...UAE Islamic Banks Affected by Higher Financing Costs and Impairment Charges Key Message on 2016: Higher funding costs and financing impairment charges (FICs) affected performance ratios. Stronger financing growth than conventional banks continued due to wider adoption and innovative structuring of sharia-compliant products, but slowed to 10%. Asset Quality: The average Islamic banks' impaired financing ratio improved further in 2016, assisted again by high financing growth. At 5% at end-2016, it was almost in line with conventional banks. However, this ratio is skewed by the two largest UAE Islamic banks, whose impaired financing ratios have fallen sharply to around 4%. FICs increased to 1.4% of financing in 2016 (2015: 1.1%) due to deterioration in the SME segment. Performance: Higher funding costs in 2016 put pressure on most Islamic banks' net financing margins and operating profitability metrics, despite many banks successfully repricing their financing books. The main reasons for the...
