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.
Saudi Aramco IPO may more than Quadruple Islamic Finance Industry Size.
Current estimates of the size of the global Islamic finance industry range from $1.66 trillion to $2.1 trillion. Recent announcements from Saudi Aramco may be about to give these numbers a supersized boost with a potential valuation and IPO of up to $10 trillion.
A decision by DBS Bank to wind down a joint venture with Gulf investors is more than a setback for Singapore's biggest lender - it's a sign that tougher times lie ahead for Islamic finance worldwide.
The industry grew at double-digit annual rates for much of the past decade, faster than conventional finance. Economic booms in its core markets, the Muslim-majority nations of the Gulf and southeast Asia, fueled the gains.
Regional banks are looking to capitalise on Morocco’s plans to introduce Islamic banking (also known as participation banking) services in the country. Morocco’s central bank, Bank Al Maghrib, is developing the regulatory framework for the industry to be ready by 2016.
Islamic wealth management is going to become be the “new frontier” for the global Islamic finance industry as a growing number of Islamic high-net worth individuals keeps looking for Shariah-compliant types of investment. According to Thomson Reuters’ Global Islamic Asset Management Outlook 2015, Islamic funds – which are already a $60bn industry – are forecast to grow to at least $77bn by 2019, but the latent demand for Islamic funds is projected to grow even higher to $185bn, highlighting “substantial growth opportunities” for an industry that is supposed to struggle to reach its potential in the near- to mid-term to bridge the $108bn demand-supply gap.
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.
“We have seen more maturity in private equity in recent years with sellers better understanding the value these transactions can bring beyond just capital raising. They also view it as a preferable option to IPOs [initial public offerings].
The shareholders of International Islamic (QIIB) yesterday gave approval to the bank to raise up to QR3bn (about $824m) through a capital-boosting Sukuk which will not be convertible into ordinary shares.
The bank may use the capital to finance its new projects and expansion plans as it announced to open six new branches across the country.
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.
Global sukuk issuance could be hampered this year by a slowdown in emerging markets as reduced confidence and low oil prices hit investor demand, the ratings agency Standard & Poor’s warns.
Between US$100 billion and $115bn of sukuk will be issued in 2015, S&P expects, roughly the same amount as over the past two years – confounding analyst estimates of double-digit growth for Islamic finance assets.