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Islamic Finance’s total assets will reach $2.1 trillion by year-end, says S&P

September 2016

September 5, 2016 | 13:55 | Dubai

S&P Global Ratings believes that the drop in Islamic finance growth is likely to continue in 2017. Nevertheless, it estimates the industry’s total assets will reach $2.1 trillion at year-end 2016. “We think two factors will act as a brake in 2017,” said S&P Global Ratings’ Mohamed Damak, Global Head of Islamic Finance, “the impact of policy responses to the decline of oil prices in core markets and the lack of standardization in the industry.” “Still, Islamic finance will have the impetus to continue progressing and maintain growth of around 5% in 2017, in our view. We expect the industry will be worth $3 trillion sometime in the next decade.”

In our opinion, modest growth will derive from subdued economic growth of Islamic finance’s core markets in the Gulf Cooperation Council (GCC) countries, partly compensated by continuous demand from an expanding customer base. A broader consensus around the need to standardize legal structures and Sharia interpretation could help the industry to progress, as could the industry’s potential contribution to the United Nation’s sustainable development financing goals, S&P said.

While we have seen a policy response to the new normal of oil prices materializing in some GCC countries, including the United Arab Emirates and Saudi Arabia, in the form of spending cuts, lifting of subsidies, and privatization of government assets, we think the oil price environment will weigh negatively on economic growth in the GCC for the next two years. “The consequence for Islamic banks will be a slowdown in growth, deterioration of asset quality, and reduction of profitability,” said Damak.

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