The Banking Executive Magazine - September 2023 Issue

High Oil Prices trillion mark this year, growing by around 10 per cent after expanding at a similar pace in 2022, according to S&P. The Moody’s report said that Saudi Arabia will retain its leadership in terms of market penetration, but potential for growth elsewhere re- mains high. The focus on retail fi- nancing by the GCC Islamic banks will continue to support asset qual- ity. Moderate inflation levels across the region when compared to the rest of the world will also mitigate asset risks, it said. Net profitability of GCC Islamic banks will exceed that of conven- tional peers. “We expect GCC Is- lamic banks to retain a net profit margin advantage over conven- tional banks in 2024 although this is converging, particularly in Saudi Arabia. The return on assets of GCC Islamic banks will remain solid be- cause loss provisioning will remain in check,” Moody’s analysts wrote. The region’s Islamic banks will have ample capital and liquidity to grow further, they said. “Strong cap- ital and liquidity buffers will con- tinue to allow Islamic banks in the GCC to capitalise on strong de- mand for Shariah-compliant finan- cial services.” Moody’s analysts noted that Islamic banks in the GCC navigated the pandemic with capital ratios far above regulatory requirements, on par with conventional lenders. At 14 per cent-15 per cent of risk- weighted assets on average, Com- mon Equity Tier 1 capital will continue to shield GCC Islamic banks from unexpected losses. Their core capital position will likely remain stable as they retain more profits, and profit generation keeps pace with growth in asset fi- nancing. “Core capital for Islamic banks is resilient under our low probability, high-stress scenario analysis, and is broadly at par with conventional peers. The sector's loss reserves built up to absorb expected losses from non-performing exposures continue to exceed the existing stock of problem financings — in Saudi Arabia, Kuwait, Qatar, Oman, and Bahrain — and provide an extra layer of protection to core equity which underpins capital strength,” they said. ISSUE 177 SEPTEMBER 2023 the BANKING EXECUTIVE 31