UAE Islamic Banks See Slower Financial Growth

Fitch Ratings has revealed financing growth at UAE Islamic banks continued to fall with varying degrees in 2018 in line with conventional banks.

A press statement said: “For 2019 asset-quality metrics will remain under pressure, particularly for Islamic banks with weaker and younger franchises. Financing growth is likely to be slightly above mid-single digits.

“Sharia standardisation should lead to greater market confidence but implementation and adoption risks remain, particularly in realigning existing products and processes, governance requirements and reporting procedures.

The operating profit/risk-weighted assets ratio improved in 2018 due to reduced financing impairment charges but remained slightly below conventional banks. Cost-to-income ratios fell but remain significantly above conventional banks. “This is mainly due to larger branch networks for the size of the banks' franchise,” the statement said.

The gross financing/deposits ratio increased slightly to 93 percent at the end of 2018 due to faster financing growth than deposit growth and was 140bp above conventional banks.

The Islamic financing base reached 30 percent of sector financing at the end of last year, while growth in Islamic deposits slowed to 27 percent of sector deposits. Islamic banks continue to be mainly deposit-funded domestically – 84 percent of total funding, which is higher than conventional banks.