Bahrain’s Islamic banking sector growth (including Islamic windows) is expected to continue apace in 2022-2023, following strong momentum in 2021, likely driven by the steadily rising public demand for Islamic products and the expected improvement in the operating environment, Fitch Ratings says.
This follows rising oil prices, higher real GDP growth, easing of Covid-19-related restrictions and the expected rises in interest or profit rates.
Islamic banking continues to have significant importance in Bahrain, with its market share rising to 38.8% of domestic banking system assets and 17.8% of total banking system assets (including foreign assets) at end-2021. Islamic banks’ total assets expanded by 8.1% in 2021, at a faster pace than conventional banks’ total asset growth of 4.2%.
The total Islamic banking sector assets reached USD38.6 billion or about 100% of Bahrain’s GDP, supported by the mainstem relevance of Islamic products, an increasing residential mortgage financing, a wide branch and digital banking network, a supportive Islamic finance ecosystem and the presence of Islamic liquidity-management tools.
In 2021, profitability and asset-quality metrics of Islamic retail banks improved, albeit conventional retail banks performed better. Islamic banks were also adequately liquid, but at lower levels than conventional banks. The capitalisation profiles of Islamic and conventional banks were satisfactory and stood at similar levels. Nevertheless, Islamic banks’ capital ratios do benefit from a 30% alpha factor. To mitigate the pandemic’s impact, the CBB continued to support the banking sector in 2021 with policy measures.
Asset-quality metrics are expected to deteriorate as regulatory forbearance measures introduced by the Central Bank of Bahrain (CBB) are removed. These measures, which have been extended a number of times, have masked the true reality of asset quality picture—Zawya News
