By Webmaster
Global IBF market targets $3.4tr for next two years
Amanullah Khan
Karachi—Growth prospects for the Islamic banking and finance (IBF) sector are still strong despite subdued sukuk issuance predicted for 2016, Moody’s Investors Service said in a report. According to report, 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 current size of the Islamic finance market has been estimated to range from $1.66 trillion to $2.1 trillion with expectations of market size to be $3.4 trillion by end of 2018. Based on $1.66 trillion, Islamic finance assets represented one per cent of the global financial market of $127 trillion in assets.
To put this into context, $1.66 trillion is about the size of the balance sheet assets of HSBC as of 2013. Islamic banking sector growth is driven by strong retail demand and proactive government legislation for the industry, said Howlader in the report titled ‘Islamic finance: prospects remain strong despite subdued Sukuk issuance’. The Islamic banking sector also has potential for further growth, especially in countries in which the penetration of Islamic banking assets remains relatively low, at between five per cent and 10 per cent of Islamic financing assets. Over the last three years, Oman’s Islamic banking sector, for example, has gone from zero to an aggregate of around 10 per cent of banking system financing assets as of June 2016, compared to Indonesia and Turkey which have both taken over two decades to reach around five per cent of banking system financing assets.
The government of both these countries have recently taken initiatives to boost growth in the sector over the next 10 years. While new sukuk issuance volumes in 2016 are expected to remain flat at around $70 billion, the rating agency said the longer-term outlook remains promising. According to S&P Global Ratings, Sukuk issuance in the GCC and other countries will remain muted over the next six to 18 months, with total issuance of $50 billion to $55 billion forecast in 2016 compared with $63.5 billion in 2015, contrary to general expectations that plummeting oil prices would boost the Islamic bond market.
“Subdued issuance volumes in 2016 were mostly driven by reduced short-term borrowing by the Malaysian government, one of the largest sukuk issuers globally, as well as the drive by the GCC governments to tap conventional sources of liquidity, which has reduced the attractiveness of the Sukuk format,” said Nitish Bhojnagarwala, assistant vice-president-analyst at Moody’s. “However, we expect increased Sukuk issuance into 2017 from sovereigns, banks and corporates in the Gulf as regional financing needs increase amid lower oil prices,” he added. Growth in the Islamic insurance (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 $20 billion by 2017.
“Complex regulation as well as compliance and operational challenges have slowed growth in the Takaful industry,” said Mohammed Ali Londe, assistant vice-president – analyst at Moody’s Insurance team. “Growth has broadly slowed to below 15 per cent in 2015 in most key markets. Globally, year-on-year growth stayed just below 20 per cent in the past couple of years due to large premium increases in the Saudi market in 2015 of around 19 per cent.”
Islamic banking is at a more developed stage (Islamic financing penetration between 25 per cent and 50 per cent) with lower growth rates that nonetheless continue to outpace conventional assets. Kuwait is an idiosyncratic exception, where growth at the largest Islamic bank-Kuwait Finance House has been relatively slower as the execution of the restructuring plan by the bank is ongoing to address legacy issues and currency volatility subdued the higher growth of large banking subsidiaries. As a result, growth of Islamic financing in Kuwait remained low at around five per cent in 2015, and broadly in line with conventional banking. Bahrain too shows comparable growth levels to conventional banking, reflecting, perhaps, the greater maturity of the sector and relative saturation of such services.
No comments:
Post a Comment