The Islamic finance sector is set to continue growing in 2022 as the accelerating economic recovery, particularly in the GCC region, brightens the outlook for credit growth despite challenges from a rise in interest rates and decline in sukuk issuance amid higher oil prices, Moody's Investors Service said.
Islamic banks' asset growth globally will also continue to outperform their conventional peers this year, the ratings agency said in a report on Tuesday. Strong fundamentals are also expected to drive expansion of assets under management for the Islamic funds industry.
However, sukuk issuance, which reduced in 2021, is expected to decline further in 2022.
"The economic recovery in key Islamic finance markets will boost credit growth and demand for Shariah-compliant products and we expect Islamic banks' asset growth to continue to outperform their conventional peers," said Ashraf Madani, a vice president at Moody's.
"At the same time we expect higher oil prices will lead to lower sukuk issuance in 2022."
Sukuk issuance dropped in 2021 after five consecutive years of growth. It declined 12 per cent to $181 billion amid lower sovereign funding needs as higher oil prices boosted revenue, particularly in the GCC states. The majority of issuances last year — nearly $128bn — had long-term maturities of more than one year, according to the report.
Moody’s expects issuances to fall to the $160bn-$170bn range in 2022 as “higher oil prices and the economic recovery help the region generate fiscal surpluses and thus lower the need to resort to the market”.
Expected interest rate hikes globally could also deter some issuers from tapping the market in 2022.
“However, higher issuance by financial institutions to support asset growth, government refinancing needs and new issuers joining the market could partially offset the negative trend from higher oil prices and interest rates,” Moody’s said.
The global economy bounced back strongly from the pandemic-driven slowdown last year despite the emergence of new Covid-19 variants and the growth momentum has continued in 2022. Oil prices that surged 67 per cent in 2021 on the back of robust demand for crude, have risen sharply this year as Russia’s military offensive in Ukraine intensifies. Prices have rallied about 30 per cent since the start of the year.
Sovereigns in the region that generate a major chunk of revenue from the sale of hydrocarbons and borrowed heavily in 2020, have considerably lower financing needs this year.
“We expect gross long-term global sovereign sukuk issuance to decrease to $73bn in 2022 and $75bn in 2023, from $86bn in 2021,” Moody’s said.
In 2022, Moody’s estimates $16bn worth of sukuk issuance from the GCC, $21bn from Malaysia, $21bn from Indonesia, around $10bn from other sovereigns and almost $5bn from multilateral development banks.
“We estimate that the aggregate fiscal deficit of major sukuk-issuing sovereigns (Saudi Arabia, Malaysia, Indonesia and Turkey) will decline to $92bn in 2022 from $118bn in 2021 and $194bn in 2020,” Moody’s said.
It projects the aggregate fiscal positions of GCC sovereigns, excluding Kuwait, to improve to a surplus of $50bn this year, up from a surplus of $13bn in 2021 and a deficit of $112bn in 2020, which offsets a “large increase in scheduled sukuk repayments”.
“These projections are based on the 2022 average oil price assumption of $75 per barrel,” the ratings agency said.
The Islamic finance industry has been on a growth path in recent years. Despite the pandemic, Islamic financing expanded at an average compound rate of 10.5 per cent in 2020 and 2021, while conventional loan growth expanded at 3.4 per cent during the same period.
“In Muslim majority countries, Islamic banks manage to attract populations that otherwise, for ethical and religious reasons, would remain outside the banking system, meaning that they have a higher reservoir of growth compared to conventional banks,” Moody’s said.
The market share of Islamic financing assets in core Islamic markets, including the GCC and South-East Asia, increased to 34.6 per cent of total financial assets, including conventional bank loans, in September 2021, from 33 per cent in December 2020 and 31.3 per cent in December 2019, Moody’s said.
Countdown to Zero exhibition will show how disease can be beaten
Countdown to Zero: Defeating Disease, an international multimedia exhibition created by the American Museum of National History in collaboration with The Carter Center, will open in Abu Dhabi a month before Reaching the Last Mile.
Opening on October 15 and running until November 15, the free exhibition opens at The Galleria mall on Al Maryah Island, and has already been seen at the Jimmy Carter Presidential Library and Museum in Atlanta, the American Museum of Natural History in New York, and the London School of Hygiene and Tropical Medicine.
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Most sought after workplace benefits in the UAE
- Flexible work arrangements
- Pension support
- Mental well-being assistance
- Insurance coverage for optical, dental, alternative medicine, cancer screening
- Financial well-being incentives
Squid Game season two
Director: Hwang Dong-hyuk
Stars: Lee Jung-jae, Wi Ha-joon and Lee Byung-hun
Rating: 4.5/5
How to get exposure to gold
Although you can buy gold easily on the Dubai markets, the problem with buying physical bars, coins or jewellery is that you then have storage, security and insurance issues.
A far easier option is to invest in a low-cost exchange traded fund (ETF) that invests in the precious metal instead, for example, ETFS Physical Gold (PHAU) and iShares Physical Gold (SGLN) both track physical gold. The VanEck Vectors Gold Miners ETF invests directly in mining companies.
Alternatively, BlackRock Gold & General seeks to achieve long-term capital growth primarily through an actively managed portfolio of gold mining, commodity and precious-metal related shares. Its largest portfolio holdings include gold miners Newcrest Mining, Barrick Gold Corp, Agnico Eagle Mines and the NewMont Goldcorp.
Brave investors could take on the added risk of buying individual gold mining stocks, many of which have performed wonderfully well lately.
London-listed Centamin is up more than 70 per cent in just three months, although in a sign of its volatility, it is down 5 per cent on two years ago. Trans-Siberian Gold, listed on London's alternative investment market (AIM) for small stocks, has seen its share price almost quadruple from 34p to 124p over the same period, but do not assume this kind of runaway growth can continue for long
However, buying individual equities like these is highly risky, as their share prices can crash just as quickly, which isn't what what you want from a supposedly safe haven.
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UAE currency: the story behind the money in your pockets