Arab News, Saturday, May 06, 2023 | Shawwal 15, 1444
Saudi banking system to underpin Islamic finance market growth: S&P Global Ratings
Saudi Arabia: The Islamic finance
industry is forecast to grow in 2023-2024 thanks to Saudi Arabia’s strong
banking system, according to a new report from S&P Global Ratings.
The US-based agency expects around 10 percent
growth across the industry in 2023-2024 after seeing a similar expansion in
2022, with the Kingdom and Kuwait largely fueling last year’s rise.
S&P Global Ratings also believe that despite a
predicted economic slowdown and a decline in sukuk issuance this year, new
supplies of the product will exceed those set to mature.
The report echoes findings from US-based Fitch
Ratings released in April, which claimed the global sukuk issuance for the
second quarter of 2023 is building up even as it faces short-term uncertainties
amid continued macro-volatilities.
In its report, S&P Global Ratings said: “We expect
a material slowdown in GCC (Gulf Cooperation Council) economies' real GDP (gross
domestic product) growth in 2023-2024, compared with 2022, largely based on
lower oil production.
“However, we think that Saudi Arabia’s banking
system performance will continue to underpin a large portion of the expanding
Islamic finance industry.
“In other GCC countries, growth of about 5 percent
appears plausible in the absence of new major government investment cycles.”
The report argues that Islamic finance is still
more of a collection of local industries than a truly globalized sector, and
that it is looking at ways to “enhance its competitiveness” in order to secure a
broader appeal.
However, within the countries looking to utilize
the sukuk market, Egypt and Turkiye were identified as most likely to seek
funding through this financial instrument.
The report said: “Egypt has established a $5
billion sukuk program and issued its first sukuk in early 2023 for a total of
$1.5 billion.
“We understand that this attracted significant
investor interest, with more than $6 billion demand and a 59 percent allocation
to investors from the Middle East and North Africa.
“The profit rate of the three-year sukuk was set
at 10.875 percent, which at the time was broadly in line with the yield on
Egypt's conventional bond with a similar maturity date of 2026.”
The report made clear that “overall, we think that
the volume of new issuances will continue to exceed maturing sukuk.”