Stability Report, which has been published annually since 2013. Over the years, the report has become a benchmark publication for the IFSB and numerous other stakeholders, tracking the growth, development and stability assessment of the Islamic financial services industry.
IFSB Secretary-General Dr Bello Lawal Danbatta mentioned that the IFSB launched the soft copy of the IFSI Stability Report 2019 to the public on 31 July 2019. He added that an official launch of the hard copy of the report at the IFN Forum and in a key jurisdiction like Singapore with great potentials of becoming a significant Islamic finance market, offer a great opportunity to share the key report takeaways as well as the outlook for the IFSI.
The report indicates that in 2018, the IFSI recorded a 6.9% year-on-year growth rate on the back of a rebound in oil and commodity prices, improvement in investment climate in most jurisdictions with record year-on-year growth of 26.9% in the Islamic capital market sector. The global assets of the IFSI are estimated to be worth about US$2.19 trillion as at 2Q18, reflecting a softened momentum in growth rate recorded due to trade and economic sanctions, currency depreciations, and increasing inflation in some jurisdictions with a significant presence of Islamic banking.
As stated in the report, the positive growth trajectory of the IFSI is expected to continue into the foreseeable future. However, emphasis should be given to emerging operational issues posed by technology, changing market structures and increasing activities of the non-bank financial institutions.
The report rides on data from the IFSB’s Prudential and Structural Islamic Financial Indicators (PSIFIs) database for its Islamic banking sector analysis.
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The IFSI Stability Report 2019 is available for download from the IFSB website.
News & trends blog on the shari'ah economy in Asia Pacific/Middle East. Reporting from Singapore.
Showing posts with label stability. Show all posts
Showing posts with label stability. Show all posts
Friday, 30 August 2019
Sunday, 21 May 2017
IFSB shares Islamic Financial Services Industry Stability Report for 2017
The Islamic Financial Services Board (IFSB) has released the 5th edition of its annual Islamic Financial Services Industry Stability Report highlighting developments in the growth, stability and other aspects of the Islamic financial services industry (IFSI).
The 2017 report finds that despite subdued economic growth conditions and the impact of new geopolitical developments, the global IFSI has been able to sustain its total assets value at approximately US$1.9 trillion in 2016. While the overall performance of Islamic finance in 2016 has been satisfactory, the IFSB says that the industry needs to build long-term resilience amidst the prevailing era of weak growth and uncertainties.
Acting Secretary-General of the IFSB Zahid ur Rehman Khokher, said, “The issuance of the Islamic Financial Services Industry Stability Report 2017 comes during a time of growing external challenges for the financial system, including lower economic growth outlooks and global political uncertainties. While the Islamic financial services industry has, in many respects, withstood the challenging operating environment, it has however moved away from the double-digit growth trajectory witnessed in previous years. This slowdown underscores the importance, more than ever, of strengthening the resilience of the Islamic financial system and addressing internal weaknesses and vulnerabilities through appropriate policy responses.”
A key feature of the 2017 report is that data from the IFSB’s Prudential and Structural Islamic Financial Indicators (PSIFIs) database has been utilised for the first time in the report’s Islamic banking sector analysis. The use of this data has enriched the report by providing:
The report shares the findings of an IFSB study on stress testing of Islamic banks conducted in early 2017 to identify the connections between macroeconomic and financial variables of Islamic banks to provide a preliminary idea of plausible quantitative dimensions that can be used for stress testing of Islamic banks. The empirical findings provide an indication of important linkages between four macroeconomic variables; interest rates, unemployment, real estate prices and oil prices – and Islamic banks’ non-performing financing (NPF) ratio, deposits, financing and assets.
The report also provides an insight into fintech in the Islamic finance space, the development of which poses a number of legal, regulatory and shari'ah issues. Discussions on fintech focus on two areas that have attracted much attention: the distributed ledger technology, which is at the core of cryptocurrencies (e.g. Bitcoin) and smart contracts, and multi-sided Internet platforms, which are the basis of crowdfunding.
