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.
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.
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.
The Malaysia-based International Islamic Liquidity Management Corp (IILM) has added Qatar's Barwa Bank IPO-BABK.QA as the tenth primary dealer handling its Islamic bond programme, the organisation said on Monday.
The IILM, a consortium of central banks from Asia, the Middle East and Africa, launched the programme last year to meet a shortage of investment-grade financial instruments which Islamic banks can use for their short-term funding needs.
sold $1 billion of sovereign Islamic bonds in its first-ever issue of the securities, attracting orders for 4.7 times the amount on offer.
The dollar-denominated five-year notes were priced at a 2.005 percent profit rate, according to a on the government’s website today. The U.K., which along with Hong Kong is rated the highest investment grade, sold sukuk for the first time in June at a coupon of 2.036 percent. Those notes yielded 1.75 percent today, data compiled by Bloomberg show.
The Malaysia-based International Islamic Liquidity Management Corp (IILM) said it had expanded the number of primary dealers handling its Islamic bond programme to nine from seven, a step towards expanding cross-border trade in its sukuk.
In August the IILM, a consortium of central banks from Asia, the Middle East and Africa, conducted its first sukuk issue, selling $490 million of three-month paper.
The top ten GCC banks are among the fastest growing globally, led by QNB Group. They are likely to remain well insulated from the current turmoil in emerging markets (EM) as their growth momentum is underpinned by strong economic fundamentals in the region: High revenue from hydrocarbon exports; positive net foreign asset positions; strong support for the banking system; and large government spending on infrastructure.
Islamic bond sales in the Arabian Gulf are on course for the slowest third quarter since 2010 as borrowers delay issuing sukuk after costs rose.
The 1bn-riyal ($267mn) sale of Jeddah-based construction company Saudi Binladin Group is the only issue in the Gulf Cooperation Council this quarter, compared with five sales totalling $5.27bn in the same period last year, according to data compiled by Bloomberg. The average yield on Shariah-compliant debt from the GCC has risen 95 basis points in 2013 to 3.87% on August 16.
The Malaysia-based International Islamic Liquidity Management Corp (IILM) has reshuffled its sharia board, losing four of its original six members including senior Saudi and Qatari scholars, according to the body's website.
The IILM, backed by the central banks of nine countries as well as the Jeddah-based Islamic Development Bank, was founded in October 2010 to help develop cross-border markets in Islamic financial instruments.
A report issued by KFH-Research states that the global sukuk market has shown resilience this year given the volatility in global bond markets as market players react to positive economic growth prospects as well as concerns over monetary policy in the US, the world’s largest bond market.
The report mentions that despite rising yields across the board, sukuk issuances have kept up momentum with over US$26.6 billion placed during the second quarter, which adds to the US$34.5 billion placed during the 1Q13 to bring the first half total to US$61.2 billion.