Sunday, July 5, 2026

«Al Jazeera» - Economy:

The Islamic Financial Services Board (IFSB) issued its 2026 annual report on the stability of the Islamic financial sector, entitled 'Emergence of Hybrid Risks in Islamic Banking: Strengthening Prudential Frameworks and Addressing Vulnerabilities in a Changing Environment,' highlighting the continued expansion of the Islamic financial services sector, along with the emergence of new vulnerabilities related to the evolution of Islamic banking practices.

This report represents the fourteenth edition of the Board's flagship publication, which provides a comprehensive assessment of financial stability in the Islamic financial services sector.

The report stated that total assets of global Islamic financial institutions reached approximately $4.4 trillion in 2025, supported by favorable financing conditions, continued demand for Islamic financial products, ongoing development of regulations and markets, and expanded participation in both established and emerging markets. Growth encompassed broad sectors such as banking, capital markets, and insurance, with non-bank sectors recording particularly strong momentum.

The report highlighted the deepening integration of Islamic finance into local financial systems in many countries, and the continued development of markets in new markets, especially in Africa and Central Asia, alongside the emergence of hybrid risks in Islamic banking, where new products, structures, and balance sheet compositions increasingly mimic characteristics of conventional banking in ways that substantially reshape the risk profile and prudential features of Islamic banks.

The report calls for a coordinated policy response to strengthen prudential and supervisory frameworks, taking into account the changing risk landscape. This includes ensuring that capital frameworks adequately absorb hybrid risks, strengthening macroprudential monitoring of the size and concentration of hybrid risks across the financial system, and enhancing supervisory oversight of operational interconnections and linkages within Islamic money markets.

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