The IFSI Stability Report 2017 provides an in-depth analysis of the performance and stability of the IFSI in 2016, focusing on the three main sectors, banking, capital market and takāful:
Growing market shares of Islamic banks
The developments in the Islamic banking sector in 2016 were more dynamic than implied by the moderate growth rate observed in total banking sector assets, illustrated by a shift in the regional composition of global assets and reasonable levels of growth in assets, financing and deposits of Islamic banks in most jurisdictions. More notably, the market shares of Islamic banks increased in 18 jurisdictions, providing a strong indication of a growing acceptance of Islamic finance in jurisdictions with dual financial systems. Jurisdictions where Islamic finance has achieved domestic systemic importance also increased to 12 in the past year.
Sustained returns in most jurisdictions
The Islamic banking sector has generally sustained its return on assets and return on equity as a whole in the last two years, but there are considerable differences on jurisdictional levels as some markets have witnessed declines in returns. With respect to asset quality, while the non-performing financing (NPF) ratios of the IFSI globally and for most jurisdictions have decreased, a few jurisdictions exhibited higher NPF rates.
The capitalisation in the industry at a Tier-1 level was 9.71% in 1H16, remaining above the Basel III/ IFSB-15 minimum regulatory requirements of 6%. However, an area of continued concern is the short-term liquidity health of Islamic banks. Overall, conditions varied significantly between countries, with each jurisdiction exposed to its unique set of domestic conditions.
The Islamic capital market performed better in 2016 than in 2015
2016 saw an increase in sukūk issuances, while Islamic stocks continued to generate profit. The volume of annual ṣukūk issuances reached US$75 billion in 2016, bringing the volume of outstanding ṣukūk close to US$320 billion, with 79% of the issuances originated from sovereigns, including government-related entities (GREs) and multilateral organisations, while only 21% were corporate issuances.
Shari'ah-compliant equities and Islamic funds
In contrast to previous years, shari'ah-compliant equities generated lower returns in comparison to conventional equities. The equity markets suffered in 2015 and during most of 2016 due to political uncertainties, slow growth, depressed oil prices and volatile commodity prices. While the unexpected election outcome in the US triggered a stock market rally in the latter part of 2016, Islamic equity and fixed income funds benefited from the good performance of the Islamic equity indices and the improved ṣukūk yields. Positive results of Islamic commodity funds are mainly due to an increase of the oil price at the end of the year.
High growth in the takāful sector
The global takāful industry recorded a growth in contributions of 12% while conventional insurance premiums only grew by 4%. Despite the high growth rate, takāful is by volume still a small industry with total contributions of US$25 billion and 305 takāful and retakāful operators plus windows. The GCC accounts for 47% of the contributions and 31% of the takāful operators, followed by MENA (excluding GCC) with 33% of contributions and 22% of the operators, and Asia with 18% of contributions and 15% of the operators. The insurance/takāful penetration in most Organization of Islamic Cooperation (OIC) countries is relatively low. While this indicates untapped market potential, there is strong competition for market shares. As many takāful undertakings lack scale for efficient operations, it is expected that the consolidation of the industry through mergers and acquisitions will continue in Southeast Asia and the GCC.
Global outlook for the IFSI
The outlook for the global IFSI is generally positive, with concerns that fiscal deficits will contain spending by governments, which could have an adverse impact on Islamic banks. While the industry has shown resilience and satisfactory performance in 2016, the era of weak growth and external uncertainties facing the industry indicates the growing need for the global IFSI to build long-term resilience.
The IFSI Stability Report 2017 is available for download
The 2017 report finds that despite subdued economic growth conditions and the impact of new geopolitical developments, the global IFSI has been able to sustain its total assets value at approximately US$1.9 trillion in 2016. While the overall performance of Islamic finance in 2016 has been satisfactory, the IFSB says that the industry needs to build long-term resilience amidst the prevailing era of weak growth and uncertainties.
