Fitch Ratings-London/Dubai: High oil prices and solid economic conditions will continue to support UAE Islamic banks’ credit fundamentals in 2023, says Fitch Ratings in a new dashboard, limiting the impact of rising profit rates on borrowers. Continued digitalisation will enhance the need for further M&A to defend market share and find cost synergies, particularly among smaller Islamic banks that risk being left behind.
The UAE remains a key Islamic finance hub as Islamic financing growth outpaces that of conventional banks in 2022 due to continued rising public demand for Islamic products and deep distribution networks. At end-2022, Islamic financing accounted for 29% of total sector financing.
The UAE government’s launch of a dirham-denominated Islamic Treasury Sukuk in May is an important step in the development of the nascent domestic debt capital market. It gives all banks more options to invest their liquidity and should help build the domestic yield curve. Earlier this year, Emirates Islamic Bank issued the first UAE-Dirham sukuk.
Since 2022, it has been mandatory for Islamic banks to maintain profit equalisation and investment risk reserves, which we view as credit positive. However, Fitch still believes that the enforcement of principle losses on profit-sharing investment accounts in the UAE is unlikely, and that these developments are broadly ratings neutral. We continue to assess potential credit implications.
The report, ‘UAE Islamic Banks Dashboard 2023: Favourable Operating Conditions Support Islamic Banks’, is available at www.fitchratings.com or by clicking the link above.
Matt Pearson
Senior Associate, Corporate Communications
Fitch Group, 30 North Colonnade, London, E14 5GN
E: matthew.pearson@thefitchgroup.com
