The profitability of Islamic banks in the Gulf Cooperation Council (GCC) is expected to remain strong over the next 12-18 months, driven by the regional economic growth, according to Moody’s.

The non-oil economy, where banks conduct the bulk of their lending activity, will remain strong due to governments’ economic diversification agendas, the rating agency said.

Non-oil economic growth in the GCC, particularly in Saudi Arabia, will remain strong in 2025. Growth will be driven by relatively stable oil prices, government diversification programmes and robust business confidence.

The demand for Shariah-compliant products will continue to grow, further boosting the sector. However, consolidation is likely as the sector seeks to improve revenue generation and reduce costs.

Moreover, GCC Islamic banks’ net profit margins are expected to be insulated from any potential US Federal Reserve monetary policy loosening, given their fixed rate retail financing focus.

These banks will maintain a net profit margin advantage over their conventional counterparts, with return on assets to remain above than the traditional banks, Moody's said.

(Editing by Seban Scaria seban.scaria@lseg.com)