Menu

Search

Menu

Search

Moody's: Prospects remain robust for Islamic finance despite subdued sukuk issuance

New sukuk issuance continues to remain subdued in 2016, but growth prospects for the Islamic finance sector are still strong, says Moody's Investors Service in a report published today.

"Growth in the Islamic banking sector continues to broadly outpace that of conventional banks in most systems in which Islamic banks have been established," says Khalid Howladar, Global Head of Islamic Finance at Moody's. "This is driven by strong retail demand and proactive government legislation for the industry."

The sector also has potential for further growth, especially in countries in which the penetration of Islamic banking assets remains relatively low, at between 5%-10% of Islamic financing assets.

Over the last three years, Oman's Islamic banking sector, for example, has gone from zero to an aggregate of around 10% of banking system financing assets as of June 2016, compared to Indonesia and Turkey which have both taken over two decades to reach around 5% of banking system financing assets. However, the government of both these countries have recently taken initiatives to boost the growth in the sector over the next ten years.

While new sukuk issuance volumes in 2016 are expected to remain flat, at around $70 billion, the rating agency says that the longer-term outlook remains promising. "Subdued issuance volumes in 2016 were mostly driven by reduced short-term borrowing by the Malaysian government, one of the largest sukuk issuers globally, as well as the drive of the GCC governments to tap conventional sources of liquidity, which has reduced the attractiveness of the sukuk format" explains Nitish Bhojnagarwala, Assistant Vice President -- Analyst at Moody's. "However, we expect increased sukuk issuance into 2017 from sovereigns, banks and corporates in the Gulf, as regional financing needs increase amid lower oil prices" he adds.

Growth in the Islamic insurance (Takaful) sector is also slowing, but the rating agency expects it to remain at double digit levels into 2017 and for gross contributions to reach $20 billion by 2017.

"Complex regulation, as well as compliance and operational challenges have slowed growth in the Takaful industry," explains Mohammed Ali Londe, Assistant Vice President -- Analyst at Moody's Insurance team. "Growth has broadly slowed to below 15% in 2015 in most key markets. Globally, year-on-year growth stayed just below 20% in the past couple of years due to large premium increases in the Saudi market in 2015 of around 19%."

Overall, the persistent efforts by government agencies and central banks, combined with retail customer demand, is driving growth in all these markets and we expect this trend to continue well into the next decade.

  • ET PRO
  • Market Data

Market-moving news and views, 24 hours a day >

July 2 15:00 UTC Released

DKCurrency Reserves

Actual

449.6 Stale

Forecast

Previous

451.7 Stale

July 2 13:45 UTC Released

USISM NY Biz Conditions

Actual

50 %

Forecast

Previous

48.6 %

January 31 00:00 UTC 775158775158m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 31 00:00 UTC 775158775158m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 22 19:00 UTC 786978786978m

ARTrade Balance

Actual

Forecast

Previous

-1541 %

January 31 00:00 UTC 775158775158m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 22 19:00 UTC 786978786978m

ARTrade Balance

Actual

Forecast

Previous

-1541 %

January 31 00:00 UTC 775158775158m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 31 00:00 UTC 775158775158m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 31 00:00 UTC 775158775158m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

Close

Welcome to EconoTimes

Sign up for daily updates for the most important
stories unfolding in the global economy.