Sukuk Issuance Looks Set to Touch $100 billion in 2013; global economic fluctuations and structural issues impede growth momentum
S&P to Host Conference in Dubai on 2 October to Discuss Prospects for Islamic Finance.
Global Islamic Finance is expected to maintain its rapid pace of growth, strengthening its credibility as a real alternative to conventional finance. However, structural problems continue to limit its potential while its growth has made the industry more sensitive to global economic fluctuations, according to Standard & Poor’s Ratings Services (S&P). The contrasting fortunes shaping Islamic Finance will be the subject of a conference to be hosted by S&P in Dubai on 2 October, 2013.
Stuart Anderson, Managing Director & Regional Head, Middle East at Standard & Poor’s said: “We remain upbeat on the outlook for the global Islamic Finance industry, but are increasingly conscious that as it achieves critical mass, the industry will be exposed, more than ever, to the volatility of international markets. While growth has continued, we have seen mixed fortunes across sectors and a broad spectrum of structural problems continues to pose challenges. S&P’s 2nd Annual S&P Islamic Finance Conference will discuss the progress and outlook for the industry with a focus on the conflicting trends and expectations associated with its evolution.”
Prospects for the Sukuk sector will be one of the key focuses of the Conference. Despite registering healthy volumes in 2013, the sector is seemingly struggling to match last year’s exceptional growth due to tougher market conditions. Worldwide year-to-date issuance dipped 25% from last year to $77.4 billion, as of September 22, 2013. Nevertheless, 2013 issuance to date is already approaching total annual volumes achieved in 2011.
Despite challenges, S&P believes 2013 sukuk issuance is on course to cross the $100 billion mark. “The global sukuk market remains limited in size and a handful of large issuances can transform what appears to be a slowdown story into an upbeat one. In the past two years, several ‘jumbo-sized’ issuances, in excess of $3-4 billion, have significantly accelerated growth,” said Anderson. Good economic growth and faster recovery in GCC and Asia — the twin engines of the sukuk market — are expected to continue driving rapid growth in the sector.
Meanwhile, the Islamic banking sector continues to outstrip conventional banking growth. Though profitability has shrunk from the pre-crisis period, owing to lower interest rates and lower non-core banking revenues, overall performance metrics have remained healthy. S&P expects Islamic banks to continue to grow faster than their conventional peers in the foreseeable future, given the relatively better economic prospects of GCC and Asia.
A range of structural issues, however, continue to limit the sector’s potential. Recent innovations promise to address some key bottlenecks – for instance the shortage of instruments to boost capital base or allocate excess liquidity into Sharia-compliant investment options. Such recent innovations include the use of hybrid sukuk by GCC banks to strengthen capital and the ‘International Islamic Liquidity Management (IILM) 2 SA’ vehicle set up by Malaysia-headquartered IILM Corporation to better manage short-term allocation of excess liquidity. One of the sessions at the S&P Conference will discuss the key drivers of credit risk for the new IILM vehicle.
Another major theme at the Conference is the widening sovereign adoption of Islamic Finance instruments. The entry of new players outside the cradle of Islamic Finance, such as African sovereigns, points to the industry’s significant long-term growth potential. The Islamic Development Bank (IDB) is emerging as a key player in enabling African sovereigns to enter the Sukuk market. Morocco announced in June 2013 that its sovereign sukuk issuance could be bought by the IDB. In addition, other sovereigns such as Turkey have started establishing themselves as regular contributors to the market.
“Several new players are seeing sukuk as a way of funding growth and diversifying fiscal and external funding. Many countries in the MENA region have also put the development of Islamic finance more prominently on their growth agendas in recent months,” said Anderson.
Among other sectors, Islamic Insurance (Takaful) continues to outpace conventional insurance in terms of premium growth in its core Asian/MENA markets. However, questions remain on the developing viability of the Takaful business model, a topic that will be discussed by the Conference.
Led by Zeynep Holmes, Managing Director and Head of EMEA Developing Markets, and Stuart Anderson, Managing Director & Regional Head Middle East, S&P analysts from across the Middle East, Africa, Europe and North America will speak at the S&P Islamic Finance Conference. In addition, guest speaker, Dr Kodeidja Malle Diallo, Director, Group Risk Management, Islamic Development Bank, and a panel of senior Islamic Finance industry participants will share their perspectives on the direction of the market.
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Standard & Poor’s Ratings Services, part of McGraw Hill Financial (NYSE: MHFI), is the world’s leading provider of independent credit risk research and benchmarks. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,400 credit analysts in 23 countries, and more than 150 years’ experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information and independent benchmarks that help to support the growth of transparent, liquid debt markets worldwide.
*This press release was published on Zawya.com. Read the original article here.
