Islamic finance is expanding, though its strength is built in the Gulf.

Author: Andrew Cunningham

Islamic finance is growing fast in Middle Eastern countries as well as globally. Some 1,400 institutions now practice Islamic finance, and assets grew to a total of $2.4 trillion in 2017, with forecasts estimating $3.8 trillion by 2022.

Banks in this segment abide by shariah law, which forbids payment or collection of interest. Debt issuance must be backed by underlying assets, and transactions cannot involve derivatives. The issuance of sukuk bonds, which are structured to comply with shariah, rose 45% to $98 billion in 2017, with $9 billion in corporate and sovereign sukuk bonds emanating from Saudi Arabia alone—the largest total to date from any single nation.

As oil revenue has declined in recent years, many Gulf governments issued more sukuk bonds to close funding gaps. However, new deals are forecast to decline to around $70 billion to $80 billion in 2018 as recent issuance improves liquidity, higher oil prices buoy state revenues and the higher cost of borrowing due to rising interest rates dampens the incentive for issuers.

Britain was the first Western government to sell an Islamic bond, in 2014, and this segment of Islamic finance continues to expand globally. Standardization of shariah compliance—interpreted by various councils—may contribute to further growth. Blockchain technology may help streamline document automation and standardization, reduce transaction costs and make it easier to negotiate legal complexities, including enforcement of contract terms. 

This year, Kuwait Finance House nudges Al Hilal Bank out of the top spot. Fitch’s downgrade of Qatar, and consequently of Qatari banks, resulted in Qatar Islamic Bank, Barwa Bank, and Qatar International Islamic Bank sliding a bit in our 2018 rankings.

The 13 banks included in our 2018 ranking of the Safest Islamic Banks represent institutions that conduct only shariah-compliant finance. Eligibility criteria are consistent with our overall methodology, which limits candidates to the world’s largest 500 banks that are not wholly owned by other banks, and requires a minimum of two agency ratings. We also include a ranking of nine additional banks that received ratings from only one agency and thus are not eligible for inclusion in the broader ranking.


Safest Banks in the GCC (GCC Banks with Two Ratings)

Rank

Company Name

Country

Fitch

Moody’s

S&P

Total Score

Assets ($ Mil.)

Statement Date

1

Kuwait Finance House

Kuwait

A+

A1

NR

17

57,524

31-Dec-2017

2

Al Hilal Bank

UAE

A+

A1

NR

17

12,195

31-Dec-2017

3

Abu Dhabi Islamic Bank

UAE

A+

A2

NR

15.5

33,568

31-Dec-2017

4

Ahli United Bank

Kuwait

A+

A2

NR

15.5

12,148

31-Dec-2017

5

Qatar Islamic Bank

Qatar

A

A1

A—

15

41,213

31-Dec-2017

6

Barwa Bank

Qatar

A

A2

NR

14

13,362

31-Dec-2017

7

Boubyan Bank

Kuwait

A+

A3

NR

14

13,158

31-Dec-2017

8

Qatar International Islamic Bank

Qatar

A

A2

NR

14

12,807

31-Dec-2017

9

Al Rajhi Bank

Saudi Arabia

A—

A1

BBB+

13

91,498

31-Dec-2017

10

Dubai Islamic Bank

UAE

A

A3

NR

12.5

56,457

31-Dec-2017

11

Warba Bank

Kuwait

A+

Baa2

NR

11

5,876

31-Dec-2017

12

Sharjah Islamic Bank

UAE

BBB+

A3

BBB+

10

10,426

31-Dec-2017

13

Bank Aljazira

Saudi Arabia

BBB+

Baa1

NR

8

18,210

31-Dec-2017


Safest Banks in the GCC (GCC Banks with One Rating)

Rank

Company Name

Country

Fitch

Moody’s

S&P

Total Score

Assets ($ Mil.)

Statement Date

1

Masraf Al Rayan

Qatar

NR

A1

NR

N/A

28,267

31-Dec-2017

2

Kuwait International Bank

Kuwait

A+

NR

NR

N/A

6,330

31-Dec-2017

3

Alinma Bank

Saudi Arabia

BBB+

NR

NR

N/A

30,651

31-Dec-2017

4

Bank AlBilad

Saudi Arabia

NR

A3

NR

N/A

16,854

31-Dec-2017

5

Noor Bank

UAE

A—

NR

NR

N/A

11,616

31-Dec-2017

6

Al Baraka Banking Group

Bahrain

NR

NR

BB

N/A

25,453

31-Dec-2017

7

Bank Nizwa

Oman

NR

Ba2

NR

N/A

1,809

31-Dec-2017

8

Bahrain Islamic Bank

Bahrain

NR

B1

NR

N/A

3,258

31-Dec-2017

9

Khaleeji Commercial Bank

Bahrain

NR

B1

NR

N/A

2,082

31-Dec-2017

Asset figures from Fitch, Moody’s, and company reports. Ratings valid as of Aug. 17, 2018.

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