The UAE’s Islamic finance sector is on a strong growth trajectory and its role is key to achieving the sustainability goals of the country, its Central Bank has said.
The report comes in line with the UAE’s Year of Sustainability and its recent hosting of Cop28, the regulator said in its UAE Islamic Finance Report 2023.
It analyses the performance of various Islamic finance sectors such as banking, insurance, or takaful, and capital markets that covers sukuk or Islamic bond issuances.
The Islamic banking sector accounted for 23 per cent of total banking assets within the UAE in 2022, equivalent to Dh845 billion ($231 billion), the report said.
Assets held by Islamic banks totalled Dh631 billion while Islamic windows – Islamic outlets in conventional banks – held Dh214 billion, growing at 8 per cent and 49 per cent, respectively, from 2018.
Islamic windows now account for 25 per cent of total Islamic banking assets in the UAE, it said.
“The growth in Islamic banking assets in the UAE is supported by [the] strong funding conditions of Islamic banks and Islamic windows,” said Central Bank Governor Khaled Balama.
“Recent growth has also been driven by the economic activities of retail and corporate consumers despite the increases in benchmark rates.”
In 2022, the UAE’s Islamic banking industry posted its highest growth in funding base since 2019, the report said.
Deposits increased in parallel with financing, by 4 per cent in 2022, and account for 66 per cent of total liabilities for Islamic banks, followed by Islamic capital market funding at 5 per cent, it said
Islamic banking growth in the UAE outpaced that of conventional banks last year on the back of growing investor demand for Islamic products and deep distribution networks, according to Fitch Ratings.
Islamic banks grew by 8 per cent in 2022, higher than conventional banks, which grew by 3 per cent, the rating agency said in May.
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