Sukuk issuance is set to remain stable at around $180 billion this year in spite of the coronavirus pandemic outbreak, but a prolonged market disruption could dissuade issuers from coming to market, Moody's Investors Service said on Monday.
"Islamic finance is set to keep expanding in 2020 and beyond as the GCC countries and Malaysia help drive growth in Shariah-compliant financial products," Moody's said in a report.
"We expect Sukuk issuance to remain stable at around $180 billion this year, and the takaful insurance market will see steady growth as insurance premiums pick up in newly penetrated markets," said Nitish Bhojnagarwala, VP-Senior Credit Officer at Moody's. "However, downside risks are rising because of the coronavirus outbreak, as prolonged market disruption could dissuade issuers from coming to market."
The ratings agency said Saudi Arabia would remain the world's largest Islamic banking market, while the sector will continue to expand rapidly in Malaysia. Moody's expects mergers between Islamic and conventional banks in the GCC region will drive one-off increases in assets, as they did in 2019. There will be continued focus on the Sukuk industry and increased issuance by the governments of the core Islamic finance markets. The deficit financing needs of some GCC sovereigns, amid weaker oil prices and higher Sukuk refinancing, will also provide support.
Islamic banking penetration in the core Islamic financial markets of the GCC, Malaysia, Indonesia and Turkey, increased to 31.2 per cent in September 2019, from 25.5 per cent in 2013, while annual global Sukuk issuance increased to $179 billion from $131 billion.
According to Fitch Ratings, Sukuk issuance with a maturity of more than 18 months from the GCC region, Malaysia, Indonesia, Turkey and Pakistan totalled $42.2 billion in 2019, up from $39.8 billion in 2018. The 2019 figure was nearly 40 percent higher than 10 years earlier, although below the record high reached in 2017, Fitch said.
In 2018, Islamic finance assets grow three per cent in to $ 2.5 trillion while the Sukuk asset class continues strong growth, rising 10 per cent in 2018 to $ 470 billion. Islamic FinTech also gained pace with the issuance of blockchain-based micro-Sukuk and a spate of developments in the UK and the US markets.
According to Islamic Finance Development Report 2019, growth in the industry's biggest sector, Islamic banking, slowed to two per cent in 2018, largely in line with slowing growth for the global economy. Islamic banking assets totaled $ 1.76 trillion. Many Islamic banks or windows are also undergoing transformations through either reorganisation or consolidation.
"Despite the slower growth, new banks and markets continue to enter the market, as seen in Ethiopia, Algeria and Afghanistan. Also, new liquidity tools are being developed to help grow existing Islamic banking markets, as seen in Oman, the UK and Pakistan," said the report.
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