Kuwaiti Islamic banks are forecast to see profit improvement in 2023 and 2024 despite mounting regulatory provisioning requirements, pressure on net financing margins and growing investments in digital channels, Fitch Ratings said in a new report.

However, the Islamic banks will likely maintain their sizeable market share, bolstered by strong public demand for Islamic products and conducive Islamic finance regulations.

According to the ratings agency, the financial metrics of Islamic banks remained "resilient" in the first half of 2023, benefitting from the stable operating environment.

The sector’s assets grew 25% year-on-year (YoY), driven by the merger of Kuwait Finance House and Ahli United Bank, which created one of the largest Islamic banks globally when finalised last year. 

The merger increased the Islamic banking share to 50% of total banking assets at the end of the first half of 2023.

Fitch stated that the stable Kuwaiti operating environment will support Islamic banks’ standalone credit profiles this year despite real GDP growth projected at -0.3% in 2023 and 3.6% in 2024, as well as lower real non-oil GDP growth. 

(Editing by Seban Scaria seban.scaria@lseg.com)