Islamic finance to see ‘slow growth’

MANAMA: The Islamic finance industry will slump to low-to-mid-single-digit growth in 2020-2021 from an 11.4 per cent rise in 2019, says a new assessment by S&P Global Ratings.

In its Islamic Finance Outlook 2021 Edition, the US-based ratings agency said the main reasons for its tempered expectations are the significant slowdown of core Islamic finance economies in 2020, because of measures implemented by various governments to contain the Covid-19 pandemic and the expected mild recovery in 2021.

“We expect Islamic banking to show at best stable total assets or low-single-digit growth,” said S&P Global Ratings senior director and global head of Islamic finance Dr Mohamed Damak.

This follows 6.6pc growth in 2019 due to good performance in the GCC, but a declining contribution from Iran amid the deep recession reported by the IMF.

“In 2020, we expect a slowdown spurred primarily by measures implemented by various governments to control the Covid-19 pandemic,” said Dr Damak.

The slowdown will be somewhat counterbalanced by strong liquidity injections from various central banks to help their banking systems navigate the difficult environment.

However, this, together with complexity and lower investor appetite, will contribute to a sukuk (Islamic bonds) market slowdown in 2020, added the expert.

S&P projects the volume of sukuk issuance will reach $100 billion in 2020 compared with $162bn in 2019.

“The market was, in fact, poised for good performance in 2020 but the pandemic and lower oil prices changed the outlook,” said Dr Damak.

Amid tougher conditions, the ratings agency also does not see core Islamic finance countries using sukuk as a primary source of funding despite their higher financing needs.

Talking about takaful (Islamic insurance), he said the expectation is for the sector to continue expanding at mid-single-to-high-digit rates, while the funds industry might see some negative effects from market volatility.

“Overall, we believe low-to-mid-single-digit growth for the overall industry is a fair assumption over the next two years.”

However, S&P asserts Covid-19 offers an opportunity for more integrated and multifaceted growth with higher standardisation, stronger focus on the industry’s social role, and greater use of fintech.

“This can be achieved through higher coordination between different stakeholders in the industry.

Source: http://www.gdnonline.com/Details/872828/Islamic-finance-to-see-%E2%80%98slow-growth%E2%80%99