Fitch Ratings-London: Fitch Ratings says the 2022 sector outlook for Gulf Cooperation Council (GCC) Islamic banks is neutral, reflecting a modest economic recovery and higher oil prices. Fitch expects continued profitability pressures. Asset quality is not expected to deteriorate sharply following the end of forbearance measures. Capital buffers and liquidity are expected to remain stable and adequate for the risks.
Negative Outlooks and Watches are mostly in Kuwait and Qatar. The Rating Watch Negative on all rated Qatari Islamic banks reflects their increasing reliance on external funding and rapid asset growth, which may have moderately weakened the sovereign's ability to support the banking system, if needed. The Negative Outlook on all Kuwaiti Islamic banks reflects the Negative Outlook on the sovereign, in turn driven by near-term liquidity risk given the depletion of liquid assets in the absence of a debt law.
We expect further M&A activity in 2022 as many Islamic banks have weak franchises lacking strong competitive advantages, particularly in pricing, cost of funding and growth opportunities. Asset quality, profitability and, potentially, capital pressures on these banks could lead to more tie-ups. M&A may also create new Islamic national or regional champions.
The full report, "Gulf Cooperation Council Islamic Banks 2022 Outlook: Pressured Earnings; Stable Capital and Liquidity" is available at www.fitchratings.com or by clicking the link above.
Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email: louisa.williams@thefitchgroup.com
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