GCC Islamic banks withstand Iran conflict

April 08, 2026 (MLN): Islamic banks across key global markets are demonstrating strong resilience amid rising geopolitical tensions linked to the Iran conflict, according to Fitch Ratings.

The report highlights that Islamic banks, particularly in the Gulf Cooperation Council (GCC), entered the current period of uncertainty with strengthened credit fundamentals.

This has positioned them well to absorb potential shocks, provided the conflict remains contained.

Fitch noted that the sector’s stability is largely underpinned by robust sovereign backing across the Middle East, which continues to support most banks’ Long-Term Issuer Default Ratings (IDRs).

In addition, Islamic banks in the GCC maintain solid financial profiles, characterized by strong capital adequacy, healthy liquidity buffers, and stable asset quality.

However, the report cautioned that a worsening geopolitical scenario could materially impact the sector.

A prolonged or escalated conflict may weigh on financing growth, weaken asset quality, and put pressure on profitability.

It could also erode capital and liquidity buffers while increasing refinancing risks due to deteriorating investor sentiment.

On the funding side, Fitch observed that elevated geopolitical uncertainty is already affecting market activity. Sukuk issuance has slowed, with no activity recorded in March 2026.

This marks a shift from earlier expectations of robust U.S. dollar-denominated debt issuance across the GCC and Turkiye during the year, following a record-breaking 2025 supported by tight credit spreads and strong investor appetite.

The report also addressed regulatory developments, noting that the proposed Shariah framework by the Accounting and Auditing Organisation for Islamic Financial Institutions Draft Shariah Standard No. 62 has not yet influenced bank ratings.

Nonetheless, uncertainty persists regarding its final implementation and scope.

Despite these concerns, regulatory authorities continue to promote the expansion of Islamic banking, particularly in emerging markets across Africa, Asia, and the CIS+ region, showing sustained long-term growth potential for the industry.

Fitch’s “Global Islamic Banks Hotspots April 2026” report provides a comprehensive overview of sector performance through the first quarter of 2026, covering major Islamic banking markets in the GCC as well as key regions including Africa, Asia, Turkiye, and CIS+ amid an increasingly complex geopolitical landscape.

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