Moody’s Investors Service said that the growth of the Islamic finance sector will continue to outstrip the growth of conventional assets across core Islamic finance markets in the coming years.
Moody’s attributed in a report its expectations to the rise of the demand for Shariah-compliant financial instruments.
The report added that Islamic banking penetration in the Gulf Cooperation Council (GCC) increased to 45 percent of the total banking market, as of September 2017 from 31 percent in 2008.
The report also indicated that Sukuk issuance was more than doubled in 2017 to $100 billion from $42 billion in 2008.
Vice President and Senior Analyst at Moody’s Nitish Bhojnagarwala said that the Islamic finance sector will be supported by governments, whose objective is to grow the Islamic finance industry both domestically and globally, as well as by continued demand for Islamic products from individuals.
“Islamic insurers’ penetration into Southeast Asia and North Africa will also drive growth in the industry,” Bhojnagarwala added.
He clarified that Saudi Arabia remains the largest market for Islamic finance overall, with Islamic financing assets worth $292 billion as of September 2017, while Oman is the fastest-growing Islamic banking market, logging a growth rate of 20 percent in the first nine months of 2017.
Moody’s outlook for Saudi Arabia is A1 stable and Baa2 negative for Oman.
The rapid growth of Islamic finance is being driven largely by the country’s late entry into Islamic banking, he noted.
Concerning Sukuk, Moody’s expected a similar level of issuance in 2018 as in 2017, although the recent recovery in oil prices could lower finance needs for some sovereigns.
In 2017, Sukuk issuances grew 17 percent to $100 billion that was driven largely by GCC sovereigns.
The report said that Corporate and asset-backed Sukuk activity was muted in 2017 because of more attractive conventional market opportunities; Moody’s expects the same for 2018.
It added that the Takaful sector continues to benefit from strong growth, clarifying that the market attracted gross premium contributions of $14.9 billion in 2015.
Moody’s estimated that the market attracted over $20 billion in 2017 with anticipation that this growth momentum will continue in 2018 and over the medium term, spurred by strong growth prospects in Southeast Asia and North Africa.