Kuala Lumpur, 26 May 2026 – The Islamic Financial Services Board today released its 2026 Islamic Financial Stability Report, titled “Emergence of Hybrid Risks in Islamic Banking: Enhancing Prudential Frameworks and Addressing Vulnerabilities in an Evolving Landscape”, highlighting the continued expansion of the Islamic financial services industry (IFSI) alongside the emergence of new vulnerabilities associated with evolving Islamic banking practices. This marks the 14th edition of the IFSB’s flagship publication, providing a comprehensive assessment of financial stability across the IFSI.
The global IFSI reached approximately USD 4.4 trillion in total assets in 2025, supported by favourable financing conditions, sustained demand for Islamic financial products, continued regulatory and market development, and expanding participation across both established and emerging markets. Growth was broad-based across banking, capital markets, and insurance sectors, with non-bank segments recording particularly strong momentum. The report also highlights deeper integration of Islamic finance within domestic financial systems in several jurisdictions, and ongoing market development in new markets, particularly across Africa and Central Asia.
Headline prudential indicators remained broadly stable across most jurisdictions. However, structural constraints identified in the 2025 edition of the IFSI Stability Report remain a source of vulnerability. The report further highlights the emergence of hybrid risks in Islamic banking, where new products, structures, and balance-sheet configurations increasingly mimic conventional banking characteristics in ways that materially reshape the risk profile and prudential features of Islamic banks. The report notes that these developments may have important prudential and financial stability implications that are not always fully captured within existing regulatory and supervisory frameworks.
The report calls for a coordinated policy response to strengthen prudential and supervisory frameworks, considering the evolving risk landscape. This includes ensuring that capital frameworks adequately capture hybrid risks, enhancing macroprudential monitoring of the scale and concentration of hybrid risks across the financial system, and strengthening supervisory oversight of operational dependencies and interconnectedness within Islamic financial markets.
Looking ahead, the report notes that global financial stability risks have become more elevated amid heightened geopolitical tensions, increased market volatility, and growing uncertainty in global markets. These developments are particularly relevant for the IFSI, given its geographic concentration in affected regions and exposure to sovereign and external funding conditions. The interaction between external shocks and existing structural vulnerabilities, including through sovereign risk channels, tighter funding conditions, and rising asset quality pressures, may increase downside risks to financial stability.
While the IFSI appears broadly resilient, the report underscores the importance of proactive risk management, strengthened liquidity preparedness, and more forward-looking supervisory approaches to address emerging vulnerabilities in a timely manner. The report further emphasises the need to reinforce prudential and crisis management frameworks and deepen Islamic financial markets to ensure the long-term resilience of the IFSI.
The IFSB 2026 Islamic Financial Stability Report is now available for download at www.ifsb.org/publications.
The IFSB’s Islamic Financial Services Industry Stability Report 2026
