Sharjah Islamic Bank

Our negative outlook on SIB primarily reflects the increasing pressures on the bank's capitalization due to its rapid growth strategy. We could lower our ratings on SIB if the bank's capital-strengthening initiatives do not restore its RAC ratio sustainably above 10%, all else being equal. We could revise our outlook on SIB to stable if the bank rebuilds its capital ratios sustainably or if operating conditions in the UAE improve. We use our Banking Industry Country Risk Assessment economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating. SIB operates mostly in the UAE, where the anchor is 'bbb-'. The UAE has a wealthy economy with strong fiscal and external

...Pressures on capitalization are persisting. Sharjah Islamic Bank's (SIB's) capital ratios have declined in recent years, with its risk-adjusted capital (RAC) ratio falling to 8.9% at year-end 2024, from 10.4% in 2023, partly due to significant balance-sheet growth along with the acquisition of treasury shares in fourth-quarter 2024. While we anticipate a recovery in capitalization, with the RAC ratio approaching the 10% threshold by the end of 2026, its path forward is subject to management actions regarding capital increases in subsequent years. We anticipate a further improvement in SIB's nonperforming loans (NPL) ratio. Although we expect an increase in NPLs given the bank's rapid growth strategy, this should remain manageable. Strong domestic economic momentum, ongoing recoveries, and additional write-offs will help improve the ratio. We therefore project SIB's NPL ratio to decline to 4.3%-4.5% over the next 12-24 months, from 4.8% in 2024, consistent with recent trends and aligned...

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