Lower oil prices to hit Gulf Islamic banks

12 August 2015

Gradual change in operating conditions expected over 2015/16

  • Islamic lenders to experience shift in returns due to declining oil revenues
  • Credit losses expected to rise and profits to fall among Gulf Islamic banks in 2015

Islamic banks in the Gulf face a weakening operating outlook in 2015/16, largely due to declining oil revenues, according to a report published on 12 August by US ratings agency Standard & Poor’s (S&P).

“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 201/16, largely as a result of the weakness in oil prices and its effects on regional economies,” says Timucin Engin, credit analyst at S&P.

“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.”

S&P says it expects credit losses to rise and profits to fall among Gulf Islamic banks in 2015. S&P adds that investor demand for Sharia-compliant products and supportive government actions will enable Islamic banks in the region to continue to grow and increase their market share.

The balance sheets of GCC-based Islamic banks grew by an average of 15.2 per cent between 2009 and 2014 compared with growth of 8.8 per cent among their conventional counterparts.

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