HSBC acted as custodian and agent-lender while QNB Financial Services (QNBFS) acted as the borrower. The QSE worked with Edaa, the licensed service provider under the Qatar Financial Market Authority that provides a range of essential services related to securities and financial instruments.

Hussein Fakhreddine, CEO at Qatari investment bank QInvest, said, “The transaction marks a milestone under the Financial Strategic Plan, which is part of the Qatar National Vision 2030, allowing more sophisticated investment strategies and unlocking a significant liquidity pool.”

QNBFS plans to offer this service to qualified investor clients that can benefit from new trading strategies on the QSE that were not possible before, according to Maha Al Sulaiti, Acting CEO at QNBFS. When demand for such transactions increase, it expects a commensurate growth in market volumes and liquidity.

QNBFS Chairman Adel Abdulaziz Khashabi said, “It’s important to note that SLB is one part of several key initiatives championed by the QSE to enhance the size and liquidity of Qatar’s equity market. Such initiatives include encouraging new listings via IPOs and direct listings, the most recent example being the successful listing of Techno Q on the Venture Market. We expect further IPOs and listings to stimulate demand and market activity. Going forward, introduction of a derivatives market should further stimulate market activity and bolster our appeal to institutional investors.”

QInvest is also looking to boost its activities and has aligned its investment banking advisory services consistent with Qatar’s 2030 vision for the financial sector. Fakhreddine said, “We are, and will continue to be, active in the securities market in the form of active mergers and acquisitions, as well as equity and debt capital market transactions.”

The Qatar Investment Authority has allocated QAR1 billion ($275 million) for a permanent market-making program at the QSE. Fakhreddine said, “This program aims to enhance market liquidity, improve price discovery, and diversify capital markets, thus attracting more foreign investments and boosting investor confidence.” The initiative is set to run for the next five years.

The development of SLB activities alongside other market initiatives will provide traders and investors with access to more sophisticated investment strategies, hedging mechanisms and securities financing. It is likely to attract new investors in the Qatari market and deepen the investment pool.

Last year was a strong year for Islamic financial institutions [IFIs], with banks and their management capitalizing on investment in technology and digital capabilities to boost growth and gain customers. Progress in digital banking has helped to keep costs under control. It has led to increased customer drift from conventional banks to Shariah-compliant institutions, particularly among the younger generation. Retail banking remains a cornerstone of most IFIs, but many are strengthening their commercial banking products.

Despite rising interest rates over the past few years, which has in the past been challenging for Islamic banks, most IFIs were able to widen their margins in 2023 through better repricing of financing assets. The Islamic banking sector enjoyed better return on assets in 2023, rising to 1.8% from 1.6% in 2022.

Islamic banks’ balance sheets advanced by around 8% last year, slightly below the prior year’s growth, but remaining higher than conventional banks’ asset growth. The overall health of Islamic banks remains very good, with an average capital to risk-weighted assets ratio of 19% and nonperforming loan ratio around 3%.

The winners of Global Finance’s 2024 World’s Best Islamic Financial Institution Awards are banks that have excelled in product innovation, range and service quality; recorded good financial results, with sound balance sheets and have good governance. Award winners continue to innovate in delivery and access, strengthening their franchise and market position.

Our winner for the Middle East is Al Rajhi Bank, the largest Islamic bank globally. Al Rajhi Bank has posted consistently strong performance, supported by leading-edge technology and a strong brand. Loan growth was very good in 2023. Abdullah bin Sulaiman Al Rajhi, chairman of the bank’s board of directors, says, “The bank continued its selective growth across businesses to achieve its strategic goals while maintaining its lead in customer experience and best-in-class digital solutions.”

Malaysia’s Maybank Islamic Bank wins the award for the best IFI in Asia. With a strong capital base and good returns, Maybank is frequently a first mover in bringing innovative Shariah-compliant financial products to the market. In its home market of Malaysia, it controls one-third of Islamic assets, but its activities extend across other Asian countries.

Kuwait Finance House (KFH) earned its recognition as Best Islamic Financial Institution worldwide thanks to innovation in Islamic financing, a wide geographical footprint and strong operations. KFH is the second-largest Islamic bank globally, providing services to customers in the Middle East, Asia and Europe through extensive distribution channels. It has subsidiaries in Kuwait, Turkey, Egypt, Bahrain, Iraq, Malaysia, the UK and Germany.

Last year was KFH’s first full year of integration following its 2022 acquisition of Ahli United Bank of Bahrain. Total assets stood at $124 billion at end 2023 as net profit jumped to $2.2 billion from $1.4 billion, for a return on average assets of 1.8%. The firm’s overall financial profile is solid, supported by good capitalization and liquidity. Its Islamic banking products and services cover commercial, retail and corporate banking as well as real estate, trade finance and investments.

During 2023, KFH launched Tam Digital Bank, Kuwait’s first shariah-compliant digital bank. It was also at the forefront in launching several digital services, including detecting biometric facial features in branches, instant printing for all types of cards, its Zaheb digital platform and KFHonline for corporates, digital portfolios to facilitate e-payment and a D-POS device for instant opening of bank accounts.

KFH maintains a leading position in Islamic corporate banking. Last year, the group successfully led and arranged sukuk issuances exceeding $4 billion for a diversified issuer clientele, embracing sovereign and corporate offerings across multiple sectors and geographies. Highlights included a $3 billion club financing deal for Saudi Electricity Company and a syndicated transaction for Ras Laffan Petrochemicals Company totaling $4.4 billion. KFH also participated in a $1.6 billion syndicated transaction for Dubai Aerospace Enterprise Funding.

KFH Treasury chalked up $38 billion worth of foreign exchange transactions in 2023 and onboarded several new corporate clients; the bank is also active in FX spot and Islamic derivatives hedging instruments. The group treasury executed sukuk transactions worth more than $13 billion during the year. 

Al Rajhi Bank is a pioneer in provision of Islamic retail banking services, offering significant expertise in shariah consumer banking.  It takes the award for Best Islamic Retail Bank based on its strong retail performance and innovation and the size of its retail franchise. 

Al Rajhi is the world’s largest Islamic bank globally, with $216 billion in assets and equity of $28 billion. Along with its base in Saudi Arabia, it has operations in Jordan, Kuwait and Malaysia. It remains a profitable institution, with a 2.1% return on assets and 16.1% return on equity. It dominates the retail financing market in Saudi Arabia with a 41% share, handling over 800 million transactions and the largest share of remittances per month. Also rolled out in 2023 were new mobile applications, giving non-Al Rajhi Bank customers the ability to access its digital services as guests.

Boubyan Bank distinguishes itself for the breadth of its commitment to corporate social responsibility; rather than applying a set of CSR performance standards to one or two departments or branches, all parts of the bank are considered key participants.

Areas of focus in 2023 included significant staff training, human capital management, customer advocacy, client empowerment, and the safety and wellbeing of all stakeholders. Social initiatives include youth development, female-focused product development, and embedding of social KPIs in employee performance evaluations. The bank is active in humanitarian and charitable causes, including initiatives such as the Noor Boubyan Campaign, which has succeeded in restoring the eyesight of thousands in many African countries. Domestically, the bank runs a successful e-waste collection operation.

ADIB maintained its MSCI ESG (environmental, social and governance) rating of “A” in 2023, retained its position on the MSCI ESG Leaders index, and earned an upgrade to its Sustainalytics ESG risk score. As one of the world’s leading Islamic financial institutions, it continued to play a crucial role in boosting sustainable finance in the Persian Gulf region, facilitating some $1.5 billion of sustainable projects in 2023. 

Qatar’s Dukhan Bank’s Private Banking proposition emphasizes innovative customer-focused services supported by robust technology across an end-to-end portfolio of financing, banking and investment products and services for high-net-worth and ultrahigh-net-worth individuals. The bank’s focus on enhanced digital transformation is targeted particularly at capturing a larger and younger generation of clients.

Wealth management assets grew by 17% last year and helped Dukhan increase its market share in the local market, where it is the third-largest bank.  It launched online/mobile access modules for the wealth management last year and continued to enhance product sourcing capabilities.

Leading the league tables for both global sukuk and ASEAN local currency bonds, Malaysia’s CIMB is also actively integrating sustainability practices into its business. The bank commands a nearly 13% market share in global sukuk and a 28% market share in ringgit sukuk. Last year, it successfully launched the largest US-dollar sukuk issue by an Asian sovereign. It also achieved the tightest five- and 10-year spreads at issuance by an ASEAN sovereign for the second year in a row. 

CIMB also led the pack as the largest Malaysian ringgit sukuk arranger in 2023. Notable issues in which it played a role included a $2 billion global sukuk for the Republic of Indonesia that included a $1 billion green tranche; a $750 million sukuk issued by Khazanah Nasional that was over six times oversubscribed; and a RM1.5 billion state guaranteed sukuk for Johor Corporation, the first-ever state-guaranteed transaction in the Malaysian ringgit debt capital market.

Based in Bahrain, GFH Financial Group stands out for its product development and placement, registering a string of successful deals in 2023, including a placement for the Healian regional health-care platform. Funds include GCC Logistics and US Opportunistic, the latter focused on inflation-hedged commercial real estate, REITs and structured equity in the US.

GFH expanded its global presence significantly last year. Its acquisition of Big Sky Asset Management, a major player in US health-care real estate, exemplifies GFH’s thematic focus on attractive and defensive markets. Big Sky marked the third international asset manager that GFH has acquired in recent years, after Roebuck Asset Management and SQ Asset Management, which capitalize on strong opportunities in European logistics and US student housing, respectively.

GFH also partnered last year with UK-based investment manager Equitix to invest in Aurora Infrastructure, which operates two major electricity networks in Finland. The investment was in line with several global new-energy-economy megatrends, including electrification, national grid infrastructure revitalization, and energy diversification. Complementing its Aurora Infrastructure stake, GFH co-invested in Saber Power, a profitable, high-growth supplier of electrical infrastructure services based in Houston.

A leading alternative Shariah-compliant asset manager, Saudi Arabia’s Sidra Capital launched a series of new enterprises in 2023, including its maiden Singapore-domiciled variable capital company, Sidra Asian Opportunities. The VCC focuses on facilitating cross-border commodity supply chains via fully funded irrevocable letters of credit, specifically targeting high demand for solid fuel produced by select Indonesian producers.

At home, Sidra Capital specializes in creating innovative private-finance investment solutions; its portfolio includes a range of Shariah-compliant private finance investment products. Last year, it acquired the Eurocap industrial and trade park in northern France, a property adjacent to the Eurotunnel rail terminus and comprising 23 buildings on a 130-acre site, providing a wide range of property options for occupiers. Sidra also acquired London Square, an office building in Guildford, UK, for just over £40 million.

Malaysia’s Maybank Islamic offers a “halal ecosystem” for small to midsize enterprises (SMEs), delivered through a digital, values-driven platform. It supports business growth via Islamic supply chain solutions that meet the needs of principal customers as well as their suppliers and buyers. The bank launched a Digital Supplier Financing Program in the fall to facilitate financing access for suppliers in the ecosystem and promote business growth abroad.

Maybank’s SME financing, as a result, has grown solidly over the past few years. Income uplift has occurred through Halal4wards, a Shariah-compliant financial solution that bundles product solutions for SME and business banking customers within targeted halal sectors. The bank also recently introduced a bespoke term fund for nonretail clients.

Al Rajhi Capital has exploited its link with parent company Al Rajhi Bank to establish a dominant position by value and market share as a trader in Saudi Arabia’s main stock market (Tadawul) as well as its alternative market (Nomu). In 2023, Tadawul chose it as the first market maker in the main stock market.

Al Rajhi REIT Fund made the largest secondary offering in Saudi Arabia last year, and its parent also plays a crucial role in issuance of sustainable Sukuk bonds. It offers a range of innovative investment solutions across all major asset classes including equities, real estate, money market, fixed income and multi-asset. The firm is also expanding its global outreach, which now encompasses 38 markets worldwide.

Maybank Islamic’s trade finance business provides leading products for both SME and corporate trade finance clients. This includes both import- and export-focused products, from standard letters of credit to onshore foreign currency financing and export credit refinancing. The bank has achieved good expansion: Islamic financing grew 7% last year and trade financing volumes further expanded. Maybank Islamic has formulated its own Sustainable Product Framework to enable greater development of green, social and sustainable products; it is committed to mobilizing around $16 billion in sustainable finance by 2025, of which trade finance will be an important element.

A unit of Maybank Group, Etiqa Islamic Berhad offers a range of general and family Takaful plans across multiple distribution channels in Malaysia, Singapore, the Philippines, Indonesia and Cambodia. It reports over 11 million customers, gross written premium assets of around $2 billion and total assets of $11 billion. Last year, Etiqa became the first insurance and Takaful company in Malaysia to become a signatory of the UN Principles for Sustainable Insurance.

Locally, KFH acts as lead arranger on many syndicated project finance transactions, but it continues to expand its trade relations with core corporate clients in all sectors and throughout the MENA region for both SMEs and large companies. Besides last year’s club financing for Saudi Electricity Company, other major deals that KFH participated in included a $4 billion-plus syndicated offer for Ras Laffan Petrochemicals Company that will fund construction, development and operations of a petrochemicals project in Qatar and a $1.6 billion syndicated transaction for Dubai Aerospace Enterprise Funding.

With $73 billion in assets and a financing portfolio of $56 billion, Maybank Islamic is the largest Islamic bank in ASEAN and the fifth-biggest globally. With a strong capital base and good returns, it is frequently a first mover in bringing innovative Shariah-compliant financial products to the market. In its home market of Malaysia, it controls one-third of Islamic assets and 29% of the important Malaysian Islamic banking market. Its activities extend across other Asian countries; it ranks fourth in the global sukuk market, and its share of financing in Maybank Group’s consolidated loan portfolio continues to rise.

