Saudi Arabia fortifies position as largest Islamic finance market

Moody's expects Islamic financing in Saudi Arabia to reach around 80% of system-wide loans in the next 12-18 months, up from 78% of loans in 2019 and 70% in 2013. Moody’s noted that corporates and households are increasingly using Islamic products amid the economic challenges posed by low oil prices and the coronavirus crisis. Saudi Arabia had a total of $339 billion in Islamic finance assets as of March 2020, leaving Malaysia in a distant second place with $145 billion. Increasing government Sukuk issuance supported by more lenient entry rules and deepening capital markets could boost foreign investment. Mergers and acquisitions across the region are also accelerating the shift to Islamic finance.

Global #Sukuk issuance to gain momentum in 2018 as new players enter market

Moody's estimates that total Sukuk issuance will reach around $95 billion by the end of this year, after more than $85 billion in 2016, including more than $50 billion of Sukuk issuance by sovereigns. According to Moody's Vice President Christian de Guzman, sovereign Sukuk issuance volumes will continue to grow in 2018 as governments look to diversify their financing mix and satisfy the liquidity needs of Islamic retail banks. A number of factors will support sovereign Sukuk issuance, including high borrowing needs for GCC sovereigns, which Moody's expects to reach around $148 billion in 2018. Malaysia remains the largest Sukuk market with an estimated 43% of total sovereign Sukuk outstanding, followed by Indonesia with 30%. Indonesia's issuance will likely grow with the government's efforts to develop the Islamic finance sector.

Islamic banking growth outpaces conventional peers in key markets

According to Moody's, the Islamic banking sector continues to outpace growth of conventional banking in key markets, often supported by proactive regulations and strong retail customer demand. Analysts say the broader slowdown in growth, reflects more challenging economic conditions across a number of core Islamic markets, particularly in the GCC countries due to lower oil prices. Despite the current challenges the sector still has potential for further growth, especially in countries such as Oman, Turkey and Indonesia where the penetration of Islamic financing assets remain relatively low. According to Khalid Howladar, Global Head of Islamic Finance at Moody’s, Oman has been highly successful in achieving a high level of Islamic banking penetration. Oman's example shows the effectiveness of government support and regulation in acting as a catalyst for growth.

Prospects remain robust for Islamic finance

According to Moody’s, the growth prospects for the Islamic finance sector are still strong despite new sukuk issuance remaining subdued this year. Moody’s global head of Islamic finance Khalid Howladar said growth in the Islamic banking sector continues to broadly outpace that of conventional banks in most systems in which Islamic banks have been established. The sector also has potential for further growth, especially in countries in which the penetration of Islamic banking assets remains relatively low, at between 5%-10% of Islamic financing assets. New sukuk issuance volumes in 2016 are expected to remain flat, at around US$70bil. Growth in the Takaful sector is also slowing, but the rating agency expects it to remain at double digit levels into 2017 and for gross contributions to reach US$20bil by next year.

Moody's: IsDB's strong shareholder support and capital base support its credit profile

According to Moody's latest report, the Islamic Development Bank's (IsDB) credit profile is supported by its strong shareholder support, robust capital base and prudent financial and risk management policies. While facing a risky operating environment due to geopolitical tensions in the MENA region and lower oil prices, the IsDB's operational assets continue to perform well. The bank's gross operational assets have been steadily growing over time and rose 11.7% year-on-year in 1436H, but the pace of that growth will likely slow in the next few years. The overall credit quality of the bank's portfolio is solid, well diversified in different countries and sectors. Its liquidity is solid, with liquid assets making up 23.6% of total assets.

#Moody's: Bidding deadline for #Bank Asya Katilim Bankasi will end uncertainty

The bidding process for Asya Katilim Bankasi A.S. - with a June 23 deadline - will end uncertainty over the future of the bank, but creditors face either its successful sale or its liquidation, says Moody's Investors Service in a report published today.
Bank Asya's creditors face two outcomes -- either a transfer of ownership to a successful bidder or the bank is liquidated and its banking license withdrawn," says Irakli Pipia, a VP - Senior Credit Officer at Moody's.
Moody's notes that the bidding process is nevertheless a positivedevelopment for creditors, as it provides a potential upside scenario.In the event of a winning bid by a new owner committed to recapitalizingthe bank, the rating agency would expect a rapid recovery in its credit profile.
"An acquisition of Bank Asya by a well-established player is likely to restore customer confidence in the bank and turn around the outflow of deposits," explains Mr. Pipia. "However, the likelihood of such an outcome is impossible to assess given the limited information about potential interest from bidders."

