Gulf Islamic financial institutions and takaful companies are feeling the repercussions of the current global financial market disruption less than most of their conventional counterparts because Sharia law prohibits interest-based financial products, according to a new report by Standard & Poor's Ratings Services.
"IFIs didn't invest in the structured products that have hampered many conventional banks' financial profiles and performance," said Standard & Poor's credit analyst Mohammad Damak in the report, titled Rated Gulf Islamic Financial Institutions And Takaful Companies Have Shown Resilience To Global Market Dislocation, But They Are Not Risk Immune. "And most IFIs should be equipped to weather the financial downturn and keep the effects on their financial profiles at manageable levels.
"We expect takaful and retakaful insurers to continue to resist the toughening market environment. We attribute their resilience to sufficient liquidity flows -- in part due to reportedly higher new business -- to service normal claims levels, and to capital adequacy, which, despite being affected in the current climate, remains supportive of the ratings across the sector.
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