KUALA LUMPUR: Strong demand for Islamic finance, which is growing faster than conventional banking, will partially offset the impact from the challenges being faced by the industry, said Moody’s Investors Service.

       Islamic banks’ profits are being hit by low interest rates, a still-subdued operating environment, and high provisioning costs, the rating agency said in a report.

       It noted that Islamic banks in Gulf Cooperation Council (GCC) countries and South and South-East Asia are focusing on low-risk retail finance.

       This will help protect their asset quality amid an uneven economic recovery across these regions.

       “Regulatory forbearance has masked the deterioration in the banks’ loan books, and high provisioning costs will continue to weigh on profitability.

       “But their capital and liquidity buffers should comfortably absorb unexpected losses,” said Moody’s analyst Badis Shubailat.

       He noted that Islamic banks’ regulatory capital remains well above minimum requirements. — Bernama