Gulf subsidy reforms not enough to plug deficit — Moody's

Fuel subsidy reforms by Gulf Arab states will help reduce pressure on budgets, but are not enough to offset deficits resulting from low oil prices, ratings agency Moody's said. Savings from increased fuel prices in the six Gulf nations will average 0.5 per cent of gross domestic product (GDP), around $7 billion, this year against an estimated deficit of 12.4 per cent of GDP, it indicated. Moody's forecast that the price of oil will average $33 a barrel in 2016, way below its price of around $110 a barrel before it began to decline in mid-2014. It estimated the price to be $38 a barrel next year. Moody's expects GCC states to take other fiscal measures such as raising corporate taxes and introducing value-added taxes in the face of a long period of low oil revenues.

Moody's: Malaysian sukuk ratings reflect underlying corporates' credit quality

The ratings of rated Malaysian corporate sukuk, or Islamic bonds, reflect the credit quality of the underlying corporate backing the sukuk, despite the various assets in their sukuk structures, according to Moody's Investor Service.
In a statement today, the credit rating agency said that it had reiterated its conclusion in its analysis of three Malaysian corporate sukuk which it rated in 2015, namely Axiata Group Bhd (Baa2 stable), Telekom Malaysia Bhd (TM) (A3 positive), and Petroliam Nasional Bhd (Petronas) (A1 stable).

GCC family business face credit rating and funding constraints

Ownership restrictions, corporate governance limitations and a lack of geographical or cash flow diversification are the key credit risk challenges faced by GCC’s family owned businesses from a rating perspective, said Martin Kohlhase vice president and senior credit officer of Moody’s. Despite such restrictions some of the long-established merchant families enjoy access to attractively priced sources of funding from local banks. Family-owned corporates often benefit from very competitive short-term domestic bank market funding rates suggesting they have a lower risk profile as compared to the ratings Moody’s would assign assuming a medium to long-term funding exposure.

Moody’s A3 Credit Rating Gives Sharjah Debut Sukuk Edge

Sharjah gears up for its first Shariah-compliant bond sale this month. The emirate may price the debt to yield 2.5 percent to 3 percent if it’s a five-year issue. That compares with a yield of about 2.66 percent on non-Islamic notes due 2019 for Dubai, which doesn’t carry a rating. Sharjah’s A3 rating at Moody’s Investors Service, a grade four levels above junk, widens the pool of investors who can buy the debt. Moody’s cited the emirate’s “strong” fiscal and government-debt position, which may appeal to some money managers in Asia and Europe whose fund rules prevent them from holding non-rated or below-investment-grade debt. The emirate will meet investors in the U.A.E., Saudi Arabia, Singapore, Malaysia and the U.K., and will sell a sukuk subject to market conditions.

Moody's lowers rating for Turkey's Bank Asya

International credit rating agency Moody's has downgraded the long-term deposit rating of Turkey’s Bank Asya to Caa1 from B2, placing the note on review against any further deposit volatility at the bank. Bank Asya's financial strength was also adjusted downward. According to Moody's statement, the downgrade reflects increasing external pressures that may exacerbate the bank's deposit volatility, which has already shown evidence of significant outflows this year. Depending on the existent deterioration of the bank's financial fundamentals, the bank would need to receive external support, and it would face higher potential losses in case of a deterioration in the quality of the bank's assets and its ability to pay its depositors, Moody's also said.


Moody's lowered the long-term deposit rating of Bank Asya, which is known for its close ties to the controversial Gülen Movement, from "Ba2" to "B2". The financial strength rating of the Gülenist bank has been downgraded from "D-" to "E+". According to the rating agency's statement, the bank's standalone financial strength rating was lowered due to a fall back in negative asset-quality trends, funding volatility, and post-provision profitability. Moody's also stated that the bank has been placed on review due to uncertainty in deposit ratings and that the financial strength note is also under review in case of a possible reduction.

Moody's says: Malaysia's Sukuk market may grow 10 percent

A 10 percent growth in the Malaysian Sukuk market for this and next year is in line with the positive views on the long-term growth trends in the global Sukuk market according to Philipp Lotter, Moody's Managing Director for the Corporate Finance Group in ASEAN. Malaysia will remain the world's largest Sukuk market, says Khalid Howladar, Moody's Global Head for Islamic Finance. Singapore and Hong Kong are tapping into this fast-growing asset class although Saudi Arabia is showing strong domestic potential," adds Howladar.

