According to a new analysis, Saudi Islamic banks are expected to continue their strong performance this year and in 2025, boosted by non-oil economic development and good operating conditions.
Fitch Ratings notes that these banks benefit from a large retail client base, resulting in increased profitability, cheaper funding costs, and diversified assets.

In the Kingdom, where all residential mortgages must adhere to Islamic law, high demand for Shariah-compliant financial products drives people to Islamic banks for mortgages and other services, resulting in increased deposits.

“In general, financing growth has outpaced lending in recent years, aided by the requirement for all residential mortgages to be Shariah-compliant.” Saudi Arabia has the highest amount of Islamic finance (85 percent) of any country that enables conventional banks to coexist with Islamic banks,” the agency noted.

Customers’ belief in Islamic banking principles motivates them to deposit monies with institutions that uphold these standards. Mandatory Shariah compliance makes Islamic banks the preferable alternative for mortgage financing.

According to the survey, Islamic banks have a superior impaired financing ratio than conventional banks due to their lesser exposure to riskier business financing. This ratio stood at 1.5 percent for Islamic banks, compared to little more than 2 percent for conventional banks. Islamic banks‘ impaired financing ratio also improved, from 1.7 percent in 2022 to 1.5 percent in 2023, suggesting better loan performance.

This progress was aided by strong finance growth, which increased portfolio diversity and lowered total risk. Favourable economic and regulatory conditions aided these gains, resulting in improved borrower performance and lower default rates.

This essential financial statistic, also known as the non-performing financing ratio, is used to assess the quality of loans in banks and financial organizations. It precisely analyses the percentage of loans that are having difficulty or are at danger of defaulting.

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