Kuwaiti Islamic banks had a 38 per cent market share of total banking system assets at end first half of 2018.
Kuwaiti Islamic banks’ asset-quality metrics remain solid but concentration remains their biggest risk, according to Fitch Ratings.
In a report, the rating agency stated that the average impaired financing ratio remained stable in the first half of 2018.
Kuwait Islamic banks are more exposed to the real estate sector as they are allowed to establish non-financial real estate subsidiaries.
Fitch said that the operating profitability metrics of Islamic lenders have improved due to lower financing impairment charges (FIC) and remain above those of their conventional peers.
Similarly, the net financing margin also remains above conventional banks' and improved slightly in the first half of 2018, mainly due to Kuwait Finance House (KFH) -- which has significant high-margin non-Kuwaiti activities, particularly in Turkey.
The Central Bank of Kuwait (CBK) Shari’ah Supervisory Governance instructions became effective in 2018, introducing best practise for Islamic banks.
The regulator is working on a draft law to create a centralised Shari’ah board to oversee Islamic banks, which is likely to increase standardisation and lead to greater market confidence.
CBK regulations take account of Islamic banks' specificities, such as the Alpha factor and direct investment in real-estate.
Fitch expects financing growth to remain above that of conventional banks' in the mid-single digits as Islamic banking is gaining momentum in Kuwait.