IFSB releases Q316 Islamic banking data, announces expansion of dataset

The Islamic Financial Services Board (IFSB) has released its 6th dissemination of country-level data for Q2 to Q316 on financial soundness and growth of the Islamic banking systems from 17 IFSB member jurisdictions.

This 6th dissemination presents a total of 12 quarters of Islamic banking sector data, from Q413 to Q316, from 17 member countries – Afghanistan, Bahrain, Bangladesh, Brunei, Egypt, Indonesia, Iran, Jordan, Kuwait, Malaysia, Nigeria, Oman, Pakistan, Saudi Arabia, Sudan, Turkey, and United Arab Emirates.

The Acting Secretary-General of the IFSB, Zahid ur Rehman Khokher stated that with the approval of the IFSB Council at its recent meeting in April 2017, “the IFSB will extend the coverage of this PSIFIs project to the takāful and Islamic capital market sectors. The IFSB will work closely with its member regulatory and supervisory authorities (RSAs) from these two sectors and multilateral organisations on the selection of the relevant soundness indicators and the preparation of a Compilation Guide for the reference of contributing organisations and users,”

A summary of key PSIFI indicators is given below.

Growth of Islamic banking

Based on the available data, the total assets of the Islamic banking industry grew from US$1,299 billion in Q315 to US$1,441 billion in Q316 (calculated from country-wise aggregated data converted into US dollar terms using end-period exchange rates). Total funding/liabilities increased from US$1,205 billion in Q315 to US$1,318 billion in Q316. Financing by Islamic banks from the jurisdictions participating in the PSIFIs project reached US$939 billion in Q316 from US$826 billion in Q316. The data on “financing by type of shari'ah-compliant contracts” reveals that five major financing contracts used by the Islamic banking industry as of Q316 were: murābaḥah (37.6%), commodity nurābahah/tawwaruq (22.5%), ijārah/ijārah muntahia bittamlīk (13.8%), bayʻ bithaman ajil (11.0%), and salam (5.6%).

Capital adequacy

Capital adequacy provides an important indication of the health and financial soundness of the banking industry in a jurisdiction. As of the Q316, the weighted-average capital adequacy ratio and weighted-average Tier 1 capital ratio from available data of full-fledged Islamic banks of 13 jurisdictions were 17.5% and 16.3% respectively, significantly higher than the regulatory requirements, while these ratios were 12.6% and 10.1% at the same period of the previous year (Q315) respectively.

Asset Quality

On asset quality indicators, gross non-performing financing ratio (gross non-performing financing to total financing) showed a slight improvement with a decrease from 5.9% in Q315 to 5.3% in Q316. However, a deterioration is apparent in the net non-performing financing to capital ratio which increased sharply from 16.1% in Q315 to 25.6% in Q316.

Earnings

Islamic banks and Islamic windows in the PSIFIs member countries generally maintained comparable rates of return on assets (ROA) and return on equity (ROE) during the periods under report. Overall, the ROA and ROE were 1.45% and 11.94% in Q316 as compared to 1.36% and 13.86% in Q315 respectively.

Liquidity

On the liquidity indicators, the liquid assets ratio (liquid assets to total assets) and liquid assets to short-term liabilities ratio decreased over the period from 39.6% and 15.1% in Q315 to 35.6% and 13.9% in Q316 respectively. Five PSIFIs member countries reported the newly introduced Liquidity Coverage Ratio (LCR), which all exceeded the 100% benchmark.

Size of Islamic banking market

The number of full-fledged Islamic banks and Islamic windows of conventional banks in 17 countries stood at 170 and 83 in Q316 as compared to 169 and 85 in Q315 respectively. At the end of Q316, a total of 380,040 staff members were working in 29,733 branches of full-fledged Islamic banks, an increase of 243 branches but a decrease of 8,381 staff over the year from Q315.

Three new country contributors have also been added to the IFSB’s Prudential and Structural Islamic Financial Indicators (PSIFIs) project, including the Central Bank of Lebanon (Banque du Liban) and Palestine Monetary Authority. This brings the total number of contributors to the PSIFIs project to 20 jurisdictions.

The Task Force of PSIFIs project includes representatives from all 17 participating regulatory and supervisory authorities that work as coordinators for regular submission of data of the respective countries and work with the IFSB during the due processes of data collection, compilation, revision, and approval. Three international organisations – the International Monetary Fund (IMF), Islamic Development Bank (IDB) and the Asian Development Bank (ADB) are also members of the Task Force.

The first set of PSIFIs data was released on 27 April 2015 covering the period of December 2013. The second, third, fourth, and fifth sets of data released on 24 November 2015, 14 March 2016, 1 July 2016 and 28 November 2016 respectively.

Interested?

View the PSIFIs Database (full set of data with metadata) on the PSIFIs portal at the IFSB website 

KSA firms display mixed sentiments for Q316

• KSA’s oil & gas sector has displayed a bearish outlook for Q316 and the non-hydrocarbon sector has maintained its forecast for Q316 
• The manufacturing sector is the most optimistic for Q316
• A third (31%) of non-hydrocarbon firms expect to invest in business expansion; for the hydrocarbon sector, the corresponding proportion is 30%

Dun & Bradstreet South Asia Middle East (D&B), in association with the National Commercial Bank released the D&B Business Optimism Index (BOI) survey for KSA for Q316. The survey reveals mixed sentiments for firms in KSA.

Dr Said Al-Shaikh, Group Chief Economist, NCB, said that despite some recovery in oil prices towards the end of the second quarter, raising to the mid-US$40 to US$50 a barrel range, the hydrocarbon sector BOI of Q316 slipped back into negative territory at -2 points after recording 3 points in Q116. "The negative momentum impacted business outlook, as only 38% of the participants in the survey expect no hindrance to their business," he said. "Looking beyond hydrocarbon, the BOI of the non-hydrocarbon has maintained similar expectations to the previous quarter at 21 points." 

More than half (56%) of the participants were aware of the national Vision 2030 and of the National Transformation Program (NTP) 2020, which is part of Vision 2030. Vision 2030 is a blueprint for excellence grounded in KSA's place as the heart of the Arab and Islamic worlds; a drive to be a global investment powerhouse, and to leverage on the country's strategic location to become a global hub connecting Asia, Europe and Africa. 

The Vision 2030 and NTP 2020 seems to have brought some optimism, thus preventing the BOI of the non-hydrocarbon sector from further deterioration, Dr Al-Shaikh added. He said, "Moreover, a sharp fall of contracts awards witnessed over the first half of 2016, recording approximately SR48 billion, not only impacted the construction sector BOI with a reading at 11 points and 12 points in Q216 and Q316, but other sectors were also impacted with varying degrees. In turn, the Q316 BOI for trade and hospitality dropped sharply to 18 points from 32 points in Q216. Reflecting the positive impact of Vision 2030 and NTP 2020, approximately 30% of each of the non-hydrocarbon firms participating in the survey indicated their expectation to invest in expansion in Q316."

Source: NCB. Dr Said Al-Shaikh, Group Chief Economist, NCB, speaking during the launch of the results.

Hydrocarbon sector

The survey for Q316 reveals a bearish outlook for Saudi Arabia's oil & gas sector, with the composite BOI slipping into negative territory in Q316 to -2 from 3 in Q216. With respect to the business environment 38% of the firms do not expect to face any obstacles in their operations, while concerns about the adverse impact of low crude prices have dominated sentiments as 43% of the firms think that this factor might prove to be a hindrance. Thirty percent of the oil & gas companies have indicated plans to invest in business expansion in comparison to 55% which said they will not undertake such moves.

Non-hydrocarbon sector

Saudi Arabia's non-hydrocarbon sector has maintained its forecast for Q316 at the previous quarter's level, with the composite BOI staying steady at 21. Regarding the business environment in Saudi Arabia, firms are more upbeat about the third quarter than they were for Q216: 51% expect that no negative factors will hurt their businesses in Q316 versus a corresponding 39% in Q216. Business sentiment is most dented by low oil prices (13% have cited it as a key hindrance), issues related to government rules & regulations (13%) and competition (7%). Further, 31% of the firms intend to invest in business expansion, while 52% have indicated that they will not.

