The Banker’s Islamic Bank of the Year Awards for 2020 come at a bewildering time for the Islamic finance sector. Like their conventional counterparts, sharia-compliant lenders face a period of significant retrenchment in 2020 on account of the global coronavirus pandemic and its seismic impact on local and regional economies.
The impact is set to be particularly keenly felt in the Islamic finance heartland of the Gulf Cooperation Council (GCC), with government-led development projects and private sector confidence in markets such as Saudi Arabia and the United Arab Emirates (UAE) adversely affected by a dramatic fall in oil revenues.
Yet as the sector braces for the full impact of Covid-19, it is worth recognising the great successes Islamic banks have achieved since early 2019, with lenders in both mature and developing markets witnessing impressive growth in both their sharia-compliant asset bases and their overall profitability.
After a disappointing 2018, global sukuk issuance recovered by 6% in 2019, according to Fitch Ratings, as the range of both issuers and investors widened. Fourth-quarter issues – including a $2.5bn placement by Saudi Arabia – saw sukuk issuances with a maturity of more than 18 months rise to $42.2bn for the year, although this remains far below 2017’s peak of $52.7bn.
Demand for sharia-compliant financing continues to rise in the sector’s most developed markets. In Saudi Arabia, government initiatives to boost home ownership among Saudi nationals has seen a surge in demand for Islamic mortgages. In Malaysia, the proactive approach of Bank Negara Malaysia has seen demand for Islamic financing continue to rise. The country’s sharia-compliant asset base grew by 8.2% in 2019, far outpacing the growth of conventional assets.
Growing demand for Islamic financing has not made lenders complacent, however. Banks recognised by this year’s awards line-up have been careful to keep an eye on costs and, in the main, have managed to achieve growth at a reasonable cost – largely through the skillful deployment of digital technology at both the front and the back end.
This is perhaps exemplified most clearly by Al-Amal Microfinance Bank (AMB) of Yemen, the winner of the country’s first Islamic Bank of the Year award, which relies on an extensive digitally enabled agency model to offer financing services in one of the world’s toughest operating environments. An unswerving focus on cost control will be crucial for Islamic lenders seeking to navigate the post Covid-19 landscape. Yet while the immediate future is full of challenges, the positive numbers recorded by this year’s winners indicate that Islamic banking’s growth story is far from over.
World, Asia Pacific, Malaysia – Maybank Islamic
In the eight-year history of The Banker’s Islamic Bank of the Year Awards, Maybank Islamic has impressed over time as one of the world’s foremost sharia-compliant financial institutions. The Islamic banking arm of Malaysia’s largest bank by assets, Maybank Islamic has been crowned Malaysia’s leading sharia-compliant lender four times, while being named Global Islamic Bank of the Year twice.
Amid strong competition from domestic competitors and powerhouse lenders of the Middle East, Maybank Islamic has been crowned as 2020’s Islamic Bank of the Year for Malaysia and the Asia Pacific region, as well as Global Islamic Bank of the Year. The judges were impressed by the bank’s commitment to sustainability, the evolution of its digital offering, and the opening of its first branch in the UAE.
Such achievements come on top of an impressive financial performance for 2019. While Tier 1 capital slipped marginally, Maybank Islamic’s total sharia assets grew by 7.1% to $58.2bn, with profitability rising 25% to $611.5m for the year. Return on equity (ROE) increased from 22.5% in 2018 to 26.7% in 2019, while its cost-to-income ratio was virtually unchanged at 32.5%.
As part of Maybank Islamic’s commitment to sustainability, the bank participated in the development of a guidance document for Malaysia’s value-based intermediation (VBI) financing and investment impact assessment framework (VBIAF), in collaboration with the country’s central bank, the International Monetary Fund, and the International Centre for Education in Islamic Finance, among others. The VBIAF aims to facilitate the implementation of an impact-based risk management system to assess the financing and investment activities of Islamic financial institutions in line with their respective values-based investment commitments.