Acting Secretary-General of the IFSB Zahid ur Rehman Khokher, said, “The issuance of the Islamic Financial Services Industry Stability Report 2017 comes during a time of growing external challenges for the financial system, including lower economic growth outlooks and global political uncertainties. While the Islamic financial services industry has, in many respects, withstood the challenging operating environment, it has however moved away from the double-digit growth trajectory witnessed in previous years. This slowdown underscores the importance, more than ever, of strengthening the resilience of the Islamic financial system and addressing internal weaknesses and vulnerabilities through appropriate policy responses.”
A key feature of the 2017 report is that data from the IFSB’s Prudential and Structural Islamic Financial Indicators (PSIFIs) database has been utilised for the first time in the report’s Islamic banking sector analysis. The use of this data has enriched the report by providing:
- Strengthened reliability of data as it is sourced directly from regulatory and supervisory authorities;
wider geographical coverage, with data covering 18 countries in comparison to 10 countries analysed in the 2016 report; - Holistic coverage of each jurisdiction as the PSIFIs data covers the aggregated domestic Islamic banking sector including data of Islamic banking windows. Previous reports had used sample data from selected full-fledged Islamic banks; and
- Additional financial indicators, e.g. value of shari'ah-compliant financing by economic sectors, that are included in the PSIFIs database.
The report shares the findings of an IFSB study on stress testing of Islamic banks conducted in early 2017 to identify the connections between macroeconomic and financial variables of Islamic banks to provide a preliminary idea of plausible quantitative dimensions that can be used for stress testing of Islamic banks. The empirical findings provide an indication of important linkages between four macroeconomic variables; interest rates, unemployment, real estate prices and oil prices – and Islamic banks’ non-performing financing (NPF) ratio, deposits, financing and assets.
The report also provides an insight into fintech in the Islamic finance space, the development of which poses a number of legal, regulatory and shari'ah issues. Discussions on fintech focus on two areas that have attracted much attention: the distributed ledger technology, which is at the core of cryptocurrencies (e.g. Bitcoin) and smart contracts, and multi-sided Internet platforms, which are the basis of crowdfunding.
The IFSI Stability Report 2017 provides an in-depth analysis of the performance and stability of the IFSI in 2016, focusing on the three main sectors, banking, capital market and takāful:
Growing market shares of Islamic banks
The developments in the Islamic banking sector in 2016 were more dynamic than implied by the moderate growth rate observed in total banking sector assets, illustrated by a shift in the regional composition of global assets and reasonable levels of growth in assets, financing and deposits of Islamic banks in most jurisdictions. More notably, the market shares of Islamic banks increased in 18 jurisdictions, providing a strong indication of a growing acceptance of Islamic finance in jurisdictions with dual financial systems. Jurisdictions where Islamic finance has achieved domestic systemic importance also increased to 12 in the past year.
Sustained returns in most jurisdictions
The Islamic banking sector has generally sustained its return on assets and return on equity as a whole in the last two years, but there are considerable differences on jurisdictional levels as some markets have witnessed declines in returns. With respect to asset quality, while the non-performing financing (NPF) ratios of the IFSI globally and for most jurisdictions have decreased, a few jurisdictions exhibited higher NPF rates.
The capitalisation in the industry at a Tier-1 level was 9.71% in 1H16, remaining above the Basel III/ IFSB-15 minimum regulatory requirements of 6%. However, an area of continued concern is the short-term liquidity health of Islamic banks. Overall, conditions varied significantly between countries, with each jurisdiction exposed to its unique set of domestic conditions.
The Islamic capital market performed better in 2016 than in 2015
2016 saw an increase in sukūk issuances, while Islamic stocks continued to generate profit. The volume of annual ṣukūk issuances reached US$75 billion in 2016, bringing the volume of outstanding ṣukūk close to US$320 billion, with 79% of the issuances originated from sovereigns, including government-related entities (GREs) and multilateral organisations, while only 21% were corporate issuances.
