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Wednesday, 9 August 2017

Fitch: UAE Islamic Banks Affected by Higher Financing Costs and Impairment Charges

Fitch: UAE Islamic Banks Affected by Higher Financing Costs and Impairment Charges:

"Fitch Ratings says in a new report that UAE Islamic banks' performance in 2016 was hit by higher funding costs and financing impairment charges (FICs). Stronger financing growth than conventional banks continued. While the average Islamic bank's impaired financing ratio improved further to 5% in 2016, aided by rapid financing growth (above conventional banks), this ratio is skewed by the two largest UAE Islamic banks, which account for almost two-thirds of Islamic banking assets, and whose ratios have fallen sharply to around 4%. The other four Islamic banks have young, fast-growing franchises, and their impaired financing ratios are between 5% and 9%. FICs increased to 1.4% of financing in 2016 (2015: 1.1%) due to deterioration in the SME segment. Islamic financing grew, albeit at a slower rate of 10% (2015: 19%), due to wider adoption and more innovative structuring of sharia-compliant products. Higher funding costs in 2016 put pressure on most Islamic banks' net financing margins and operating profitability metrics, despite many banks successfully repricing their financing books. "



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