Another sustainability milestone was the bank’s role as joint sharia advisor for Indonesia’s first US dollar green sovereign sukuk, priced in February 2019, which raised $2bn in an issue that was 3.8 times oversubscribed.
The bank has also rolled out significant technology initiatives in the past year. Among the new features introduced on its Maybank2u mobile app was the capacity for small and medium-sized enterprises (SMEs) in Malaysia to open conventional or Islamic business accounts instantly, place fixed deposits, and tap various payroll and payment solutions. The bank expects the service to provide an incremental growth of more than 10% over the next three years.
In March 2020, Maybank set up a sharia-compliant version of its highly successful Maybank Anytime Everyone (MAE) mobile wallet. MAE, built on Maybank2u, launched in March 2019, amassing more than one million users in October, with 75% of its user base aged 35 and below.
On the product front, Maybank Islamic introduced an Islamic dual currency investment product to enable affluent customers to invest in currency-linked instruments and undertake short-term investments, with an option to receive the investment principal and returns in selective currencies. The bank also introduced Zest-i, a mudarabah investment account for customers that prefer a low-risk sharia-compliant investment, which cultivates a culture of investing for stable returns.
Another innovation was the introduction of an account portability service, allowing customers to switch seamlessly from a conventional current and savings account to an Islamic account via the Maybank2u platform.
Maybank Islamic also had a landmark year in 2019 regarding international expansion, with the award of a full Islamic banking licence by the Dubai Financial Services Authority in the UAE, the first of its kind awarded to a Malaysian Islamic bank. Maybank Islamic formally opened its branch in the Dubai International Financial Centre in February 2020, marking the first expansion beyond its three core south-east Asian markets of Malaysia, Singapore and Indonesia.
The bank anticipates its new presence in the UAE – which will focus on sukuk origination, syndicated financing and Islamic trade finance – will establish it as a link between businesses in the Association of Southeast Asian Nations region and the Middle East, and help it meet demand for financing in the burgeoning global halal economy.
Maybank Islamic’s Dubai branch offers the potential for significant growth in its overseas Islamic financing operations. This bold new expansion, together with its strong operational and financial performance across its existing footprint, make Maybank Islamic the deserved winner of the 2020 Global Islamic Bank of the Year award.
Middle East, Qatar – Qatar Islamic Bank
As Qatar’s largest Islamic bank – and second only to regional giant QNB in terms of its asset base – Qatar Islamic Bank (QIB) has dominated sharia-compliant lending in the Gulf state throughout the history of The Banker’s Islamic Bank of the Year rankings. In addition to being awarded the country’s crown again, QIB has been selected as Middle Eastern Islamic Bank of the Year for the second year in a row for 2020 and its fourth time in the rankings’ history, with strong financials complemented by an impressive ongoing commitment to digital innovation.
QIB’s bank-wide digital transformation, launched in 2018, continued to bear fruit in 2019 through improved customer experience via end-to-end solutions and personalised offerings via advanced analytics capacity, with internet and mobile banking penetration increasing across all segments of the bank’s customer base.
New services introduced by the bank during the past year included its e-IPO (initial public offering) service, introduced ahead of the listing of local dairy producer Baladna in October 2019 (both launch and IPO that month), enabling customers to register for and subscribe to local IPOs via QIB’s mobile app and internet banking channels.
In early 2020, the bank launched its ‘Instant Credit Card’ service, offering pre-approved customers the opportunity to apply for a credit card tailored to their individual needs via the QIB mobile app, the first service of its kind in Qatar. The bank also was among the first to go live in 2020 with its mPay digital wallet, supporting Qatar Central Bank’s cashless economy initiative.
Even from its position of market dominance, QIB registered impressive financial metrics in 2019, with a 7% rise in both its asset base and its Tier 1 capital. Profits rose by 11% year-on-year, with ROE improving to 18.1% from 17.4%. Efficiency also improved, with cost-to-income falling to 22.8% from 25.4%.
