Fitch shares stable 2021 outlook for Islamic banks in the GCC apart from Saudi Arabia

By Rahul Vaimal, Associate Editor
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One of the ‘Big Three’ global credit rating agencies, US-based Fitch Ratings has shared a stable outlook for Islamic banks in the Gulf Cooperation Council (GCC) nations in 2021 with an exception to Saudi Arabia.

The credit rating agency stated that while there will be continued asset quality and profitability pressures for Islamic banks across the GCC, capital buffers and liquidity at these institutions are expected to remain stable and adequate for the risks.

Meanwhile, Fitch Ratings has shared a negative outlook for Islamic banks in the Kingdom of Saudi Arabia as the agency expects the nation to struggle next year due to the fiscal and balance sheet anxieties which have escalated amid the coronavirus pandemic.

Commenting on the situation in Saudi Arabia, Fitch Ratings’ report which focuses on the 2021 outlook for GCC Islamic banks has remarked that “the negative outlook on the Saudi sovereign and pressures on the Saudi operating environment result in negative outlooks on the Saudi Islamic banks.”

“This reflects the continued weakening of the sovereign’s fiscal and external balance sheets, which has been accelerated by the coronavirus pandemic and lower oil prices despite the government’s strong commitment to fiscal consolidation,” the report added.

Reiterating the financial strength of other GCC nations, the agency observed that “Fitch has stable outlooks on all other rated Islamic banks in the GCC. This mainly reflects a stable sovereign ability to provide support to domestic Islamic banks.”

The rating agency stated that GCC Islamic bank ratings remain highly sensitive to sovereign pressures as potential sovereign support from each country drives 88 percent of their long-term issuer default ratings, reflecting the strong record of sovereign support.