APAC Islamic banking rebound in 2026 set to mask market divides

Growth trajectories will differ across key markets.

Islamic banks in the Asia Pacific will enjoy financing growth in 2026, but growth is concentrated in key markets rather than being consistent throughout the region.

The sector’s total assets are likely to surpass $550b by end-2028 and make up 28% of the global Islamic banking market, said Nikita Anand, S&P Global Ratings credit analyst.

“We expect financing growth (in local currency terms) for Islamic banks in Asia-Pacific to edge up toward the higher end of our forecast range of 8%-10% over the next three years after a slowdown in 2025,” Anand wrote in the January 2026 report, “Asia-Pacific Islamic Banking Outlook 2026: Rebound Masks Regional Divergence.”

Islamic banking is gaining widespread appeal even in non-Muslim markets, especially those seeking transparency and want to avoid harmful or unethical industries, according to a report by Standard Chartered.

“Islamic neobanks, crowdfunding, and blockchain platforms are enabling ease of accessibility and convenience amongst youth and the unbanked populations,” Khurram Hilal, CEO of Standard Chartered Saadiq, earlier told Asian Banking & Finance in a 2025 interview.

Non-Muslim markets that seek transparency and want to avoid harmful or unethical industries are turning to Islamic finance, whose assets are expected to grow 36% to $7.5t by 2028, according to Standard Chartered Plc.

Trajectories will differ across markets. Growth of Islamic banks in Indonesia and Pakistan are expected to remain higher than their peers due to coming from a smaller base.

Malaysian Islamic banks are eyeing overseas expansions.

“High competition in Malaysia's mature market is prompting some of the largest Islamic banks to examine overseas growth opportunities in Southeast Asia, including Islamic wealth management," Anand said.

Islamic financing accounts for 48% of all financing in Malaysia. The country also accounts for 36% of outstanding global sukuk globally, according to report by LSEG and the Islamic Corporation for the Development of the Private Sector (ICD) released in October 2025.

For Bangladesh, growth has the chance to pick up should political and external conditions stabilize in 2026.

Brunei is introducing Islamic windows in conventional banks and cross-border partnerships, Anand said.

“In some markets, regulation is driving consolidation, which could strengthen the sector and improve efficiency,” she said.

Islamic finance demand remains fragmented across ASEAN countries, according to a separate report by Fitch Ratings published in August 2025. It has limited presence in Singapore, the Philippines, and Thailand, and remains underdeveloped in Vietnam, Laos, Cambodia, and Myanmar, Fitch said.

Digital innovation, more diverse sources of funding, and adequate capitalization will be crucial for Islamic banks to increase their scale and competitiveness.