Global sukuk issuance increased 45.3% year-on-year to $97.9bn in 2017, underpinned primarily by the jumbo issuances of some Gulf Cooperation Council (GCC) countries, according to Standard & Poor’s (S&P), an international credit rating agency.
“Driving this performance were good liquidity conditions in the GCC and, more generally, globally, as well as activity by some countries with the goal of further developing their Islamic finance industries,” S&P Global Ratings head of Islamic Finance, Dr Mohamed Damak said.
By comparison, the outlook for sukuk in 2018 looks uncertain, S&P said, adding while it still foresee significant financing needs for core Islamic finance countries, tighter global liquidity conditions, mounting geopolitical risks, and slow progress on the standardisation of Islamic finance products would continue to hold the market back from its full potential.
“We see a couple of interesting trends in the market that are likely to shape its performance in 2018 and onward. These include a more stringent application of the profit-and-loss sharing principle and a broadening of the investor base to include retail and Waqf money,” it said.
“While we do not opine on Shariah compliance, we are of the view that a more stringent application of the profit and loss sharing principle could deprive the market of an important class of investors (fixed-income investors) and ultimately lead to higher pricing,” Damak said.
While global liquidity remained abundant in 2017, S&P expects some tightening in 2018, it said, adding the US Federal Reserve is expected to increase rates by 75 basis points. Central banks in the GCC countries would probably mirror such an increase due to the peg of their currencies with the US dollar, it said.
Finding that liquidity conditions in GCC countries improved last year, mainly on the back of improved oil prices, S&P said at the same time, muted economic growth and declining lending activity shifted banks’ focus from lending to capital market activities where they sought higher yields than for cash and money market instruments.
Regarding retail sukuk, the agency believes that development of this part of the market necessitates a specific regulatory framework to protect investors and ensure proper access to information about risks.
It said retail sukuk issuance has been successful in some countries where, for example, authorities provided a tax incentive to drain a portion of the savings toward this market.
“In the GCC, there is currently no income tax, so no opportunity for tax relief; local capital markets remain narrow; and the significant amount of unremunerated deposits on banks’ balance sheets suggests that remuneration is not the primary motive for some retail depositors,” the agency said.
LEAVE A COMMENT Your email address will not be published. Required fields are marked*
Ooredoo awards young entrepreneurs via Injaz
Qatar-Jordan trade stands at QR624mn in 2021, says Sheikh Khalifa
Tawteen partners with Microsoft to bolster Qatar’s energy sector innovation
Fitch affirms QIIB rating at ‘A-’; outlook ‘stable’
QIA launches market making initiative to boost QSE liquidity
Qatar Islamic Bank receives 4 rankings by Euromoney
UK markets claw back losses as buyers emerge after historic rout
Iran oil exports fall as competition from Russia in Asia grows
Fed rate hike, dollar surge seen headwinds for gold