17© 1st October 2014

ANALYSISIFN SECTOR ANALYSISPRIVATE BANKING & WEALTH MANAGEMENT

Driving forcesIslamic private banking and wealth management is seen to be at a strong stance, expanding at a favorable growth rate. Over the past few years, the major driving factor for this market segment has been the strength of the Sukuk market, the availability of further Sukuk and the ability of private banks to provide leverage for Sukuk to their customers. There seems to be a demand for home-biased asset classes such as IPOs, the real estate market, Sukuk transactions and the public securities market. Several Islamic banks have expanded to accommodate the growth in these areas.

ChallengesAmong the identifi able challenges for this market segment is creating a balance; in terms of both structure and innovation. Equilibrium must be created in terms of att racting new clients and maintaining the existing ones. In terms of maintaining existing clients, the private bank/wealth management fi rm has to be able to create a range product suite that are of quality and which cater to the needs of the clients.

Innovation must not be pursued for the sake of innovation. “When some bankers talk about innovation in product, they talk about something that is more complicated; more structured something that is more diffi cult for the investor to understand. What’s more important is to deliver products that are innovative in terms of that they address a diff erent segment in a diff erent way,” explained Brian Luck, director at Asiya Investments, to IFN.

Middle EastThe re-emergence of the real estate market has created excitement among private banks and investors alike. Additionally, with the local stock markets rallying, private banks are seen to be providing good leverage to their clients

to allow them access to local stocks. In terms of risky assets, Middle Eastern investors prefer to invest locally; while for safe assets investors are open to put their money outside their local domicile.

In testament to this growth, Shariah compliant Noor Bank is in the process of developing private banking, wealth management and treasury solutions for a broader defi nition of priority banking customer and intends to build its own wealth management platform in the third quarter of the year, with brokerage arm of Dubai International Financial Center. The bank is also contemplating tie-ups with off shore asset booking centers in Singapore and Jersey.

AsiaIn terms of UHNWIs Asia Pacifi c has registered a year-on-year growth of 2% in 2013, and commands a 10-year market projection accretion of 43%; Malaysia alone expects the number of its high net worth investors to double within the next fi ve years to 60,000, according to reports. Middle Eastern investors are starting to look at Malaysia for real estate investments.

Bridging borders, Bank Muamalat Malaysia recently signed an MoU with UK’s Bank of London and the Middle East through which the two Islamic fi nancial institutions will collaborate in establishing a joint Islamic private banking presence in Malaysia. The MoU facilitates both parties to work towards the research and development to off er private banking services focusing on off ering products and solutions to domestic and cross-border clients in

Malaysia. Bank Muamalat has begun due diligence on product concepts and expects to ready a framework within the next six months.

EuropeThe total value of Shariah compliant assets has grown by 150% since the year 2006. London and Luxembourg are rolling out initiatives to att ract Middle Eastern investors. The UK is the leading western country and Europe’s premier center for Islamic fi nance with reported assets worth US$19 billion. According to Luxembourg for Finance, the Grand Duchy is to date the largest European domicile of Islamic investment funds in this sector and occupies the fi fth position in the world.

One of the main challenges for this market segment in Europe is raising awareness among European Muslims and educating them on Shariah compliant fi nancial solutions that are available in the market. Apart from att racting international investors, industry players must also develop their respective domestic markets. “Another way to propel the growth of the sector is to provide more effi cient and innovative products than those off ered by conventional fi nance which may in turn att ract non-Muslim consumers — the largest reserve growth for the Islamic fi nancial industry,” opined Ezzedine Ghlamallah, director of SAAFI, a Paris-based Islamic fi nancial advisory fi rm.

OutlookThere is a constructive outlook on Shariah compliant private banking and wealth management. Industry players especially in the Middle East seem to favour its promising growth. Wealth managers must be able to maximize opportunities especially as the equity markets are opening up. As for innovation, it must be seen to encompass creation of products, service level, and the structure of a private banking business.

Private banking and wealth management: Towards a sustainable growthPrivate banking and wealth management in the Shariah compliant space is perceived to be growing at a healthy momentum. Industry reports have estimated that the number of UHNWI (individuals with at least US$30 million in assets) in traditionally Muslim regions has increased signifi cantly with the Middle East, charting a 2% year-on-year growth and forecasted to grow 35% in the next 10 years. NABILAH ANNUAR takes a closer look at the driving factors and existing challenges that face this niche area of the industry.