A key player in Islamic banking, Al Rajhi Bank has posted consistently strong performance, supported by good management, a clear strategy and leading-edge technology. The largest Islamic bank worldwide by both assets and market capitalization and with a strong brand image, Al Rajhi ranks No. 1 in Saudi Arabia for remittances, transactions and customers. It also offers the largest distribution network in the Middle East, ranked by number of branches, POS, ATMs and remittance centers.

A subsidiary of Arab Banking Corporation, Bank ABC Islamic provides a wide portfolio of Shariah-compliant products and services, supported by good technology and the backing of its parent. Bank ABC Islamic caters to retail customers through alburaq’—an exclusively digital Islamic banking portal—that ABC made available last year through its ila Bank subsidiary.

Bank Islam Brunei Darussalam is the sultanate’s largest Islamic bank, with $9 billion in assets, good capital backing and a wide product range, including its mobile banking NexGen Wallet and the first Shariah-compliant ESG mutual fund in Brunei.

A domestic Islamic finance market leader, Abu Dhabi Islamic Bank Egypt continued to build its franchise and market position in 2023, posting a 31% rise in net profit to $152 million. In addition to mainstream Islamic financing, ADIB Egypt, which has $5.2 billion in assets, offers investment banking, leasing, asset management and microfinance.

The country’s largest Islamic bank, and its seventh-largest bank overall with assets of $23 billion, Bank Syariah Indonesia boosted its balance sheet strongly in 2023, led by Islamic financing. The field is growing rapidly in the Muslim-majority nation, and BSI has established itself as a strong competitor to the country’s conventional domestic banks.

Jordan Islamic Bank, which already controls nearly half of the kingdom’s Islamic banking market, boasts a growing 9% of Jordan’s total banking sector assets. Loans and deposits grew last year, along with accounts, supported by a high capital adequacy ratio. Islami Digital, JIB’s digital self-service offering, expanded in 2023, and the bank carried out further development and modernization in areas of banking technology. JIB continued to expand its menu of new services through its channels and platforms, including via mobile phone.

Focused on retail banking and technology, Boubyan Bank is increasing its market share against both conventional and Islamic banks in Kuwait, aided by its focus on creating innovative digital products and services for its customers. Widely regarded as an innovator with a strong brand and excellent customer service, it has established itself as a leader in catering to the under-30 bracket. That helped the $27 billion-in-assets institution to boost net profits by 44% to $254 million last year. It continues to look for new ways to tap its information resources; Boubyan’s data group in 2023 augmented its ability to merge external and internal customer data through the App Store sentiment analysis dashboard, leveraging customer feedback from In-App, iOS Store, and Google Play Store. 

Maybank Islamic is Malaysia’s flagship Islamic institution, with a market share of 30% in assets and loans. Product innovation is strong, including its “myImpact Card”—the first card in the market that enables a tangible, positive impact through responsible and ESG-friendly spending. It also incorporates a built-in Carbon Footprint tracker and provides the ability to offset carbon footprints. It also launched Malaysia’s first EV financing solution. In nearly all Islamic financing areas, it holds a dominant market position.

Established in 2017, Umnia was Morocco’s first Islamic bank. Shareholders include Qatar International Islamic Bank, CIH Bank (Credit Immobilier et Hotelier) and CDG (Caisse de depot et de gestion). With 50 branches, it remains the country’s largest Islamic banking network as well as its largest by total assets, with a 50% market share in financings and a 40% market share in deposits. Payment apps were introduced last year, including Apple Pay.

The fastest-growing Islamic bank in Oman, Bank Nizwa’s expansion in retail and corporate banking is supported by product innovation and its use of electronic channels. The bank recently launched a suite of Islamic green financing solutions for home, automotive and personal finance. Bank Nizwa also enhanced its retail platform by teaming up with Avanza Unison Ace and tapping its state-of-the-art digital platform. Net profit increased to $44 million in 2023 and total assets reached $4.1 billion, giving Bank Nizwa an approximately 25% share of the sultanate’s Islamic banking sector.

With an asset base of $11 billion, Meezan is Pakistan’s largest Islamic bank. Its range of products and services targeted at the retail sector and mid-tier and premium banking customers helped it to nearly double its net profit last year to $306 million.

The product of the successful merger of Barwa Bank and International Bank of Qatar in 2019, Dukhan is enjoying growth in assets, customers and net profit with help from good infrastructure and technology-led solutions. Dukhan recently launched its “Himyan” prepaid card, the first Qatari prepaid card, enabling customers to make secure payments. Dukhan also unveiled Apple Pay, Samsung Wallet and Google Pay services, operating via its contactless payment platform. Total assets at year-end stood at $31 billion, with net profit of $358 million.

A pioneer in Islamic retail banking services, Al Rajhi has substantial expertise in Shariah banking—including a strong home mortgage financing franchise—supported by innovative technology. It remains a profitable bank with good margins, strong risk metrics and high capitalization.

Founded in 2009, Amana Bank was the first licensed commercial bank in Sri Lanka to conduct all its operations under the principles of Islamic banking. Today, while still a small player in the island’s financial landscape, it is growing on the back of a full spectrum of retail, SME and corporate banking, and treasury and trade finance services.

A unit of Bahrain’s Al Baraka Banking Group, Al Baraka Bank Tunisia offers a range of Islamic banking products and services in the North African country, including the Masken Al Baraka (a savings product for home financing), Sayarat Al Baraka (car financing), and Yasmine Pack (designed for Tunisians residing abroad).

The largest Islamic bank in Turkey with $24 billion in assets and $1.8 billion in equity, KTKB operates throughout the country, supported by a relatively large branch network. An office in Bahrain serves as a bridge between Turkey and the Gulf Cooperation Council states, supported by parent bank KFH. KTKB also operates an Islamic bank in Germany under the label KT Bank. Net profit rose by 37% in 2023 to $1.3 billion and return on average assets was a very high 5.2%.

ADIB’s digital drive enabled it to grow market share by attracting over 200,000 new customers last year, helping boost total assets to $53 billion, and digital remains at the heart of the bank’s 2025 strategy. The bank’s contingent of digitally active customers increased steadily in 2023, and currently 80% are digitally active. Its mobile app is very well regarded, and 50 new features were added last year.

All of which helped ADIB post robust 2023 financial results. Net profit jumped 45% to $1.4 billion on the back of strong revenue growth, an increase in transaction volumes and improved margins, while return on equity reached a very high 27%.

While Qatar strives to bolster its global leadership in the oil and gas sector, it also aims to boost the growth of its non-hydrocarbon economy. The goal is to reach average per-annum real non-hydrocarbon growth of 4% through 2030, focusing on expanding manufacturing, tourism, logistics, education, health, food and agriculture, financial services, and information technology and digital services in addition to future clusters around critical technologies and national assets.

The third phase revolves around creating an investor-friendly business environment, fostering entrepreneurship and boosting local companies’ competitiveness while enticing foreign investment: $100 billion (compared to $76 billion in 2022 according to the World Bank, the most recently available data) in net foreign direct investments, based on official releases.

Qatar’s economy has seen good progress toward diversification. Its successful hosting of the FIFA World Cup in 2022 was one of its biggest achievements in the non-oil economy; tourism received a considerable boost, with visitor numbers increasing to over four million last year from just 600,000 in 2021 while the event created more business and employment opportunities for Qataris. The kingdom has since hosted several more international sporting events.

Non-oil GDP is now growing faster than oil GDP, notes Junaid Ansari, director of Investment Strategy and Research at asset management company Kamco, and the focus industries under the “growth” clusters, including tourism, logistics and manufacturing, have all seen significant progress.

“We expect Qatar to be one of the fastest-growing economies in the Gulf Cooperation Council as well as globally over the medium term,’ says Ansari. Through 2030, the non-oil project pipeline is over $150 billion, comments Ansari.

The government is not moving away from the energy sector, however. S&P Global Market Intelligence forecasts real GDP growth in Qatar at an average of 4.4% over the medium term (2026-30), higher than the near-term (2024-25) projections mostly due to the expected surge in gas exports, almost all of which has “a ready market, as the demand for liquified natural gas [LNG] for electricity generation is increasing globally,” according to Ansari. This, and the diversification of the economy in collaboration with a strong private sector, the government hopes will make Qatar one of the world’s top investor destinations.

“We believe that the country’s hydrocarbons sector will remain predominant in the foreseeable future,” says Jamil Naayem, associate director of MENA Economics at S&P Global Market Intelligence. “In particular, the North Field development in two phases is likely to translate into a massive increase in gas production capacity, from 77 million metric tons per annum to 142 before the end of 2030.”

Qatar recently announced that a further 16 million metric ton boost to its gas expansion plans amid likely strong demand from Asia and Europe as they seek to diversify their energy sources. S&P Global Market Intelligence forecasts average real GDP growth for Qatar of 4.4% over the medium term—2026 to 2030—primarily due to the expected surge in gas exports.

Qatar’s development targets for financial services are ambitious but achievable, Ansari argues, given the growing importance of Persian Gulf economies like Qatar as part of the global emerging markets universe. The government sees finance and banking as a key support for the economic diversification project, particularly in fintech, and as a means of attracting more foreign capital.

The Qatar Financial Centre (QFC) recently signed a memorandum of understanding with Partior, which provides a tech-driven global unified ledger market infrastructure for clearing and settlement, to help drive the kingom’s financial market.

“The signing reflects the QFC’s commitment to form strategic partnerships with global industry leaders to develop a secure and sustainable financial infrastructure in Qatar,” Yousuf Mohamed Al Jaida, CEO of the QFC, said in a statement. “We aim to enhance innovation and provide an enabling ecosystem for the growth and development of the fintech sector and companies in this industry.”

Last year, in line with Qatar National Vision 2030, the Qatar Central Bank (QCB) launched its Qatar FinTech Strategy 2023. The aim is to develop and diversify the financial services sector and increase competitiveness and is based on four main axes: establishing a pioneering infrastructure, prioritizing innovation and growth in fintech, empowering companies through fintech offerings, and making Qatar a fintech hub.

Qatar FinTech Hub (QFTH), supported by Qatar Development Bank (QDB), is a critical element of the QBC’s fintech strategy. Its primary objective is to foster development of a fintech industry by collaborating with key stakeholders such as financial institutions, technology providers, payment networks, global fintech hubs and regulators. Supporting the program is a $100 million venture capital fund managed by QDB.

The development push is about incubating new enterprises alongside existing and foreign-based businesses.

In February, the Qatar Investment Authority (QIA) announced a significant initiative to revolutionize the kingdom’s startup ecosystem, introducing its first venture capital fund of funds (FOF) with a $1 billion-plus commitment. Designed to boost innovation within the Gulf region and attract global venture capital, the FOF (yet to have an official name) will be complemented by the newly launched Startup Qatar platform, which aims to support new ventures and position Qatar as a significant player in the global startup scene. QInvest, the leading Qatar-based investment bank, will support these initiatives through financial intermediary and advisory services. The bank is also considering a direct participation in the FOF.

A pivotal aspect of the National Development Strategy is privatizing some businesses and enhancing public-private partnerships. PPPs facilitate economic diversification and support creation of a knowledge-based economy by encouraging innovation and competitiveness across all industries. By participating in or facilitating PPPs, QInvest and other banks expect to benefit from seeding new investment opportunities, particularly in emerging sectors and specialized economic clusters.

QInvest expects an uptick in capital market activity across equity and debt capital markets in 2024. This includes developing an active debt market, attracting institutional investors—aided by the planned introduction of sophisticated market features such as short selling and securities lending and providing incentives for local investors to improve asset allocation and help retain capital within the country.

Qatar is also enhancing its equity capital market through strategic initiatives to attract investors and increase market liquidity, including developing a new derivatives market. Last year, QInvest led the successful closing of the first-ever book-building subscription on the Qatar Stock Exchange for the IPO of Meeza QSTP, a managed IT services and solutions provider.

Much of the growth of Qatar’s financial sector is driven by Qatar National Bank (QNB), the region’s largest bank. In 2023, QNB supported the North Field Expansion project to increase Qatar’s LNG production over the next several years. QNB financed the subcontracting value chain for the project along with assisting in several other major projects in associated sectors.

The bank expects to see clients pursue emerging opportunities in the LNG space, attracting local and international investment while the NFE project generates ancillary benefits across other industries, including petrochemicals and heavy manufacturing.

Since 2022, the dramatic rise of the US dollar against virtually every other world currency has wreaked havoc on the profits of US multinationals as the value of their foreign earnings plummeted. In the second quarter of 2023 alone, the average hit to earnings for publicly traded North American companies was a whopping $0.05 per share, according to the Quarterly Currency Impact Report conducted by consulting firm Kyriba. Currency volatility has moderated somewhat in 2023, but shifting expectations for inflation and future interest rates have made the environment no less challenging for finance executives.

“The US dollar has been meandering this year, and that still causes headaches for treasurers because of the peaks and valleys,” says Andrew Gage, senior vice president at Kyriba.

Gage’s firm tracks the impact of currency fluctuations on the financial results of 1,700 public companies, half in North America and half in Europe. In the second quarter of 2023, companies disclosed a combined $29.14 billion in currency impacts on their financial results. The actual numbers are far larger for the whole group, as most companies do not quantify the impact of currency movements on their results. The trend, however, is clear. FX volatility remains high, and the pain is felt across global markets as the US dollar fluctuates.

“Currency volatility is like Jupiter’s Red Spot: It moves around a lot,” says Gage. “We saw some of that in European results for the second quarter, and I think companies in Europe may experience more [currency] headwinds than those in the US through the end of this fiscal quarter.”

