Qatari Islamic banks set for rebound on high demand

Naseem Zeitoon/Reuters

• Segment constitutes one quarter of total Qatari banking assets
• Country’s Islamic banking market share expected to rise this year
• Increasing availability of government sukuk boosts liquidity

Islamic banking made up 25 percent of total banking sector assets in Qatar in the first quarter of 2023, slipping from 27 percent in the same period a year earlier.

This makes the Gulf state the fifth-largest Islamic banking market globally, Fitch Ratings said. The ratings agency expects the market share to increase overall in 2023 due to high public demand and solid retail networks.

However, Islamic banks’ total assets continued to shrink by three percent in the first three months of the year due to government repayments after falling five percent in 2022.

• Mergers push Islamic banking forwards in Bahrain
• Oman’s Islamic banking assets rise 9.6% to $16.1bn

Fitch anticipates slightly improved profitability metrics for Islamic banks due to lower financing impairment charges and reasonable liquidity, with less non-domestic funding than conventional banks.

Capital buffers should remain adequate for the risks, Fitch said. Risks to asset quality are expected to stay contained, although higher rates will start to pressure affordability.

The Qatar central bank’s launch of treasury sukuk in 2022 is a structural improvement, which provides domestic Islamic banks with short-term liquidity tools.

The increasing availability of government sukuk and Islamic liquidity-management tools from the central bank support Islamic banks’ liquidity management and investment options, it added.