For Building an Interdependent Islamic World For Building an Interdependent Islamic World COMCEC STRATEGY Making Cooperation Work Islamic Finance Outlook Global Islamic Finance Assets

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


RECENT FINANCIAL DEVELOPMENTS


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


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


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


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


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


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


FINANCIAL OUTLOOK OF COMCEC REGION

10


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


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 (%)


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


FINANCIAL DEPTH

FINANCIAL ACCESS

FINANCIAL EFFICIENCY

FINANCIAL STABILITY


FINANCIAL DEPTH

1 • Private Credit to GDP Ratio

2 • Bank Deposits to GDP Ratio

3• Stock Market Capitalization

to GDP


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


0%5%

10%15%20%25%30%35%40%45%50%55%60%65%70%75%80%85%90%95%

100%


2009

2010

2011

Bank Deposits to GDP Ratios


W-UMIC

W-HIGH

W-LIC


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%


2009

2010

2011

Stock Market Capitalization to GDP


W-LIC

W- UMIC

W-HIGH


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 (%

)


2011


FINANCIAL DEPTH

FINANCIAL ACCESS


FINANCIAL STABILITY


FINANCIAL ACCESS

1• Bank Accounts per 1,000

Adults

2• Bank Branches per 100,000

Adults

3• Adults Saving at a Financial

Institution


0

100

200

300

400

500

600

700

800

900

1.000

1.100

1.200


2009

2010

2011


Bank Accounts per 1,000 Adults

W-LIC

W-UMIC

W-HIGH


Bank Branches per 100,000 Adults

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30


200920102011


W-LIC

W-UMIC

W-HIGH


Adults Saving at a Financial Institution to Total Adults


0%

5%

10%

15%

20%

25%

30%

35%

40%


2011

W - HIGH

W-UMICW - LIC



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


FINANCIAL DEPTH

FINANCIAL ACCESS


FINANCIAL STABILITY


FINANCIAL EFICIENCY

1 • Net Interest Margin

2 • Stock Market Turnover Ratio


Net Interest Margin Rates

0%

1%

2%

3%

4%

5%

6%

7%

8%


2009

2010

2011


W-LIC

W- HIGH

W-UMIC


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


FINANCIAL DEPTH

FINANCIAL ACCESS


FINANCIAL STABILITY


FINANCIAL STABILITY

1 • Z-Score

2 • Non-Performing Loans

3• Adults Saving at a Financial

Institution


Z-Scores

0

2

4

6

8

10

12

14

16

18

20

22

24


2009

2010

2011


W-HIGHW-UMIC

W-LIC


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%


2009

2010

2011

Non-Performing Loans (NPL)


W-LIC

W-HIGH

W-UMIC


Capital Adequacy Ratios


0

5

10

15

20

25

30

35Capital Adequacy Ratios (%)

2011


Analysis of Financial Stability and Depth


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


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

Documents

For Building an Interdependent Islamic World For Building an Interdependent Islamic World COMCEC STRATEGY Making Cooperation Work Islamic Finance Outlook Global Islamic Finance Assets