2024-01-14 12:33:00
It is expected that the global sukuk market will exceed one trillion dollars
The issuance of sukuks in US dollars increased by 178% on an annual basis in the Gulf Cooperation Council countries last year, at a time when the growth of these issuances globally did not exceed 10.3%, according to a new report by the credit rating agency Fitch.
Fitch expects that sukuk issuance will increase in 2024 and that the instrument will continue to be a large part of the financing mix in the underlying markets, driven by financing needs and low interest rates. It expects lower oil prices (US$80 per barrel in 2024; US$70 in 2025) and interest rates (US interest rate 4.75% in 2024; 3.5% in 2025), which might support issuance.
In the medium term, Fitch expects the global sukuk market to exceed one trillion US dollars.
It is expected that Sukuk will remain a major financing tool in the main markets of the Gulf Cooperation Council countries, Malaysia, Indonesia, Turkey and Pakistan, as the share of Sukuk issuance in the debt capital market in all currencies will reach 29% during 2023 compared to 23% in 2022. However, the share of dollar issuances reached 40% in dollars. American, compared to 41.6% in 2022.
US dollar sukuk issuance in core markets (including multilateral markets) grew by 40% year-on-year to reach US$52 billion, while US dollar bonds rose by 53%. However, sukuk issuance in all currencies in core markets fell by 19% year-on-year, while bonds rose by 6%. The value of environmental, social and governance instruments reached $36.1 billion.
- Demand for instruments
The Fitch report indicated that demand for sukuks still exceeds supply, driven by Islamic banks that cannot invest in bonds, due to Islamic law, but they can invest in sukuks. In the GCC countries and Malaysia, Islamic banks constitute a large part of the banking system with their local market share ranging from 85% to 16%.
Bashar Al-Natour, global head of Islamic finance at Fitch Ratings, said: “We have not witnessed any significant sukuk defaults or additional credit-related complications in 2023.”
He added: “We also saw growth opportunities in 2023 despite the volatility. Financing and diversification goals are likely to drive issuance in 2024.”
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