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GCC, Malaysia to drive Islamic finance market growth in 2020

DUBAI, March 30, 2020

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, though the coronavirus outbreak may disrupt sukuk issuance, said Moody’s Investors Service in its report published today.

Saudi Arabia will remain the world's largest Islamic banking market, while the sector will continue to expand rapidly in Malaysia, stated the report.

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, it stated.

Islamic banking penetration in the core Islamic financial markets of the GCC, Malaysia, Indonesia and Turkey, increased to 31.2% in September 2019, from 25.5% in 2013, while annual global sukuk issuance increased to $179 billion from $131 billion.

“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,” stated Bhojnagarwala.

Moody's said Islamic financing asset growth will continue to pick up in 2020, underpinned by
strong demand across core Islamic markets.

Additionally, we expect that mergers between Islamic and conventional banks in the GCC will drive one-off increases in assets, as they did in 2019. Saudi Arabia (A1 stable) will remain the world's largest Islamic banking market, while the sector will continue to expand rapidly in Malaysia.

Sukuk issuance will stabilise after growing for four consecutive years.

"We expect sukuk issuance of around $180 billion in 2020, after a 36% rise in 2019 to $179 billion. Continued focus on this industry and increased activity by the governments of the
core Islamic finance markets, regionally and internationally, will support issuance," stated Bhojnagarwala.

Moody's pointed out that the deficit financing needs of some GCC sovereigns, amid weaker oil prices and higher sukuk refinancing, will also provide support.

Corporate issuance in asset-backed sukuk will remain limited because of more attractive conventional market opportunities. Nevertheless, sukuk issuance from these sectors could help to underpin the industry's longer-term potential, it added.-TradeArabia News Service




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