Primary Credit Analysts:
Timucin Engin, Dubai (971) 4-372-7150; timucin.engin@standardandpoors.com
Suha Urgan, Dubai +971 4 372 7175; suha.urgan@standardandpoors.com
DUBAI (Standard & Poor's) Aug. 12, 2015--After delivering strong results in
2014, Islamic banks in the Gulf face a gradually weakening operating outlook
in 2015-2016, largely due to declining oil revenues, says a report published
today by Standard & Poor's Ratings Services. But as the report, titled "
Gulf-Based Islamic Banks Grapple With Weakening Regional Economies," also
points out, we believe investor demand for Sharia-compliant products and
supportive government actions will enable Islamic banks in the region to
continue to grow and gradually increase their market share.
"After several years of improving returns and strong growth we expect a
gradual change in the operating conditions for Islamic banks in the Gulf in
2015–2016, largely as a result of the weakness in oil prices and its effects
on regional economies," said Standard & Poor's credit analyst Timucin Engin.
"Although our credit growth projections remain largely unchanged for 2015, we
believe deposit growth will slow somewhat due to relatively weaker liquidity
conditions and asset quality will gradually deteriorate in line with the
economic slowdown."
"These factors will in our view gradually increase credit losses at Islamic
banks in 2015, leading to lower net income growth than in 2014," added
Standard & Poor's credit analyst Suha Urgan. "Given that Islamic banks
generally operate with healthy funding and capital positions, we expect them
to adopt a conservative stance in 2015 and maintain strong levels of capital
while looking to further diversify their funding base."
The report focuses on pure-play commercial Islamic banks and does not take
into account the Islamic assets of conventional banks in the Gulf Cooperation
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 12, 2015 1
Lower Net Income Growth Is On The Cards For Gulf-Based Islamic Banks In 2015, Says Report
Council (GCC) region. We also exclude Islamic investment banks whose revenues
are primarily driven by capital markets and investment-related activities. Our
research shows that GCC-based Islamic banks increased their balance sheets by
an average of 15.2% between 2009 and 2014, while their conventional peers
registered an 8.8% increase. In 2014, Gulf-based Islamic banks grew at a rate
of 12.6%, against 9.6% for conventional banks.
In our opinion, the two most important factors influencing the Islamic banks'
faster growth are an increasing demand for both retail and corporate
Sharia-compliant banking products and government initiatives designed to
support Islamic finance.
OVERVIEW
• Gulf-based Islamic banks ended 2014 with healthy balance-sheet growth and
improving bottom line results.
• We expect 2015–2016 to be relatively less benign for Gulf Islamic banks
in general, although we still believe the long-term supportive factors
for these banks remain unchanged.
• In our view, Qatar, Saudi Arabia, and the United Arab Emirates continue
to offer the strongest growth opportunities in the GCC region.
Under Standard & Poor's policies, only a Rating Committee can determine a
Credit Rating Action (including a Credit Rating change, affirmation or
withdrawal, Rating Outlook change, or CreditWatch action). This commentary and
its subject matter have not been the subject of Rating Committee action and
should not be interpreted as a change to, or affirmation of, a Credit Rating
or Rating Outlook.