Corporate reactions to the increased volatility in FX markets vary. A survey of 245 corporate treasury departments worldwide conducted in 2022 by Deloitte & Touche found that 76% were using derivatives to hedge their currency exposures, while 24% reported other preferences. A large plurality of respondents, 45%, ranked FX volatility as one of the top five challenges for their organization. “The volatility has come down from last year, but a lot of organizations are just beginning to come to terms with it,” says Erik Smolders, a managing director at Deloitte’s Treasury Advisory Services. “Some companies want to eliminate their FX exposures; others see it as a cost of doing business and are willing to take some of it on the chin.”

Invariably, those taking it on the chin emphasize the results of their foreign operations in nominal numbers without adjusting for changes in currency prices, hoping that investors will look through currency fluctuations and focus on underlying business trends. “It depends on how companies have been talking to their investors over the years,” says Smolders.

However, the increase in volatility has upped the ante for corporate finance executives, and many are now looking for more-effective ways to manage their FX risks. “I’ve had many more companies ask for assessments of their hedging programs in the last 12 months,” says Smolders. “They want to know how to handle their exposures better and manage costs.”

US and Asian multinationals, typically less inclined to hedge currency risks than their European counterparts, are increasingly looking for solutions to manage risks in a more volatile environment. Netflix is a case in point. As a global leader in video streaming services, Netflix has exposure to more than 45 currencies in its operations and has historically tolerated the swings in reported earnings due to currency movements. However, 2022 was a tipping point for the company. CFO Spence Neumann revealed in a 2022 third-quarter earnings call with analysts that “there’s about 2.5 points of FX drag in our margin. That equates to about—it’s about $1 billion of revenue drag.”

In 2023, the company implemented an FX risk management program to limit the impact of short-term currency movements and reduce the need to raise prices or cut costs in response to them. Netflix disclosed it would use standard forward contracts to hedge some—but not all—of its currency risks.

When managing currency risks, the solution can sometimes be as painful as the problem. With the heightened volatility in currency markets, the cost of hedging risks has risen dramatically for companies since the US Federal Reserve began raising interest rates in early 2022. Treasury executives now need to decide when the higher costs of hedging risk outweigh its benefits.

“The responsibility of the treasury department to manage currency risk isn’t only about hedging. It’s also about managing the cost of hedging,” says Kyriba’s Gage. “A lot of corporate risk management programs were established in low interest rate environments. Now that rates are back up, companies need to think differently about them.”

Deloitte’s Smolders also advises his clients to take a measured approach to identifying foreign currency exposures before deciding if and how they should be hedged. He recommends that companies take steps before considering what derivative instruments to use for hedging purposes.

First, companies should determine if they must take on a currency risk or if they can offload it to suppliers or customers and avoid worrying about currency price fluctuations.

Second, larger companies can reduce the amount they need to hedge by netting their currency exposures in costs and revenues across their organizations.

Third, intercompany hedging activities have tax issues. If a company can hedge its net currency exposure, it should consult with tax advisers about where and in what markets to undertake the hedge.

Finally, accounting for hedges remains an issue in currency-risk management. Most companies use simple forward currency contracts for hedging because they are simple and likely to qualify for favorable hedge accounting treatment. When derivative hedges are deemed ineffective, which requires complicated calculations, the results must be recognized in the income statement.

The key to good currency risk management is having good data from which to make decisions. For many large companies, producing that data is challenging, since different parts of their organization still operate in silos.

“Companies need to have confidence with their currency exposures, and they need the ability to analyze them across their organizations,” says Gage. “They need the right data at the right time.”

That remains an elusive goal for most large companies. In the 2022 Deloitte survey, the largest number of respondents (83%) cited the lack of visibility into their currency exposures and the reliability of their forecasts as a key challenge they faced in managing FX risks. The second most-cited challenge (71%) was the manual identification and capture process for those exposures.

“Getting good data out of enterprise resource planning systems is a consistent challenge for companies,” says Smolders. “Companies operating with more than one system have more problems.”

The renewed volatility of the currency markets in the past two years is a powerful motivator for companies to accelerate the digitalization of their treasury function. This can provide the data they need to make better decisions about their overseas investments and operations. Global financial executives will struggle to control them effectively without an accurate big-picture view of companywide currency and financial exposures.

The volatility is not likely to decrease anytime soon. Wars, inflation, supply chain crises, and divergent central bank monetary policies will likely continue to make FX markets more treacherous for global corporations.

“Companies have had to navigate through sustained crises for about four years now, and I don’t see that changing,” says Gage. “Currency volatility is now a front-burner issue for them.”

Global Finance selects its award winners based on objective factors such as trans-action volume, market share, breadth of offerings, and global coverage, as detailed in public company documents and media reports.

Our criteria also include subjective factors such as reputation, thought leadership, customer service, and technology innovation, using input from industry analysts, surveys, corporate executives, and others. Although entries are not required in order to win, decision-making can be informed by submissions that provide additional insight.

Last year was nothing short of historic for our Best Global Foreign Exchange Bank, UBS. Between the takeover of its longtime rival, Credit Suisse, in what analysts call the most important banking M&A in history, and the substantial growth of its foreign exchange (FX) operation in developing markets, the behemoth bank has done it all with unrivaled excellence.

The takeover of its rival’s operation led to substantial growth in clientele and traded volume in European markets, resulting in solid profitability growth. It also led to key additions to UBS’ FX team, further expanding the bank’s knowledge.

At the same time, UBS teams in Asia, the Middle East, and Latin America have kept working relentlessly to improve the bank’s digital offering for emerging market currencies.

As a result of this unmatched year, the Swiss-based giant now ranks as one of the largest private wealth managers in the world, with undisputed market share in Europe. It has also watched its emerging markets FX operation mount into one of the world’s largest, expanding the bank’s offerings to its clients worldwide.

Among the bank’s most significant global technological breakthroughs is UBS’ FX Engine Room, with which the bank can place all analytics in one place for use by its global sales force, thus broadening the footprint of its operations to clients looking to trade currencies on a global scale.    —Thomas Monteiro

Driven by constant strategic investments and rock-solid market positioning, BBVA takes home our award as the Best FX Bank for Corporates in 2023.

With a global presence covering key markets such as the US, Mexico, Colombia, Peru, Argentina, and Europe; adherence to the Bank for International Settlement’s FX Global Code; and a commitment to compliance, BBVA offers a comprehensive FX-services suite that caters to both the broader and the most specific needs of corporates worldwide.

The Spanish-based bank has maintained its core principles, providing world-class strategy and research-tailored insights while investing in cutting-edge technology.

Notable innovations have included improved onboarding with eMarkets and dynamic FX pricing in Colombia, 24-hour FX trading, and a customized mobile app for small and midsize enterprises across the network.

BBVA’s accomplishments among corporates helped the bank strengthen its leadership in Mexico, Peru, Colombia, Spain, and Turkey. The bank improved its position in Argentina, where it increased its share in the corporate FX spot market and sustained leadership in imports and exports.          —TM

With solid growth in key emerging markets and an increasing foothold in both the US and Europe, Santander reaffirmed in 2023 its status as a pivotal institution for corporations operating in some of the globe’s fastest-moving markets.

By providing extensive coverage with over 50 currency pairs; an unmatched clientele; and knowledge of the market in countries such as Brazil, Mexico, Argentina, and Spain, the bank can guarantee that its clients stay ahead of the curve amid the intrinsic difficulties associated with emerging market currency trading.

In a year in which currency volatility proved a challenge for those based in both developed and developing markets, Santander’s comprehensive trading platform offers diverse options for trading across various channels. It includes streaming capabilities for online pricing in spot, forwards, swaps, non-deliverable forwards, FX options, and structured product trading.

The Spanish-based giant also provided top-of-line global research, market updates, strategies, and FX publications to its clients, ensuring an edge over the competition.

Moreover, with a dedicated team of expert trading and sales professionals based in several key markets for emerging markets currencies, Santander’s clients were able to navigate the complex FX landscape confidently and efficiently.            —TM

Liquidity concerns spilled over in 2023 into some of the world’s key markets due to the failures of historical powerhouses such as Credit Suisse and Silicon Valley Bank. Farther south, in Brazil, Itaú Unibanco not only weathered the challenges but also achieved outstanding performance metrics.

These numbers ensured the top-line stability of the bank’s reserves and liquidity offerings, showcasing Itaú’s resilience in the face of global economic uncertainties.

In 2023, the Brazilian financial giant posted an impressive net income of $6.3 billion and a loan portfolio amounting to a robust $224.5 billion. Backed by solid reserves and growing profitability, Itaú’s FX operation thrived, showcasing an above-average return on equity of over 21%.

This trend was also backed by the bank’s continuing investments in technology. Via an impressive compound annual growth rate of 43.5% since 2020, these helped guarantee speed and ease whenever clients needed large sums of foreign currency.

As a result of the bank’s best-in-breed liquidity offering, it effortlessly operated some of the largest FX transactions of its history, such as a $1.2 billion dividend payment for a prominent global beverage company and a single-tranche transaction totaling $1.3 billion for a client in the energy sector.      —TM

Bank of New York Mellon (BNY Mellon) won the Best FX Market Maker award due to its market position, excellent client service, financial performance, and continued technological development. BNY Mellon is one of the top five global US dollar payment clearers. Its client franchise includes 97 of the top 100 banks worldwide and 89 of the top 100 investment managers.

BNY Mellon Treasury Services added new business across strategic payment solutions and liquidity products. It drove higher payment volumes while generating traction as it built its digital payments and related FX and trade businesses. FX revenue has increased, primarily driven by the volume of client transactions, including hedging activities. The bank is a leading provider of global payments, liquidity management, and trade finance services. The bank has extensive experience providing trade and cash services to financial institutions and central banks outside the US.

In emerging markets, the bank is active with custody, global payments, and issuer services. BNY Mellon is a full-service global provider of FX services, actively trading in over 100 of the world’s currencies. It serves clients from trading desks in Europe, Asia, and North America.     —Darren Stubing

The 2023 global leader in sustainable finance, Societe Generale (SocGen) once again proved its core commitment to meeting the diverse demands within the broad environmental, social, and governance (ESG) spectrum.

The global sustainability markets’ recovery from the challenges of 2022 is expected to propel full-year 2023 green, social, sustainable, and sustainability-linked bond issuances to between $900 billion and $1 trillion, according to S&P Global. SocGen’s customers were able to enjoy best-in-breed market positioning, gaining a significant edge over the competition.

The French powerhouse’s FX team helped support its ESG products for customers worldwide, including the bank’s flagship ESG benchmarks, sustainability swaps, sustainability options, and sustainability-related derivatives.

The bank also stepped on the gas by providing hybrid trade financing offerings to its customers, linking traditional finance to sustainability goals, thus helping to fuel ESG investments the world over.

Additionally, in November, SocGen launched its first-ever digital green bond, registered directly on the Ethereum public blockchain. This strategic move aims to enhance transparency and traceability in ESG data and broaden the bank’s currency-related sustainable offerings.     —TM

JP Morgan was awarded Best FX Commodity Trading Bank, as its well-executed strategy consolidated its FX commodity trading activities, capitalizing on its top ranking in fees and market share in investment banking.

The bank is the top ranked in research, underpinning its strength in FX commodity trading. It has a longstanding leadership position in energy, power and renewables. It has made significant investments in the low-carbon energy transition. From local production to worldwide trading, JP Morgan has a strong presence in the metals and mining industry, including key areas in the Americas, Europe, the Middle East, Africa, and Asia-Pacific; and the bank has deepened its footprint in Australia and India.

JP Morgan has achieved excellence in FX commodity trading execution, aided by technology and analytics. Its FX and commodities trading platform provides access to fast and reliable electronic market-making and order placement across every commodity class—including base metals, precious metals, energy, agriculture, and commodity indexes—with tradeable prices in multiple currencies. Its platform can send over 120 currencies and receive more than 40 across 200 countries.  —DS

FirstRand, the operator of the Rand Merchant Bank (RMB) corporate investment bank and of the retail and commercial lender First National Bank (FNB), for South Africa and the region, is this year’s award winner as Global Finance’s Best Foreign Exchange Bank for Africa. This top African financial institution has been rewarded for carefully marshaling its foreign exchange (FX) business and its mobile and online offerings.

Offering FX solutions from personal travel to corporate, remittance partnerships with international companies such as PayPal and MoneyGram, and an FX clearing hub for African banks, FirstRand has been a trailblazer in the African FX market over the past year.

The company says its mobile application and online enhancements for FX are a “continuous focus for individuals and commercial clients,” adding that “smart messaging such as SMS, emails, and [app push notification] are in progress” for 2024.

Straight-through processing enhancements have made a difference in getting clients to move away from manual payments to platform transactions, with the FNB banking application bringing FX transactions to a readily accessible mobile platform.

FNB and RMB are also building a foothold in the world of cryptocurrency transactions and FX blockchain payments. With an FX staff complement of 599, FirstRand accounts for approximately 33% of all banking sector FX volume in its primary market of South Africa.

A further presence across Africa in countries such as Mozambique, Zambia, Botswana, Namibia, Nigeria, and Ghana saw FirstRand’s regional FX profits grow in 2023 by 15% over the previous year. In August 2023, RMB launched a foreign currency clearing solution for African banks.      

—Tawanda Karombo

DBS Bank is the largest bank in Southeast Asia, with global operations across 19 markets. With its vital FX centers in London, Tokyo, and Singapore, the bank presents itself as a seamless connectivity and liquidity provider with FX products, including nondeliverable forwards, FX swaps, and precious metals. As of 2023, DBS’ one-stop global cross-border payment solution has covered 132 currencies across 190 countries.

