Profits of UAE Islamic banks have risen 68 per cent in the past four years and are expected to tread higher against the backdrop of a flourishing economy and skyscraping oil prices.
Deposits have witnessed a similar swell in volumes, with the market share of Islamic banks consistently increasing against the conventional banking system. According to a recent report by Kuwait-based Global Investment House (GIH), an investment bank, deposit collection saw a 22 per cent year on year increase in June 2007 and recorded a compounded growth of 44 per cent from 2003 to 2006.
In the first quarter of this year, Islamic banks' share in the UAE's total banking assets reached 13.4 per cent, up from eight per cent at the end of 2002. The country saw a range of Shariah-compliant products introduced and Islamic products such as Ijarah and Murabaha have become common in property transactions.
The region has also witnessed sukuks attracting large investor volumes with subscriptions exceeding planned issuance, even in large-sized mandates. The significance of Islamic banking was further underlined as a few of the major banks started Islamic banking wings or, in some cases, converted themselves into Islamic banks, the Kuwaiti investment bank said.
EBI, for instance, formed Emirates Islamic Bank by converting its subsidiary, Middle East Bank, into an Islamic one. New issuance of licences include Abu Dhabi-based Al-Hilal bank in 2007 and Ajman bank in 2008.
"Supplemented by limited exposure to the US sub-prime and related structured investment products, nominal provisioning needs, adherence to best risk management practices and support and commitment from affluent sponsors regarding capital enhancement as and when required, we see no reason why the banking sector may not prosper," the report said.
While the banking sector exhibited healthy price appreciation, Islamic banks too made their presence felt by matching the sector's performance, it said, adding that the only exception from the peer group is Sharjah Islamic Bank (SIB).
"SIB beat the sector and the index and made its investors 70 per cent richer in the process. This was followed by Abu Dhabi Islamic Bank (ADIB) which grew by a remarkable 30 per cent year on year," it said.
22%: Islamic banks' deposit collection saw a 22 per cent year on year increase in June 2007 and recorded a compounded growth of 44 per cent from 2003 to 2006.