Saudi Islamic Banks Now Hold 76% of Sector Assets, S&P Finds

Islamic banks now account for roughly 76% of Saudi Arabia’s banking sector assets, making the kingdom home to one of the largest Islamic banking systems in the world, according to a report S&P Global Ratings published the week of July 21, 2026. The report, “Islamic Banking in Saudi Arabia: Vision 2030 and Market Reforms Drive Growth,” ties the expansion to mortgage lending and Vision 2030-linked corporate financing.

That share is one of the largest Islamic banking footholds of any market in the world, ahead of Kuwait’s 51% and the UAE’s 18%, S&P said. The agency attributes the Saudi lead to Vision 2030-driven mortgage and corporate lending, the same two engines it expects to keep the sector growing even as the pace cools next year.

Saudi and Kuwaiti Lenders Lead Gulf Growth

S&P’s report frames Saudi Arabia and Kuwait as the two markets driving Islamic banking growth across the Gulf Cooperation Council, citing gains in mortgage and corporate lending in both countries. Kuwait’s Islamic banks hold about 51% of that country’s banking assets, while Islamic banks in the UAE account for roughly 18%, S&P said in the report published the week of July 21, 2026. Islamic banking assets across the GCC grew an average of 9% to 10% a year over the past five years, S&P found, well ahead of the 5% to 6% growth conventional retail banks posted over the same period.

The gap shows up clearly at the top of the Saudi market. The four largest Saudi Islamic banks grew their combined assets 2.1 times over the past five years, compared with 1.8 times for the six largest conventional banks, according to S&P Global Ratings’ July 2026 report.

Mortgages and Vision 2030 Projects Fuel the Shift

Growth since 2018 has come mainly from residential mortgage financing, S&P said, as Saudi banks extended Shariah-compliant home loans to a growing base of borrowers. Corporate lending has added a second engine more recently, tied directly to Vision 2030 projects and the kingdom’s push to expand non-oil sectors, according to the same report. Islamic lenders have steadily expanded their footprint in the kingdom’s retail and corporate books as the diversification agenda has matured.

At year-end 2025, retail financing made up about 53% of Saudi Islamic banks’ loan books, corporate lending 38%, and SME financing more than 11% of total credit, S&P Global Ratings said. Direct real estate and construction exposure stood at less than 10% of loans, well below the roughly 16% sector-wide average, S&P said. The agency said salary-assignment lending and stable employment among Saudi borrowers keep the mortgage book’s risk contained.

Profitability has held up alongside the growth. Saudi Islamic banks posted a return on average assets of about 1.8% and a net intermediation margin of about 2.8% at the end of 2025, matching their conventional peers on returns, S&P said. Asset quality remained strong too, with a nonperforming financing ratio of about 0.95% at year-end 2025, according to the report. Customer deposits funded roughly 87% of Islamic bank balance sheets, with wholesale funding making up about 14% and liquid assets equal to 15.2% of total assets, S&P Global Ratings found, using figures dated as of March 31, 2026 in parts of the report.

Kuwait Consolidates, UAE Sets a 2031 Target

Kuwait’s Islamic banking market is undergoing its own shift, reshaped by Kuwait Finance House’s acquisition of Ahli United Bank, which is consolidating the sector further, S&P said. In the UAE, where Islamic banks hold about 18% of banking assets, the country is targeting more than $697 billion in Islamic banking assets by 2031, per Economy Middle East’s reporting on the S&P findings. Retail lending in the UAE has picked up on population growth and improved consumer sentiment, the report noted. Gulf gains of this kind extend beyond the three largest markets: Fitch has projected Bahrain’s Islamic finance assets will pass $100 billion by 2027, separate from the S&P figures.

Global Islamic Finance Assets Approach $6 Trillion

The Saudi and Kuwaiti gains sit inside a broader global expansion. Islamic finance assets worldwide reached $5.2 trillion in 2025 and are projected to exceed $6 trillion by the end of 2026, according to S&P Global Ratings’ report as cited by Arab News and Asharq Al-Awsat. Gulf Islamic banks aren’t expected to cede ground to conventional rivals through that stretch; S&P sees them continuing to outperform on demand for Shariah-compliant products and stable net profit margins.

Growth Set to Slow Before a 2027 Rebound

S&P flagged one caution alongside the growth story. The heavy concentration in residential mortgages means Saudi Islamic banks must balance further expansion against capital requirements and tighter funding conditions, the agency said, even though salary-assignment lending and stable employment among Saudi borrowers keep mortgage risk contained. S&P expects Islamic banking growth in the region to slow in 2026 before recovering in 2027, and it’s still projecting Islamic financing to outpace conventional bank lending across the GCC through that transition, according to the report.

Frequently Asked Questions

How much of Saudi Arabia’s banking assets are Islamic?
Islamic banks held about 76% of Saudi Arabia’s banking sector assets, according to S&P Global Ratings’ report published the week of July 21, 2026, one of the highest Islamic banking shares of any market globally.

What is driving Islamic banking growth in Saudi Arabia?
S&P Global Ratings attributed the growth mainly to residential mortgage financing since 2018 and, more recently, corporate lending tied to Vision 2030 projects and non-oil sector expansion, per the agency’s July 2026 report.

How does Saudi Arabia’s Islamic banking share compare with Kuwait and the UAE?
Kuwait’s Islamic banks hold about 51% of that country’s banking assets and the UAE’s about 18%, according to S&P Global Ratings, versus roughly 76% in Saudi Arabia, the highest of the three Gulf markets in the agency’s July 2026 report.

How big is the global Islamic finance industry?
Global Islamic finance assets totaled $5.2 trillion in 2025 and are projected to top $6 trillion by the end of 2026, according to S&P Global Ratings’ data cited in its July 2026 Saudi banking report.

Will Saudi Islamic banking growth continue at the same pace?
S&P Global Ratings expects growth to slow in 2026 before recovering in 2027, though it still projects Islamic financing to outpace conventional bank lending across the GCC, per the agency’s July 2026 report.