Islamic finance set to extend growth faster than conventional finance
Islamic banking penetration in the Gulf Cooperation Council (GCC) increased to 45 per cent of the total banking market, as of September 2017 from 31 per cent in 2008. During the same period annual Sukuk issuance more than doubled to $100 billion from $42 billion.
"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," said Nitish Bhojnagarwala, a Vice President and Senior Analyst at Moody's. "Islamic insurers' penetration into Southeast Asia and North Africa will also drive growth in the industry."
Bhojnagarwala added that globally, Saudi Arabia (A1 stable) remains the largest market for Islamic finance overall, with lslamic financing assets worth $292 billion as of September 2017, while Oman (Baa2 negative) is the fastest-growing Islamic banking market, logging a growth rate of 20 per cent in the first nine months of 2017. This rapid growth is being driven largely by the country's late entry into Islamic banking.
Sukuk issuances grew 17 per cent in 2017 to $100 billion, driven largely by GCC sovereigns. Moody's expects a similar level of issuance in 2018, although the recent recovery in oil prices could lower financing needs for some sovereigns. Corporate and asset-backed Sukuk activity was muted in 2017 because of more attractive conventional market opportunities and Moody's expects the same for 2018.
The takaful sector continues to benefit from strong growth. The market attracted gross premium contributions of $14.9 billion in 2015 and we estimate it attracted over $20 billion in 2017. We expect this growth momentum to continue in 2018 and over the medium term, spurred by strong growth prospects in Southeast Asia and North Africa.
The report, Cross-Sector — Islamic Finance: Strong longer-term growth prospects despite relatively flat 2018, is an update to the markets and does not constitute a rating action.