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Mubasher: Moody's credit rating agency said Islamic banks in the Gulf Cooperation Council and Southeast Asia are focusing on low-risk retail financing, which will help protect the quality of their assets amid an uneven economic recovery across these regions.
Agency analyst Badis Shbeilat explained, in a research note issued today, Tuesday, that the regulatory facilities hid the deterioration in banks' loan books, and high provisioning costs will continue to affect profitability.
He added that capital and hedge liquidity would comfortably absorb unexpected losses, along with consolidation within the fragmented Islamic banking markets providing opportunities.
The Moody's analyst noted that the return on assets remains on average below pre-pandemic levels this year due to low interest rates, the still weak operating environment, and high loan provision costs, noting that strong demand for Islamic finance will partially offset these pressures .
He revealed: " Islamic banks' regulatory capital is still well above minimum requirements, and their liquidity is strong, reflecting the growth of deposits as customers cut spending amid economic uncertainty."
It is noteworthy that central banks in most countries have eased reserve requirements and continue to support banks in terms of liquidity , and the major Islamic banking services markets have strengthened in recent years as the sector seeks to improve revenue generation and reduce costs.
The agency expects more Islamic banks to seek mergers, especially smaller beneficiaries who are crowded out by big competitors.
Islamic banks have in some cases merged with their conventional counterparts in the GCC region, and the government in Indonesia merged state-owned Islamic banks in 2020 to help them compete with larger conventional banks.
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