Shari'ah-compliant equities and Islamic funds
In contrast to previous years, shari'ah-compliant equities generated lower returns in comparison to conventional equities. The equity markets suffered in 2015 and during most of 2016 due to political uncertainties, slow growth, depressed oil prices and volatile commodity prices. While the unexpected election outcome in the US triggered a stock market rally in the latter part of 2016, Islamic equity and fixed income funds benefited from the good performance of the Islamic equity indices and the improved ṣukūk yields. Positive results of Islamic commodity funds are mainly due to an increase of the oil price at the end of the year.
High growth in the takāful sector
The global takāful industry recorded a growth in contributions of 12% while conventional insurance premiums only grew by 4%. Despite the high growth rate, takāful is by volume still a small industry with total contributions of US$25 billion and 305 takāful and retakāful operators plus windows. The GCC accounts for 47% of the contributions and 31% of the takāful operators, followed by MENA (excluding GCC) with 33% of contributions and 22% of the operators, and Asia with 18% of contributions and 15% of the operators. The insurance/takāful penetration in most Organization of Islamic Cooperation (OIC) countries is relatively low. While this indicates untapped market potential, there is strong competition for market shares. As many takāful undertakings lack scale for efficient operations, it is expected that the consolidation of the industry through mergers and acquisitions will continue in Southeast Asia and the GCC.
Global outlook for the IFSI
The outlook for the global IFSI is generally positive, with concerns that fiscal deficits will contain spending by governments, which could have an adverse impact on Islamic banks. While the industry has shown resilience and satisfactory performance in 2016, the era of weak growth and external uncertainties facing the industry indicates the growing need for the global IFSI to build long-term resilience.
The IFSI Stability Report 2017 is available for download
Saturday, 30 May 2015
IFSB unveils Islamic Financial Services Industry Stability Report for 2015
The Governor of the National Bank of Kazakhstan, HE Kairat Kelimbetov, launched the Islamic Financial Services Industry (IFSI) Stability Report 2015 during the opening session of the 12th Islamic Financial Services Board (IFSB) Summit on 20 May in Almaty, Kazakhstan. The report aims to contribute to a wider cross-border engagement on stability issues in Islamic finance, while helping to strengthen the building blocks needed for greater resilience.
Said the Secretary General of the IFSB Jaseem Ahmed: "The issuance of the IFSB’s third Islamic Financial Services Industry Stability Report takes place at a time of continuing concern over a fragile and uneven global economic recovery, and the potential for volatility in the financial sector. Against this backdrop, the regulatory changes to the capital and liquidity framework initiated by the Group of Twenty (G20) and the Financial Stability Board (FSB) has seen the issuance of a range of guiding principles by the IFSB, culminating in two standards in 2015, on liquidity management and on core principles.”
Both standards set the stage not only for the integration of the IFSI into the global economy, but also into the global surveillance mechanism for financial stability. The IFSI Stability Report 2015 complements the standards with discussions on the following topics:
An overview of the IFSI as well as updates on trends and developments in the three sectors of the industry – Islamic banking, the Islamic capital market and takaful. It also assesses the resilience of the Islamic financial system, which includes technical analyses of selected indicators as well as assessment of risks and vulnerabilities in the sectors.
Initiatives undertaken by international standard-setting bodies to further ensure the stability of the financial institutions and markets, as well as the implications of such reforms for institutions offering Islamic financial services (IIFS). It also reviews the progress of various projects and initiatives undertaken by the IFSB to enhance the supervisory framework so as to ensure stability and soundness of the IFSI.
A surveillance framework for the global financial system including identification of the gaps in the global surveillance framework in the absence of a set of core principles for Islamic finance, which eventually led to the development of an advanced approach to the assessment of supervisory and stability regimes for Islamic finance. It also tracks the implementation mechanisms undertaken by the global standards-setters, which provide a valuable reference for strengthening implementation efforts in the IFSI.
Emerging issues in Islamic finance, including financial consumer protection in Islamic finance, and the importance of having a global Islamic finance database for financial stability, focusing on the IFSB’s initiative on the Prudential and Structural Islamic Finance Indicators (PSIFIs).
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Read the Suroor Asia blog posts on PSIFIs and core principles.
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