The Islamic banking industry in the Kingdom of Saudi Arabia (KSA) is set to achieve US$683 billion of shari'ah-compliant assets by 2019, according to EY’s World Islamic Banking Competitiveness report.
EY notes that KSA has been a key market for growth in the Islamic banking industry. The first Islamic bank with equity in excess of US$10 billion is headquartered in the country. A strong demand from customers, both retail and corporate, has led to significant growth in Islamic banking in KSA, resulting in 54% of all financing being shari'ah-compliant in 2013. Overall, the size of Islamic banking assets in KSA has nearly doubled from 2009 to 2013.
Ashar Nazim, Global Islamic Finance Leader at EY, says: “The Islamic banking industry is preparing to go mainstream globally. KSA is the largest Islamic banking market in the world, representing 31.7% of the global market share. The country has been a pioneer in the Islamic banking industry and we expect it to continue being a driving market for the industry, as Malaysia, Turkey and Indonesia also establish themselves as populous Islamic banking centres.”
In the study, EY monitored 567,071 Islamic banking customer sentiments in KSA on social media as part of a wider study, which looked at 2.2 million customer sentiments dispersed across various online sources in nine key markets (KSA, Bahrain, Kuwait, the UAE, Malaysia, Indonesia, Turkey, Qatar and Oman). Out of the sentiments analysed in KSA, one in three of the positive sentiments were about branch experience, indicating that customers were generally satisfied in this area of service.
“The experience however varies by banks and types of customers. The younger customers are openly challenging the status quo and asking for more digital solutions,” says Muzammil Kasbati, Director, Global Islamic Banking Center of Excellence, EY.
While online and mobile banking services has taken off well in Saudi Arabia, sustainability remains a cause of concern, EY said. “The retail banking proposition of several banks was found struggling between the legacy people culture and the tech-savvy business model required to win new customers. Islamic retail propositions of conventional and Islamic banks still appears to be operating in silos, which unfortunately hampers their customer satisfaction ratings,” says Muzammil.
“Saudi retail banking customers like the fact that some banks are investing to improve the branch experience. There appears to be a healthy takeup of digital banking on offer, and there is anticipation for more. Islamic banks will need to increasingly shift their expenditure from running the bank to developing the bank. Learning from the customer’s journey can provide very important insight that can be applied in everyday operations. Digital adaptation will be vital when upgrading services,” said Ashar.
EY also shared that the UAE is en route to achieve US$263 billion of shari'ah-compliant assets by 2019, another prediction from its World Islamic Banking Competitiveness report. The industry was estimated to be worth US$127 billion in 2014, making it the third largest Islamic banking market by value after the Saudi Arabian and Malaysian markets.
Ashar said: “Islamic banks in the UAE, also known as participation banks, are eyeing revenue growth through experience-led transformation of their domestic business. Stronger capital position is also driving their international expansion. Initiatives in mobile payments are likely to cause positive disruption to banks’ traditional operating models. Looking at the positive performance of Islamic banks in the UAE, the country is expected to be one of the main markets that drive the future internationalisation of the Islamic banking industry.”
Shari'ah-compliant assets in the UAE crossed the US$100 billion milestone for the first time in the study period. Islamic banking penetration in the UAE currently stands at 21.4% and represents a 14.6% share of the global market. The industry in the UAE is growing at more than twice the rate of conventional banking. Due to high demand, there is increased pressure on efficiency as more Islamic banks attempt to go mainstream in the country.
EY monitored 55,884 Islamic banking customer sentiments in the UAE on social media as part of the wider study, and found that banking clients were most satisfied with customer service. Positive comments on social media outnumbered negative comments by more than 5%. Half of all the positive sentiments monitored were around customer service levels and complaint handling.
Customer feelings were mixed with respect to branch experience, online banking and phone banking. Out of the sentiments monitored on social media for all the three experiences, there was almost an equal number of positive and negative comments.
The study of social media comments has revealed an improvement opportunity for shari'ah-compliant UAE banks with respect to products and services, which were ranked the lowest in terms of customer satisfaction. Half of the overall negative sentiments monitored were about disappointing experiences with regard to product and service offerings.
“The call to action for Islamic banks in the UAE is to build rich insights into customers’ delight and pain points, and break operational silos. The time is right for analytics; banks need to challenge their channel capabilities and push for more customised products and services. Regulatory intervention on product design can help to both attract and protect consumers. The reputations of Islamic banks today will depend on the way banks engage with their customers,” concludes Ashar.
Want more context?
Read the Suroor Asia blog post on EY's take on Islamic banking challenges.