Mergers and acquisitions may also lead to the establishment of large and pioneering new Islamic banks at the national and regional levels, as happened with Kuwait Finance House’s recent acquisition of Ahli United Bank, according to the global agency.
Fitch said that its outlook for Islamic banks in Kuwait is stable, rating them at grade A according to the total assets of the banks combined, noting that their market share in terms of assets exceeds approximately 40 percent.
In a recent report, the agency indicated that the outlook for Islamic banks in both the United Kingdom and the UAE is also stable, with a rating of (A). On the other hand, Islamic banks in Saudi Arabia obtained a positive and stable outlook (almost equally) and a rating of (A-). The outlook for Qatar Islamic banks is also stable, with a rating of (A-). As for Turkey, Islamic banks enjoy, according to the agency, negative expectations and a (B-) rating.
The report stated that Islamic banks in Saudi Arabia enjoy the largest market share within the country, amounting to approximately 70 percent, while Bahrain has a little less than 40 percent, and the UAE at approximately 30 percent, and Qatar as well.
The market share of Islamic banks in Jordan reached 20 percent, while in Amman it reached approximately 18 percent. As for Iraq, in which the Islamic banking sector obtained the lowest rating at CCC+, its market share, according to the rules, amounted to approximately 10 percent, and the same is the case in Turkey.
In dealing with Islamic banks in Europe, the Middle East and Africa, the agency stated that its outlook for Islamic banks in general is neutral, noting in its report that its expectations for the sector for the year 2023 reflect strong economic conditions in the main Islamic markets in Europe, the Middle East and Africa.
Fitch expects credit growth to continue to outpace conventional banks, continued improvement in profitability and strong liquidity, while stressing that capital reserves must remain adequate to counter risks. Fitch also expects asset quality to remain stable.
According to Fitch, two-thirds of the issuer default ratings assigned by Fitch Ratings for Islamic banks in EMEA are investment grade, 61 percent are driven by sovereign potential support, while 35 percent of the default ratings are driven by the independent creditworthiness of banks and 4 percent. Percent paid with potential shareholder support. The rating from “A+” to “CCC+” (Iraq’s lowest) mostly reflects sovereign ratings.
“Fitch” indicated in its report that the cuts since 2017 were mainly associated with weak sovereign ability to provide support to banks in the wake of low oil prices, high government debt, deterioration of the balance and external balance sheets, and other structural challenges related to heavy dependence on oil and increased vulnerability in the wake of increased geopolitical and military tensions. in the area.
The report continued: The limited scope of Islamic liquidity management tools remains a long-term structural challenge for Islamic banks. This is because Islamic banks cannot access the interest-bearing liquidity facilities available to conventional banks due to the restrictions of Islamic law. This applies to newer Islamic markets such as Nigeria and the United Kingdom, and he expects continued progress in this area in all markets.
Fitch noted the need for Islamic banks to ensure that their operations and activities fully comply with the principles and rules of Islamic law. This requires additional costs, operations, disclosures, regulations, reports and Sharia review, which reflects negatively on banks’ credit files and leads to a poor degree of appropriateness of the governance structure for all Islamic banks compared to conventional banks.
In addition, Islamic banks have certain Sharia restrictions built into their operations and obligations that lead to low exposure to social influences but little impact on the credit.
The agency stated in its report that, with the exception of the Gulf countries, Islamic banks in the Europe, Middle East and Africa region have a generally low market share of banking sector assets.
The agency believes that its market share will continue to grow as awareness and confidence in the Islamic finance industry grows. This will happen naturally in some markets as the penetration of banking services grows, and in others it will be part of the government’s strategy to promote and develop Islamic banking services.
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