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Press Release > 2018

The IFSB Secretary-General's Speech at the Official Launch of the IFSI Stability Report 2018 at the Astana Islamic Economy Forum

Date posted: 5 July 2018

Date : 4 July 2018
Event / Venue : Launching of the Islamic Financial Services Industry Stability Report 2018 | Astana Islamic Economy Forum | Kazakhstan
Speaker : Dr. Bello Lawal Danbatta Secretary General, IFSB

Assalamu’alaikum (السلام عليكم ورحمة الله وبركاته) and a very good morning to all of you.

♦ Greetings (Welcoming Remarks)

First of all, on behalf of the IFSB, I would like to express my appreciation to the Astana International Financial Centre and to His Excellency, Dr. Kairat Kelimbetov, Governor Astana International Finance Centre for inviting me and giving us the opportunity to officially launch the IFSB’s Stability Report 2018 at this important Forum, in this beautiful city of Astana.

I would also like to extend a warm welcome to the distinguished speakers and panellists, and to the audience here today, that comprise of important stakeholders of the global Islamic finance industry many of whom are members of the IFSB. 

♦ The IFSI Stability Report 2018

Your Excellences, Distinguished Guest, Ladies and Gentlemen, 

As you may be aware, the IFSB publishes an annual Islamic Financial Services Industry (IFSI) Stability Report series, which has aimed to provide a global assessment of key developments in the Islamic finance services industry – analysing recent trends across the Islamic banking, Islamic capital market and takāful sectors. It also provides an analysis of the key resilience indicators for the industry, highlighting some of the current and emerging challenges to its stability in the context of the global economic and financial environment as well as developments in the regulatory environment.

The IFSI Stability Report, since its first issuance in 2013, has over time become a benchmark publication to track the resilience and stability of the Islamic financial services industry.

A key feature of the Report is that it utilises data from the IFSB’s Prudential and Structural Islamic Financial Indicators (PSIFIs) database to analyse the Islamic banking sector. The use of this data has enriched the Report by strengthening the quality and reliability of its data sources, which is directly from regulatory and supervisory authorities, as well as providing wider geographical coverage of jurisdictions with a much higher level of completeness of data on each jurisdiction.

The sixth edition of this Report, which is being launched today, looks at the recent developments in the global Islamic financial services industry, particularly during 2017, amidst various opportunities as well as challenges emerging on the global front. 

♦ The state of the IFSI in 2017 amidst improvements in the global economy…

Your Excellences, Distinguished Guests, Ladies and Gentlemen, 

Allow me now to present some key findings of the IFSI Stability Report 2018. My remarks today will focus on two areas: the development trends, strengths and vulnerabilities observed in the three main sectors of the industry in view of the wider global context; and the need for strengthening the regulatory environment and the consistency of implementation of prudential standards to sustain the growth momentum of the industry in the face of global uncertainties and risks. 

From an overall perspective, the issuance of this Report takes place against a backdrop of better than expected global economic performance in 2017, which marks the most assured sign of recovery since the global financial crisis of 2007-08. This recovery has been led by a notable rebound in global trade as well as investment recovery in advanced economies. However, the political landscape remains challenging with wider implications for regional instability and resulting economic challenges. While the near-term outlook is favourable, longer term risks remains, due to among other things, the persisting policy uncertainties in the international environment.

Over the year in review, the global IFSI reverted to its positive growth trajectory with the industry’s assets surpassing USD 2 trillion. This marked an 8.3% growth in assets in US Dollar terms following two years of assets’ growth stagnation. 

All three sectors – Islamic banking, Islamic capital markets and the takāful sector - contributed to this robust growth, although the most marked rebound in performance was experienced by the Islamic capital markets. Owing to the strong performance in the ICM sector, Islamic funds and ṣukūk markets combined now represent 22.8% of the global IFSI assets – entrenching the ICM further as a key and viable component of the global IFSI. 

You will recall that in the past, the Islamic banking sector used to contribute over 80% of the industry assets. However, we are now witnessing that its overall share is shrinking amid the increasing size of the Islamic capital market sector.

