S&P Global Ratings

Global #sukuk market: A window of opportunity is opening

According to S&P Global Ratings, total sukuk issuance volume for the full year 2020 will be lower than in 2019. Central banks have already taken measures to boost banks' liquidity in core Islamic finance countries, so they are unlikely to issue sukuk this year. They want banks' increased liquidity to reach corporates, thereby minimizing the risk of a long-lasting economic downturn. The difficult economic environment has led to higher financing needs for sovereigns, but most of them are turning to conventional markets due to the complexity of issuing sukuk. The number of defaults among sukuk issuers with low credit quality will likely increase, which will serve to test the robustness of legal documents for sukuk.

S&P Global expects #sukuk issuance to touch $100bn in 2020

Sukuk issuance volume is expected to total around $100bn for 2020, about 40% lower than in 2019. The issuance volume fell 27% in the first six months of this year. S&P Global Ratings noted the number of defaults among sukuk issuers with low credit quality will likely increase, which will serve to test the robustness of legal documents for sukuk. Also, some sukuk may be issued to tackle social issues as economies recover, rather than solely to serve investors' financial interests.

UAE- Islamic finance can heal Covid pain

Islamic finance can play an important role in navigating the economic turbulence brought by the Covid-19 crisis on individual and corporate levels. It is believed that the four Islamic finance instruments of Qard Hassana, social sukuk, waqf and zakat in particular can help core Islamic countries, banks and corporates navigate the current tough situation. The Covid-19 crisis has significantly slowed the core Islamic finance economies. According to Mohamed Damak, primary credit analyst at S & P Global Ratings, social instruments could be used directly by the Islamic finance industry to support households by compensating them for lost income, and by providing access to basic services, such as education and health care.

Pandemic may force GCC banks to cut dividends, drive future M&A

Banks in the Arabian Gulf could be forced to scrap 2020 dividends as profits plunge in 2020 due to the coronavirus pandemic. The region's lenders are unlikely to require additional capital should loan defaults soar, despite facing headwinds related to the impact of COVID-19 and lower oil prices. According to S&P Global Ratings, the 23 banks in the Gulf Cooperation Council (GCC) have assets totaling $1.5 trillion at 2019-end and can absorb up to $36 billion in extra provisions before their capital bases start to erode. S&P sees that a significant deterioration in the finances of some banks could spur a second wave of consolidation among Gulf lenders. However, bank analysts are more skeptical, citing a lack of plausible potential takeover targets in Gulf countries except for the UAE, which is still overbanked.

Gulf banks could see second wave of mergers after pandemic dust settles

The impact of the novel coronavirus on the global economy is growing and continues to shock the markets. S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the COVID-19 outbreak. It comes as no surprise that the pandemic will halt the growth of GCC Islamic and conventional banks this year as they focus on preserving asset quality rather than business expansion. The delay of Expo 2020 for Dubai and potential cancelation of the pilgrimage season for Saudi Arabia, may result in a stronger impact on the regional economies. When the dust settles and the full effect of current conditions on banks’ financials is visible, there could be a second wave of mergers and acquisitions in the region.

GCC banks face 'earnings shock' from lower oil price, Covid-19

GCC banks will see significantly reduced revenue as they face an earnings shock from the oil price drop and Covid-19 pandemic. S&P Global Ratings credit analyst Mohamed Damak says the coronavirus will take a toll on important sectors such as real estate, hospitality, and consumer-related, but these will be relatively short lived and he forecasts a gradual recovery in nonoil activity from third-quarter 2020. In his view, if the recovery takes longer than expected, GCC banks could feel greater pressure. In March, S&P revised its outlooks of some UAE banks including First Abu Dhabi Bank, Abu Dhabi Commercial Bank, Mashreqbank, Sharjah Islamic Bank and National Bank of Fujairah to negative. Most central banks in the GCC have already come up with stimulus packages to help the banking system withstand the economic fallout. The Central Bank of the UAE on Sunday doubled the size of its stimulus package to Dh256 billion.

Global #sukuk issuance down 32% in Q1 2020, recovery expected in Q3

The volumes of the global issuance of sukuk have dropped 32% in the first quarter of this year against Q1 2019, and a further decline is expected in Q2 2020, as several countries implement measures to control the spread of COVID19. Most government issuers of sukuk are likely to turn to conventional bond markets as they grapple with the impact of weaker economic environments and tight budgets. S&P Global Ratings identified two major trends for sukuk in 2020 - defaults and slowdown of the innovative sukuk issuance. Given the shocks to the economic environment and rapid change in market conditions, the advisory firm expects credit risk to increase sharply.

Stronger GCC appetite set to spur uptick in #sukuk issuance in 2020

A stronger appetite for sukuk issuance in some GCC countries is among the key factors that promise to spark an uptick in the market. S&P Global Ratings estimates a total sukuk issuance of between $160 billion and $170 billion this year, representing 5% growth on the $162 billion seen in 2019. The total estimated issuances include $40 billion-$45 billion of foreign currency sukuks. The expected upswing in sukuk issuances will be underpinned by high levels of liquidity in Indonesia, Turkey's efforts to tap all available financing sources, and the good performance in Malaysia. The green sukuk market will continue to expand, aided by opportunities related to energy mix diversification in the GCC/Malaysia and investor diversification. As GCC countries begin their transition toward less carbon-intensive economies, green projects are set to flourish. Some of these projects will likely be funded via the sukuk market.