The bank’s FX business supports large corporations, multinational corporations, and small and midsize enterprises (SMEs) by offering a spectrum of services, such as sophisticated FX payment with integrated, competitive, and committed FX rates—as well as access to transparent pricing and analytical tools. Regardless of size, corporate clients all have access to efficient and secured FX and forward transaction platforms that safeguard against currency fluctuations.

DBS’ commitment to the FX business is also reflected by the increasing number of employees who have dedicated themselves to it over the years and by the bank’s ongoing effort to build global distribution channels with new technology investments and initiatives.

—Lyndsey Zhang

Raiffeisen Bank International (RBI) has long been a significant player in the Central and Eastern Europe (CEE) banking market—it founded its first CEE subsidiary in Hungary back in 1986—and is today active across 12 countries in the region, with almost 18 million customers and some 45,000 employees.

FX is a large part of the bank’s business, and RBI is actively trading in the currencies of most countries of the region, offering a comprehensive product portfolio with competitive pricing and reasonable rates for more than 100 currency pairs. It has been at the forefront of digital innovation, using cutting-edge systems to speed trading, improve accuracy, and reduce trading costs.

Two years ago, RBI established partnerships with AxeTrading, a fixed-income-trading software company, and with Integral, a leading FX tech provider, to provide real-time streaming of FX prices into bond trading. Since 2021, it has also been rolling R-Flex, a digital solution for FX conversion, across CEE, starting in Romania before RBI in Croatia and Hungary adopted what it describes as a simple yet secure user-friendly platform that prioritizes clients’ needs. The plan is to extend R-Flex across RBI’s operations in other CEE countries, giving customers access to a state-of-the-art system that simplifies and speeds FX trading.

—Justin Keay

Amid the volatile FX landscape of 2023, BBVA managed to secure the top market position in several key markets across Latin America, thus providing its customers with unmatched opportunities and products.

In addition to its unique market knowledge, one of the main secrets behind BBVA’s success throughout the year was its relentless dedication to boosting its award-winning technological capabilities. The Spanish-based bank’s FX operations underwent significant enhancements, showcasing this dedication to innovation and client-focused services.

The onboarding process for eMarkets clients saw substantial improvements, incorporating DocuSign for streamlined and efficient client interactions. The introduction of direct market access marked a pivotal moment, providing FX spot clients with a new algorithmic execution service. Real-time FX application programming interface offerings for external clients, encompassing FX and payments, strengthened the bank’s connectivity.

BBVA further implemented dynamic pricing in Colombia and introduced FX SBP (single bank platform); and BBVA eMarkets in Argentina, covering spot and nondeliverable forwards. Enhancements in FX online services for enterprises in Colombia allow for payments from accounts held in other banks.

These strategic improvements earned BBVA recognition in the Global Finance awards and position the bank as a leading force in the dynamic landscape of FX operations in Latin America.

—Thomas Monteiro

The winner as the Best Foreign Exchange Bank in the Middle East, Saudi Arabia’s Al Rajhi Bank is the largest Islamic bank worldwide and has a dominant franchise in the Gulf Cooperation Council’s biggest banking market. Al Rajhi is ranked as the No. 1 bank in the Middle East for remittances by payment value.

The bank’s FX performance has been boosted by digital transformation. Retail, SME, and corporate businesses have expanded, with escrow accounts growing substantially. Its FX franchise has strengthened, with an increasing number of global counterparties and an extensive peer network of banking and financial institutions, further developing its treasury capability to deal in large FX trades. Al Rajhi’s Treasury Group has increased interbank FX counterparties to improve price and FX flow coverage and to access new markets and currencies. Onboard banknote and bullion interbank counterparties have been introduced to enhance supply, storage, and price economies. Several new module enhancements have been carried out on the core treasury management system to onboard new products.      
—Darren Stubing

Like all global banks, JP Morgan has invested heavily in its IT infrastructure and trading networks over the past decade. Headquartered in New York, the bank is in all major world financial centers. It provides corporate clients with everything from FX trading services to international payment processing, cash flow, and working capital management.

In a more volatile environment for global currencies, size matters. JP Morgan, UBS, and Deutsche Bank are the three largest players in the FX trading markets, accounting for roughly 30% of global FX transactions. The bank has an enormous pool of liquidity, with millions of customers across its consumer, commercial, and investment banking operations. It can execute large spot trades in up to 300 currency pairs internally by matching up customers, or it can work complicated orders across multiple external electronic markets. It is also one of the largest providers of FX derivatives contracts globally.

Technology is a significant selling point for JP Morgan. It employs artificial intelligence to enhance its FX trading algorithms that optimize execution services in all market conditions. It also helps companies to fully digitalize their treasury functions across global operations to give them a clearer picture of their FX and risk management needs.

—Andrew Osterland

Already a powerhouse in the European market, UBS skillfully took advantage of Credit Suisse’s March collapse to achieve once-in-a-lifetime boost to customer growth.

By combining its former rival’s market shares with its own, the bank was able to gather unrivaled positioning, which should remain for years to come, in the continent’s FX market.

Naturally, the M&A came with challenges, as UBS faced the need to regain confidence among former Credit Suisse clients and to onboard its rival’s top-line staff. This process led to a challenging yet rewarding second half of 2023, as customer satisfaction grew while FX margins temporarily compressed.

But despite the intricacies of the merger, the bank has continued to invest in deepening its already best-in-class suite of technological offerings for FX.

With significant improvement across the currency-trading spectrum, from FX swaps with its Neo STIR Analytics platform to improved FX liquidity algorithms with a new smart order router, UBS’ European-based customers enjoy a unique combination of unrivaled market positioning and knowledge with state-of-the-art technological FX products.

—TM

The performance of Islamic financial institutions (IFIs) continued to strengthen in 2022 despite challenging conditions in most markets as economies weakened, supply chains got squeezed and interest rates rose. Most Islamic banks benefited from their focused strategies on domestic markets, mainly retail and commercial banking.

Profitability rose for IFIs in 2022, with net profit increasing by 26% thanks to strong asset and loan growth. Islamic bank assets grew by 13% last year, again outpacing conventional banks. As a result, net financing (interest) income for Islamic banks accelerated, and margins widened. Impairment charges were also lower as banks maintained good financing asset quality. Islamic banks continued to experience growth in mortgage financing, particularly in the fast-growing market of Saudi Arabia.

This year’s winners of Global Finance’s Islamic Finance Awards are banks that have delivered good financial performance and maintained prudent balance sheets while investing heavily in technology and innovation and launching new products and services. In addition, award winners have recognized the importance of corporate and social responsibility and environmental factors as part of their strategies.

Kuwait Finance House (KFH) is named Global Finance’s World’s Best Islamic Financial Institution. KFH has a market reach across the Middle East, Turkey, Asia and Europe. In 2022, KFH successfully acquired Ahli United Bank. The acquisition makes KFH the second-largest Islamic bank worldwide, giving it a strong presence throughout the GCC as well as Turkey, Egypt, Iraq, Malaysia, the UK and Germany. KFH’s performance was strong in 2022.

 “While our products have demonstrated real economic value, KFH has succeeded in achieving a balance between promoting innovation and digitization while considering social, environmental and corporate governance standards,” says KFH chairman Hamad Abdulmohsen Al Marzouq.  “Accordingly, KFH reflects a true picture of the best future for Islamic banks.”

Al Rajhi Bank, the world’s largest Islamic bank and award winner of the Best Saudi IFI, also had a strong year in 2022, with high growth and profitability.

“Mortgage financing increased by 30% and financing for SMEs increased by 61%, coupled with increased activities in digital banking transactions,” notes Abdullah bin Sulaiman Al Rajhi, chairman of Al Rajhi Bank. “Continuing our focus on enhancing our digital framework to integrate our digital financial ecosystem further, the bank maintained its pioneering innovation of new digital products and services, such as digital letters of guarantee,” he adds.

Islamic banks generally remain in good financial condition overall. They are primarily funded by stable domestic customer deposits, and most have limited external funding exposure. As a result, further growth is expected this year in critical Islamic banking markets.

Economies and institutions in the Middle East are placing increasing emphasis on sustainability. This may seem contradictory, as the region produces over 25% of the world’s oil, has four of the top five oil-producing member countries of  OPEC+ (the Organization of Petroleum Exporting Countries plus Russia and several others who align with OPEC) and has one of the largest exporters of liquified natural gas in Qatar. Both oil and gas reserves in the region are substantial. However, regional countries acknowledge they cannot rely on hydrocarbons indefinitely; and most have introduced diversification and sustainability strategies. The sustainability focus in the region is gathering pace leading up to the UN’s COP28 climate change conference in 2023, hosted by the United Arab Emirates (UAE).

The Gulf Cooperation Council (GCC) countries aim to decrease use of fossil fuels for generating electricity and intend to raise the capacity of renewable energy to meet local electricity demand. Plans also include increasing participation of the private sector and reducing the role of the public sector. In addition, participants believe that the climate agenda could provide opportunities to further diversify GCC economies in growth sectors, such as the oil and gas industry, for the energy transition.

“There is an excellent and timely opportunity to diversify the economy further, using a green growth strategy and playing a leading role in the global transition to low-carbon economies,” says Issam Abousleiman, World Bank regional director for the GCC, the Middle East and North Africa (MENA). “The region could use the green growth transition to focus policies on developing green technologies that would reverse trends in productivity and enable the region to grow faster.”

GCC countries’ total GDP was estimated at around $2 trillion in 2022. According to the World Bank, their combined GDP could grow to an expected $6 trillion by 2050 if they operate as usual. However, suppose the GCC countries implemented a green growth strategy that would help accelerate their economic diversification. In that case, the World Bank says their GDP could potentially grow by 2050 to over $13 trillion.

Private Investment Speeds Transformation

Increasing private sector investment will be necessary to boost sustainability and the energy transition. Green finance is critical for new investments in renewable energy, sustainable transport and water management. In part, the lack of sustainable finance has resulted from a lack of investable projects. Sometimes, these have not made the necessary hurdles regarding transparency, institutional framework and policy. The region has many potential developments in solar energy and in green and blue hydrogen. In its fall 2022 Gulf Economic Update, the World Bank says that it is “important that GCC governments and sovereign wealth funds play a role in crowding in private sector investments and putting more emphasis on equity rather than debt financing.”

The UAE has initiated many projects and actions—particularly within the financial sector and sustainable finance—focusing on introducing systems to deliver funds from private finance to unlock necessary infrastructure investment and meet net-zero targets. Abu Dhabi is becoming a central commercial hub for nature-based carbon credits.

Financial institutions in the region are becoming more active in sustainable finance and want to increase activity. For example, following its green bond issue of $3 billion in 2022, Saudi Arabia’s Public Investment Fund (PIF), the kingdom’s sovereign fund, raised a further $5.5 billion in green bonds in February 2023. In three tranches up to 30 years in tenor, the issue was oversubscribed six times with strong demand from international investors. This is part of PIF’s strategy to invest over $10 billion in green projects over the next three years. It also diversifies PIF’s debt funding strategy.

Head of the Global Capital Finance division at PIF, Fahad AlSaif, says, “PIF’s second green bond issuance underlines the role PIF is playing in supporting Saudi Arabia’s green agenda as well as diversifying the local economy and unlocking new and sustainable sectors. PIF has a specific Green Finance Framework with a sustainable investment program including projects in renewable energy, clean transportation, energy efficiency, pollution prevention, green buildings and sustainable water management.”

Green Financing Takes Root

First Abu Dhabi Bank (FAB), the largest bank in the UAE and one of the pioneers in sustainable banking in the region, has committed to the region’s energy transition and sustainability targets. In 2022, FAB facilitated more than $9 billion of sustainability projects in green sectors. In addition, the bank aims to provide $75 billion in green financing for 2022-2030. It has long been active in green bond issuance.

“In 2022, we executed around half of our bond issuance in a green format [$1.5 billion], including three public benchmark transactions, including the [then] largest-ever [$700 million] green issuance from a MENA bank,” says the bank’s Chief Sustainability Officer Shargiil Bashir.

FAB is also active in advising on and structuring sustainability-linked loans for clients, linked to performance indicators, with periodic sustainability performance targets, incentivizing the client to meet sustainability targets over the financing period.

As the world’s largest integrated oil and gas company, Saudi Aramco has a pivotal role in sustainability, as do domestic capital markets in the region within a challenging global financial environment. Aramco’s president and CEO, Amin H. Nasser, believes a balance must be followed between oil and gas investment; capital markets; and environmental, social and governance (ESG) considerations. Nasser believes an increased focus on ESG is positive. Nonetheless, if ESG-driven policies are followed with an automatic bias against conventional energy projects, the subsequent underinvestment could have implications for the global economy, energy affordability and energy security. According to Nasser, oil and gas projects’ cost of capital has risen due to a higher perceived risk, and capital scarcity is a common phenomenon driven by ESG.

Investment in the oil and gas sector has decreased sharply, with upstream investment in 2022 of around $400 billion. “Proponents of the popular energy transition narrative paint a picture of a utopian world where alternatives are ready to replace oil and gas almost overnight,” Nasser told the Saudi Capital Markets Forum in February, “Likewise, they assume the massive global energy system—including less-than-reliable electric grids in many developing countries—can be transformed instantly. Unfortunately, too many participants in capital markets believe this rhetoric rather than seeing the reality. As the energy crisis in Europe has demonstrated, alternatives are not ready to shoulder the heavy burden of global demand. Indeed, the world will continue to depend on oil and gas for the foreseeable future. … For a less-risky global energy transition, everyone—including capital markets—must take a more realistic view of how the global energy transition will unfold.” The main challenge for capital markets connected to the energy transition, he added, is striking the right balance between financing new energy sources and continuing to support conventional energy and decarbonization.

