Arab News, Sat, Sep 30, 2023 | Rabi Al-Awwal 15, 1445
Islamic banks set to flourish in GCC: Moody’s
Against the backdrop of Gulf Cooperation Council countries’ economic
diversification efforts, Islamic banks are poised to outperform their
conventional counterparts in profit margins, as per a recent report by Moody’s
Fueled by stable oil prices and steadfast economic
agendas, increased business activities within Islamic financial institutions
over the next 12 to 18 months are anticipated in the GCC region.
In its latest report, the global credit rating
agency forecast that the profitability margins of these Shariah-compliant banks
will surpass those of traditional outfits in 2024, largely attributed to their
inherent margin advantage.
As the regional economy expands, the asset quality
of GCC Islamic banks is expected to remain robust.
Additionally, their strong capital and liquidity
positions will better equip them to meet the growing regional demand for Islamic
banking services, as outlined in the report.
The stable asset quality is set to be supported by
the Islamic banks’ focus on household financing, which is expected to remain
strong. Moreover, a large proportion of the banks’ activity is in the retail
sector, which is likely to continue with a steady performance.
“While Islamic banks focus mainly on the retail
market, corporate financing remains a significant component of their credit
exposure, including to the historically cyclical and confidence-sensitive
construction, contracting and real estate sectors,” the report added.
The review stated that Saudi Arabia is set to
maintain its dominant position in market penetration while highlighting
significant growth potential in other regions.
Elevated oil prices are rendering valuable ripple
effects across the GCC region, resulting in consistent government spending,
especially in the Kingdom.
This will lead to a surge in confidence among
businesses, consumers, and investors in non-oil sectors, such as in the UAE,
where banks primarily lend, the report indicated.
Meanwhile, Moody’s predicts that inflation across
GCC banking markets will remain relative to advanced economies, primarily driven
by the substantial subsidies governments provide.
“As of March 2023, the market penetration of
Islamic banks in Saudi Arabia, which is 83 percent, and Bahrain, 69 percent,
were the highest in the region, while room for growth is more significant in the
UAE, with a penetration rate of 28 percent, Qatar, 31 percent, and Oman, 19
percent,” the report stated.