Islamic finance sector to drive Saudi’s economic growth: Report

RIYADH, Saudi Arabia - New research has revealed that the Islamic finance industry is forecast to grow in 2023-2024 thanks to Saudi Arabia’s strong banking system.

S&P Global Ratings- US-based agency expects around 10 percent growth across the industry in 2023-2024 after seeing a similar expansion in 2022, with the Kingdom and Kuwait largely fueling last year’s rise.

The report further indicates that despite a predicted economic slowdown and a decline in sukuk issuance this year, new supplies of the product will exceed those set to mature.

This report echoes findings from US-based Fitch Ratings Released in April, which claimed the global sukuk issuance for the second quarter of 2023 is building up even as it faces short-term uncertainties amid continued macro-volatilities.

In its report, S&P Global Ratings said: “We expect a material slowdown in GCC (Gulf Cooperation Council) economies' real GDP (gross domestic product) growth in 2023-2024, compared with 2022, largely based on lower oil production.

“However, we think that Saudi Arabia’s banking system performance will continue to underpin a large portion of the expanding Islamic finance industry.

“In other GCC countries, growth of about 5 percent appears plausible in the absence of new major government investment cycles.”
The report argues that Islamic finance is still more of a collection of local industries than a truly globalized sector and that it is looking at ways to “enhance its competitiveness” in order to secure a broader appeal.

However, within the countries looking to utilize the sukuk market, Egypt and Turkiye were identified as most likely to seek funding through this financial instrument.

The report said: “Egypt has established a $5 billion sukuk program and issued its first sukuk in early 2023 for a total of $1.5 billion.

“We understand that this attracted significant investor interest, with more than $6 billion in demand and a 59 percent allocation to investors from the Middle East and North Africa.

“The profit rate of the three-year sukuk was set at 10.875 percent, which at the time was broadly in line with the yield on Egypt's conventional bond with a similar maturity date of 2026.”

GAROWE ONLINE