Kuwaiti Islamic banks acquire 38% market share of banks assets

Mubasher: Kuwaiti Islamic banks had a market share accounting for 38% of total banking system assets by the end of the first half in 2018, Fitch Ratings said in a recent press release.

“Islamic banking activities are only undertaken by Islamic banks as the Central Bank of Kuwait (CBK) does not permit conventional banks to operate through Islamic windows,” Fitch noted.

Islamic banks in Kuwait showed that asset-quality metrics remain solid but concentration remains their biggest risk, Fitch added.

During the first half of 2018, the average impaired financing ratio remained stable, while financing impairment charges (FICs)/average gross financing ratios registered a declined due to better underwriting standards.

The Islamic banks in Kuwait are more exposed to the real estate sector as they are allowed to establish non-financial real estate subsidiaries, Fitch said.

“The net financing margin also remains above conventional banks' and improved slightly in H1-18, mainly due to Kuwait Finance House (KFH), which has significant high-margin non-Kuwaiti activities, particularly in Turkey. KFH is the largest Islamic bank in Kuwait, with 60% of Islamic and 26% of total banking sector financing. The discussed merger between KFH and Bahrain's Ahli United Bank would create one of the largest Islamic banks in the region,” Fitch said.

Fitch expects asset quality to remain sensitive to concentration risk and volatility in the real estate sector during 2019, with financing growth is forecast to remain above that of conventional banks' in the mid-single digits.