Arab News,
Tue, Sat, Nov 30, 2024 | Jumada al-Awwal 28, 1446
Islamic banking in Kuwait and Oman stable amid favorable conditions: Fitch Ratings
Kuwait, Oman:
The standalone credit profiles of Islamic banks in
Kuwait are expected to remain stable in 2025, supported by favorable operating
conditions, according to a recent analysis by Fitch Ratings.
The report highlighted that Islamic banking
remains a significant sector in Kuwait, accounting for 49 percent of total
banking sector assets by the end of the first half of this year.
This follows a similar forecast from Moody’s in
September, which predicted faster growth for Islamic financing compared to
conventional banking. Moody’s cited rising demand for Shariah-compliant products
and the inherent stability of Islamic banks’ net profit margins as key drivers.
Fitch Ratings noted that capital at Kuwaiti
Islamic banks remains adequate, supported by moderate growth and steady
profitability in 2024 and 2025.
“As for conventional banks, we view Islamic banks’
profitability to have peaked, and we expect earnings to slightly decline in 2025
following expected rate cuts,” said Fitch Ratings.
The credit rating agency noted that funding at
Kuwaiti Islamic banks remains strong, with 80 percent sourced from customer
deposits.
The report also highlighted a slight increase in
the average impaired financing ratio among Islamic banks in Kuwait, rising to 2
percent by the end of the first half, driven by pressure from higher rates and
slower financing growth.
“The average financing impairment charges/average
gross financing ratio increased slightly in the first half of 2024 but remains
well below the pandemic level. Relatively high real estate exposure and
concentration are key risks to the bank’s asset quality. Fitch expects asset
quality to be stable in 2024-2025,” added Fitch.
Oman’s Islamic finance sector expanding
In a separate report, Fitch Ratings indicated that
Omani Islamic banks are benefiting from favorable economic conditions, improving
asset quality, stable profitability, and reasonable liquidity.
The total assets of Omani Islamic banks stood at
$21.3 billion by the end of the third quarter of this year, with the Islamic
banking sector holding a market share of 18.7 percent of the country’s total
banking assets.
Fitch pointed to several factors driving the
growth of Islamic finance in Oman, including increasing public demand, deeper
distribution channels, the use of sukuk by both the government and corporates,
and regulatory initiatives.
“The Central Bank of Oman addressed a structural
gap in October 2024 with the introduction of the Bank Deposit Protection Law,
which would protect Islamic banks’ deposits,” said Fitch.
“We expect this will aid confidence in Oman’s
Islamic banking sector as the previous deposits insurance scheme only covered
conventional banks’ deposits,” it added.
The report forecast that Oman’s Islamic finance
sector will surpass $40 billion in the medium term, with Fitch estimating its
total value at $30.9 billion by the end of September 2024.
According to the analysis, the Omani debt capital
market reached $45 billion in outstanding debt by the end of the third quarter.
There is no expectation of a significant short-term surge, as the government
continues to prepay more of its debt using the budget surplus generated by high
oil prices.
Fitch also highlighted Oman’s growing sukuk
issuance, which increased by 86 percent year on year to $2 billion in the first
nine months of 2024, outpacing conventional bond issuance, which rose 53 percent
to $5.6 billion during the same period.
Fitch stated: “The Omani Islamic finance sector
remains one of the smallest in the GCC (Gulf Cooperation Council),” and pointed
out that it continues to face several challenges.
These challenges include “the lack of Islamic
liquidity-management instruments and smaller capital bases compared to the
conventional banks,” which, according to Fitch, “could restrict their
involvement in major government financing projects.”
However, Fitch emphasized the sector’s long-term
growth potential, citing recent regulatory developments and Oman’s predominantly
Muslim population as key factors supporting future expansion.