Moody's assigns Baa2 IFS rating to Damaan Islamic Insurance Company "Beema"

Moody's Investors Service has today assigned a first-time Baa2 insurance financial strength rating (IFSR) to Damaan Islamic Insurance Company "Beema" (C.Q.S.C.) ("Beema "), based in Qatar . The rating was assigned with a stable outlook. The rating reflects Beema's good market position, strong growth potential and a lower-risk investment portfolio. Furthermore, Beema has demonstrated good underwriting results that have led to a growth in consolidated equity. Business diversification and product risk, considering the modest size of Beema, is also considered strong. However, offsetting this is the relatively high concentration Beemadisplays in terms of its geography. Furthermore, the financial and total leverage have increased materially in recent quarters.

Dubai Islamic Bank ratings affirmed by Moody's

Dubai Islamic Bank Group (DIB) today announced that its Long Term Issuer ratings have been affirmed by Moody’s at Baa1 and the outlook has been moved to “Stable”. The confirmation of DIB’s ratings reflects the recent capital injection and the expectation that asset quality pressure will ease which, in turn, should support profitability, according to Moody's. Morover, the systemic importance of the bank to the banking sector and the government ownership of 34% were also cited as some of the factors for the decision. Moody’s also affirmed the long term issuer ratings of Tamweel, which is a subsidiary of the bank (86.5% owned by DIB) at Baa3 and with the recent move by DIB to take over the company, Tamweel’s outlook on ratings has been upgraded to “Positive.”

EIB completes issuance of $500m sukuk certificates

Emirates Islamic Bank (EIB) has successfully ended the issuance of $500 million sukuk certificates, maturing in 2017 off their $1,000 million Trust Certificate Issuance Programme. The programme is guaranteed by Emirates NBD rated A3 by Moody's and A+ by Fitch.
Joint lead managers and bookrunners on the transactionwere following banks: Citigroup, Emirates NBD Capital, HSBC Bank Plc, National Bank of Abu Dhabi, Royal Bank of Scotland Plc and Standard Chartered Bank. The transaction structure was a Sukuk Al Musharaka based on Sharikat Al Melk (Co-ownership), with the certificates remaining a senior obligation of EIB.

Moody's downgrades Jafz to B2; negative outlook (UAE)

Moody's decision to downgrade Jafz was driven by the high uncertainties over the near- to medium-term evolution of the company's capital structure, which the rating agency assesses as being highly leveraged, with adjusted debt to EBITDA at 8.6 times (as per the 12-month period ending June 2010), and as unsustainable given the company's cash flow profile.
Moreover, Moody's considers it likely that the company's capital structure will remain constrained. These factors have prompted Moody's to reposition Jafz's baseline credit assessment (BCA) to 16 (equivalent to B3 on Moody's global scale) from 14 (B1 equivalent), hence the downgrade.

Moody’s cautious on Islamic banking?

Bahrain (665km²) is smaller than King Fahd airport (780km²) and has achieved being the biggest centre of Islamic finance in the world, democracy, its very own airline. Moody's, a ratings agency, says it doesn't think Bahrain has sufficient cash to be able to underwrite its banking sector anymore, and has consequently downgraded the investment rating it bestows upon the country from A2 to A3. "Reduced fiscal flexibility makes it more challenging potentially to meet contingent liabilities arising from Bahrain's financial sector, which is relatively large compared with the government's resources," Moody's said.

Islamic finance bodies have $5tn potential: Moodys

Islamic financial bodies, which adhere to religious proscriptions against interest, have a market potential of at least $5.0 trillion, Moody's Investors Service said yesterday.

Moody's: Islamic Banks Not Unduly Challenged by Oil Price Drop and Crisis

According to Moody' s worldwide fall in oil prices and the global economic crisis has affected the Islamic finance industry, but the institutions' accumulated liquidity and capital will help them withstand these pressures.

According to Moody's, the drop in oil prices poses two key challenges for the Islamic finance industry. "Firstly, there is still a vital link between oil prices and Islamic banks as most of the latter operate in hydrocarbon-exporting economies. As they face increasingly limited funding sources, Islamic banks will find it more difficult to grow going forward. Secondly, oil liquidity has been a major driver of the disintermediation process in the Islamic finance industry. With reduced oil liquidity, not only have sukuk issuances been slowing sharply, thereby depriving Islamic banks of much-needed long-term funding, but pricing on such instruments has been distorted," says Anouar Hassoune, a Moody's Vice-President/Senior Credit Officer and co-author of the report.

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