Riyadh – Mubasher: Moody’s Investors Service said Saudi Arabia will continue a shift to more Shariah-compliant finance over the next 12-18 months as corporates and households increasingly use Islamic products, even as low oil prices and the coronavirus pandemic pose challenges.  

Islamic financing in the kingdom will reach around 80% of system-wide loans over within this period, compared to 78% in 2019 and 70% in 2013, hence, boosting the GCC state’s position as the world's largest Islamic finance market, the credit rating agency said on Tuesday.

Saudi Arabia had total Islamic finance assets of $339 billion as of March 2020, leaving Malaysia a distant second with $145 billion.

"A comprehensive set of Islamic finance regulations have spurred Saudi banks to issue Sukuk, Islamic products are now listed on the main market, and an Islamic mortgage refinancing business has been established," said a vice president (VP)-senior analyst at Moody's, Ashraf Madani.

A wave of mergers and acquisitions (M&A) in Saudi and the wider Gulf region is also bolstering Islamic finance penetration. In this respect, Moody's explained that the proposed merger between the National Commercial Bank (NCB) and Samba Financial Group is just one example, with NCB continuing its shift from a conventional bank to a Shariah-compliant entity.