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| 24 April, 2018

GCC Islamic Banks' Financial Profiles to Stabilize in 2018

DUBAI (S&P Global Ratings) - Islamic banks in the Gulf Cooperation Council (GCC) countries should see their financial profiles stabilize through 2018, absent any materialization of geopolitical risks, said S&P Global Ratings in a report published today (see "GCC Islamic Banks' Financial Profiles To Stabilize In 2018," on RatingsDirect). "We also anticipate that Islamic banks' asset quality will stabilize by midyear 2018--with the exception of Qatari banks, where we still see some increasing risks," said S&P Global Ratings Global Head of Islamic Finance, Mohamed Damak. We expect GCC Islamic banks' total asset growth will remain in the low single digits over the next 12-24 months, after stabilizing at about 4% for the GCC system in 2017.

That said, we expect cost of risk for Islamic banks will rise, due to the adoption of International Financial Reporting Standard 9 and Financial Accounting Standard 30. This increase, combined with the impact from the introduction of value-added tax, will result in a dip in the profitability of Islamic banks in the next two years, in our view. We also note, though, that GCC Islamic banks included in our sample saw growth in customer deposits recover slightly in 2017, a trend that we expect will continue. This was the result of stabilized oil prices and the channeling of higher public-sector deposits to the banking systems.

© Press Release 2018