Adopting sharia standard 62 may disrupt sukuk market, says S&P
ABU DHABI, July 15, 2024
The adoption of the new sharia standard 62 could disrupt the sukuk market as soon as next year, according to top ratings agency S&P Global.
The Accounting and Auditing Organization for Islamic Financial Institutions' sharia standard 62 could reduce issuance volumes over the medium term if it materially alters the nature and risk characteristics of sukuk instruments, stated S&P Global in its report titled "Sukuk Market: The Calm Before The Storm?.
"The standard will transition the industry toward asset-backed sukuk by requiring the real transfer of underlying assets to investors," said Mohamed Damak, global head of Islamic finance at S&P Global Ratings.
The S&P is maintaining its global sukuk issuance forecast at about $160 billion-$170 billion following the market’s good performance over the first half of 2024.
Total issuance reached $91.9 billion over the first six months, up slightly from last year’s $91.3 billion. But a notable difference is the 23.8% increase in foreign currency issuances, which reached $32.7 billion by June 30, 2024, up from $26.4 billion a year earlier, stated Damak.
Still, core Islamic nations in Africa is missing in the drive, said the top offcial. The main contributors to this increase were issuers from Saudi Arabia, UAE, Oman, Malaysia, and Kuwait.
Improved visibility on the medium-term trajectory of interest rates has benefited foreign currency-denominated sukuk issuance–we expect the US Federal Reserve to start cutting rates in December 2024, said Damak.
Simultaneously, high financing needs in core Islamic finance countries explain the increased issuance, which is notably funding an ongoing economic transformation programme in Saudi Arabia and strong growth in the UAE’s non-oil economy, he added.