♦ Islamic Banking

Your Excellences, Distinguished Guest, Ladies and Gentlemen, 

Turning to the banking sector, the global Islamic banking industry saw a 4.3% expansion in assets in 2017, reaching approximately USD 1.56 trillion. Key asset increases were experienced across all major regions, including the GCC, MENA (ex. GCC) and Asia. 

It is also noteworthy that, as of January 2018, with the introduction of Islamic banking in South America recently, Islamic banking products are now offered across all six habitable continents of the world. 

In this report, you will find that market shares of Islamic banks have increased in at least 19 jurisdictions and remained constant in seven others.

And we believe with the IMF Executive Board’s recent endorsement of the IFSB’s Core Principles for Islamic Finance Regulation, we expect to see more expansion and better resilience of the Islamic banking sector in most of these jurisdictions.

Islamic Capital Markets

The Islamic capital markets as mentioned earlier, saw positive developments during 2017, across all segments.

Ṣukūk issuances in the primary market increased by nearly 23% due to remarkable increases in sovereign and multilateral issuances in key Islamic finance markets. 

♦ Takāful (Islamic Insurance)

The global takāful sector on the other hand, which has traditionally posted double-digit growth rates for its gross contributions, recorded a 12.5% increase, reaching USD 26.1 billion as at end-2016, although the overall share of takāful in the global IFSI still remains small at 1.3%

Four countries account for nearly 86.4% of the global takāful contributions in 2016; Saudi Arabia (at 38%), Iran (at 34%), Malaysia (at 7%) and the UAE (at 6%). 

As highlighted in the Report, this sector presents significant untapped potential as most of the potential markets continue to show low insurance penetration rates for both general and family takāful businesses. However, the takāful sector, given its nascent size, continues to face a difficult operating environment, as a result of stiff competition from the larger and more established insurance companies. 

♦ Emerging Issues

Your Excellences, Distinguished Guest, Ladies and Gentlemen, 

The Report dedicates a chapter to developmental aspects of Islamic finance, highlighting key emerging issues in Islamic finance. Previous editions of the Report have covered a range of topics from an Islamic finance perspective, including Fintech, Stress testing, Cross-Sectoral Links, Regulatory consistency assessment programmes (RCAP), AML/CFT and Consumer Protection, to mention a few.

The current edition of the Report undertakes a comprehensive analysis of the diversity of the legal infrastructure and Sharīʿah governance frameworks as applied in various jurisdictions, looking into a number of key issues areas, including legal systems for Islamic finance, resolution frameworks for Islamic banks and Sharīʿah governance regimes.

♦ Collaboration

In this edition of the Report, you will find box articles contributed by the Autoriti Monetari Brunei Darussalam, the Central Bank of Oman and the International Islamic Liquidity Management Corporation (IILM) discussing regulators’ response towards specific market enhancement and sharing industry experiences in Brunei and Oman. The IFSB hopes that this form of collaboration with other institutions will lead to the development of a global network of expertise that can help to increase awareness and understanding of emerging issues faced by the IFSI. 

♦ Conclusion

Overall, the report highlights that the global IFSI needs to build long-term resilience as, despite strong performances recently, all three sectors showed weaknesses in some respects. While improvements in capitalisation, liquidity and clean-up of legacy non-performing financing is a priority in the Islamic banking segment, operational scale and efficiency appears to be a primary concern in the ICM and takāful segments.

In line with its mandate, the IFSB has responded on a number of fronts with a series of next-generation prudential standards and guiding principles that align global regulatory frameworks with the specificities of Islamic finance. In addition to completing four standards and technical notes in next 9 months, we are also launching three more standards in next few weeks in all three sectors. 

Going forward, in addition to strengthening its standards implementation programme by adding impact and consistency assessment (RCAP) dimensions, the IFSB will continue to develop new standards and guiding principles that extend to all sectors of IFSI. 

Let me now conclude my remarks by once again thanking all the participants who are here today. I am confident that the deliberations at this Forum will provide a set of discussions and conclusions that will further enrich and strengthen the global IFSI.

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