Gulf-based Islamic banks on growth track: report

Gulf-based Islamic banks will continue to grow and increase their market share, even though it face a gradually weakening operating outlook in 2015-2016 largely due to declining oil revenues, a report has said.
The report 'Gulf-Based Islamic Banks Grapple With Weakening Regional Economies' published by Standard & Poor's Ratings Services points out that investor demand for Sharia- compliant products and supportive government actions will enable Islamic banks in the region to continue to grow and gradually increase their market share.
"After several years of improving returns and strong growth we expect a gradual change in the operating conditions for Islamic banks in the Gulf in 2015-2016, largely as a result of the weakness in oil prices and its effects on regional economies," said S&P credit analyst Timucin Engin.

"Although our credit growth projections remain largely unchanged for 2015, we believe deposit growth will slow somewhat due to relatively weaker liquidity conditions and asset quality will gradually deteriorate in line with the economic slowdown," Timucin said.
"These factors will in our view gradually increase credit losses at Islamic banks in 2015, leading to lower net income growth than in 2014," said S&P credit analyst Suha Urgan.
"Given that Islamic banks generally operate with healthy funding and capital positions, we expect them to adopt a conservative stance in 2015 and maintain strong levels of capital while looking to further diversify their funding base," Urgan said.

The report focuses on pure-play commercial Islamic banks and does not take into account the Islamic assets of conventional banks in the Gulf Cooperation Council (GCC) region.

The research shows that GCC-based Islamic banks increased their balance sheets by an average of 15.2 per cent between 2009 and 2014, while their conventional peers registered an 8.8 per cent increase.
In 2014, Gulf-based Islamic banks grew at a rate of 12.6 per cent, against 9.6 per cent for conventional banks, said the report.
"The two most important factors influencing the Islamic banks' faster growth are an increasing demand for both retail and corporate Sharia-compliant banking products and government initiatives designed to support Islamic finance," it said.

Islamic banks ended 2014 with healthy balance-sheet growth and improving bottom line results.
The GCC countries include Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman.