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Profit Shortfall Slows Shariah Bank Expansion: Islamic Finance

Islamic banks say their small scale and a lack of risk-management products makes it harder for them to compete, after Ernst & Young LLP warned lower profitability threatens to slow expansion of the $1.8 trillion industry.

The average return on equity at Shariah-compliant lenders was 11.6 percent in 2011, compared with 15.3 percent at their non-Islamic counterparts, according to a December report by Ernst & Young that covered 12 countries. The use of hedging and treasury solutions is lagging behind, Haszeri Hussin, head of Islamic global markets at Hong Leong Islamic Bank Bhd., a unit of Malaysia’s fourth-biggest lender, said in a March 1 interview.