In October, Aramco announced the creation of a $1.5 billion sustainability-focused venture capital fund that aims to “invest in technology that can support a stable and inclusive energy transition.” Managed by the venture capital arm of Aramco, “The fund is an extension of the company’s efforts to meet the world’s growing energy demand with lower greenhouse gas emissions. The fund plans to invest in technologies supporting the company’s announced net-zero 2050 ambition for its wholly owned operational assets as well as development of new lower-carbon fuels.” Other initial focus areas will include carbon capture and storage, energy efficiency, nature-based climate solutions, digital sustainability, hydrogen, ammonia and synthetic fuels. “The fund will target investments globally.”

In 2022, green bonds and sukuk in the GCC region amounted to a record $8.5 billion involving 15 issues, up substantially from the previous year. Moreover, green and sustainability bonds and sukuk are expected to grow higher in 2023 in MENA as banks focus on financing sustainability projects and as demand by international investors grows for these investment instruments. Supporting this, in February 2023, Dubai Islamic Bank issued a $1 billion 5.5-year sustainable sukuk, the largest sustainable issuance by a Middle East bank since June 2021.

The UAE’s COP28 president-designate, Ahmed Sultan Al Jaber, group CEO of the Abu Dhabi National Oil Company (Adnoc) and chairman of Masdar, a UAE state-owned renewable energy company, stresses the need for partnerships. However, he acknowledges that much still needs to be done and that the path to net zero represents a huge transformation. Adnoc recently allocated $15 billion for decarbonization projects by 2030, including carbon capture, electrification, new carbon dioxide absorption technology and enhanced investments in hydrogen and renewables. It is part of a multiyear plan to meet Adnoc’s Net Zero by 2050 ambition.

Last year saw a strong recovery for Islamic financial institutions (IFIs) as economies rebounded following a difficult 2020 caused by the global pandemic and lower oil prices. IFIs were very prudent in booking financing loss reserves in 2020. Charges were at a much lower level in 2021, and some banks released reserves, boosting results.

Net profit for Islamic banks rose by more than 50% in 2021, with banks in the Gulf achieving particularly strong results. Customer deposits continued to expand, funding the growth of financing portfolios. In addition, IFIs saw the benefit of digital and technological investments that helped control operating expenses.

This year’s award winners as Global Finance’s World’s Best Islamic Financial Institutions continued to invest in technology and delivery, launching new products and services while delivering good financial performance. Moreover, the award winners recognize the importance of corporate and social responsibility and environmental factors, as acknowledge by two new respective awards.

Global Finance chose Kuwait Finance House (KFH) as the world’s Best Islamic Financial Institution. KFH has a market reach across the Middle East, Asia and Europe. The group benefits through its advanced systems and applications.

IFIs continue to expand as demand for Shariah-compliant products increases. The sector is expected to maintain growth in most market segments, including financing, investment, sukuk and insurance. Segments such as mortgage financing are experiencing rapid growth, while sustainability financing is blooming.

Digitalization and sustainability are key focus areas, according to Muhammad Al Jasser, chairman of the Islamic Development Bank (IDB).

“It was through digital transformation that many people sustained their social and professional lives in the middle of stringent lockdowns,” he says. “Digital transformation, however, was already underway even before the pandemic and prior to lockdowns that forced people to work remotely. IDB will continue to support cross-border regulatory harmonization, which is vital to making full use of opportunities such as e-commerce and dealing with potential cybersecurity problems.”

“Islamic finance calls for social justice, financial inclusivity, ethical practices and social responsibility,” says Dato Mohamed Rafique Merican, CEO of Maybank Islamic, our award winner as Best Islamic Financial Institution in Asia and Malaysia. “All these notions are at the heart of sustainability efforts and initiatives. With the significant alignment between Islamic finance and sustainability principles, we believe Islamic finance will have broader and more-universal appeal.”

A flagship institution for the Islamic financing sector, Kuwait Finance House (KFH) wins the world’s Best Islamic Financial Institution award due to its strong 2021 operating performance while maintaining investments in innovative technology and launching new products and services. KFH provides services to customers in the Gulf Cooperation Council (GCC), Asia and Europe through extensive distribution channels and has subsidiaries in Kuwait, Turkey, Bahrain, Malaysia and Germany. In 2021, customer numbers rose in all operating geographies worldwide.

KFH’s total assets stood at $72 billion at the end of 2021. Net profit was 68% higher year-on-year at slightly more than $1 billion, with the return on average equity (ROAE) rising to 14%. KFH’s Islamic banking products and services span commercial, retail and corporate banking as well as real estate, trade finance and investments. KFH has placed significant emphasis on digital banking, and online banking transactions rose by a quarter in 2021. KFH successfully initiated a national payment system through a fully integrated application corresponding to the Swift global network. KFH was the first bank in Kuwait to launch instant card issuance service.

KFH participated in major development projects in the GCC and international markets, in various fields such as infrastructure, energy, water, electricity, transportation, communications, housing and real estate development. In 2021, KFH Capital, the investment arm of the group, led the successful arrangement of many sovereign and corporate sukuk issuance deals, exceeding $15 billion in favor of customers in various sectors and geographies.

Qatar’s main Islamic financial institution, Qatar Islamic Bank (QIB), had a strong 2021, with assets rising 11% to $53 billion. Its net profit increased by 17% to $976 million in 2021 aided by a strong performance in the bank’s corporate banking division that contributes approximately a third of total profits. QIB provides a wide range of products and services in corporate banking, from trade finance to structured finance, as well as deposit-related products. It has a strong customer base in government-related entities, financial institutions, real estate, oil and gas, and small and midsize enterprises (SMEs). The bank’s corporate banking service is technology driven, including a Corporate Internet Banking portal, and is supported by QIB’s QInvest investment banking arm. QIB’s cross-border division is also growing.

A pioneer in the provision of Islamic retail banking services, Al Rajhi Bank has significant expertise in Shariah consumer banking. It has won the world’s Best Islamic Retail Bank award following its significant retail banking performance in 2021, together with its further development of Islamic retail banking products, digital transformation, employee investment and market leadership. At the end of 2021, Al Rajhi was the largest Islamic bank globally, with assets of $166 billion—up 33% from the previous year—and equity of $17.9 billion. Net profit increased by 39% to $3.9 billion in 2021. It remains one of the most profitable banks, with a return on average assets (ROAA) of 2.7% and ROAE of 24%. Customer loans grew by 43%, largely driven by retail banking. Al Rajhi Bank’s home mortgage financing expanded by 63% in 2021 and the bank increased its market share across all segments. Loan growth was funded by an increase of 34% in customer deposits. Digital and mobile banking have received significant focus, with Al Rajhi’s cashless transactions nearing 80% of its total transactions. Its launch of Emkan Finance, a digital lending company that provides fast personal microloans at low interest rates, has been very successful. Once approved, the funding amount is delivered within minutes through fully digital channels.

A pioneer of Islamic banking in Qatar and an active partner in the community, QIB focuses closely on corporate and social responsibility (CSR). QIB’s CSR initiatives provide continuous support to the community through human, educational and sports activities. It proactively sought to contribute to protecting, helping and supporting the local community in times of the Covid-19 pandemic. Important CSR initiatives have included domestic workers’ digital accounts, in keeping with the bank’s principle of support for all segments of society and to promote financial inclusion of domestic workers in Qatar, facilitating timely payment and access to their wages as well as easy and fast international transfers. With this initiative, and for the first time in Qatar, domestic workers can open a bank account through a simple process using the QIB Mobile App, free of charge and without a minimum balance requirement.

Environmental, social and governance (ESG) concerns are an integral part of the long-term strategy followed by Dubai Islamic Bank (DIB) to create and unlock further value for all its internal and external stakeholders and for the banking sector itself. Notably, DIB is already aligned with eight of the UN’s 17 Sustainable Development Goals and is gradually aligning itself with more through its business activities and charitable contributions. The bank is working to address the key areas of good health and well-being, quality education, decent work and economic growth, climate action, gender equality, reduction of inequalities among the population, sustainability of cities and communities, and achieving peace and justice.

DIB operates a responsible ESG policy across its operations. It is pioneering green Islamic capital markets and was a joint lead manager and bookrunner for the issue of the world’s first sustainability-linked sukuk in aviation, a five-year $600 million transition sukuk committing Etihad Airways to carbon-reduction targets. It also has issued several sovereign and corporate green sukuks. Sustainable-skills development, led by the Learning and Development Team, is an important component of DIB’s strategy for sustainable growth. In addition to training and developing its employees, DIB has demonstrated the bank’s commitment to financial inclusion and youth empowerment; and it is fully immersed in programs that educate, engage and empower the youth of the United Arab Emirates (UAE).

A culmination of the successful merger between Barwa Bank and International Bank of Qatar, Dukhan Bank’s net profit more than doubled in 2021, while its assets grew by 28%. The bank’s private banking proposition is tailored to meet private clients’ evolving needs, using innovative customer-focused services supported by good technology. Dukhan Bank’s private banking service offers an end-to-end portfolio of financing, banking and investment products and services for high-net-worth individuals (HNWIs). Supported by a team of local and regional equity specialists, its portfolio management services are quite extensive. The bank is also focusing on an enhanced digital transformation over the next few years that will develop its private banking portfolio further to capture a larger and younger generation of HNWIs.

Standard Chartered, through its global Islamic banking unit Standard Chartered Saadiq, is a major player in the Islamic financing industry. Standard Chartered Saadiq is a leading participant in the global sukuk market. In 2021, it ranked second in the international sukuk league tables, achieving a 12% market share. It is the only international bank with a global banking franchise providing Islamic banking products and services through its extensive network.

Standard Chartered Saadiq has an extensive offering and strong expertise in structuring bespoke Islamic financial products. It successfully executed many high-profile transactions, including several industry benchmark-setting deals in 2021. The bank has played a leading role in assisting most of the sovereigns in their sukuk funding requirements. Landmark deals in which it participated included those with the UK government, Turkey, Indonesia and Oman. Other major deals in 2021 included those for Boubyan Bank and the Islamic Development Bank (IsDB).

The bank plays a leading role in corporate sustainable/green sukuk issuances, including the $2.5 billion sustainable sukuk offering by IsDB and Indonesia’s $3 billion triple tranche, which includes a $750 million 30-year green tranche.

Standard Chartered Saadiq is a leader in the Islamic investment banking sector and had a strong 2021. A major participant in the global sukuk market, the bank utilizes the skills of its investment banking team. It has broad experience in designing custom Islamic financial offerings that cater to clients’ needs. Saadiq works with leading industry bodies such as the International Islamic Finance Market and the International Swaps and Derivatives Association to promote product standardization within the Islamic banking industry. The bank’s investment banking services offer an extensive product portfolio. This product suite is intentionally different in each market, with the goal of providing clients with tailored packages to fulfill their needs. Saadiq offers a complete product suite encompassing transactional banking; financial markets solutions such as capital markets and treasury risk management; and corporate finance offerings such as project and export finance, leverage finance and structured solutions for a broad spectrum of corporations and institutions.

The bank is also at the forefront of Islamic risk management and yield-enhancing products like foreign exchange (FX); hedging products that range from basic FX spot to more-structured offerings, such as profit rate and currency swaps; FX and profit rate structured offerings; and structured deposits and investment products. Standard Chartered also has an Islamic commodity-hedging product that offers a comprehensive suite of derivatives, including swaps and options, that can be offered on the back of structured deposits.

Headquartered in Saudi Arabia with offices in Jeddah, Riyadh, London, Singapore and Dubai, Sidra Capital is a Shariah-compliant asset manager, providing financial advisory and other services with a focus on real estate, private finance and private equity investment. Last year was a very good year for Sidra Capital in terms of performance. The Islamic fund manager established Sidra Capital Singapore in 2020 to support the firm’s global growth and complement its existing asset management strategy for Southeast Asia. In commercial real estate and property in the US, it reinforced its presence with two strategic real estate investments. The company took a strategic interest in 10000 Energy Drive in Houston, Texas, which had been built as a statement headquarters building for Southwestern Energy, its anchor tenant. Sidra Capital closed 2021 with the acquisition of Oakmont Point, a long-lease class-A office property in a Chicago suburb. In addition, the company initiated its first real estate aggregation program with its launch of a $155 million fund for the acquisition of single-tenant  industrial properties in the US.

Sidra’s UK operations showed equal growth with the acquisition of the Countryside HQ Building in Brentwood, and Buckingham Gate and Uxbridge office properties, boosting its assets under management (AUM) in the UK to £1 billion ($1.3 billion) and strengthening its footprint in the market. Sidra’s private finance activities also thrived in 2021, with the Sidra income fund recording good returns.

Kuwait-based Boubyan Bank wins the Best Islamic SME Bank award for its significant focus on digital delivery, customer service and breadth of product offering. The bank has attracted companies across various sectors in the local market. Increasing its market position remains an important goal, which it plans to achieve by offering outstanding banking services and products that meet all the needs of SME customers.

Bahrain-headquartered GFH Financial Group recorded strong improvement across all its asset classes in 2021. With $15 billion in AUM, GFH’s net profit was $84 million in 2021, nearly double that of 2020. The increase reflects stronger contributions throughout 2021 from all business lines, including investment banking, real estate and treasury activities. In total, during the year, GFH closed more than $1 billion of new investments, including international logistics, health care and education sectors. The group has strengthened its presence in both the UK and the US. It also concluded a strategic partnership with Schroders Capital, the private markets investment division of Schroders, which will bolster GFH’s international investment reach and enhance access to a broader pool of opportunities. GFH booked many real estate deals in the US in 2021, including acquisition of a $2 billion portfolio of Amazon-designated US warehouses.

