Higher oil revenue, aggressive development initiatives and increased popularity of Shariah compliance are boosting Islamic banking in the region.
A robust outlook for Islamic finance, combined with strong economic growth in Gulf Cooperation Council (GCC) countries thanks to buoyant oil revenue, places the GCC’s Islamic banks on stable ground. Growth estimates for Islamic banking are greater than 10%, and demand for Shariah-compliant offerings is outpacing that for conventional products. These trends are bolstered by economic diversification initiatives and programs including Saudi Arabia’s Vision 2030. According to Moody’s Investors Service, “As of March 2023, the market penetration of Islamic banks in Saudi Arabia, which is 83%, and Bahrain, 69%, were the highest in the region; while room for growth is more significant in the UAE, with a penetration rate of 28%, Qatar, 31%, and Oman, 19%.”
Global Finance’s rankings of the safest Islamic banks in the region identify institutions that continue to develop and refine the best Shariah-compliant banking franchises. Rating agency actions reflect these trends and are the catalyst for shifts in our 2023 rankings.
Kuwait’s Boubyan Bank was upgraded by S&P, citing stronger capitalization through a “combination of balanced growth, decent earnings, and a manageable dividend payout ratio.” Asset quality is expected to remain stable, aided by the bank’s focus on providing Shariah-compliant products to affluent customers. With this upgrade, Boubyan moved up two places to No. 2 in our rankings.
S&P upgraded Saudi Arabia’s sovereign debt, reflecting the kingdom’s strengthened capacity to support its systemic banks on the back of elevated oil prices and policy choices that have improved prospects for sustained economic growth. This helped produce an upgrade for Al Rajhi Bank, which moved up three places to No. 3. Fitch, too, recognized Riyadh’s stronger fiscal balance sheet and gradual progress with economic and governance reforms. This benefited Bank AlJazira, which enters our rankings for the first time at No. 10.
Not every bank benefited from the stronger Gulf economy and the popularity of Shariah compliance. Weakening credit fundamentals at UAE-based Sharjah Islamic Bank resulted in a Moody’s downgrade as the agency noted a deterioration in asset quality coupled with modest profitability and capitalization. As a result, Sharjah Islamic Bank fell out of this year’s rankings.
|Islamic Banks in the GCC|
|Name||Domicile||Fitch Rating||Fitch Score||Moody’s Rating||Moody’s Score||S&P Rating||S&P Score||Total Score|| Total Assets
|Abu Dhabi Islamic Bank||United Arab Emirates||A+||6||A2||5||NR||4.5||15.5||45,884||12/31/22|
|Al Rajhi Bank||Saudi Arabia||A-||4||A1||6||A-||4||14||202,865||12/31/22|
|Kuwait Finance House||Kuwait||A||5||A2||5||NR||4||14||120,795||12/31/22|
|Qatar Islamic Bank||Qatar||A-||4||A1||6||NR||4||14||50,525||12/31/22|
|Ahli United Bank||Kuwait||A||5||A2||5||NR||4||14||15,395||12/31/22|
|Dubai Islamic Bank||United Arab Emirates||A||5||A3||4||NR||3.5||12.5||78,486||12/31/22|
|Qatar International Islamic Bank||Qatar||A-||4||A2||5||NR||3.5||12.5||15,485||12/31/22|
|Bank AlJazira||Saudi Arabia||A-||4||Baa1||3||NR||2.5||9.5||30,827||12/31/22|