S&P Global Ratings

#GCC banks to stay under pressure until 2017 on commodity gloom: S&P Global

According to S&P Global Ratings, banks in the Gulf Cooperation Council countries will remain under pressure for the remainder of 2016 and 2017. The operating environments in these emerging markets are suffering from the effects of low commodity prices and weakening local currencies outside the GCC. S&P thinks that not only will banks' loan growth decline, but profitability will also drop. On a positive note, S&P thinks that the deterioration will be largely controlled and that banks have the capacity to absorb the negative impacts thanks to their strong asset quality, good profitability, and strong capitalisation.

Islamic Finance’s total assets will reach $2.1 trillion by year-end, says S&P

S&P Global Ratings believes that the drop in Islamic finance growth is likely to continue in 2017. Nevertheless, it estimates the industry’s total assets will reach $2.1 trillion at year-end 2016. S&P Global Head of Islamic Finance Mohamed Damak said Islamic finance will maintain growth of around 5% in 2017. The oil price environment will weigh negatively on economic growth in the GCC for the next two years. A broader consensus around the need to standardize legal structures and Sharia interpretation could help the industry to progress. Another great help could be the industry’s potential contribution to the United Nation’s sustainable development financing goals.

#Bonds or #Sukuks: Who’s winning the race?

Oil prices have plummeted sharply since mid-2014, putting an end to the commodities super cycle that started a decade ago. S&P Global Ratings expects oil prices will remain substantially below peak levels and stabilize at $50 per barrel by 2018 and beyond. While governments affected by the price drop are looking to spending cuts, taxation, and the privatization of state companies, their financing needs remain significant. Despite the significant drop in oil price since mid-2014, total sukuk issuance didn’t pick up in 2015 or the first half of 2016. In fact, issuance actually dropped in the first half of 2016 by 12.5% compared with the same period in 2015. Issuances in the second half of 2016 will continue to depend on monetary policy developments and volatility in developed markets as well as the policy actions of sovereigns in Gulf Cooperation Council (GCC) countries and Malaysia.

#Sukuk issuance to remain muted 6 to 18 months, says S&P

S&P Global Ratings expects Sukuk issuance will remain muted over the next 6 to 18 months, with total issuance of US$50 bil to US$55 bil in 2016. The ratings agency explained that plummeting oil prices have not boosted sukuk issuance despite some commentators' expectations. Instead, total issuance actually dropped in 2015 compared with the previous year. S&P Global Ratings Global head of Islamic finance Mohamed Damak said while governments affected by the price drop are looking to spending cuts, their financing needs remain significant. At the same time, he believes the European Central Bank's quantitative easing programme and the entrance of a few new issuers to the Sukuk market will continue to support issuance volumes.

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