As the first and largest Islamic bank in the UAE, DIB continues to serve as a flagship bank in the Emirates, with a significant footprint domestically and internationally. Its trade finance activities continue to expand, and DIB’s services and products are extensive and well regarded. DIB’s presence in many markets, including Pakistan, Indonesia and Kenya, provides good advantages for its trade finance activities. The completion of Noor Bank’s integration and the migration of all banking relationships into DIB has also boosted its profile.

DIB became the exclusive UAE partner of Trade Club Alliance last year. This partnership is an innovative, digital, global business networking platform across 14 banks, offering corporate and SME clients involved in international trade a wealth of relevant trade expertise and the opportunity to connect with trusted partners from around the world.

In 2021, KFH Takaful recorded good growth, offering a wide range of Islamic insurance products while capitalizing on the KFH distribution network. KFH Takaful’s range of products includes medical, housing, motor, fire, aviation and marine insurance. The KFH Takaful app generated increased customer demand and simplified access to insurance. The company is active in reinsurance programs, with many blue-chip reinsurers.

CIMB Islamic Bank is Malaysia-based CIMB Group’s global Islamic banking and finance franchise. CIMB Islamic had a good year in 2021 in project finance, including the infrastructure and construction sectors. The bank has significant experience and knowledge in the Shariah-compliant project financing sector. CIMB Islamic has managed many syndicated transactions and participated in the financing of many projects.

In June 2021, Saudi Arabian Oil Company (Saudi Aramco) launched its inaugural sukuk issuance in the form of a $6 billion triple-tranche senior unsecured sukuk offering. The yields were all at a low price. The issuance was Saudi Aramco’s first-ever dollar-denominated sukuk and the largest corporate international sukuk issuance ever.

When the Saudi-based Islamic nonbank financial institution, a consumer financing company, conducted its initial public offering (IPO) in late 2021, the issuance was highly successful and was oversubscribed 136 times. HSBC Saudi Arabia was the financial adviser, lead manager, lead underwriter and lead bookrunner.

With assets of $63 billion and a financing portfolio of $50 billion, Maybank Islamic is the largest Islamic bank in Asia. The bank had a strong 2021, with its net profit more than doubling to $752 million. Maybank Islamic has long been one of the leading Islamic financial institutions globally and is frequently a first mover in bringing innovative Shariah-compliant financial products to the market. Its main market is Malaysia, where it controls a third of Islamic assets, but its activities extend into Singapore, Hong Kong, Labuan and Indonesia. The bank holds a leading position in the Malaysian ringgit sukuk market and a good position in global sukuk.

The global award winner, KFH also took home the Best Islamic Financial Institution in the Middle East regional award. The bank plays an important role in Islamic financing and banking across the GCC and the wider Middle East. It is active in the financing of major projects, investment and capital raising. It also provides a range of deposit and wealth management products for regional clients. KFH has had a strong start in the sukuk market for 2022. In the first quarter of this year, it arranged two large sukuk deals: a $3 billion issue for the Turkish government and a $750 million issue for Dubai Islamic Bank. The bank is also increasingly active in sustainable sukuk issuance.

With balance sheet assets of more than $8 billion and $15 billion in AUM, GFH has made good progress over the last few years in its focus on Islamic investment banking. It also owns a majority stake in Khaleeji Commercial Bank, an Islamic retail bank operating in Bahrain. Khaleeji also had a good year in 2021, with profit up by 37%.

Bangladesh is the third-largest Muslim-majority country in the world, making it a lucrative market for Islamic banking. Standard Chartered Saadiq Bangladesh saw 26% revenue growth in 2021. Standard Chartered is the only multinational bank in the country offering Islamic banking to all client segments across retail, SME and corporate sectors. It has introduced various first-in-the-market digital services, such as instant funds transfer and others.

Bank Islam Brunei Darussalam has the dominant position in Islamic finance in Brunei Darussalam and continues to record good growth. It has assets of $8 billion.

A leading institution in Egypt’s expanding Islamic finance market, Abu Dhabi Islamic Bank (ADIB) Egypt had another good year in 2021. The bank has assets of approximately $5 billion. Its service provision is high, and ADIB Egypt has invested heavily in technology.

In early 2021, the merger of Islamic banking units of three state-owned banks (Bank Rakyat Indonesia, BNI Syariah and Bank Syariah Mandiri) created the country’s seventh-largest bank, with assets of $17 billion. Islamic financing in Indonesia is growing rapidly and Bank Syariah is a strong competitor for conventional banks in Indonesia.

Iraqi Islamic Bank for Investment and Development holds a good franchise in the small domestic banking sector.  The bank has had good recent success in government-related trade finance activities. Its balance sheet is well capitalized with good liquidity.

Jordan Islamic Bank is Jordan’s best-performing Islamic bank. Its balance sheet grew to $7.5 billion in 2021. The bank has a wide portfolio of Islamic banking products and is backed by strong regulatory ratios. Net profits, deposits and financing all increased by more than 10% in 2021.

Boubyan Bank is well managed with excellent retail and commercial products and service offerings. Majority-owned by the National Bank of Kuwait, it has significant digital capability and has focused on fintech innovation. Profits were up by around 50% in 2021, and the bank’s market share of local finance continues to grow. On a wider front, it successfully launched UK-based Nomo, the first global Islamic digital bank, offering Shariah-compliant wealth management and banking services in the UK and internationally.

Maybank Islamic is Malaysia’s flagship Islamic institution, with a market share of over 30%. In nearly all Shariah areas, it holds a dominant market position.

Umnia Bank, a joint venture between Qatar International Islamic Bank, CIH Bank and the Moroccan Depository and Management Fund, continues to grow its franchise and financial position as well as its Islamic product offering.

Bank Nizwa continues to be the fastest-growing Islamic bank in Oman. Its retail and corporate client bases are increasing, boosted by an electronic channel. The bank’s net profits increased by 13% in 2021, while total assets grew by 16% to reach $3.6 billion.

Meezan is Pakistan’s largest Islamic bank, with a rapidly expanding asset base of $10.8 billion that grew by 14% in 2021. The bank offers a range of products and services targeted at the broader public as well as mid-tier and premium banking customers. Meezan’s net profit increased by 25% in 2021 to $175 million.

Arab Islamic Bank is the oldest and largest Islamic bank in Palestine. The bank currently has assets of $1.7 billion and a recorded 12% growth in 2021.

Qatar Islamic Bank is Qatar’s flagship Islamic financial institution, with a 50% market share of Islamic banking assets in the domestic market. The bank’s assets are now more than $50 billion, with a net profit approaching $1 billion. Qatar-based banking operations contribute 95% of the net operating income.

Al Rajhi Bank is a pioneer in the provision of Islamic retail banking services, holding a dominant Islamic bank franchise in the kingdom. At the end of 2021, Al Rajhi was the largest Islamic bank globally, with assets of $166 billion and a substantial deposit base. It remains one of the most profitable banks, with an ROAA of 2.7%, and has a strong financial profile.

HBZ Bank South Africa is a subsidiary of Habib Bank of Zurich, which also has subsidiaries in the UK, Hong Kong, Canada, the UAE, Kenya and Pakistan.

Bank of Ceylon, a wholly owned entity of the government of Sri Lanka, has a significant franchise in the country. The bank pioneered Islamic banking in Sri Lanka. BOC An-Noor is the bank’s Islamic banking window, which provides a diverse range of savings and financing products and services.

Bank Zitouna was the first Islamic bank in Tunisia. It has a good range of Shariah-compliant banking services and products and has recently increased its mobile banking applications. Assets are around 1.7 billion dinars (about $566 million).

Majority controlled by Saudi National Bank, Türkiye Finans Katilim Bankasi is one of the largest “participation” (Islamic) banks in Turkey. The bank held $8.5 billion in assets while its net profits rose to $107 million in 2021.

DIB is the largest  Islamic financial institution in the UAE and the oldest commercial Islamic bank in the world, and it continues to be innovative with respect to new Islamic financial products and services. It is at the forefront of adopting emerging technologies—such as fintech, blockchain and artificial intelligence—into its Islamic banking operations. DIB has strong market positions in retail, commercial and corporate banking and in sukuk. DIB’s net profit rose 40% in 2021 to $1.2 billion.

Middle East and North Africa (MENA)-based institutions maintain their search internationally for opportunities to boost growth, which has been moderate, and bring much-needed economic diversification. With regional demand and investment tied to oil prices, many banks and companies see the need to look outside their domestic markets to raise income and assets.

That’s not to suggest they scorn  opportunities at hand. There remains a significant focus on growth within the region, says Junaid Ansari, senior vice president of Investment Strategy and Research at Kamco Investment Company in Kuwait, with average yearly investment and M&A activity for listed companies more than $10 billion in the past decade. Still, he notes, “the overall level of investments and M&A activity has remained range-bound over the years.”

According to Ansari, MENA institutions’ main target markets for investments and M&A outside the region include the US, UK and EU. Although investments in the US and the UK are primarily in real estate, activity in France includes M&A transactions, such as the recent one between Gulf Insurance Group and AXA worth $264 million for AXA’s assets in the MENA region.

“Global markets continued to evolve during the unprecedented economic disruption and market volatility brought on by the Covid-19 pandemic,” says Hussain Abdulla, co-CEO at leading Doha-based investment bank QInvest, whose main markets, he notes, are the US, UK and EU.”

FDI Turns to Turkey

Turkey ranks high among expansion destinations, with a large market overall and a sizeable Islamic market, as well as growing opportunities in commercial banking, particularly lending. MENA banks have expanded there largely via acquisition. QNB Finansbank has assets of $25.1 billion with a significant retail franchise. Kuwait Finance House (KFH) owns Kuveyt Turk Participation Bank, an Islamic financing company and KFH’s largest subsidiary, with assets of $21 billion. Kuveyt Turk also has a subsidiary bank in Germany, KT Bank AG.

Other MENA banks in Turkey include the Commercial Bank of Qatar (Alternatifbank); Saudi National Bank (Turkiye Finans Katilim Bankasi); Burgan Bank Turkey; and Emirates NBD’s 2019 acquisition, Denizbank. Those banks have been hit by the substantial lira depreciation over the past few years, particularly the fall in value in 2021. Focusing on more stable economies is one way of protecting against FX volatility.

Within the MENA region, Egypt has been a focus for banks based in the Gulf Cooperation Council (GCC) nations over the past 15 years. Several have made acquisitions, attracted by the expanding retail banking market, as with the Turkish market. Banks that have acquired institutions in Egypt include QNB, Al Ahli Bank of Kuwait, Abu Dhabi Islamic Bank and First Abu Dhabi Bank (FAB). FAB, the largest bank in the UAE, acquired Bank Audi Egypt in 2021. The bank says this is its “first international acquisition in line with a targeted growth strategy in high potential markets.” More recently, FAB has been in talks to buy EFG Hermes, Egypt’s leading investment bank.

Saudi Arabia’s largest bank, Saudi National Bank (SNB), established following the merger of National Commercial Bank and Samba Financial Group in 2021, is actively looking at acquisitions outside its home market, including Asia and Europe. With the backing of the kingdom’s sovereign wealth fund, SNB is casting its eye at major global institutions, possibly including Standard Chartered and Credit Suisse, to become a global player in line with Saudi Arabia’s Vision 2030 plan to diversify the economy and boost the private sector.

Covid-19 was one of the critical reasons for the decline in M&A and investments made by MENA-listed corporates outside the region in 2020. However, 2021 witnessed the second-largest overseas investments and M&A in six years by MENA listed companies—double the level of 2020.

One symbol of the shift: Kuwait-based logistics firm Agility Public Warehousing recently built up a stake of 19% in UK-based and listed aviation services company John Menzies, with Menzies having rejected Agility’s prior takeover approaches.

Power Sector Plays

In the renewable energy and storage sectors, MENA companies and investment firms, particularly the GCC-based institutions, are ramping up their acquisitions and investments. Regional power and energy companies are planning to invest much more in the global renewables and clean energy market, diversifying their interests and aiming to reduce their longer-term reliance on fossil fuels.

Acwa Power, a Saudi-based institution whose portfolio is worth over $67 billion, is developing or planning renewable projects internationally in South Africa, Morocco, Vietnam, Cambodia, Indonesia, the Philippines and other countries, about half of its business targeted outside Saudi. Other MENA energy companies already have significant activities in Europe, the UK and the US in the renewables energy sector and will continue to expand in these markets.

Outside of the energy sector, MENA firms are also targeting Europe, Asia and sub-Saharan Africa in health care, agriculture, fintech, banking and e-commerce. Investcorp, the Bahrain-based investment house, recently acquired a majority stake in Italian cybersecurity company HWG. Investcorp remains active in the US real estate market. The firm recently acquired 64 industrial properties across seven major US markets for $640 million, bringing Investcorp’s US industrial real estate holding to around $3.5 billion.

India, a substantial market geographically close to MENA, may represent increasing interest for MENA banks and companies. Investcorp, for one, is becoming more active there. One of its portfolio companies, Xpressbees, a leading e-commerce logistics platform in India, recently raised additional funding giving a valuation of more than $1 billion. Rishi Kapoor, Co-CEO of Investcorp, says in a prepared statement, “The multifold increase in valuation … underscores the fact that Xpressbees sits at the strategic sweet spot of the consumption shift to digital and e-commerce in India, with a significant future growth potential within India’s $200 billion logistics industry.”

Over the last few years, regulators in the region have accelerated the pace of MENA economies’ integration with the rest of the world. This has included reforming existing laws and infrastructures. These efforts also come from a need to diversify the economy away from oil. As a result, both governments and corporates within the region and abroad have increased investments in non-oil sectors. Kamco’s Ansari says, “We expect the activity to accelerate further in coming years to build a more sustainable and stable revenue stream for governments and corporates in the MENA region.”

