Islamic banks in the GCC are likely to show resilience this year and 2020 despite facing tough market conditions last year, S&P Global Ratings said in a recent report.
"In 2018, GCC Islamic banks expanded slower than conventional peers for the first time in five years," Mohamed Damak, global head of Islamic Finance, S&P Global Ratings, said in a report titled "GCC Islamic banks will likely stay resilient in 2019-2020”.
“However, the growth difference was a mere one percent, which explains why we think the conventional and Islamic banks in our sample will see similar growth patterns in 2019-2020,” he added.
The ratings agency expects mid-single-digit growth for both types of banks due to several factors, citing possible muted GCC economic growth over the period, despite some benefit from government spending and strategic initiatives such as national transformation plans, Dubai Expo 2020 and the 2022 Fifa World Cup.
Meanwhile, GCC Islamic banks' saw customer deposits growth halve to 2.5 percent last year, compared with 6.4 percent in 2017, on the back of the relinquishing of some expensive deposits and the depreciation of the Turkish lira, which affected the US-dollar-denominated financial results of some banks.
“However, thanks to relatively muted loan growth, the funding profile of these banks remained stable and comparable with conventional peers,” S&P noted.
While the ratio of financings to total deposits stood at 92.6 percent for Islamic banks at end-2018, Damak said S&P does not expect major changes in the funding and liquidity profile in 2019-2020.
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