In this year’s The Asian Banker Strongest Islamic Banks By Balance Sheet evaluation, Islamic banks in Saudi Arabia achieved the highest average strength score at 3.74 out of 5, followed by Qatar (3.60), Kuwait (3.30) and Pakistan (3.27). This year, financial information in the first half of financial year 2020 (1H FY2020) was collated and incorporated into the assessment of how Islamic banks performed during the COVID-19 pandemic.
The average asset growth of Islamic banks listed accelerated from 8.7% year-on-year (yoy) at the end of 1H FY2019 to 13% yoy at the end of 1H FY2020, which is higher than the average asset growth recorded by the 200 largest banks in the Middle East and Africa at 10.9% yoy and the 500 largest banks in Asia Pacific at 10.3% yoy. The overall profitability of Islamic banks weakened amid the pandemic. Average return on assets (ROA) stood at 1.1% in 1H FY2020, lower than 1.5% in 1H FY2019, and cost to income ratio was up slightly from 41.3% to 41.5%.
Saudi Arabia-based Al Rajhi Bank has retained its top spot as the strongest Islamic bank. The strength score of the bank dropped from 4.16 in the previous year’s evaluation to 4.05 in 1H 2020, due to the increase in gross non-performing loan (NPL) ratio from 0.85% to 1.02% and loan to deposit ratio from 79% to 82%, along with the drop in profit growth. Nevertheless, the bank still maintained healthy asset quality and robust capitalisation, and recorded a high ROA of 2.4% and a low cost to income ratio of 33%.
Meezan Bank from Pakistan is the strongest Islamic bank in Asia. The operating profit of the bank surged 66% in 1H FY2020 thanks to higher volume of earning assets portfolio and higher underlying rates. The bank recorded a lower cost to income ratio from 47% to 40% and a higher ROA from 1.5% to 2.0%. Meanwhile, the bank maintained strong levels of capitalisation and liquidity.
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Notes: (1) 5 = Highest score, 0 = Lowest score (2) * & ** FY2019 data. (3)) # Adjusted for balance sheet growth and asset quality.
Source: Asian Banker Research