Saif Hadef Al Shamsi, Assistant Governor at the UAE Central Bank, has said that total Islamic banking assets in the UAE have increased to approximately Dh520 billion in the past few years. Al Shamsi added that Islamic banking’ assets account for around 20% of Dh2.6 trillion of the total assets of the state’s banks. The assistant governor pointed out that UAE Islamic banking institutions account for about 7% of the total assets of Islamic banking around the world. This approximately amounts to a total of $1.5 trillion (Dh5.5 trillion). He further explained that Islamic banking deposits increased by 42% over the past three years and that lending by Islamic banks increased by 54%.
On the demand side, the institutional demand for high quality liquid assets are expected to keep sukuk demand high. As we get closer to the deadline of Basel III implementation, the lack of liquidity management instruments in Islamic finance is pushing this issue to the forefront.
Among the global economic developments, one positive driver for sukuk issuance could be the European Central Bank’s quantitative easing that might prompt some European investors to take positions on higher-yielding but riskier emerging-markets assets such as sukuk. Negative interest rates in Europe and Japan also are likely to attract investor of Gulf sukuk issues.
In 2015, the market saw $11.3 bn (17% to the total) in sukuk issuance for liquidity management purposes. The International Islamic Liquidity Management Corp. alone issued $6.4 bn and is actively working on providing solutions to the market. Other stakeholders such as sovereign and central banks are now conscious of the role they have to play. In 2015, the market also saw another $4.9 bn issued in form of capital-boosting sukuk by financial institutions in the GCC and Malaysia.
In a recent announcement SHUAA Capital made known that its wholly-owned subsidiary - Gulf Finance Corporation - has engaged with the UAE Central Bank for a license which shall serve to establish an Islamic Window for some of its financing activities. The plans of Gulf Finance include the submission of the necessary applications in the first quarter of 2013. It is expected to be market-ready in the spring of 2013, subject to regulatory approvals. The proposed programme to offer Islamic financial services is consistent with the vision of Sheikh Mohammed bin Rashid Al Maktoum, Prime Minister of the UAE and Ruler of Dubai. He recently explained the necessity to establish a platform of Islamic economic products and services aiming to grow the Islamic economy.
The Islamic certificates of deposit launched by the UAE Central Bank are now the equivalent of $3.27 billion. This statement was given by Sultan Bin Nasser Al Suwaidi, Central Bank Governor.
He added that although such figures are impressive, there are some challenges, first one of the kind being the short-term liquidity management at Islamic banks and other Islamic financial institutions. Another challenge for Islamic finance is the distinction between profit to shareholders and profit to investors/depositors, which is still unclear.
The UAE Central Bank has issued Dh3.5 billion worth of Islamic certificates of deposits (CDs) for Shariah-compliant banks in the UAE to create new investment tools and keep those banks away from the foreign markets.
The Central Bank had started issuing the country’s first Islamic (CDs) as part of a plan to create a new investment tool for Shariah-compliant banks in the country, the second largest Arab economy.
UAE (Khaleej Times) Initially, the CDs will be available only to fully Islamic banks and then extended to the Islamic banking units of other commercial banks.
The Sharia-compliant instrument, on the lines of Islamic Murabahah transaction will help soak up the excess liquidity in the Islamic money market.
A banker welcoming the move told Khaleej Times that Islamic banks with this offering can invest their surplus liquidity in Sharia-compliant certificates of deposit which will also offer them financial gains.
Malaysia, the world’s biggest market for Islamic bonds, Bahrain and Indonesia sell bills to help soak up cash in the financial system and set benchmarks for short-term bond sales. A Murabahah transaction is a sale and deferred-payment agreement based on an asset in which the cost and profit margin are pre-agreed between a bank and its customer. Transactions in Islamic finance are based on the exchange of assets rather than interest to comply with Sharia principles.
The government of Abu Dhabi and the Central Bank of the UAE has announced that it has agreed to provide $10 billion to the Dubai Financial Support Fund.
The Dubai Financial Support Fund can therefore enable Nakheel to pay its Sukuk due today.