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3rd Meeting of COMCEC Financial Cooperation Working Group3rd Meeting of COMCEC Financial Cooperation Working Group
Utku SenUtku Sen
October 16th, 2014Ankara, Turkey
Making Cooperation Work
For Building an Interdependent Islamic World
COMCEC FINANCIAL OUTLOOK
2014
COMCEC FINANCIAL OUTLOOK
2014
COMCEC STRATEGYCOMCEC STRATEGY
2For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
OUTLINE
Recent Financial Developments
Financial Outlook of COMCEC Member
States
3For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
RECENT FINANCIAL DEVELOPMENTS
4For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Recent Financial Developments Six years after the start of the crisis, global economic
recovery continues to rely on accommodative monetarypolicies.
Accommodative policies created two types of risks: Economic risk taking in advanced economies Financial risk taking in the emerging markets for higher yield
QE supported recovery in U.S., whereas Euro Area is stillfar from the recovery and facing low inflation.
Speculation about ending to the QE, caused turmoil in themarkets in May 2013 and Jan 2014.
Emerging markets became more vulnerable to shocks thandeveloped countries.
Source: IMF, World Bank
5For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
A signal of end to the QE3
Political turmoil in some developing countries
Serious capital outflows from EMs
Depreciation of local currencies and hiking interest rates
Recent Financial Developments May 2013 October 2014
End of QE3 in U.S.
Monetary easing in Euro Area
More tightened financial conditions
Greater financial stability risk
Jan 2014 Slowing economic
growth and default risk in the shadow banking in China
Devaluation of Argentina peso
Recent Developments in Ukraine and MENA
Currency depreciations, rising interest rates but less than in May
6For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Selected Stocks of COMCEC Member States
Source: Bloomberg
70
75
80
85
90
95
100
105
110
115
120
125
130
135
140
145
150
155
160
165
170
Malaysia
Indonesia
Bahreyn
Egypt
Qatar
Turkey
SaudiArabia
7For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Source: IMF, World Bank
Economic Growth Rates (Forecast)
7
2.8%
3.4%
3.3%
3.8%
2.5%
2.7%
2.9%
3.1%
3.3%
3.5%
3.7%
3.9%
4.1%
2014 2015
Global Growth Rate
World BankIMF
1.1%
1.8%
0.8%
1.3%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
2014 2015
Euro Area Growth Rate
World BankIMF 4.8%
5.4%
4.4%
5.0%
4.0%
4.2%
4.4%
4.6%
4.8%
5.0%
5.2%
5.4%
5.6%
2014 2015
Developing Countries Growth Rate
World BankIMF
2.1%
3.0%
2.2%
3.1%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
2014 2015
U.S.A Growth Rate
World BankIMF
8For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Comparative Growth Rates
Source: Calculated by using IMF Database
4.6% 4.5%
5.2%
5.6%
0%
1%
2%
3%
4%
5%
6%
2013 2014 2015 2016
Advanced Economies Emerging Market and Developing Economies OIC World
9For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Islamic Finance Outlook Global Islamic
Finance Assets
OutstandingSukuks
First SukukIssuance in 2014
Global IslamicBanking
Iran42%
Saudi Arabia18%
Malaysia9%
UAE7%
Kuwait6%
Qatar4%
Turkey3%
Bahrain2%
Indonesia1%
Bangladesh1% Egypt
1%
Sudan1%
Pakistan1%Others
4%
Global Islamic Bank Assets
USD 1.8tln
USD 270bln
• UK• Luxemburg• South Africa• Hong Kong• Tunisia
USD 1.4tln
Islamic Banking Assets; USD 1,426.0 bln.
