Islamic banks to gain from rebound in oil prices


In its sector report, the rating agency said the Gulf Cooperation Council (GCC) countries, as major hydrocarbon producers, and Malaysia, where a significant part of government revenue is derived from oil production, will benefit.

KUALA LUMPUR: Islamic banks in Malaysia are expected to benefit from a rebound in oil prices as the global economy recovers, according to Moody’s Investors Service.

In its sector report, the rating agency said the Gulf Cooperation Council (GCC) countries, as major hydrocarbon producers, and Malaysia, where a significant part of government revenue is derived from oil production, will benefit.

Moody’s, which expects economies in the GCC region and in the south and South-East Asia to return to growth, said its current medium-term oil price forecasts assume that spot Brent crude oil will average between US$45 and US$65 (RM188 and RM272) per barrel, up from US$42 (RM176) per barrel last year.

“With the Organisation of Petroleum Exporting Countries reversing earlier production cuts, higher oil revenue will improve governments’ capacity to stimulate their non-oil economies.

“The non-oil sector accounts for the bulk of banks’ lending exposure,” it said.

However, in most key Islamic banking markets, gross domestic product is unlikely to return to pre-Covid 19 levels until 2022, according to Moody’s.

Moreover, with new, more contagious coronavirus variants emerging, governments that cannot effectively trace and isolate new cases may need to reimpose some restrictions, delaying the economic recovery.

Many countries have already resorted to lockdown measures to curb the spread of new coronavirus waves.

“We expect that Islamic banks and their conventional peers will continue to face economic headwinds over the next 12 to 18 months,” said Moody’s. — Bernama

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