Regional Islamic banks’ total assets are expected to increase by mid-single digits over the next 12-24 months.
Tuesday 07, May 2019 BY KUDAKWASHE MUZORIWA
S&P Global Ratings said that GCC Islamic banks' financial profiles are projected to remain stable despite the significant changes in the local and external operating environments as well as new accounting standards.
The rating agency stated that in 2018 the growth difference between conventional and Islamic bank was a mere one per cent which explains why we think the conventional and Islamic banks in our sample will see similar growth patterns in 2019-2020.
Islamic banks in the region have seen slow growth in recent years just like their conventional peers, however despite this and challenges at home, lenders maintained sound asset-quality and profitability indicators.
Additionally, S&P said that Islamic banks' asset-quality indicators stabilised in 2018, with the nonperforming financing ratio averaging 3.1 per cent of total financings for the banks and an improvement compared to 2017.
The lenders’ asset quality indictors stabilised due to the adoption of International Financial Reporting Standards (IFRS) 9 or Financial Accounting Standard (FAS) 30 for banks reporting under Accounting and Auditing organisation for Islamic Financial Institutions (AAOIFI) standards.
Liquid assets are expected to improve despite slowing deposit growth. The stabilisation of oil prices at $60 per barrel and muted loan growth mean that Islamic and conventional banks will continue to accumulate deposits over the next few years, which is also expected to lead to an increase in liquid assets held by banks, which stood at 21.4 per cent of total assets in Q1 2018.
However, S&P expects mid-single-digit growth for Islamic lenders as well as their conventional peers due to muted GCC economic growth over this period, despite increase in government spending and economic transformation plans.