Egypt – ADIB Egypt
Egypt has been one of the fastest growing emerging markets of the past three years, with local banks reaping the rewards of significant economic reforms. Despite Egypt being one of the world’s most populous Muslim nations, its Islamic banking sector is immature, which offers massive growth opportunities for sharia-compliant financial institutions.
For the second year in a row, Abu Dhabi Islamic Bank (ADIB) Egypt [sub: couldn’t find definitive spelling ADIB-Egypt or ADIB Egypt so left out hyphen] has been named the country’s top Islamic bank, having posted a 63% rise in Tier 1 capital and a 41% in profits for 2019. Return on equity continued to improve, climbing to 30.8%, while cost-to-income improved to 38.8% from 40.1% in 2018.
Key to ADIB Egypt’s growth has been its consumer focus through several innovative offerings and promotions. One example was its ‘Fuel Cards’ promotion, in conjunction with Total, launched immediately after a government-mandated rise in fuel prices in July 2019. The promotion – which offered vouchers for 3000 litres of gasoline to customers applying for auto financing – helped buoy up the market amid consumer uncertainty, and prompted a 45% increase in market share and monthly bookings in the auto financing segment.
The bank also cooperated with carmakers Mercedes Benz, Audi and BMW to give high-end customers auto financing services with no administration fees, and discounts for full cash prices [payments?].
In the past year, ADIB Egypt upgraded its internet banking platform to offer services including bill payment, flight booking and renewing car licences, with the number of platform users rising by 60% in 2019 compared with 2018. The bank also launched ADIB 3altayer, its eWallet platform, to boost financial inclusion. On the same front, the bank’s debit cards are now accepted over the government’s Meeza network, established in early 2019, for all government payments.
Jordan – Jordan Islamic Bank
After losing top billing in 2018 for the first time, Jordan Islamic Bank has risen to headline once more, thanks to an improvement in its financial performance in 2019 and its commitment to financial inclusion and green energy initiatives.
The country’s largest Islamic bank by assets (and third largest overall) saw a return to profit growth in 2019, with net income up by 9.1% to $76.7m. After a slight fall in 2018, sharia assets (including restricted investment accounts) grew by 7.6% to $7bn in 2019, with Tier 1 capital up 6.6%. ROE edged up to 13.3% from 13% the previous year, with the bank’s non performing loans ratio improving to 3.97% from 4.2%.
JIB in 2019 was the first is the first Jordanian bank to offer 30% financing for the government’s home solar cell heating scheme. The programme is based on a cooperation agreement between the bank and the Ministry of Energy and Mineral Resources’ Renewable Energy Promotion and Energy Conservation Fund, established for the financing of solar cell systems and solar heaters (pipes and mirrors) for the domestic sector.
The judges were also impressed by JIB’s Blind Card programme, which offers visually impaired customers greater freedom and privacy while managing their financial affairs. The bank is also participating in Jordan’s National Self-Employment Program, designed to enable youth to establish development projects that provide them with a permanent source of income and provide job opportunities.
On the digital innovation front, JIB began offering sharia–compliant charge cards with NFC technology that cannot be used for goods and services related to activities including gambling and alcohol.
The bank also launched two new editions of its mobile banking app, offering services in both English and Arabic including domestic money transfers and online ticket booking. In early 2019 the bank modernized its app via a token-based authentication solution enabling login using fingerprint and facial recognition.
In addition to such improvements, the bank has continued to expand its ATM network to over 250 units across the country
Kuwait – Boubyan
Boubyan Bank takes the crown for Kuwait’s Islamic Bank for the third year in succession in 2019, standing out in a competitive market thanks to its embrace of cutting-edge technology.
In the latest of a string of market firsts, Boubyan in 2019 became the first bank in Kuwait to offer banking services over WhatsApp; the bank now offers its ‘Msa3ed’ digital assistant over the platform, handling enquiries including branch locations, working hours, next salary date and FX rates. ‘Msa3ed’, launched in 2018, was rolled out to all customers and non-customers alike in 2019.
