Islamic banks shielded by solid buffers amid regional tensions

Bahrain's Islamic banking sector is demonstrating resilience amid regional tensions, holding a significant 69% market share of total financing as of 2025. A report by Moody’s Ratings indicates that Islamic banks are well-positioned to maintain credit strength despite geopolitical challenges, such as the closure of the Strait of Hormuz, which has impacted supply chains and non-oil growth in the region.

The report highlights that Islamic banks in Bahrain have robust capital buffers, with an aggregate Common Equity Tier 1 (CET1) ratio exceeding 22%, outperforming conventional banks. The sector has shown steady growth, with a 4% compound annual growth rate in Islamic financing over the past five years, indicating strong demand for Sharia-compliant products.

Looking at the broader Gulf Cooperation Council (GCC) region, Islamic finance is driving growth in the banking industry, with significant market shares in countries like Saudi Arabia and the UAE. Moody’s anticipates that Islamic banks will continue to expand, supported by solid demand and superior loan quality, despite ongoing economic pressures and energy price volatility.