Islamic banks say their small scale and a lack of risk-management products makes it harder for them to compete, after Ernst & Young LLP warned low (more)
Islamic banks say their small scale and a lack of risk-management products makes it harder for them to compete, after Ernst & Young LLP warned lower profitability threatens to slow expansion of the $1.8 trillion industry.
The average return on equity at Shariah-compliant lenders was 11.6 percent in 2011, compared with 15.3 percent at their non-Islamic counterparts, according to a December report by Ernst & Young that covered 12 countries. The use of hedging and treasury solutions is lagging behind, Haszeri Hussin, head of Islamic global markets at Hong Leong Islamic Bank Bhd. (HLBK), a unit of Malaysia's fourth-biggest lender, said in a March 1 interview.
Financial holdings that comply with the religion's ban on interest will grow at least 11 percent in 2013 to more than $2 trillion, compared with average annual expansion of 19 percent over the past four years, Ernst & Young forecast. Shariah banks had an average $17 billion of assets in 2011, less than the $65 billion for non-Islamic lenders, resulting in operating costs as a proportion of holdings that were 50 percent higher, said Ashar Nazim, the company's global head of Islamic banking.
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