Posted on October 12, 2013

GCC banking system assets have risen by a compound average growth rate of 6.9 percent a year since 2009 to reach $1.6 trillion at the end of 2012. The strongest compound average growth rate was recorded in Qatar, where strong state support and a buoyant economy helped Islamic banks expand their loans by 32 percent, Standard & Poor's just published commentary on GCC Islamic Banking noted.

"The country's youngest Islamic bank, Barwa Bank, began operations after 2009. If we were to exclude Barwa Bank from our analysis, the lending growth for Islamic banks would still remain at 26 percent for the period", the ratings agency noted. S&P expects Qatari Islamic banks to grow especially fast because of the country's large infrastructure needs and investments, including 2022 soccer World Cup

Saudi Arabia was the second-fastest-growing Islamic banking market, with an average 22.3 percent growth rate in 2009-2012, as banks were able to capitalise on strong local economic conditions. The compound average growth rate for the Islamic banks in S&P's sample for the UAE over the same period was around 14.5 percent, but this falls to 9.3 percent after excluding Al Hilal Bank, which began operations in 2011.


In Kuwait, the compound average growth rate of 10.5 percent was largely driven by Kuwait Finance House, whose rise came mostly from overseas businesses, predominantly in Turkey.

Bahrain has experienced political and economic upheaval over the past two years, and the central bank data show total assets for Islamic retail and wholesale banks unchanged at $25.5bn from 2009-2012. Total Bahraini banking system assets contracted by about 16 percent between 2009 and 2012.

The report noted Islamic banks in the GCC are likely to grow faster than their conventional counterparts and increase their share of GCC banking system assets for the foreseeable future. But profitability rates for the two banking models are converging as Islamic banks are taking a more pronounced hit from lower interest rates and non-core banking revenues than their conventional peers because they traditionally operate with larger bases of non-interest bearing liabilities.

According to S&P's analysis of some conventional and Islamic banks in the Gulf region, the GCC Islamic banks outgrew their conventional peers between 2009 and 2012. Their assets showed a compound annual growth of 17.4 percent compared with conventional banks' 8.1 percent.

source: The Peninsula