INDUSTRY GROWTH REMAINS ROBUST
Local sukuk market, in particular, continues to see more issues in pipelines
THE past two years have seen “slowing” overall growth in the global Islamic financial services industry, according to the Islamic Financial Services Board (IFSB).
But Malaysia’s Islamic financial sector, Asia’s largest, has continued to enjoy robust growth during this time, said the Kuala Lumpur-based IFSB.
The country’s sukuk market in particular continues to see its “pipeline” of issues expand, said Arshad Mohamed Ismail, head of global banking business at Maybank, which boasts the biggest portfolio of Islamic financial assets in Malaysia and the fifthlargest in the world.
Not only the sukuk market but also Malaysia’s Islamic banking sector has been growing at a near 10 per cent annual clip of late, with Islamic banking assets representing a “systemically important” 24 per cent or so of the country’s total banking assets,
Malaysia’s experience to some extent mirrors that of the GCC but the fact that it has outperformed is in part due to Malaysia’s special position within the arena of Islamic finance.
For example, Arshad said: “Malaysia is a huge market where issuers are free to issue conventional bonds as well as sukuk. So, you have conventional investors as well as Islamic investors subscribing to all types of securities (issued there).”
Manila-based Asian Development Bank assistant general counsel Ashraf Mohammed said Kuala Lumpur is also home to the standard-setting IFSB which “manages and supervises” Islamic financial institutions.
More formally, the IFSB “promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry — broadly defined to include banking, capital markets and insurance sectors”, he said.
The IFSB Global Summit, due to be held in Abu Dhabi on October 22 to 24, will take place against an overall background of slowing but steady growth in Islamic financial services but also a quickening global economic growth and demand for infrastructure finance that point to more rapid expansion ahead.
New players continue to enter the market. Following an agreement between Prime minister Datuk Seri Najib Razak and Japan’s Shinzo Abe, leading Japanese banks have set up Islamic financing units in Malaysia and, in some cases, use the country as their global base for Islamic finance operations
According to the 2017 annual report of the IFSB, 2016 was “another year of slowdown for the global Islamic financial services industry”. In dollar terms, the size of the industry remained almost unchanged, largely because the dollar appreciated against Islamic nation currencies.
“Total Islamic banking assets increased from US$1.4 trillion to US$1.5 trillion while the volume of sukuk outstanding increased to US$318.5 billion.” The assets of Islamic funds declined to US$56 billion (while) takaful (insurance) contributions increased slightly to US$25 billion.
“Basically, what we are seeing, certainly for the last couple of years, is that there is a rate of growth in the (Islamic finance) market but it has not been accelerating in the way that it was between 2009 and 2014 when there was a lot of growth,” said Ashraf.
“I think the reduction is partly due to general macroeconomic circumstances but also, in terms of the Middle East, to the reduction in oil prices and uncertainty this brought. Saudi Arabia and the UAE are doing pretty well (as is Jordan in Islamic banking). Kuwait and Bahrain not so much.”
The sharp drop in oil prices several years ago provoked speculation that energy exporters would turn to the Islamic bond market to raise funds for infrastructure. “I think there has been sporadic successes in the area" such as a recent $9tn Saudi financing,” said Ashraf.
But, he added: “The main issue as far as governments are concerned has always been (that they) are concerned about ease of fundraising and pricing and I think, in terms of ease of going to the market and pricing, most still find the conventional bond market much easier to tap, and with better pricing.”
Led by Malaysia, Asia now accounts for some 22 per cent of total Islamic banking and other financial services industry assets of US$1.9 trillion, or around one to two per cent of total global financial asset (as of the end if 2016). The National