(MENAFN- Khaleej Times)Gulf-based Islamic banks face challenges this year but will continue to grow and increase their market share Standard & Poor's Ratings Services said in a research on Wednesday.
The UAE Qatar and Saudi Arabia continue to offer the strongest growth opportunities in the GCC region for banks according to the ratings agency. 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 the report. But as the report titled - Gulf-based Islamic banks grapple with weakening regional economies also points out that investor demand for Shariah-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" Engin added. These factors will gradually increase credit losses at Islamic banks in 2015 leading to lower net income growth than in 2014 said S&P'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" Urgan added. 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 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 per cent between 2009 and 2014 while their conventional peers registered an 8.8 per cent increase. In 2014 Gulf-based Islamic banks grew at a rate of 12.6 per cent against 9.6 per cent for conventional banks" Urgan said. 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 according to S&P's. -
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