Saudi Arabia bolsters position as world’s largest Islamic finance market: Moody’s

Saudi Arabia will continue a shift to more Shariah-compliant finance over the next 12-18 months as corporates and households increasingly use Islamic products, Moody’s Investors Service said in a report.

The industry will further benefit from increased government sukuk issuance, potentially rising foreign investment supported by more lenient entry rules, deepening capital markets and a new wave of mergers.

Islamic financing in the Kingdom will reach around 80% of banking system lending in the coming 12 to 18 months, from 78% in 2019.

This will bolster Saudi Arabia’s position as the world’s largest Islamic finance market with total Islamic finance assets of $339 billion as of March 2020, leaving Malaysia a distant second with $145 billion.

“A comprehensive set of Islamic finance regulations have spurred Saudi banks to issue sukuk. Islamic products are now listed on the main market, and an Islamic mortgage refinancing business has been established,” said Ashraf Madani, VP-Senior Analyst, Moody’s.

Furthermore, a wave of mergers and acquisitions in the Kingdom and across the wider Gulf region is accelerating Islamic finance penetration.

A proposed merger between National Commercial Bank (NCB) and Samba is just one example, with NCB continuing its shift from a conventional bank to a Shariah-compliant entity, the report noted.