Last year, banks in the Gulf Cooperation Council were able to capitalise on investors’ global search for higher yields, and their issuance volumes were substantially higher than in 2011.
The amount of banks’ debt issued in the UAE jumped by 53 per cent to $ 8 billion in 2012; that was around 54 per cent of the total debt reported in GCC countries.
“Banks in the UAE remained the largest issuers last year, and we forecast robust issuance levels again in 2013 as banks continue efforts to optimise their funding costs,” S&P said.
“We noted a sharp rebound in Gulf banks’ activity in debt capital markets in 2012 as they took the opportunity to issue long-term debt at healthy prices under the favourable market conditions,” S&P credit analyst Timucin Engin.
“Given the interest from institutional investors, the banks’ rapid growth, and the supportive environment for issuing long-term debt instruments at low cost, we think Gulf banks will have another busy issuance year,” Engin said.
“We expect most of the impetus to come from banks in the UAE,” he added.
As Gulf banks look to diversify their funding base, sukuk, or Islamic bonds, is becoming more important in the GCC’s fixed-income market, representing almost half of Gulf banks’ issuances in 2011 and 2012.
“Sukuk is becoming a key component of Gulf banks’ funding bases,” Engin said, adding: “About 50 per cent of banks’ debt issued in 2011 and 45 per cent in 2012 was in the form of sukuk.” The ratings agency also predicted an upward trend in issuance from banks in Qatar on the back of strong domestic credit growth, which it anticipates will continue.
Last year, GCC banks issued $ 6.64 billion of sukuk, representing year-over-year growth of 136 per cent. More importantly, conventional banks are now increasingly participating in the sukuk market as a means of diversifying their funding bases with longer-term instruments. The demand for Shariah-compliant products is rising, both regionally and internationally.
Last week, Dubai announced an initiative to transform the emirate into a global centre for sukuks, as part of its vision to develop Dubai into a centre for Islamic finance.
The initiative attracted very positive response from financial sector. Dubai is an established financial hub both for the Middle East and internationally and the initiative will provide further impetus for Dubai to raise its prominence as a centre of Islamic finance, according to Standard Chartered Saadiq chief executive officer Afaq Khan.