Sector analysis

The manufacturing sector's optimism outlook has bounced up from the series low seen in the first and second quarter of 2016; the composite BOI has improved to 27 in Q316 from 22 in Q116 and Q216. The demand, hiring and net profits BOIs have strengthened on a quarterly basis as businesses expect new projects from new clients and an overall increase in demand. Additionally, the business scenario has improved with 59% of them not expecting any obstacles to their operations in Q316 compared to 27% in Q216. A third (31%) of the manufacturing companies intend to invest in business expansion in Q316 against 54% that have indicated that they will not.

The outlook for the finance, real estate & business services sector has reached a new low; the composite BOI slipped from 24 in Q216 to 23 in Q316. While the BOI for volume of sales has edged up on a quarterly basis, the indices for the remaining parameters have turned lower. Nearly half (48%) of the firms in this sector have said that they do not expect any negative factors to adversely impact them during Q316. Additionally, 34% of the respondents expect to undertake investments in business expansion, compared to 45% who will not.

The trade and hospitality sector's forecast for Q316 is at the lowest level recorded; the composite BOI has dropped to 18 from 32 in Q216. All five parameters comprising the composite index have registered declines. Even though the composite BOI has dropped, business environment expectations have improved; 53% of the firms do not expect any hurdles in Q316 compared to 36% in Q216. A third (31%) intend to undertake investment in business expansion in Q316, while 38% will not.

The composite BOI for the construction sector has edged up by a single point from 11 in Q216 to 12 in Q316. The outlook for the construction sector remains weak as crude oil prices continue to remain low, which has suppressed new projects. However, the forecast for the business environment is stable: 40% of the construction companies do not anticipate any hurdles in Q316 compared to a corresponding 41% in Q216. A quarter (26%) of the firms in the construction sector intend to undertake investment in business expansion in Q316 (66% will not take up these plans).

The transportation, storage & communication sector's forecast in Q316 has increased from 7 in Q2, 2016 to 14 in Q316. On a quarterly basis the indices for volumes, new orders, net profits and hiring have strengthened, but that for selling prices has worsened. Half (52%) of the firms in this sector do not expect any obstacles during Q316 (48% in Q216). A third of the respondents hope to undertake investments in business expansion in Q316 versus 60% that do not intend to undertake such plans.

The current survey shows that small and medium sized enterprises (SMEs) have a modestly brighter forecast than the large companies, with composite BOIs of 22 and 18 respectively. SMEs are more optimistic than large companies on all parameters. SMEs hold a modestly firmer outlook with respect to the business environment with 53% of them compared to 49% of the large companies expecting no obstacles to their operations in the coming quarter. For both groups, the leading concerns are the impact of low crude prices and government policies, rules & regulations.

Assad Shaikh, Associate Director - Research & Advisory Services, Dun and Bradstreet South Asia Middle East said: "Sentiments in the region are subdued with respect to firms in the kingdom's hydrocarbon sector. The BOI score for this sector is recorded at -2 in Q3, 2016 from 3 in the previous quarter, weighed down by lower scores for selling prices and profitability. On the other hand, the current survey revealed that the composite BOI for the non-hydrocarbon sector is firm at the previous quarter's level of 21.

"The impact of low oil prices has dented the optimism with respect to the business environment which has turned lower for oil & gas firms as 38% have indicated that they do not expect any factors to impact their operations. The proportion stood at 51% for the non-hydrocarbon sector.

"With regard to investment in business expansion in Q316, sentiments of both groups are comparable (30% intend to invest in such plans for hydrocarbon firms versus 31% for non-hydrocarbon firms)."

The D&B Business Optimism Index is a measure of the pulse of the business community, serving as a benchmark for investors and policy makers. As the latest addition to D&B's global series, the Business Optimism Index on Saudi Arabia, done in association with The National Commercial Bank, is issued on a quarterly basis. The next Business Optimism Index on Saudi Arabia will be released in October 2016.

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