Gulf Islamic banks’ profitability expected to be less



The profitability and the topline of Islamic banks in the Gulf Cooperation Council (GCC) are expected to be less affected by Covid-19 compared to those of conventional lenders in the region, according to Kamco-Invest.
The growth in Islamic banks’ assets and deposits has been around 8% in 2019 vs 2018 whereas it was more than 10% in conventional banks, the Kuwait-based entity said in its latest report.
“As a result, the Covid-19 led decline in economic activity in the near term will affect conventional banks more than the Islamic banks in terms of growth rates. Also, based on the higher loan-to-deposit ratios, the impact on profitability of Islamic banks is expected to less than that of conventional banks,” it said.
This is particularly true in the case of Saudi Arabia and Qatari Islamic banks that have a much higher utilisation of deposits as against the UAE-based lenders that have a higher ratio for conventional banks.
Moreover, at the aggregate regional level, the loan-to-deposit ratio of the GCC-based banks is much conservative as compared to global averages.
“This gives them additional capacity to lend at times of crisis as well as additional buffers to withstand stress in the sector,” Kamco-Invest said.
Highlighting that the Gulf Islamic banks continue to outweigh their conventional counterparts in several metrics; it said Shariah-principled banks in Saudi Arabia and Qatar continue to boast higher utilisation of assets, with a loan-to-deposit ratio greater than conventional banks.
Qatari Islamic banks boasted an even higher ratio of 96.8% during Q1-2020 against 90% in the case of conventional banks. A higher loan-to-deposit ratio was also reflected in the profitability of Islamic banks in the region, the report said.
“We believe that the Covid-19 pandemic will affect both conventional and Islamic banks in terms of overall lending activity in the region. That said, the health of the individual banks would determine the level of impact,” it said. The GCC banks are relatively in a better position to withstand the near-term impact of the Covid-19 due to adequate capital and liquidity buffers, it said, adding in the near term.—(Courtesy: Gulf Times)