Following a strong rebound in 2021, the global economy is entering a slowdown amid threats from rising inflation, debt, and the war between Russia and Ukraine, which could endanger the recovery in emerging and developing economies. Before the Russia-Ukraine war, the World Bank expected global growth to decelerate from 5.5% in 2021 to 4.1% in 2022, as pent-up demand dissipates and fiscal and monetary support is unwound.

Covid-19 accelerated digitalization across the industry. This has played a vital role in sustaining businesses and reducing overheads in low-volume situations.

The Post-Covid Challenge

“As we enter a post-Covid era,” notes QInvest’s Abdulla, “the main challenge for banks in the Middle East will be ensuring that they do not lag global institutions in adopting innovative digital and fintech solutions.” Institutions will continue to search for technology-driven companies that will boost their product and service offerings.

 Though heavily reliant on international backers, Jordan is trying to play its cards right and convert foreign aid checks into sustainable economic assets. Recovery from the Covid-19 induced recession will take time, especially if lockdown measures should continue. The World Bank expects GDP growth to recover in 2022.

The last year wasn’t an easy year for anyone. Lockdowns dampened economic activity to the point that GDP fell nearly everywhere. Major markets in the Middle East and other places where energy is a crucial contributor to the economy faced an additional challenge in the significant decline in the price of oil.

That might have wrought a great deal of damage to Islamic financial institutions (IFIs). Yet banks and other financial entities that operate according to Shariah law performed well overall, according to data from S&P Global. Net profits for the sector fell approximately 10% last year on the back of increased provisioning—less than the decline at conventional banks. Returns for IFIs remained solid at 1.4%, despite falling year over year. Although GDP fell everywhere, most IFIs recorded growth in assets, boosted by increased deposit placements.

The winners of Global Finance’s Best Islamic Financial Institutions awards for 2021 are those that achieved solid financial performance during this challenging period, together with a widened product portfolio, enhanced service, technology investment and increased market reach.

For many banks, the 2020 pandemic brought forth the rewards of previous investment in technology. One leading example is Kuwait Finance House (KFH), our pick for World’s Best Islamic Financial Institution 2021. KFH has significant market reach across the Middle East, Turkey, Asia and Europe; and its financials, including capital and funding, are strong. But the crisis catapulted an enhanced response.

“The test has proved the prudence of the Group fintech digital strategy, thus enabling us to work during the full lockdown periods,” KFH Chairman Hamad Abdulmohsen Al-Marzouq said in a statement reviewing the pandemic year. “We shall proceed [to] enhance the benefits of digital services and focus on accommodating the most modern and highly sophisticated technologies in the field of internet and artificial intelligence that would enable us to avail all open applications at any time or place.” Digital enhancement remains a key ongoing theme for IFIs.

The consolidation trend in Islamic banking likewise shows little sign of abating. Most recently, Saudi-based National Commercial Bank merged with Samba Financial Group to create the Kingdom’s largest bank, with assets of over $230 billion. Renamed Saudi National Bank, the merged institution began operations in April 2021. Similarly, Indonesia recently finalized the merger of Islamic banking units of three state-owned banks, creating the country’s largest Shariah-compliant bank, with assets of $17.1 billion.

This year will remain challenging for IFIs. Nonperforming loans, and hence provisions, may increase this year as loan-forbearance periods related to Covid-19 end. However, major Global Finance award winners are undergirded by solid financial positions and good franchises.

Kuwait Finance House (KFH) wins the global Best Islamic Financial Institution award for the third year in a row due to its continued investment in new products and services, good financial profile and continued focus on technology. KFH has an expanding business outside of Kuwait, from the Middle East to Asia and Europe. In 2020, shareholders and regulators approved KFH’s acquisition of Bahrain’s Ahli United Bank (AUB). However, KFH postponed finalizing the acquisition of AUB due to Covid-19 at the suggestion of Central Bank of Kuwait regulators.

KFH’s range of Islamic banking products and services cover commercial, retail and corporate banking, as well as real estate, trade finance and investments. KFH has placed significant emphasis on digital banking. The bank launched Kuwait’s first digital onboarding solution in 2020 and recently joined up with Aion Digital to digitalize all of KFH’s retail and corporate banking services.

At the end of 2020, KFH’s total assets stood at $71 billion, up by over 10%, with equity of $6.9 billion. Net profit was $600 million while return on average equity was 8.8%, lower than the previous year, as the bank increased credit provisions due to the pandemic and uncertainty on future developments. Financing rose by 13% in 2020 as did depositors’ accounts.

Qatar Islamic Bank (QIB) grew its assets by 7% in 2020 to $48 billion with equity of $6.4 billion. Net profit increased to $830 million in 2020, aided by a good performance in the bank’s corporate banking division. Also our winner in the Middle East region, QIB provides a wide range of products and services in corporate banking, from trade finance to structured finance, as well as deposit-related products. It has a strong customer base in government-related entities, financial institutions, real estate, oil and gas, as well as with small and midsize enterprises (SMEs). The bank’s corporate banking service is technology driven, including its Corporate Internet Banking portal. QIB’s net profit is derived 32% from corporate banking. QIB’s cross-border division is also growing.

Maybank Islamic (MI) has long been one of the most innovative Islamic financial institutions. It is the largest Islamic bank in Asia, with total assets of $64 billion. It dominates the market in Malaysia, controlling over 30% of the Islamic banking industry. Its products and services are available through a network across Malaysia, Indonesia, Singapore, Dubai, Hong Kong, London and New York. MI’s focus in Singapore positions it as the regional funding center for Islamic banking in the countries of the Association of Southeast Asian Nations (Asean) and a conduit for Islamic funding from the rest of the world into the region. The bank’s expertise in retail banking is significant; and the institution has been particularly innovative over the years, particularly in home finance and savings. In 2020, MI launched a version of its Maybank Anytime Everyone (MAE) that is among Malaysia’s first Shariah-compliant e-wallets, experiencing strong growth in accounts and balances. MI also introduced its Social Impact Deposit account, the first of its kind in Malaysia.

CIMB Islamic Bank is CIMB Group’s global Islamic banking and finance franchise. CIMB Islamic had a strong year in 2020 in sukuk, undertaking many key roles, including global coordinator, principal adviser, lead arranger, lead manager, bookrunner and dealer in a number of important and large deals. These included deals in US dollars, Malaysian ringgits and other currencies. CIMB Islamic Bank is consistently among the leaders in both Asian regional and global sukuk tables.

Prominent deals in 2020 included Axiata Group’s $1.5 billion issuance of sukuk and notes, the lowest-ever 10-year US dollar offering by a Malaysian corporate issuer; Petronas Group subsidiary Pengerang LNG’s issuance of 1.7 billion ringgits (about $410 million) in sukuk Murabaha; Tenaga Nasional’s 3 billion ringgit issuance of wakala sukuk, the largest AAA-rated corporate issuance in 2020 in the Malaysian debt capital markets; and TG Excellence’s 1.3 billion ringgit perpetual wakala sukuk issuance.

Standard Chartered is a leading player in the Islamic financing industry, particularly investment banking, through its global Islamic banking unit, Standard Chartered Saadiq. The bank’s Islamic investment banking business experienced a successful 2020. The bank is a major participant in the global sukuk market. In 2020, it ranked first in the international sukuk league tables, achieving a market share of 17.7%.

Standard Chartered Saadiq successfully executed a number of high-profile transactions, including several industry benchmark-setting deals, by leveraging its Islamic origination and structuring capabilities with its strong franchise in key Islamic markets and global distribution strength. The bank has played a leading role in assisting most of the sovereigns/governments in the Islamic world with their sukuk funding requirements. There were several landmark deals in 2020 with the governments of Dubai, Bahrain, Indonesia and the emirate of Sharjah. It has also been a leading player in green and sustainable long-term funding structures as well as tier 1 and tier 2 capital raisings for many Islamic banks. Saadiq offers transactional and corporate banking, financial markets solutions such as capital markets and treasury risk management, and other structured solutions.

Saudi Arabia’s Al Rajhi Capital is a leading financial services company, providing a wide range of innovative financial products and services in fund management. Assets under management increased by 19% in 2020 to $13.3 billion. As the fund management and investment banking subsidiary of Al Rajhi Bank, Al Rajhi Capital offers a comprehensive portfolio of professionally managed mutual funds, which include top-ranking and award-winning Shariah-compliant investments.

All equity funds outperformed their respective benchmarks in 2020, including some strong performers such as the Al Rajhi Commodity Fund, which increased by 66%. Al Rajhi Capital also has one of the largest REIT funds in Saudi Arabia. The fund manager improved the functionality of its asset management portal. At the corporate level, Al Rajhi Capital’s net profit more than doubled in 2020 to $172 million. The company also maintains a strong balance sheet and high level of liquidity.

Maybank Islamic has an expanding SME financing portfolio, driven by innovative financing products and solutions. MI also offers a number of deposit and investment accounts for SMEs. Other expanding services include business payment solutions, merchant programs, insurance and trade financing. SME Digital Financing allows existing MI customers to apply online 24/7 without additional documents or collateral. They obtain application status within 10 minutes and the financing will be disbursed in as little as one minute.

Al Rajhi Capital posted record financial results in 2020. The company maintained its first rank in brokerage in the Saudi Stock Exchange (Tadawul) and in the Nomu parallel market, which serves as an alternative platform for companies to go public. Both asset management and proprietary investments performed strongly in 2020. Al Rajhi Capital’s share in the capital markets grew strongly in 2020.

The discretionary portfolio management provides customized private portfolios built on individual assessments of each client’s risk profile. Al Rajhi Capital is considered a pioneer in presenting innovative real estate investment solutions for generating income. Al Rajhi offers a comprehensive range of inventive investment solutions across all other major asset classes including equities, money market, fixed income and multiasset. Despite challenging market conditions in 2020, Al Rajhi’s asset management business performed strongly compared to its peers, led by the increase in assets of the Al Rajhi Commodities Mudaraba Fund. All equity funds outperformed their respective benchmarks during 2020.

Maybank Islamic’s trade finance division performed very well in 2020 and wins the Best Islamic Trade Finance Provider award due to its comprehensive, technologically driven range of products. TradeConnex, a fully functional, best-in-class web-based trade financing service is available to clients. It is designed to increase the efficiency of trade finance transaction processing while delivering an efficient system for reporting and tracing transaction status. Customers can perform and monitor their trade finance transactions online anytime, anywhere. MI offers a full range of Shariah-compliant trade finance products and solutions for both import and export financing.

KFH Takaful recorded further growth in 2020 with an expanding Islamic insurance product range. KFH Takaful’s wide range of insurance products includes housing, automobile, medical, fire, aviation and marine. The creation of the KFH Takaful app has generated increased customer demand and simplified access to insurance. The company is active in reinsurance programs with many blue-chip reinsurers.

KFH plays a leading role in financing corporates, specifically project finance transactions. KFH has expanded its trade relations with core corporate clients in all sectors, in a highly competitive environment. Locally, KFH acts as lead arranger for many syndicated transactions. Regionally and internationally, KFH and subsidiaries such as Kuveyt Turk have participated in the financing of many projects for SMEs and large companies.

In 2020, EFG Hermes acted as sole financial adviser, lead arranger, bookrunner and underwriter on Egypt’s first-ever corporate sukuk issuance, for TMG Holding. Worth 2 billion Egyptian pounds (about $127 million), the sukuk is publicly traded. The offering was issued by the Arab Company for Projects and Urban Development, a TMG subsidiary, and was 2.5 times oversubscribed during the private placement. The five-year ijara sukuk is intended to fund the remaining capital expenditures for the issuer’s open-air mall in Madinaty

MR.DIY is a Shariah-compliant stock that was listed in October 2020 on the Main Market of Bursa Malaysia, with CIMB as joint principal advisers, global coordinators and underwriters. MR.DIY is Malaysia’s largest home-improvement retailer, with over 670 stores located throughout Malaysia and Brunei as of September 2020. The company’s IPO is Malaysia’s largest listing on Bursa Malaysia’s Main Market since July 2017. It is the largest IPO to date in the retail industry in Malaysia and the second-largest IPO in the retail industry in Asean since 2013.

Al Baraka Banking Group, headquartered in Bahrain, is the leading Islamic bank across the African continent. Assets rose by 8% in 2020 to $28.2 billion. Al Baraka is present in 17 countries, operating through more than 700 branches. It has the widest geographical reach among Islamic financial institutions, with a strong presence in Tunisia, Morocco, Egypt, Algeria, South Africa, Sudan and Libya. Outside of Africa, it has operations in Turkey, Germany, Jordan, Bahrain, Pakistan, Lebanon, Syria, Iraq, Saudi Arabia and Indonesia. Board member and group CEO Mazin Manna said, in a February statement, “The onset of the pandemic motivated us even more to accelerate the implementation of our strategies in digital transformation in the group and the units to transform our electronic networks into effective platforms to provide all banking services. We will attach great importance to this aspect, as digital banking will be the main channel for customer service and product delivery.”

Maybank Islamic has long been one of the leading Islamic financial institutions globally and has frequently been a first mover in bringing innovative Shariah-compliant financial products to the market. With assets of $64 billion and a financing portfolio of $51 billion, it is the largest Islamic bank in Asia. Its main market is Malaysia, where it controls about one-third of Islamic assets; but its activities extend into Singapore, Hong Kong and Indonesia, with the latter enjoying strong growth. The bank holds an important position in the Malaysian ringgit sukuk market and a good position in global sukuk.

