Moderate Growth and Stronger Headwinds for the Islamic Finance Industry in 2016, Says Standard & Poor's

Global Sukuk Issuance Volumes Have Dropped by About 40% Since the Beginning of 2015.

S&P to Host Conference in Dubai on 6 October to Discuss Prospects for Islamic Finance

DUBAI (Standard & Poor's) 4 October, 2015 - 2016 will be a crossroads for Islamic finance, according to Standard & Poor's Ratings Services (S&P). A few major factors are shaping the industry's growth and trends.

Headwinds include the possible negative impact of much lower oil prices and the prevailing low interest rates in most major developed countries. Offsetting these negatives are factors such as advancements in standardization for Islamic finance products that could attract new players, the potential lessons for the industry from bank resolution regimes in conventional finance, and the benefits from implementation of Solvency II for many insurance companies in 2016.

The Islamic finance industry's current and expected trends, and the increasing role of regulation and the way it shapes and supports market development will be a particular focus of the 4^th Annual Islamic Finance Conference to be hosted by S&P in Dubai on 6 October, 2015.

Stuart Anderson, Managing Director & Regional Head, Middle East, Standard & Poor's said: "In our view, after 20 years of solid growth, the industry has achieved a critical mass that enables it to face increasing headwinds. Still, the reality of declining oil revenues could start to take a toll on governments' budgets and economic growth in core markets for Islamic finance. Our 2015 conference will discuss the perspectives on recent market development and regulatory frameworks."

The industry's move toward product standardization has accelerated over the past couple of years, with increasingly similar products and sukuk structures being used across different countries. Higher standardization could help in attracting new players, while leaving space for innovation.

The moves in conventional finance toward the implementation of bank resolution regimes and the bail-in of certain categories of liabilities could spill over into Islamic banking. For example, Islamic banks have so far not strictly applied profit and loss sharing, which is embedded in the principles of Islamic finance. We think that, with the rollout of bank resolution regimes in conventional finance, applying this principle more strictly in Islamic finance could be smoother.

Global sukuk issuance volumes have dropped by about 40% since the beginning of 2015. "The fall stems mainly from the Central Bank of Malaysia's decision to switch out of sukuk to other liquidity management instruments for Malaysian Islamic banks. In other countries, however, Islamic finance has continued to attract significant interest, and its ethical nature is seducing some clients beyond its natural reach", said Mohamed Damak, Global Head of Islamic Finance for Standard & Poor's.

Still, the advance of Islamic finance into non-Muslim countries has stalled over the past year, mainly due to regulatory hurdles and the generally low interest rate environment that makes other funding sources more attractive.

We anticipate that assets held by Islamic financial institutions worldwide--currently totaling about $2.0 trillion by our estimates--will expand to approximately $3.0 trillion in the next few years. We expect the pace of

Islamic finance growth will moderate in 2016, compared with advances over the past couple of years, chiefly because of the now less supportive economic environment in the industry's two major growth engines, Malaysia and the GCC.

Led by Jan-Willem Plantagie, Managing Director & Lead Analytical Manager; and Stuart Anderson, Managing Director & Regional Head Middle East, S&P analysts will deliver their outlook on the industry at the S&P Islamic Finance Conference. In addition, guest speakers from the Dubai Islamic Economy Development Center, The Islamic Finance Service Board, Noor Takaful and White & Case will share their views on the direction of the industry and future challenges. The event is partnered with the Dubai International Financial Centre (DIFC) and supported by The Gulf Bond & Sukuk Association (GBSA).

Follow the discussion on Twitter with @standardpoors and #SPIslamicFinance

Media Contacts:
Tim Falconer
Bell Pottinger
Tel: +971 55 559 7398;
e-mail: tfalconer@bellpottinger.com

Georgia Lewis
Bell Pottinger
Tel: +971 54 559 53260;
e-mail: glewis@belllpottinger.com 

Josy Soussan
Standard & Poor's Ratings Services
e-mail: josy.soussan@standardandpoors.com

Mark Tierney
Standard & Poor's Ratings Services
e-mail : mark.tierney@standardandpoors.com

Standard & Poor's Ratings Services, a part of McGraw Hill Financial (NYSE: MHFI), is the world's leading provider of independent credit risk research and benchmarks. We have approximately 1.2 million credit ratings outstanding on government, corporate, financial sector and structured finance entities and securities. With nearly 1,400 credit analysts in 26 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information and independent benchmarks that help to support the growth of transparent, liquid debt markets worldwide.

© Press Release 2015