The WhatsApp launch was just one of a series of digital initiatives taken by Boubyan in 2019. The year saw the bank become a “fintech ready organization” that can accept an open API and partnerships. Boubyan continues to pay significant attention to innovation and partnership with fintechs, through the Digital Innovation Centre as well as a Partnerships and Innovation department, and continues to play an active part in Kuwait’s start-up ecosystem.
In October 2019, Boubyan announced a partnership with Kuwait’s largest telco Zain to create a digital only bank, one of the first in the Middle East, which is currently awaiting the approval of the Central Bank of Kuwait.
Boubyan’s other innovations for 2019 included the development of its card issuance via ATM, initially rolled out in 2017, with customers now able to order personalise credit and debit cards via the bank’s mobile banking platform and collect them via ATM. The initiative has seen the bank work with Kuwait’s Public Authority of Civil Information (PACI) to use applicants’ digital signatures.
The bank’s embrace of digital innovation has not come at the expense of its financial performance, which once again shone brightly in 2019. Boubyan’s sharia asset base grew by 22% during the year – its biggest increase of the past three years – with Tier 1 capital rising by an impressive 35%. While the lender’s net profit increase was slower than previous years, it still stood at a respectable 12% for the year.
Oman – Meethaq Islamic Banking
Islamic banking remains in its infancy in Oman compared with the wider Gulf region, with sharia-compliant services becoming available in the Sultanate for the first time in late-2012. In spite of the presence of two fully-fledged Islamic banks, the sector continues to be dominated by the Islamic windows of conventional lenders. Meethaq Islamic Banking – the Islamic window of market leader Bank Muscat – has been crowned as Oman’s top lender for 2020 for the first time, thanks to a solid financial performance and a series of well-received financing products.
In a competitive operating environment, Meethaq enjoyed a successful year in 2019, its sharia-compliant asset base growing by 5%, including a 9% increase in Tier 1 capital, with up by 1% for the year. While return and equity and asset quality weakened during the year amid tough economic conditions, Meethaq posted further efficiency gains for the year, its cost to income ratio improving to 43.8% from 44.6% in 2018 and 48% in 2019.
Following the success of Meethaq’s first retail-targeted OMR25 million sukuk issuance in 2017, the bank launched its second such sukuk in April 2019. Meethaq increased the size of the sukuk – which has an indicative profit rate of 5.5% per annum over a five year tenure – from OMR25 million to OMR45.6 million due to high consumer demand for the offering. The sukuk programmes are the only issuances in Oman to date that specifically target retail customers, which in turn are used to finance Meethaq’s expansion across the Sultanate.
Among Meethaq’s other highlights for the year was the launch of its “Hibati” savings account”, offering over 5,000 cash prizes for account holders. The product – based on a mudarabah structure – attracted approximately $180 million worth of deposits from over 17,000 customers in a little over a year.
Pakistan – Standard Chartered Saadiq Pakistan
While Pakistan’s economy endured a tough 2019 – – the country’s Islamic banking sector remains one of the world’s strongest growth stories. Nearly twenty years on from the publication of State Bank of Pakistan’s game-changing Islamic Banking Policy, the sector’s growth shows little sign of slowing. Sharia-compliant assets held by the country’s banks grew by 20.6% in the year to end-June 2019, accounting for 14.4% of the country’s total asset base, up from 12.9% the previous year.
In one of the most competitive categories for the Islamic Bank of the Year Awards for 2020, Standard Chartered Saadiq Pakistan was chosen as the country’s top sharia-compliant lender for the second year in a row, with the judges impressed not only by its financial performance, but also by its digital and product innovations
While the lender’s asset base dropped slightly during the year, Standard Chartered Saadiq Pakistan’s Tier 1 capital rose by an impressive 26% in 2019, with the figure up by over 50% since 2017. Net profits surged by 55% for the year, prompting return on equity to soar to 57% in 2019 from 45% in 2018. Cost to income improved to 30% from 38% the previous year.
