IFSB Releases the 2018 Stability Report on Islamic Financial Services
IFSB released the sixth edition of the Islamic Financial Services Industry (IFSI) Stability Report in 2018. The report provides an assessment of key developments and illuminates the status of resilience of various sectors of the global Islamic finance services industry—including Islamic banking, takāful, ṣukūk, Islamic funds, and equity markets—while highlighting current and emerging challenges to its stability. To analyze the Islamic banking sector, the report utilizes data from the Prudential and Structural Islamic Financial Indicators (PSIFIs) database of IFSB.
The report first provides an overview of the global IFSI, including updates on trends, growth, and developments in the three main sectors of the industry: Islamic banking, Islamic capital markets, and takāful. It then describes the initiatives undertaken by international standard-setting bodies to further ensure the stability of the financial institutions and markets and examines the implications of such reforms. Next, the report assesses the resilience of the Islamic financial system, which includes technical analysis of selected indicators as well as assessment of risks, vulnerabilities, and stability issues in the three main sectors of the industry. Finally, the report covers emerging issues in Islamic finance and conducts a comprehensive analysis into the diversity of the legal infrastructure and Sharīʿah governance frameworks as applied in various jurisdictions. The following are the key highlights of the analysis:
- The growth of the industry in 2017 was actively driven by all three sectors of the industry, with a significant contribution by the performance of the Islamic capital markets boosted by ṣukūk issuances from sovereign and multilateral institutions.
- Improvements were seen in profitability and asset quality of the global Islamic banking sector, with Return on Assets and Return on Equity at their best levels in the last five years and the broader industry non-performing financing continuing to improve.
- Liquidity conditions have continued to deteriorate, although there is heterogeneity in this trend between countries.
- While Islamic capital markets marked a strong performance in 2017 on the back of sovereign ṣukūk issuances, some underlying weaknesses persisted from the previous year, including those in the corporate ṣukūk market.
- The takāful sector, given its nascent size, continues to face challenges in the operating environment as a result of stiff competition from larger and more established insurance companies.
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Keywords: International, Banking, Insurance, Securities, IFSI, Financial Stability Report, Islamic Finance, ISFB
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