S&P projects $170bn #sukuk issuance in 2020; #Qatar key player in 2019

According to S&P Global Ratings, global sukuk issuance increased by 25.6% in 2019 compared with 2018. Foreign currency issuance also increased by almost 20.8% during the year, explained primarily by activity in Turkey, and also issuance by Qatari banks and Malaysian corporates. S&P anticipates a total sukuk issuance of $160bn-$170bn this year, including $40bn-$45bn of foreign currency issuance. This represents about 5% growth on the $162bn seen in 2019. S&P believes that the green sukuk market will continue to expand, aided by opportunities related to energy mix diversification in the GCC/Malaysia and investor diversification.

Source: 

https://thepeninsulaqatar.com/article/13/01/2020/S-P-projects-$170bn-sukuk-issuance-in-2020-Qatar-key-player-in-2019

Saudi Arabian issuers boost #sukuk in first five months of 2019

According to S&P Global Ratings, the sukuk market enjoyed a strong start to the year but it may not last. S&P Global Ratings Head of Islamic Finance, Mohamed Damak said high levels of liquidity in Indonesia, Turkey's efforts to tap all available financing sources, and the return of Qatari and Saudi Arabian issuers to the market have boosted issuance of sukuk 17.6% in the first five months of 2019. S&P expects the total Sukuk issuance will average $105 billion-$115 billion this year, assuming the Brent oil price stabilizes at $55 per barrel. This follows a mild performance in 2018 when issuance dropped to $114.8 billion, a 5% decline compared with 2017; US dollar Sukuk alone fell by 15% year on year. Tightening liquidity conditions, high geopolitical risks in the Middle East, and challenges inherent to sukuk issuance will likely dampen sukuk market performance in 2019.

Global #sukuk market to hit $2.7trln by 2030: Franklin Templeton

According to investment management firm Franklin Templeton, the global sukuk market is set to grow at a compound annual rate of around 15% to reach $2.7 trillion by 2030. Global sukuk issuance stood at over $477 billion at the end of last year, but has slowed somewhat in recent years. Ratings agency S&P in January described sukuk issuance as 'mild' in 2018, as the total amount of sukuk issued dropped by 5% to $114.8 billion. It forecast issuance of $105 billion-$115 billion for 2019. Mohieddine Kronfol, head of fixed income at Franklin Templeton, forecasts that the growth continues at a relatively rapid pace. In GCC markets several corporate entities have been issuing debut sukuk in recent months. Saudi Telecommunications Company issued its debut $1.25 billion sukuk on Sunday, following on from Saudi food company Almarai’s first $500 million sukuk in February.

S&P: GCC Islamic Banks to Show Resilience in 2019,2020

According to S&P Global Ratings, Islamic banks of the Gulf Cooperation Council (GCC) are expected to show resilience over the next two years after weathering tough market conditions in 2018. Last year they expanded slower than conventional peers for the first time in five years. The growth forecast for Islamic banks for 2019-2020 is the same as what the rating agency is estimating for conventional lenders in the region. S&P Head of Islamic Finance Mohamed Damak forecasts a muted GCC economic growth over this period, despite some benefit from government spending and strategic initiatives such as national transformation plans and Dubai Expo 2020. However, with the transition to IFRS9/FAS 30, Islamic and conventional banks will even more closely align. Another trend is the significant increase in Islamic banks’ coverage ratios at end-2018, coupled with a stable cost of risk that is lower than conventional banks.

Islamic #Insurance sector to stay profitable in ’18

The net income of listed companies in the GCC Islamic insurance sector has nearly halved in 2017 to $375m, from $674m in 2016. The decline in 2017 net income was mainly driven by weaker results in the Saudi Arabian insurance sector. S&P Global Ratings believes that medium-term growth prospects in the sector remain satisfactory given relatively low penetration levels. It expects Islamic insurance to remain profitable overall in 2018. The ratings agency also observes strengthening capital levels. The Islamic insurance industry in GCC countries outside Saudi Arabia recorded an increase in net income by about 832% to $82m in 2017 from$9m in 2016. Also, there was an increase of more than 60% in first-quarter 2018 compared with the same period last year. This improvement was mainly driven by better results in the UAE.

Islamic banks’ financial profile to stabilise in ’18

According to S&P Global Ratings, the GCC Islamic banks’ financing growth will reach 4-5% in 2018-19, supported by strategic initiatives by the regional governments. Powered by Qatar FIFA World Cup, Dubai Expo 2020 and Saudi Vision 2030, and higher government spending in Kuwait led by Kuwait 2035 Vision, the region’s Islamic banks will continue to expand. Asset growth should remain in the low single digits due to slow economic growth, unless oil prices rebound significantly. However, Islamic banks’ cost of risk will increase due to the adoption of International Financial Reporting Standards (IFRS) 9 and Financial Accounting Standards (FAS) 30. While the volume of sukuk issuance increased in 2017 thanks to jumbo issuances by some GCC countries, issuance volume is currently uncertain for 2018.

