Saudi Arabia's Islamic finance market is set for growth: Moody’s

Saudi Arabia's Islamic finance market is set to expand on demand from corporate and retail clients, and a supportive regulatory environment, Moody's Investors Service said in a report on Tuesday.

"Islamic finance is growing faster than conventional banking in the kingdom and the market is opening up to international investors as the government seeks to diversify the Saudi economy from its oil dependency," said Ashraf Madani, vice president - senior analyst, Moody's.

"Higher penetration of Islamic finance is boosting banking system profits due to the favorable funding profile of Islamic banks, where Shariah-compliant deposit accounts do not earn interest."

The Saudi Arabia Monetary Authority (SAMA) and Capital Market Authority are working closely with the Ministry of Finance to provide a regulatory framework to promote sector growth.

Saudi Arabia had Islamic finance assets of $299 billion as of March, leaving Malaysia a distant second with $134 billion, according to the report.

Moody's said it expects Islamic finance penetration in the kingdom to increase to 80 percent of system-wide loans over the next 12 to 18 months, from 77 percent in 2018.