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JEDDAH: Fitch Ratings says in a new report that a tougher operating environment is continuing to challenge Saudi Islamic banks.
Sustained low oil prices have taken their toll on economic growth and government spending, which is affecting certain sectors, especially those dependent on government spending, such as contracting.
Asset-quality metrics are therefore likely to deteriorate from their current strong position, especially in light of slowing Islamic financing growth, and their high exposure to cyclical sectors, such as contracting and retail, which seasons more quickly.
Liquidity has now stabilized with the recent government injection of liquidity and slower demand for financing. However, profitability is likely to come under pressure due to slower financing growth.
Islamic finance is a mature and developed industry in ¶¶Òõ¶ÌÊÓƵ, representing about two-thirds of total bank financing at end-1H16.
Islamic banks accounted for about 43 percent of the sector at the end of first half of this year, up from 36.6 percent in the first half of 2015 and 42 percent at end-2015 and the Islamic windows of conventional banks were 24 percent, up from 18.6 percent in the first half of 2015 but unchanged from 2015.
There are 12 licensed commercial banks in ¶¶Òõ¶ÌÊÓƵ. Four are fully Shariah-compliant, with the rest providing a mix of Shariah-compliant and conventional banking products and services.
Al-Rajhi Bank is the largest Islamic bank in the world, with assets of SR331.4 billion ($88 billion) at the end of first half of 2016.
National Commercial Bank (NCB) is aiming to convert to full Shariah compliance following its initial public offering in 2014.
NCB’s financing book is already majority Shariah-compliant and once the bank is fully compliant it could replace Al-Rajhi Bank as the world’s largest Islamic bank.