Saudi Islamic banks’ standalone credit profiles to stay strong in 2024, 2025: Fitch

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Saudi Islamic banks’ standalone credit profiles will remain strong in 2024 and 2025, supported by high oil prices and benign operating conditions, Fitch Ratings said in a new dashboard.

Islamic banking is dominant in Saudi Arabia, with the largest proportion of Islamic financing (85%) of any country that allows conventional banks to operate alongside Islamic banks.

Moreover, strong credit growth will put some pressure on capital, funding, and liquidity. “We expect the credit growth will also lead to banks further diversifying their funding bases through wholesale funding, including sukuk issuance, which is becoming a bigger part of the funding mix – although we expect deposits will remain the main source of funding,” Fitch added.

Saudi Islamic banks boast a strong position in the banking sector, where retail advantages support higher margins, lower funding costs, and improved asset quality.

Fitch explained that financing growth has outpaced lending in recent years, supported by the fact that all residential mortgage loans comply with Shariah law.