Tuesday, July 16, 2024
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Saudi Islamic Banks are Set up for Strong Growth in the Context of Economic Expansion.

RIYADH: According to a recent report, Saudi Islamic banks are expected to continue their strong performance into 2025 due to favourable operating conditions and non-oil economic growth.

These banks, according to Fitch Ratings, take advantage of a sizable retail clientele, which boosts profitability, secures cheaper funding, and preserves high-quality, diverse assets.

The Kingdom’s strict adherence to Islamic law for residential mortgages drives customers to Islamic banks in search of Shariah-compliant financial products, boosting deposits.

Additionally, as a sign of improved loan performance, Islamic banks increased their impaired financing ratio from 1.7 percent in 2022 to 1.5 percent in 2023.

Strong financing growth contributed to this advancement by enabling portfolio diversification and lowering overall risk. Favourable economic and regulatory environments bolstered gains even further, improving borrower performance and decreasing default rates.

The non-performing financing ratio, another name for this important financial metric, assesses the caliber of loans made by banks and other financial institutions. It calculates the precise percentage of loans with problems or in danger of defaulting.

The agency claims that operating profit as a percentage of risk-weighted assets for Islamic banks exceeds 3 percent, while conventional banks’ percentage is roughly 2.5 percent.

Notwithstanding rising funding costs that outweighed the advantages of expanding credit and declining impairment charges, the sector’s profitability stayed steady at high levels in 2023.

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Tuesday, July 16, 2024

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