Malaysia To Lead Sukuk Issuance In 2021

Malaysia will continue to lead the global Islamic financial market in terms of Sukuk issuance this year, according to Moody’s Investors Service. Moody expects global Sukuk issuance to grow to US$190 billion-US$200 billion this year from last year’s US$205 billion.

Moody’s vice president-senior analyst Ashraf Madani said the firm still expected the Sukuk volume to be fairly sizeable coming from Malaysia this year.

“Malaysia continues to be one of the highest Sukuk issuers in the market. The beauty of Malaysia is the distribution has also been pretty even between the sovereign, the corporate, and the financial institutions and between the long term and short term Sukuk issuances.

“If you look at the overall Sukuk market, Malaysia will be the more advanced contributor to these Sukuk volumes growth we expected for 2021,” he told reporters at Moody’s cross-region Islamic finance outlook briefing today.

In 2020, Malaysia’s total Sukuk issuances contributed 32 percent to the global Sukuk issuances, amounting to US$65.6 billion. This was followed by Saudi Arabia at 28 percent.

Moody’s projects that Sukuk issuance in 2021 will likely reduce after a record in 2020 and five consecutive years of growth. The factors responsible for the slowdown of the Sukuk Issuances this year are discussed in this article.

Sukuk issuance grew 15 percent in 2020 to US$205 billion, driven by large sovereign funding needs amid the pandemic and associated drop in oil prices, surpassing an earlier record of US$179 billion in 2019.

“We expect issuance to consolidate around US$190billion-US$200 billion in 2021, supported by GCC (Gulf Cooperation Council) sovereigns’ high financing needs as oil prices remain moderate and fiscal deficits remain wide, and as the sovereigns raise the share of Sukuk in overall debt.

“Corporate issuance will remain limited because of more attractive conventional market opportunities while new issuers will support the ongoing growth in Sukuk issuance in the financial institutions’ sector,” Ashraf said.

He said despite the pandemic-driven weakening in operating environments across the globe, Islamic financial markets continued to expand in 2020 as demand for shariah-compliant products remained resilient.

“In 2021 and beyond, we expect that Islamic finance will continue to expand, maintaining its now long-established growth trend.

“While the rate of this expansion may vary from year to year, we anticipate that the sector will grow on all fronts, including banking, Sukuk, Takaful, and insurance, with this growth benefiting from supportive government policies in many countries, which reflect strong and increasing demand for such products,” he said.

Ashraf said while Malaysia already had a well-developed Islamic financial sector, its government was taking steps to develop it even further.

“The country’s central bank, Bank Negara Malaysia, introduced the concept of value-based intermediation in 2017. Based on Islamic principles, the approach places a greater emphasis on environmental, social, and governance considerations to drive the sustainability of Islamic financial services in Malaysia.

“In 2021, Bank Negara will be issuing more specific guidelines to help Islamic banks incorporate these considerations when they provide financing to certain sectors,” he said.

Originally published on www.nst.com.my