80%
SukukOutstanding; USD 269.4 bln. 15%
Islamic Fund Asstes; USD 71.6
bln. 4%
Takaful; USD 19.9 bln. 1% Islamic Finance Assets
Source: Kuwait Finance House
10For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
FINANCIAL OUTLOOK OF COMCEC REGION
10
11For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
FINANCIAL DEPTH• Measures the size of financial institutions and
marketsFINANCIAL ACCESS
• Measures to the degree to which individuals can use financial institutions and markets
FINANCIAL EFFICIENCY• Measures the efficiency of financial institutions and
markets in providing financial servicesFINANCIAL STABILITY
• Measures the stability of financial institutions and markets
12For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Selected Financial Data
Source: World Bank
FINANCIAL INSTITUTIONS FINANCIAL MARKETS
DEPTH • Private Sector Credit to GDP Stock Market Capitalization• Deposits to GDP Stock Traded to GDP
ACCESS
• Account per 1.000 Adults
5 Bank Asset Concentration• Bank Branches per 100.000 adults• Adults with an Account at a Formal Financial
Institution to Total Adults %• Adults Saving at a Financial Institution in the
Past Year to Total Adults %
EFFICIENCY• Net Interest Margin
Stock Market TurnoverRatio• Lending Deposit Spread (%)
• Non-interest Income to Total Income
STABILITY• Z-Score
Volatility of Stock Price• Capital Adequacy Ratios• Non-Performing loans (%)
13For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Categorization of COMCEC Member States
Source: World Bank
Categories Countries Number of Countries
OIC-Low income group US$ 1035 or less
Afghanistan, Bangladesh, Benin, Burkina Faso, Chad, Comoros, The Gambia, Guinea, Guinea Bissau, Kyrgyz Republic, Mali, Mozambique, Niger, Sierra Leone, Somalia, Tajikistan, Togo, Uganda
19
OIC-Lower middle income groupUS$ 1,036 to US$ 4,085
Cameroon, Côte d'Ivoire, Djibouti, Egypt, Guyana, Indonesia, Mauritania, Morocco, Nigeria, Pakistan, Senegal, Sudan, Syria, Uzbekistan, Yemen
15
OIC-Upper middle income US$ 4,086 to US$12,615
Albania, Algeria, Azerbaijan, Gabon, Islamic Republic of Iran, Iraq, Jordan, Kazakhstan, Lebanon, Libya, Malaysia, Maldives, Suriname, Tunisia, Turkey, Turkmenistan
16
OIC-High income groupUS$ 12,616 or more
Bahrain, Brunei Darussalam, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates 7
14For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
FINANCIAL DEPTH
FINANCIAL ACCESS
FINANCIAL EFFICIENCY
FINANCIAL STABILITY
15For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
FINANCIAL DEPTH
1 • Private Credit to GDP Ratio
2 • Bank Deposits to GDP Ratio
3• Stock Market Capitalization
to GDP
16For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
0%5%
10%15%20%25%30%35%40%45%50%55%60%65%70%75%80%85%90%95%100%
OIC‐LIG OIC‐LMIG OIC‐UMIG OIC‐HIGH WORLD Average OIC Average
2009
2010
2011
Private Credit to GDP Ratios
Source: Calculated by using World Bank Database
W- LIC
W-UMIC
W- HIGH
17For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
0%5%
10%15%20%25%30%35%40%45%50%55%60%65%70%75%80%85%90%95%
100%
OIC‐LIG OIC‐LMIG OIC‐UMIG OIC‐HIGH WORLD Average OIC Average
2009
2010
2011
Bank Deposits to GDP Ratios
Source: Calculated by using World Bank Database
W-UMIC
W-HIGH
W-LIC
18For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
OIC‐LIG OIC‐LMIG OIC‐UMIG OIC‐HIGH WORLD Average OIC Average
2009
2010
2011
Stock Market Capitalization to GDP
Source: Calculated by using World Bank Database
W-LIC
W- UMIC
W-HIGH
19For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Analysis of Financial Depth
AFG
ALB
DZA
AZE
BGD
BEN
BRN
CMRTCD
COM
CIV
EGY
GAB
GUY
IDN
JOR
KAZ
KWT
LBN
MYS
MDV
MLI
MAR
MOZNGA
OMN
PAK
QAT
SAU
SEN
SLE
GMB
TUN
TUR
UGA
UAE
YEM
0
20
40
60
80
100
120
140
0 20 40 60 80 100
Private credit to GDP (%)
Bank
dep
osits
to GDP (%
)
Source: Calculated by using World Bank Database
2011
20For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
FINANCIAL DEPTH
FINANCIAL ACCESS
FINANCIAL EFFICIENCY
FINANCIAL STABILITY
21For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
FINANCIAL ACCESS
1• Bank Accounts per 1,000
Adults
2• Bank Branches per 100,000
Adults
3• Adults Saving at a Financial
Institution
22For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
0
100
200
300
400
500
600
700
800
900
1.000
1.100
1.200
OIC‐LIG OIC‐LMIG OIC‐UMIG OIC‐HIGH WORLD Average OIC Average
2009
2010
2011
Source: Calculated by using World Bank Database
Bank Accounts per 1,000 Adults
W-LIC
W-UMIC
W-HIGH
23For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Bank Branches per 100,000 Adults