KT Bank, the first Islamic financial institution in the eurozone, recorded high growth in assets over the last few years due to an expanding client base. With a current balance sheet total of around €600 million ($714 million), KT Bank posted rising volumes in the retail, corporate and institutional sectors. With ongoing investment in technology, such as mobile banking, KT Bank is our regional winner in Europe for the fourth year in a row.

Given the operating conditions and the pandemic, QIB performed well in 2020, with assets increasing by 7%, financing by 5% and net profit rising slightly. The bank’s return on assets remains very good at 1.8%. QIB controls over 50% of Islamic assets in Qatar and is active in the international sukuk market. With the lifting of the boycott, QIB’s regional activities will grow further. The bank’s financial ratios are particularly strong, with an operating efficiency of 20% and Basel III ratio above 19%.

A private institution with its head office in Kabul, Afghanistan International Bank commenced operations in 2004. The bank has assets of just over $1 billion and provides a range of Islamic banking products and services through a relatively wide domestic branch network.

Banque Al Baraka d’Algerie has assets of $2.2 billion. The bank’s Shariah-compliant banking services and activities in Algeria continue to expand. It serves a growing client base through a network of 30 branches.

Al Baraka Islamic Bank Bahrain, part of the Al Baraka Banking Group, performed well in 2020. Last year, the bank reported a 14% increase in net profit to $6 million. Total assets grew by 20% to reach $2.7 billion. Financing assets have also grown, rising by 12%.

Bangladesh is the fourth-largest Muslim-populated country in the world, which makes it a lucrative market for Islamic banking. Standard Chartered Saadiq Bangladesh saw 7% revenue growth in 2020 with 46% growth in consumer deposits. Standard Chartered is the only multinational bank in the country offering Islamic banking to all client segments across retail, SME and corporate. The bank has state-of-the-art digital capabilities for Islamic banking customers.

Bank Islam Brunei Darussalam has the dominant position in Islamic finance in Brunei Darussalam and continues to record good growth. It has assets of $8 billion.

A leading institution in Egypt’s expanding Islamic finance market, Abu Dhabi Islamic Bank (ADIB) Egypt had a strong year in 2020. Assets increased by 25% to $4.7 billion, and net profit rose to $76 million. ADIB Egypt has invested heavily in technology, supporting its 70-branch network.

Indonesia recently finalized the merger of Islamic banking units of three state-owned banks, creating the country’s seventh-largest bank with assets of $17.1 billion. The three-way merger combined Bank BRI Syariah (the Islamic banking unit of Bank Rakyat Indonesia) with Islamic banking units Bank BNI Syariah and Bank Syariah Mandiri. Islamic financing in Indonesia is growing rapidly, and Bank Syariah is likely to be a strong competitor for conventional banks in Indonesia.

Jordan Islamic Bank is Jordan’s best-performing Islamic bank. The balance sheet grew to $6.8 billion in 2020. The bank has a wide portfolio of Islamic banking products. It is backed by strong regulatory ratios.

The first Islamic bank in Kazakhstan, Al Hilal Bank is the Kazakh subsidiary of the Abu Dhabi Commercial Bank Group.

Boubyan Bank, majority owned by National Bank of Kuwait, has significant digital capability and has focused on fintech innovation. 2020 was a solid year, with total assets up by 21% to $21.2 billion, financing rising 26% and customer deposits up 17%. Boubyan’s market share of local finance increased to 10% while the share of retail finance increased to 14%.

Maybank Islamic is Malaysia’s flagship Islamic institution, with a market share of over 30%. It provides a significant range of products and services and is known for its innovation. In nearly all Shariah areas, it holds a dominant market position.

Bank Assafa is a subsidiary of Attijariwafa Bank, the leading bank in Morocco. Assafa began operations four years ago and has recorded good growth in assets. Assafa benefits from its link with Attijariwafa and the parent’s expertise in retail banking.

Stanbic IBTC Bank is a subsidiary of Stanbic Africa Holdings, the large South African financial group. Stanbic IBTC Bank operates a well-managed Islamic banking window in Nigeria that has experienced good growth.

Bank Nizwa remains the fastest-growing Islamic bank in Oman. Both its retail and its corporate client bases are increasing, boosted by an electronic channel. Net profit increased by 9% in 2020 and total assets grew by 17% to reach $3.1 billion.

Meezan is Pakistan’s largest Islamic bank, with a network of 750 branches, and a rapidly expanding asset base of $9.5 billion with growth of 31% in 2020. It offers a range of products and services targeted at the broader public as well as midtier and premium banking customers. Meezan’s net profit increased by 33% in 2020 to $140 million.

Arab Islamic Bank is the oldest and largest Islamic bank in Palestine. The bank currently has assets of $1.6 billion, and experience growth of 22% in 2020 compared with the prior year.

QIB is Qatar’s flagship Islamic financial institution, with a market share of 50% of Islamic banking assets in the country. In 2020, QIB became the first bank to access the Formosa market in the Islamic format through issuance of $800 million of sukuk listed on the Taiwan Stock Exchange. “QIB is committed to supporting the diversification of Qatar’s local economy and the development of its strong private sector. We remain focused on continuously enhancing our technology platforms to preempt and satisfy the changing client needs in the digital era, improve our level of services and continue helping our customers and partners succeed,” said Sheikh Jassim bin Hamad bin Jassim bin Jaber Al Thani, QIB chairman, in a statement accompanying the announcement of 2020 results.

Al Rajhi Bank has been a pioneer in the provision of Islamic retail banking services. At the end of 2020, Al Rajhi was the largest Islamic bank globally with assets of $125 billion and equity of $15.5 billion. Net profit increased to $2.8 billion in 2020. It remains one of the most profitable banks, with a return on average assets of 2.5%. Margins are good and so is asset quality.

Al Baraka Bank South Africa recorded good growth in deposit-taking activities in 2020, with surplus cash invested in Shariah-compliant equity finance and mudaraba deposits together with advances. The bank offers a wide suite of Islamic financing and investment products.

The biggest player in the Islamic banking field in Sri Lanka, Amana Bank has a good product range. Total assets increased to $540 million in 2020, with stable net profit.

Backed by Qatar Islamic Bank, QIB Sudan provides Islamic corporate finance and trade finance solutions to major corporates. It has a good balance sheet and is well managed.

Part of the Al Baraka Banking Group, the bank has adopted an innovative commercial strategy based on digital technology. It has a wide range of Islamic finance products and services.

Majority owned by Kuwait Finance House, the bank continues to grow steadily. At the end of 2020, it reported total assets of $21.3 billion, up by 16%. Net profit was up by 9% to $246 million.

ADIB is a leading bank in the Middle East, with $35 billion in assets at the end of 2020. Its over one million customers benefit from a large distribution network in the UAE. ADIB is present in six strategic markets: Egypt, Saudi Arabia, UK, Sudan, Iraq and Qatar. The bank has invested in its future growth through a digital-transformation program—supporting its award—aimed at enhancing customer service, productivity and  focused on generating fee income that is not capital intensive.

The end in January of the three-and-a-half-year economic boycott of Qatar by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt was a welcomed development for Qatar and the other members of the Gulf Cooperation Council (GCC). All six states of the GCC—to which most of the blockading states belong—have faced unprecedented challenges over the past year due to the Covid-19 pandemic, the collapse of oil prices and attendant fiscal pressures. The revived economic relationship between the states is expected to boost Qatar’s economy as well as the wider region. The recent strengthening of the oil price is a further positive development.

“The lifting of the blockade has been good for overall sentiment, as any impediment to the flow of people and trade is detrimental to business,” says Joseph Abraham, group CEO of the Commercial Bank of Qatar (CBQ). “It also removes an element of uncertainty. This is good for external investor perceptions of the risk profile of both Qatar and the entire GCC.”

The boycott forced Qatar to become less dependent on other GCC economies and more economically diversified. To achieve balanced industrial development, the government offered incentives to encourage new businesses. It also increased its focus on developing and supporting targeted food, pharmaceuticals, environmental and knowledge-based industries.

“Qatar is one of the strongest economies in the GCC and has demonstrated resilience in terms of how it handled the blockade,” says Abraham. “Qatar’s fundamental strengths are its gas reserves and leading gas production position, low fiscal break-even point and strong fiscal buffers to support economic growth. The removal of the blockade also removes impediments to travelers from the GCC region and therefore further enhances the prospects for the World Cup in 2022,” which will be held in Qatar.

Infrastructure and energy remain the government’s focus, as its investment plans post-2022 include expansion of the North Field gas project and further development of the Hamad International Airport and Hamad Port.

The non-energy private sector economy strengthened in January, according to Purchasing Managers’ Index (PMI) survey data from the Qatar Financial Centre (QFC) and IHS Markit. Construction was the strongest performing sector, followed by manufacturing.

“The non-energy private sector of Qatar had a strong start to 2021,” announced Sheikha Alanoud bint Hamad Al-Thani, managing director of business development at the QFC Authority, “with the PMI rising sharply to 53.9,” the fourth-highest level ever recorded by the survey. “The upward momentum reflected the output and new orders components, which were both at the third-highest levels to date,” she said in the February statement. “Recent PMI data suggest that the non-energy sector is now recovering strongly.”

The lifting of restrictions on trade and travel should add impetus to the ongoing recovery in trade, tourism and logistics, all of which had contracted sharply in 2020, says Carla Slim, director and Middle East economist at Standard Chartered Bank.

“We’ve raised our 2021 GDP growth forecast on the reopening of air, sea and land borders between Qatar and Saudi Arabia, the UAE, Bahrain and Egypt,” she says. “We now expect Qatar’s economy to return to growth of 3% in 2021.” The bank had projected 2.1% prior to the January agreement.

Damage Done

Not all analysts are so positive. Some cite ingrained differences between countries in the region.

“We expect that the restoration of ties between Qatar and boycotting countries will improve political and economic cooperation within the GCC and wider region,” UAE-based Shokhrukh Temurov, associate, sovereign ratings at S&P Global Ratings told Gulf Business last month. “Damage done by the diplomatic rift to the GCC’s political cohesiveness, both real and perceived, is likely to remain. Underlying differences in member countries’ foreign policies will likely still weigh on their relations.”

While Qatar’s intraregional travel, tourism and real estate sectors will see some economic benefits from improved relations, Temurov says the impact on bilateral trade with other GCC states could be marginal. Intraregional trade was relatively limited even in the pre-boycott period, given the almost uniform concentration of GCC member states’ exports on hydrocarbons and the limited scope of agriculture and manufacturing in the region. As an example, in 2016, goods exports from Qatar to the GCC and Egypt accounted for only 11% of Qatar’s total exports; these fell to 3.5% end of 2019 according to S&P Global.

Some of the key benefits for Qatar of the reopening will stem from the free movement of goods, services and human capital across the region, says Junaid Ansari, Vice President of Investment Research at at Kuwait-based Kamco Invest.

“A lot of logistical issues due to the blockade, that led to higher costs to corporates, would be resolved,” Ansari says. “Reports suggested that Qatar had to find new routes for the export of LNG [liquid natural gas] to countries outside the region, due to the embargo, while cheap LNG imports within the region were also affected. At the government level, the region is expected to see greater economic integration, regional cooperation, and alignment of foreign policies aimed at resolving the Gulf’s geopolitical issues.”

Stabilization on the geopolitical front also sends a positive signal to international institutional investors, who prize stability and view the Gulf region as a homogeneous market. Standard Chartered’s Slim expects the end of the boycott will boost investor confidence in the entire region.

“Regionally, the boost to consumer and investor sentiment and lower perceived geopolitical risk may contribute positively to economic outcomes,” she says, particularly ahead of events such as Expo 2020, now set to be hosted in Dubai starting in October; and the 2022 FIFA World Cup in Doha.

Some GCC countries may be negatively impacted, however. The port of Muscat benefited from the rerouting of trade and transit when the dispute broke out, so its resolution could mean downside risks for Oman. Qatar’s economy weathered the boycott thanks in part to the government’s push for greater self-sufficiency. The lifting of the boycott could boost the emirate’s travel, tourism, hospitality, retail and real estate sectors: the ones most affected by Covid-19. But in the short term, much of that will depend on the success of the GCC’s vaccination drives, Abraham says.

Prioritizing Debt Repayment

Sectors that are heavily reliant on cross-border integration and thus can be expected to gain from the end of the boycott include airlines, banking, real estate and telecom. Qatar’s onshore and offshore US dollar-Qatari riyal spot rates converged in the immediate aftermath of the resolution, but further convergence may be limited going forward. Standard Chartered expects foreign exchange (FX) liquidity to improve owing to the easing of the rift as well as a forecast return to small fiscal and current-account surpluses this year.

But despite the buildup in Qatar Central Bank’s FX reserve position since its late-2017 lows, Standard Chartered thinks policymakers will prioritize debt repayments in 2021. That may lead to some FX reserve drawdown, rather than the central bank using reserves to push FX liquidity out to the banking sector.

“The end of the boycott is nevertheless a notable development for Qatari banks,” says Temurov. S&P expects that, over time, renewed relations will facilitate a return of GCC funding to Qatar in the context of rising external debt within the Qatari banking system.

Airlines, tourism and consumer-staple companies will be among the first sectors besides banks to benefit from the end of the regional crisis. Qatari banks’ funding and liquidity profiles will benefit, as Saudi deposits that were withdrawn after the boycott began will gradually filter back. The real estate sector in Dubai is significantly reliant on regional money, of which Qatar was a big provider. The free flow of funds will help to lift sentiments around key real estate markets in the region, Ansari argues. And consumer-staples providers outside Qatar will benefit by resumption of exports to the emirate.

Then there’s the World Cup, the fan base for which extends across the region—including its most populous state, Saudi Arabia. The success of the event hinges greatly on tourist spending by regional visitors. The lifting of the blockade should provide a big relief to Qatar on this front.