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Despite narrowing the gap with conventional peers, Islamic banks in the Gulf Co-operation Council (GCC) are poised to maintain superior profitability over the next 12-18 months, Moody’s Ratings said in a new report.
This strength is underpinned by their focus on higher-margin retail lending and robust business activity fuelled by government economic diversification initiatives.
According to the assessment, GCC Islamic banks will continue to benefit from strong capital and liquidity positions, enabling them to capitalise on the growing demand for Sharia-compliant financial services in the region.
The GCC’s non-oil economic growth is expected to remain robust in 2025, driven by supportive oil prices, government diversification plans, and positive business sentiment. This favourable environment will continue to support Islamic financing growth.
Islamic financing growth is anticipated to outpace that of conventional peers, driven by increasing demand for Shariah-compliant products and potential consolidation within the sector.
GCC Islamic banks are expected to maintain a net profit margin advantage over conventional banks, supported by their fixed-rate retail financing focus. This will translate into higher return on assets compared to their conventional counterparts.
Banks’ prudent underwriting practices and focus on secured retail financing will continue to support their asset quality, mitigating risks from moderate inflation.
While GCC Islamic banks will retain ample capital and liquidity for growth, Saudi Arabian banks may face challenges related to non-interest-bearing deposit growth.
Badis Shubailat, assistant vice-president and analyst at Moody’s Ratings, commented, “The sustained economic growth, government support for the Islamic finance industry, and increasing demand for Sharia-compliant products in the GCC region will continue to drive Islamic financing growth, outpacing that of conventional peers.”
avinash@gdnmedia.bh
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