GCC Islamic Banks' Financial Profiles to Stabilize in 2018

According to S&P Global Ratings, Islamic banks in the Gulf Cooperation Council (GCC) countries should see their financial profiles stabilize through 2018. S&P's Global Head of Islamic Finance, Mohamed Damak expects that GCC Islamic banks' total asset growth will remain in the low single digits over the next 12-24 months, after stabilizing at about 4% for the GCC system in 2017. He also expects that cost of risk for Islamic banks will rise, due to the adoption of International Financial Reporting Standard 9 and Financial Accounting Standard 30. Combined with the introduction of value-added tax, the increase in risk costs will result in a dip in the profitability of Islamic banks in the next two years.

Islamic bonds face 'uncertain and muted' 2018 amid central bank tightening and geopolitics

According to S&P Global Ratings, the outlook for 2018 is uncertain because of geopolitical risks and economic uncertainties. Sukuk issuance was strong last year with $97.9 billion, up 45.3% from the $67.4 billion issued in 2016. So-called "jumbo issuances" were seen in Saudi Arabia and other Gulf Cooperation Council (GCC) economies in 2017. Mohamed Damak, senior director at S&P Global Ratings, said the first two months of 2018 had been marked by a good performance for local currency issuance and a drop in foreign currency issuance. He added that 2018, as a whole, was expected to see a drop in sukuk issuance, with expectations for around $70-80 billion in total. There are a number of reasons for this, including central bank tightening, lower financing needs of GCC banks and geopolitical risks. Another reason for lower sukuk performance could be the slow progression of the standardization in the sukuk market.

Opinion: Global #sukuk market unlikely to repeat 2017 performance

In 2017 the exceptional performance of sukuk was driven by good liquidity conditions, alongside certain countries’ desire to develop their Islamic finance industries. However, the outlook for sukuk in 2018 is more uncertain. According to Mohamed Damak, S&P Global Ratings’ Head of Islamic Finance, tighter global liquidity conditions, mounting geopolitical risks and slow progress on the standardisation of Islamic finance products will continue to hold the market back from its full potential. While sukuk issuance may decrease in 2018, there are a couple of interesting trends. These include the more stringent application of the profit-and-loss-sharing principle supported by several Sharia scholars. The sukuk investor base is broadening, but there is a lack of a specific regulatory framework to protect retail investors.
Dubai Islamic Bank (DIB) has successfully issued a $1bn sukuk with a five-year tenor. It is the first US dollar benchmark sukuk transaction from the GCC in 2018. The issuance emanates from DIB’s $5bn sukuk programme and carries a profit rate of 3.625%. The instrument will carry a dual listing on the Irish Stock Exchange and Nasdaq Dubai.

S&P report discusses whether #Fintech could disrupt GCC banks' business models

S&P Global Ratings believes that financial technology could reduce the profitability of some business lines of Gulf Cooperation Council (GCC) banks. S&P's credit analyst Mohamed Damak said fintech could impinge on retail banking, particularly money transfer and foreign-currency exchange. This would push some banks to adjust their operations through increased digitalization, branch network reduction, and staff rationalization. He added that fintech alone is not expected to have a significant influence on GCC banks ratings in the next two years. He believes that banks will be able to adapt to the changing operating environment through collaboration with fintech companies and cost-reduction measures. Furthermore, regulators in the GCC will continue to protect the financial stability of their banking systems. Fintech is not yet a negative rating driver. However, it will increasingly become a force to be reckoned with.

S&P Global Ratings: Global issuance of #sukuk to moderate in 2018 as Islamic finance moves into slower growth

S&P Global Ratings highlighted global issuance of sukuk in the first half of 2017 was good, but expects it to moderate in 2018. S&P head of Islamic finance Mohamed Damak said 2018 was less certain, as the large issuances of last year are not expected to repeat. Among some of the downside trends relating to Islamic finance includes subdued economic performance in Islamic finance core countries, primarily due to low oil prices. The long-standing debate about standardisation will continue to hinder the industry. S&P's report is entitled "Islamic Finance 2018: Slow Growth Is The New Normal" and the rating agency expects the industry to lose momentum in 2018. The contribution of Islamic finance has so far been limited by the industry's relatively small size and structure.

Islamic finance growth to lose momentum in 2018: S&P report

According to S&P Global Ratings, the Islamic finance industry will continue to expand this year, but will lose some momentum in 2018. Even though sukuk issuance accelerated in the first half of this year and will likely stay strong in the second half, S&P Global Ratings believes this growth rate is not sustainable. In their view, the current economic situation in core Islamic finance markets and depreciation of local currencies have weighed on the industry’s performance in 2016 and 2017. The report foresees a deterioration of GCC Islamic banks’ profitability in 2017 and 2018 as the cost of funding has increased and the cost of risk is on the rise. Sharia is still interpreted in different ways across the various Islamic finance markets. However, the industry appears to be going in the right direction with the proposal for central Shariah boards.

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