Of the innovations introduced by the bank in 2019, the judges were particularly impressed by the launch of Pakistan’s first blockchain-based cross-border wallet-to-wallet remittance service. The remittance service, powered by technology developed by Ant Financial Services Group’s Alipay online payment platform, enables customers to make round-the-clock, real-time money transfers between Malaysia and Pakistan at competitive exchange rates.
Equally impressive is Standard Chartered Saadiq Pakistan’s business banking services offering, with a particular focus on the SME segment. These include Saadiq Business Term Finance, a market-first product designed to meet businesses’ liquidity and working capital needs, and Saadiq Business Mortgage Finance, a product designed to help businesses purchase properties for commercial use.
Also noteworthy is SCB Saadiq Pakistan’s sharia-compliant off-balance sheet solutions such as Advance Payment Murabaha, which provides customers with extra leverage to seek additional debt without having additional liabilities on their books.
Saudi Arabia – Samba Financial Group
While Saudi Arabia is one of the most established Islamic finance markets worldwide, the kingdom continues to experience impressive growth, as demand for sharia-compliant financing products increases, with demand for Islamic mortgages particularly high in 2019.
Samba Financial Group’s Islamic banking division this year takes the crown for Saudi Arabia’s Islamic Bank of the Year for the first time, in recognition of its rapidly expanding asset base, as well as its burgeoning product suite and financing prowess.
Samba – the country’s third largest lender by Tier 1 capital, according to The Banker Database data – saw its sharia-compliant asset base expand by an impressive 29.1% in 2019, nearly three times the rate of asset growth for the bank overall, and its second consecutive rise of over 20%.
Among the recent product launch highlights for the Islamic banking division are its ‘Thamarat’ retail savings product, and the sovereign sukuk fund offered by Samba Capital for asset management clientele, both unveiled in April 2019.
A unique sharia-compliant (non-recourse) discounting structure for short-term receivable and payable in trade and supply chain financing was also developed by the bank.
Samba continues to be actively involved in almost all Islamic syndicated financing transactions concluded in Saudi Arabia and the wider region in various capacities including as arranger or bookrunner as well as an advisor or coordinator.
The bank has been at the forefront of a countrywide initiative to develop an Islamic repo, an essential product that will be utilized to efficiently execute the Primary Dealership role and facilitate funding transactions with counterparties in a sharia-approved manner. As part of this initiative, Tthe bank is in the process of establishing an Islamic Repo-equivalent product known as “Collateralized Murabaha”.
In addition to its considerable operations in Saudi Arabia, the bank is hoping to tap the growing demand for sharia-compliant products and services in the UAE, and is currently working to share, enhance and integrate its various Islamic finance product and delivery capabilities in its branch in Dubai.
Sri Lanka – NDB Shareek
Banks in Sri Lanka endured a tough year in 2019, with the Easter Sunday bombings on 21st April claiming nearly 270 lives and putting an additional strain on the country’s already fragile finances. NDB Shareek, which has been named as the country’s top Islamic lender for the first time, stood out in 2019 not only for its impressive financial results, but also due to its impressive product portfolio.
Launched in 2014 as the Islamic window of Sri Lanka’s National Development Bank, NDB Shareek has grown to be one of the country’s largest Islamic lenders. Its sharia asset base has more than doubled since 2017, growing by 16% to $69.2 million in 2019, with Tier 1 capital growing by 11%. Profit after tax rose by 13% year-on-year, a faster growth rate than NDB’s conventional operations.
While NBD Shareek’s NPL ratio worsened to 4.77% in 2019 from 2.85% the previous year, the bank was able to fully provide provisions for NPLs from its Islamic Reserve funds without burdening the Mudarabah pool, enabling higher returns to its depositors.
One of the bank’s highlights for 2019 was the launch of its ‘Diminishing Musharakah’ loan facilities, offering business funding, housing loans and project financing for SMEs, corporates and individual customers. Such offerings, alongside wakala facilities targeting capital requirements of importers and exporters and mudarabah deposit products, saw NDB Shereek’s depositor base increase by 76% during 2019, with deposits rising 36%.
