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.
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].
Following the successful issuance in 2014 of a five year $1Bn Sukuk which attained an order book of $4.7Bn. The AA stable (S&P) / Aa1 stable (Moody's) / AA+ stable (Fitch) Government of the Hong Kong Special Administrative Region of the People’s Republic of China (HKSAR) will begin investor meetings on 18 May.
Saqib Awan was working as an attorney at the global law firm DLA Piper when his firm was asked to advise a Saudi Arabian company as it structured a bond deal that would comply with Islamic law, also known as Sharia law. The type of bonds, called sukuk, usually involve placing assets into a special purpose vehicle (SPV) and then issuing certificates that give investors an ownership stake in the asset pool. Since Islamic law prohibits the charging or paying of interest, sukuk transactions often look more like equity than debt.
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.
The rapid development of Islamic financial institutions and markets have enabled the penetration of mainstream finance and gaining relevance to global economic and financial flows, the National Commercial Bank said in its Saudi Economic Review for the month of January 2015.
On the Islamic equity front, the S&P 500 Shariah index ended 2014 standing at a record 1801.9, thus surging by 11.2% on a YTD basis. The USD 3-month murabahah deposit rate, the equivalent of an interbank offered rate, stood unchanged at 0.65% in 2014 compared to the 3-month LIBOR which averaged 0.23% on USD deposits in the same year.
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.