UAE Islamic banks’ profitability will be hit in 2020 by lower profit rates, lower business volumes and higher financing impairment charges as a result of lower oil prices and the coronavirus pandemic, Fitch Ratings says.
Asset quality will also weaken but the true impact will be masked in the short term by financing deferral programmes and regulatory flexibility for banks to recognise impairments.
If economic disruptions persist, weaker asset quality and profitability will put pressure on currently adequate capital buffers. Liquidity should remain sound in the short term.
Mergers and acquisitions among Islamic banks in the UAE are now less likely than for conventional banks as we believe recent activity has exhausted most options.
Islamic financing and deposits accounted for 27% of total sector financing and deposits, respectively, at end-2019. Growth in Islamic financing slowed significantly in 2019.
The full report “UAE Islamic Banks: 2019 Results Dashboard” is available at www.fitchratings.com
Source Fitch Ratings