Malaysia to lead in sukuk issuance in 2021


MALAYSIA will continue to lead in sukuk issuance for the year 2021 given its scale, while higher energy prices could see lower sovereign issues by countries like Saudi Arabia, according to Moody’s Investors Service Inc.

“In terms of issues, we still expect the sukuk volumes to be fairly sizeable coming from Malaysia as it continues to be among the highest issuance in the market,” the rating agency’s group VP senior analyst Ashraf Madani said yesterday in a virtual press briefing.

According to Moody’s, Malaysia had a 32% share in the sukuk market in 2020, followed closely by Saudi Arabia with a 28% market share.

Another factor for Malaysia to lead is the improved trend in oil prices this year, therefore the sovereignty expects Saudi Arabia will issue less sukuk in 2021 compared to 2020, said Ashraf.

“Our expectation from the overall sukuk market in Malaysia will continue to be No 1, in terms of sukuk issuances. If we look at the overall market, Malaysia will be the more advanced contributor to the sukuk volumes,” he said.

For the fifth consecutive year, sukuk issuance remained strong as it grew by nearly 15% to around US$205 billion (RM820 billion) in 2020.

Increased issuance activity in the Gulf Cooperation Council, particularly Saudi Arabia, more than compensated for the drop in issuances from Indonesia and Turkey.

South-East Asian issuances declined slightly by 4% to US$97.5 billion, mainly due to reduced short-term issuances by the Indonesian government.

In a statement yesterday, Moody’s noted growth in Islamic financing assets remained steady in 2020, despite a marked slowdown in economic activity across core Islamic banking markets and continued to outpace conventional asset growth.

As a result, the market share of Islamic financing assets in core Islamic markets increased to 32.8% of total financial assets (including conventional bank loans) in September 2020, from 31.4% in December 2019 and 30.4% in December 2018.

Saudi Arabia remains the largest Islamic finance market with total assets surpassing US$360 billion as of December 2020, with penetration at 79%.

Malaysia is the second-largest Islamic finance market with total assets surpassing US$355 billion and penetration reaching close to 36%.

“Overall, the core Islamic finance markets benefitted from increased demand from consumers, which powered strong financing growth of around 8.1% in compound annual terms in the last three years, compared to a 6.2% increase in conventional bank financing,” said Moody’s.

Ashraf added that further growth in the Islamic finance share is expected in 2021, driven by increasing demand for Shariah-compliant products and supported government and regulatory measures in favour of the industry.

Meanwhile, Moody’s financial institutions’ group analyst Tengfu Li said capital and liquidity of Islamic banks in South-East Asia remained fairly strong despite the Covid-19 outbreak that affects bank profitability and asset quality, adding ongoing government efforts will underpin development.