GCC Islamic Banks Will Likely Stay Resilient In 2019-2020, Says Report

Islamic Banks in the Gulf Cooperation Council (GCC) are expected to show resilience over the next two years after weathering tough market conditions in 2018, said S&P Global Ratings in a report published today (see "GCC Islamic Banks Will Likely Stay Resilient In 2019-2020," on RatingsDirect). "In 2018, GCC Islamic banks expanded slower than conventional peers for the first time in five years," said S&P Global Ratings Global Head of Islamic Finance, Mohamed Damak. However, the growth difference was a mere 1%, which explains why we think the conventional and Islamic banks in our sample will see similar growth patterns in 2019-2020.

We project mid-single-digit growth for both types of banks due to several factors. These include our forecast of muted GCC economic growth over this period, despite some benefit from government spending and strategic initiatives such as national transformation plans, the 2022 FIFA World Cup, and Dubai Expo 2020. GCC Islamic banks' saw customer deposits growth halve to 2.5% in 2018, compared with 6.4% in 2017, on the back of the relinquishing of some expensive deposits and the depreciation of the Turkish lira, which affected the U.S.-dollar-denominated financial results of some banks in our sample. However, thanks to relatively muted loan growth, the funding profile of these banks remained stable and comparable with conventional peers'. "The ratio of financings to total deposits stood at 92.6% for Islamic banks in our sample at end-2018, and we do not expect major changes in the funding and liquidity profile in 2019-2020," added Mr. Damak.