Sharjah Islamic Bank

The stable outlook reflects our view that the bank's creditworthiness will continue to benefit from strong capitalization and exposure to the Sharjah government and its related entities over the next 18-24 months. A positive rating action is remote in the next 18-24 months, since it would require SIB to materially strengthen both its franchise and capitalization, with the RAC ratio sustainably exceeding 15%. Alternatively, it would require a material improvement in the already-strong creditworthiness of the UAE government. We could consider a negative rating action if we observed a deterioration of asset quality or weaker capitalization than expected. This would be signaled by the RAC ratio dropping below 10%, which could come from faster-than-expected growth. We could also take a

...We expect SIB's asset quality to improve over the next 12 months as exposures exit the cure period. We understand that Sharjah Islamic Bank (SIB) has reached settlement agreements with a handful of its problematic borrowers. As a result, we expect the share of stage 3 exposures in gross financings to decline toward 5% from 6.2% on March 31, 2023, as the cure period for these financings elapses. SIB's capitalization will likely remain strong, with a risk-adjusted capital (RAC) ratio of 10.5%-11.0% over the next 18-24 months. This represents a further decline from 11.1% observed at year-end 2022 and is driven by projected growth in financing to the private sector as well as the recent increase in dividends per share to 10 fils (United Arab Emirates [UAE] dirham 0.1)--although still below 50% of profits. We expect higher profitability--including our forecast of net income margin of 30 basis points (bps)-40 bps higher in 2023-2024 than 2021-2022--though we believe that this will only partially...

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