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
OIC‐LIG OIC‐LMIG OIC‐UMIG OIC‐HIGH WORLD Average OIC Average
200920102011
Source: Calculated by using World Bank Database
W-LIC
W-UMIC
W-HIGH
24For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Adults Saving at a Financial Institution to Total Adults
Source: Calculated by using World Bank Database
0%
5%
10%
15%
20%
25%
30%
35%
40%
OIC‐LIG OIC‐LMIG OIC‐UMIG OIC‐HIGH WORLD Average OIC Average
2011
W - HIGH
W-UMICW - LIC
25For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Source: Calculated by using World Bank Database
Analysis of Financial Depth and Access
AFG
ALB
DZA
AZE
BGD
BEN
BFA
CMR
TCD
COM
EGY
GABGIN
IDN
JOR
KAZ
KWT
LBN
MYS
MLIMRT
MAR
MOZ
NER
NGAOMN
PAK
QAT
SAU
SEN
SLE
TUN
TUR
UGA
UAE
YEM
0%
20%
40%
60%
80%
100%
120%
140%
160%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Ban
k de
posi
ts to
GD
P (%
)
Adults saving at a fin. inst. in the past year to total adults (%)
2011
26For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
FINANCIAL DEPTH
FINANCIAL ACCESS
FINANCIAL EFFICIENCY
FINANCIAL STABILITY
27For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
FINANCIAL EFICIENCY
1 • Net Interest Margin
2 • Stock Market Turnover Ratio
28For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Net Interest Margin Rates
0%
1%
2%
3%
4%
5%
6%
7%
8%
OIC‐LIG OIC‐LMIG OIC‐UMIG OIC‐HIGH WORLD Average OIC Average
2009
2010
2011
Source: Calculated by using World Bank Database
W-LIC
W- HIGH
W-UMIC
29For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Stock Market Turnover Ratio, 2011
Source: Calculated by using World Bank Database* Turkey: 172%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Stock market turnover ratio (value traded/capitalization) (%)
2011
30For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
FINANCIAL DEPTH
FINANCIAL ACCESS
FINANCIAL EFFICIENCY
FINANCIAL STABILITY
31For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
FINANCIAL STABILITY
1 • Z-Score
2 • Non-Performing Loans
3• Adults Saving at a Financial
Institution
32For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Z-Scores
0
2
4
6
8
10
12
14
16
18
20
22
24
OIC‐LIG OIC‐LMIG OIC‐UMIG OIC‐HIGH WORLD Average OIC Average
2009
2010
2011
Source: Calculated by using World Bank Database
W-HIGHW-UMIC
W-LIC
33For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
OIC‐LIG OIC‐LMIG OIC‐UMIG OIC‐HIGH WORLD Average OIC Average
2009
2010
2011
Non-Performing Loans (NPL)
Source: Calculated by using World Bank Database
W-LIC
W-HIGH
W-UMIC
34For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Capital Adequacy Ratios
Source: Calculated by using World Bank Database
0
5
10
15
20
25
30
35Capital Adequacy Ratios (%)
2011
35For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Analysis of Financial Stability and Depth
Source: Calculated by using World Bank Database
ALB
EGY
GAB
IDN
JOR
KAZ
LBN
MYS
MAR
MOZ NGA
OMN
PAK
SLE
TUR
UGA
UAE
0
20
40
60
80
100
120
0 5 10 15 20 25 30 35
Priv
ate
cred
it by
dep
osit
mon
ey b
anks
and
oth
er
finan
cial
inst
itutio
ns to
GD
P (%
)
Bank non-performing loans to gross loans (%)
2011
36For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGYMaking Cooperation Work
Overall AssessmentFinancial Depth Financial Access Financial Efficiency Financial Stability
OIC-LIG
• Limited private credit opportunities
• Underdevelopedbanking sector and security market
• Lower access to financial services
• Low saving rates
• Higher transaction/intermediation costs
• Limited liquidity in the security market
• Higher NPLs
• Higher probabilityof insolvency
OIC-LMIG
• Underdevelopedbanking sector and security market
• Lower access to financial services
• Lower saving rates
• Transaction/intermediationcosts in line with world average
• Higher NPLs• Higher probability
of insolvency
OIC-UMIG
• Better developed banking sector and security market
• Lower saving rates
• Usually low volumes of stock market in many countries
• Higher NPLs• Higher probability
of insolvency
OIC-HIGH
• Better developed banking sector and security market
• Better access to financial services
• Higher saving rates
• Usually low volumes of stock market in many countries
• Lower transaction/ intermediation cost
• Lower NPLs• More resilient to
shocks
Thank YouThank You
Making Cooperation Work
For Building an Interdependent Islamic WorldCOMCEC STRATEGYCOMCEC STRATEGY
16 October 2014Ankara, Turkey
3rd Meeting of COMCEC Financial Cooperation Working Group3rd Meeting of COMCEC Financial Cooperation Working Group
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