Dubai: Islamic banks will likely continue to attain market share in the Gulf over the next couple of years, after recently posting brisker balance-sheet growth than their conventional peers, Standard & Poor’s in a report published, said.
“We think Islamic banks’ market share of overall banking system assets in the Gulf Cooperation Council countries could gradually inch closer to 30% over the next five to six years, from just under 25% currently,” Standard & Poor’s credit analyst Timucin Engin, said.
“The generally solid market positions of many conventional banks will likely prevent Islamic banks from scoring stronger market share gains.”
“Because both Islamic and conventional banks operate under favorable economic conditions in the Gulf Cooperation Council (GCC; Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates) and they exhibit similar lending concentrations, we anticipate that Islamic banks’ profitability will remain largely stable and continue to progressively converge with that of conventional banks. Historically low global interest rates have contributed to softening margins for Gulf banks because they operate generally with large non-interest-bearing liabilities, such as large current account balances, which provide the banks with a revenue generation advantage when interest rates are higher. The softening has been more visible in Islamic banks’ margins.
“Although we think most of the erosion is now behind us, we still expect a slight contraction of Gulf banks’ margins in the remainder of 2014 and in 2015, in part owing to price competition in loan markets.”
“We expect that total credit stock in the GCC banking system will grow by roughly 10% annually in 2014 and 2015 as banks take advantage of the region’s strong economic growth prospects, recovering corporate asset quality, and ample financing opportunities. We think Islamic banks will continue to grow faster in the next couple of years than their conventional peers, though, particularly in Qatar and Saudi Arabia, where we believe domestic credit will grow the most,” S&P in a statement said.
“The GCC region has one of the world’s largest Islamic banking markets and enjoys healthy performance metrics. In addition, government support to the sector should help Islamic banks to keep expanding their market share. Moreover, we anticipate that the operating environment over the next two years will continue to underpin Islamic banks’ business profiles and credit quality,” S&P added.