Global Financenames 2021’s safest Islamic banks in the GCC.
Islamic banking in the Gulf Cooperation Council (GCC) continues to prosper as Shariah-compliant financial services are benefitting from greater standardization of products. At a time when overall banking assets are growing at a slow pace, Islamic banking is outperforming and taking an increasing share of the market in the GCC—now almost 50%, and approximately 80% in the Kingdom of Saudi Arabia.
However, major headwinds exist in the region as it recovers from latest oil shock. Most notably, due to lower oil revenue, GCC governments have curtailed spending, which is a significant driver of growth for the banking sector. While oil prices have rebounded, slow economic growth persists, and profitability at the GCC banks is under pressure from higher credit costs. Moreover, these banks are not well diversified; problematic sector concentrations beyond energy include commercial real estate.
Hence the catalyst for growth for many GCC-based Islamic banks has been mergers and acqusitions. “The rationale for consolidation used to be about creating market leaders, increasing competitive advantages and boosting shareholder value,” says Redmond Ramsdale, head of Middle East bank ratings and Islamic Banking at Fitch. “Now it’s a more defensive and protective maneuver. Asset quality and profits are under pressure, so mergers help guard against these pressures by optimizing efficiency.”
Retaining its position atop our rankings of the Safest Islamic Banks in the GCC is Kuwait Finance House (KFH), which had announced plans to acquire Bahrain’s Alhi United Bank prior to the outbreak of the pandemic. The merger remains in limbo, however, as KFH and Kuwait’s banking authorities reevaluate the transaction in light of current conditions.
Of the three Qatari banks in our rankings, Barwa Bank is new in name only, following its rebranding as Dukhan Bank in October 2020. Dukhan is one of the largest Shariah-compliant banks in the country and expanded with the acquisition of International Bank of Qatar in 2019. From the UAE, Abu Dhabi Islamic Bank retains its No. 2 spot, and Dubai Islamic Bank remains at No. 9, having successfully integrated its acquisition of Noor Bank in the fourth quarter of 2020. UAE-based Sharjah Islamic Bank fell one position to No. 11 because of a Moody’s downgrade in May 2021 and was replaced by Kuwait’s Warba Bank which moved up to No. 10.