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Economic woes, higher rates weigh on Islamic banks’ financing growth

Indonesian banks may benefit from widening margins, however.

Islamic financing growth in Asia faces the same challenges as their conventional banking peers, and are likely to be impacted by economic slowdowns and higher rates.

"The Islamic banking market in Asia-Pacific will stay concentrated, with Malaysia forming the lion's share," said S&P Global Ratings credit analyst Nikita Anand. "Even as growth moderates at the sector level, financing growth of Islamic banks will continue to outshine conventional banks' credit growth, facilitating market share gains."

By country, Indonesian banks are likely to benefit from widening margins, Anand noted.

ALSO READ: Islamic banks must boost market share before any “radical” changes: analysts

In contrast, Malaysian Islamic banks' profitability are expected to stay flat as rising funding costs should be balanced by normalizing tax rates.

Large Islamic banks in the region are likeliest to weather the storm, thanks to their healthy capitalization and stable retail deposit bases.

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