Alongside new product offerings, NDB Shereek continues to expand its geographic footprint, focussing particularly on the large Muslim population of Sri Lanka’s eastern province. The bank has focussed in particular on the region’s agribusiness community, targeting businesses including midland fisheries and prawn farming businesses.
The bank has built on its strong track record in supporting the renewable energy sector, particularly hydro and solar power generatio,n to which it provides ‘Diminishing Musharakah’ facilities.
UAE – Emirates Islamic
Emirates Islamic has been named Islamic Bank of the Year for the UAE for the first time in 2019, thanks to its impressive financial performance, improving customer services, and expanded product portfolio.
After its balance sheet took a hit in 2018 due to the implementation of IFRS 9, Emirates Islamic’s sharia assets bounced back in 2019, increasing to 10.7% to $17.6 billion, including a 14.8% rise in Tier 1 capital. Profits rose 14.8% to $289.9 million, bumping up Return on Equity to 13.7% from 12.7% in 2018. Cost to income improved to 42.2% from 46.8%, while the NPL ratio improved to 7.6% from 8.2%.
Launched in 2004, Emirates Islamic has been one of Dubai’s pioneering Islamic banks, and has been selected as the the official Islamic banking partner of Expo 2020 Dubai, recently postponed until 2021 due to the coronavirus outbreak.
The bank – a wholly owned subsidiary of Dubai’s largest lender Emirates NBD – has worked hard on streamlining its customer service, reducing turnaround time by introducing “implied consent” as part of personal finance applications, and introducing image based disbursals, revised forms and parallel verification as part of its revamped credit card initiative.
Other developments include the launch of the bank’s Etihad Guest credit cards in partnership with Etihad Airlines, and new partnerships with government entities including the Sharjah Housing Program and the Sheikh Zayed Housing Program.
Newly launched sharia-compliant services offered by the bank include its global equity trading desk, enabling clients to transact in approved Sharia-compliant equities in US and European markets seven days a week, and complex Sharia-compliant hedging and derivative transactions and structures such as collared and floored floaters, cross currency swaps, FX options, and callable swaps for hedging needs.
Yemen – Al-Amal Microfinance Bank (AMB)
Yemen is a newcomer to The Banker’s Islamic Bank of the Year Awards in 2019, with Al-Amal Microfinance Bank (AMB) being crowned the country’s inaugural winner. Despite operating in some of the world’s most challenging market conditions – the country’s civil war, now in its sixth year, has claimed over 230,000 lives – AMB has managed to record impressive financial growth, while expanding its digital and green financing offerings.
AMB’s asset base grew by 14% in 2019, including a 25% rise in Tier 1 capital, with net profits increasing by 21% over the same period. Asset quality has improved significantly over the past three years, in an operating environment impacted by dwindling business activity, loss of salaries and suspensions of loans. AMB’s NPL ratio has fallen to 61% in 2019 from 96% in 2017, with the percentage of NPL loans for loans dispersed after 2017 standing at less than 1%.
In a challenging operating environment, the microlender has relied heavily on digital technology, specifically the agent network model that does not rely on a physical branch network. AMB has developed a network of more than 6000 agents offering services including individual and social cash transfers and NGO salary payments.
In late 2019 AMB launched its e-loan electronic loan service, the first product of its kind in the country’s microfinance industry, offering loans of between YER30,000-100,000. After launching in late-October, AMB has made more than 1,300 loans totalling more than YER89 million.
The e-loan product follows the launch of AMB’s PYes service, enabling customers to open an account with only a mobile phone. The service, which operates via SMS or a dedicated app, enables customers to make purchases, transfer money and pay bills.
Among the other loan products the bank offers is its Al-Amal Alternative Energy Product, targeted at farmers looking for funding for solar and other projects. Launched in late 2018, the product has seen over 200 loans granted, with over YER 980 million.