There’s an anomaly forming in Bahrain’s debt market.
The yield on the island kingdom’s dollar bonds maturing July 2022 is about 150 basis points higher than Islamic securities due two years later, according to data compiled by Bloomberg. That’s unusual because longer-dated notes typically have higher yields.
WHILE slower economic growth brought on by the lower price of oil has reduced growth opportunities and hindered the performance of the GCC’s banking systems, Mohamed Damak, Head of Global Islamic Finance at S&P Global Ratings, believes the profile of Islamic banks will, absent any major risks, will stabilize this year.
While overall lending growth of GCC banks slowed in 2017, Islamic banks saw rapid growth of 6.9% compared with 3.7% growth seen in conventional banks over the same period. This was mainly supported by a strong performance in a few Islamic banks particularly in Kuwait and the UAE.
Bahrain's Al Baraka Islamic Bank plans to open a sharia-compliant bank in France next year as the lender seeks to expand into Europe, Chief Executive Adnan Ahmed Yousif said on Sunday.
France has one of the largest Muslim populations in Europe but cultural and legal obstacles have impeded the development of its Islamic finance industry.
Reforms to takaful regulations across the Arabian Gulf are helping to improve the creditworthiness of companies in the loss-making industry, according to the ratings agency Standard & Poor’s.
Legal changes will cause short- term pain to the region’s Islamic insurers – but the rewards will be “better capital management, liquidity, internal controls, and corporate governance”, S&P said.
The upside for sovereign sukuk issuance in GCC countries is limited in 2015, according to Standard & Poor's (S&P) Ratings Services.
Although S&P expects lower oil prices to lead to fiscal deficits in some countries in the GCC, most governments' net asset positions will likely remain strong enough to enable their financing.
After a quiet start to 2015, Sukuk market activity picked up this week a short-term issuance from Bahrain and the IILM.
The International Islamic Liquidity Management (IILM) has successfully reissued USD990 million benchmark size short-term Sukuk.
There are many different ways to look at how the oil price drop will affect the banking systems in countries heavily dependent on oil revenues for their foreign earnings. One high level view way to do so is to look at the money supply and the degree to which the foreign earnings from oil exports end up increasing the money supply. Not all of the earnings from oil end up in the economy, but a decrease in oil revenues will impact the local economy and be picked up by changing trends in different measures of the money supply.
Last month, Morocco's parliament gave final approval to an Islamic finance bill that allows foreign banks and local lenders to set up Islamic banks in the North African country.
"Al Baraka Group is in the process of completing legal procedures to set up the new bank and we are in discussions with a group of Moroccan banks who had previously expressed interest in partnering with Al Baraka," Yousif told Zawya
This year's rush by top-rated non-Muslim countries to tap the burgeoning Islamic finance market may not be repeated next year but a new crop of sovereign entrants, mostly from emerging markets, is waiting around the corner.
The United Kingdom, Hong Kong and Luxembourg - all ranked at least AA by rating agencies - issued sharia-compliant financial instruments, or sukuk, for the first time in 2014. They gave a huge boost to a market which was once just seen as a funding tool for borrowers from the Gulf and Muslim countries in southeast Asia.
Increasing demand for Sharia-compliant insurance in Bahrain has led to takaful premiums growing more than seven per cent last year, it has emerged.
According to Central Bank of Bahrain (CBB) executive director of financial institutions supervision Abdul Rahman Al Baker, the takaful (Islamic insurance) market has grown by almost 14 times in terms of premiums compared with the 2003 level.