Islamic finance is set to outpace conventional banking growth across the Gulf Cooperation Council (GCC) region, driven by sustained economic expansion and rising demand for Shariah-compliant products, according to a report from Moody’s Ratings.

Saudi Arabia leads the region with an 85 per cent market penetration in Islamic banking, while the UAE, Oman, Kuwait and Qatar also show strong potential for growth.

The report highlights Saudi Arabia as a major beneficiary, with Islamic financing supporting the kingdom’s Vision 2030 programme. Moody’s forecasts that Islamic banks in the GCC will maintain strong profitability over the next 12 to 18 months, buoyed by government efforts to diversify economies and increase commercial activity.

“Islamic banks across most of the region have ample liquidity to support their expansion, thanks to strong deposit inflows. However, Islamic banks will continue to hold relatively lower levels of liquid assets than their conventional peers, reflecting a lack of liquid Shariah-compliant financial instruments for liquidity management,” said Moody’s.

Badis Shubailat, Assistant Vice President and Analyst at Moody’s, was quoted as saying, “Sustained economic growth, government commitment to bolstering the broader Islamic finance industry, and increasing demand for Shariah-compliant products in the GCC region will continue to drive Islamic finance growth, outpacing its conventional peers.”

In GCC member state Oman, for example, the combined assets of Islamic banks and windows grew by 18.1 per cent to approximately $20.2 billion in 2023, representing 11.4 per cent of the sultanate’s total banking assets. Total financing increased by 10.4 per cent to $16.6bn, while deposits in Islamic institutions rose 14.7 per cent to nearly $15.5bn by June.