Islamic Banking in Oman First Islamic Finance and
Islamic Banking in Oman First Islamic Finance and Banking Conference January 23 rd 2012
Today’s discussion points Why Islamic Banking? § Pent-up demand § Availability of Islamic liquidity, particularly internationally § Potential for innovation Size of the prize? § Up to USD 15 Bn, next 4 -5 years Growth drivers? § Favourable macro-economics § Attractive demographics § New entrants Main opportunities? § Mass-affluent, mortgages and personal credit § Infrastructure and real estate, SMEs How to win? § § Booz & Company First mover advantage; source deposits Cross border funding Selective, innovative strategies Sharia’h credibility with customers 1
Why Islamic banking? Pent-up demand § Religious sentiment among large consumer segment § Recent survey ~ 70% of customers likely to switch to Islamic banks Availability of Islamic liquidity, particularly internationally § Large (~ USD 800 Bn) and fast growing (25 -30%) liquidity in Islamic finance globally § Islamic banks can ‘bridge’ Islamic liquidity to the Sultanate Potential for innovation Booz & Company § Excess capacity and heightened competition… § … drives greater product, service and channel innovation to build customer and deposit base and boost profitability 2
Size of the Price? Asset Credit GDP Penetration 38% 37% 35% 45% 57% 29% 2016 28% 34% 27% 17% 25% GCC Avg. Booz & Company 28% 24% 4% 30% 225% 18% 17% 3% 34% 31% Islamic Up to USD 15 Bn Assets Penetration/ 15 -20% Total Assets Penetration/ 12 -15% GDP 1% 38% 35 % 3
Growth drivers? Favorable macro-economic outlook § Economic diversification and greater infrastructure spend § Higher capital inflows, vibrant private sector § Growing FDIs and trading volumes Attractive demographics § Young population (62% under the age of 30), large and growing middle class ( >60% of total income) § Growing affluence and income levels - improving education infrastructure and Omanization New entrants § Two new licensed banks (Nizwa and Al-Izz), sizeable capitalization (USD 600 -800 Mn) § Main incumbents launching windows (Bank Muscat, Al Ahli, NBO, Oman Arab Bank etc. ) Booz & Company 4
Main opportunities? - Personal banking Segments Affluent (incl. mass affluent) § ~25 -30% of bankable population; 10 -15% growth; ~40 -50% of revenue pool § Underserved; needs differentiated/ tailored services/ channels Products % of 2016 Revenue Pool Personal Credit 60 -65% Mortgages Young High networth Booz & Company § High growth segment § Future feeder for affluent § Sizeable wallet and cross-sell potential (~20 -30% of revenue pool) § Needs offshore center and dedicated onshore coverage team AUMs and Bankatakaful Growth (2011 -2016) 10 -15% 15 -20% 10% Credit Cards 7% Remittances And Others 5% 15 -20% 10 -15% 7 -10% 2016 Revenues ~ USD 1. 5 -2. 0 Bn 5
Main opportunities? Infrastructure financing Project Finance Commitments Expected Project Finance Commitments 2005 - 2011 YTD 2011 - 2016 YTD Capabilities needed § Long-term, stable funding New Players Potential § End-to-end project finance solutions: Domestic – Structuring/ advisory, industry-specific (e. g. , utilities, LNG, transport) 25 -30% – Syndications(Sukuks/ securitization) Foreign 50 -60% 15 -25% 80% Local Foreign Total Financing ~ USD 25 -27 Bn Booz & Company – Banking solutions (e. g. , supplier financing, payment management) Total Financing ~ USD 45 -50 Bn 6
Main opportunities? Real estate and construction sector Demand § Construction finance fastest growing sector (~ 41% CAGR over past 5 years), ~ USD 3 Bn in 2010 § Real estate and construction projects continuing ~ USD 6 Bn (next five years) § Growth drivers: Need for affordable/ modern housing, urbanization (e. g. , Sohar, Duqam, Salalah), and large Integrated Tourism Complexes Capabilities needed § Shariah-compliant tailored solutions across the real estate value chain § One-stop-shop for financing projects of local/ regional developers, offering: – Capital raising and distribution/ placement with own affluent/ HNW customers and regional investors (retail and institutional) – Channeling liquidity through funds, DCM, direct equity and/ or long-term financing vehicles (Istisnaa, Ijara, Musharaka) – Asset management – Financing for customers and investors Booz & Company 7
Main opportunities? SMEs Demand § 10, 000 – 15, 000 SMEs in the Sultanate § SME contribution to grow given private sector boost (particularly in manufacturing, trade, logistics) § SME financing to grow (SME financing in GCC still limited: 2 -5% of total loan book vs. 10 -15% in OECD) Capabilities needed Tailored Solutions Superior Service Technology Innovation Booz & Company § Easy and timely access to financing § SME packages and bundles § Advisory center § Dedicated RMs § Dedicated SME areas and contract center § Simplified processes and custom pricing § SME e-Platform § Alternative and innovative channels 8
How to win? § § § Launch early (First mover advantage) § Build cross border funding and FI relationships § Attract long-term funding (e. g. , government deposits) Tough to generate returns from mainstream segments (personal and corporate) § § Be selective on where to play ‘Man on the street’ is demanding stricter Shariah-compliance § § Build-up appropriate Shariah skills rapidly There will be losers - excess capital and rapid switching of deposits Pressure on local balance sheets to provide large-scale and long-term funding (infrastructure, real estate) Booz & Company Focus on sourcing deposits early-on Adopt innovative strategies Use proven products to gain credibility 9
Recap Why Islamic Banking? § Pent-up demand § Availability of Islamic liquidity, particularly internationally § Potential for innovation Size of the prize? § Up to USD 15 Bn, next 4 -5 years Growth drivers? § Favourable macro-economics § Attractive demographics § New entrants Main opportunities? § Mass-affluent, mortgages and personal credit § Infrastructure and real estate, SMEs How to win? § § Booz & Company First mover advantage; source deposits Cross border funding Selective, innovative strategies Sharia’h credibility with customers 10
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