OREANDA-NEWS. Fitch Ratings says tougher operating conditions in Kuwait and the region will translate into slower growth for Islamic banks during the year, albeit in line with industry trends.

The Islamic Banks Dashboard published today covers Kuwait's large and long-standing Islamic banking sector comprising five banks (out of 10 domestic banks) which hold a total market share of 39% (by assets). Several of the banks have significant operations regionally and internationally, as their focus shifts to high-growth markets for Islamic finance.

Fitch believes that Islamic financing growth will moderate in 2016 due to a sharper-than-expected fall in oil prices and the resulting impact on the economy and business environment. The sector is, however, expected to remain profitable despite weaker operating income and higher impairment charges. We expect margins to remain healthy due to the Islamic banks' low-cost funding structures.

The sector's impaired financing/gross financing (NPL) ratios are historically weaker than at conventional peers mainly due to high real-estate exposure, which is a key asset class in Islamic financing. While it is positive that the banks have been reducing legacy problem loans over the last three years, these trends could reverse due to slowing domestic and regional economies.

Fitch-rated Islamic banks' Long-term Issuer Default Ratings (IDRs) are all at 'A+'. The IDRs are driven by the probability of support from the Kuwaiti authorities if required. The Outlooks on the IDRs are Stable. The banks' Viability Ratings remain sensitive to weaker asset quality and increased risk appetite, particularly from international expansion.