Mohamed Damak

#Sukuk market to lag 2019 performance on lower corporate issuance

The Islamic bond market has seen some improvement in recent months but its overall performance in 2020 will remain weaker than last year, pulled back by a lack of issuance from corporate borrowers and central banks. According to Mohamed Damak, global head of Islamic Finance at S&P Global Ratings, the sukuk market will be down compared to 2019. Although sovereigns, banks and multilateral lenders may issue more sukuk in foreign currencies, corporate borrowers have remained on the sidelines as they try to hold onto cash and reduce capital expenditure. Sukuk issuance volumes had fallen 27% on an annual basis in the first six months of this year. S&P expects overall issuance of Islamic bonds to reach around $100 billion (Dh367bn) for 2020, which will be about 40% lower than the $162bn recorded in 2019.

UAE- Islamic finance can heal Covid pain

Islamic finance can play an important role in navigating the economic turbulence brought by the Covid-19 crisis on individual and corporate levels. It is believed that the four Islamic finance instruments of Qard Hassana, social sukuk, waqf and zakat in particular can help core Islamic countries, banks and corporates navigate the current tough situation. The Covid-19 crisis has significantly slowed the core Islamic finance economies. According to Mohamed Damak, primary credit analyst at S & P Global Ratings, social instruments could be used directly by the Islamic finance industry to support households by compensating them for lost income, and by providing access to basic services, such as education and health care.

GCC banks face 'earnings shock' from lower oil price, Covid-19

GCC banks will see significantly reduced revenue as they face an earnings shock from the oil price drop and Covid-19 pandemic. S&P Global Ratings credit analyst Mohamed Damak says the coronavirus will take a toll on important sectors such as real estate, hospitality, and consumer-related, but these will be relatively short lived and he forecasts a gradual recovery in nonoil activity from third-quarter 2020. In his view, if the recovery takes longer than expected, GCC banks could feel greater pressure. In March, S&P revised its outlooks of some UAE banks including First Abu Dhabi Bank, Abu Dhabi Commercial Bank, Mashreqbank, Sharjah Islamic Bank and National Bank of Fujairah to negative. Most central banks in the GCC have already come up with stimulus packages to help the banking system withstand the economic fallout. The Central Bank of the UAE on Sunday doubled the size of its stimulus package to Dh256 billion.

Saudi Arabian issuers boost #sukuk in first five months of 2019

According to S&P Global Ratings, the sukuk market enjoyed a strong start to the year but it may not last. S&P Global Ratings Head of Islamic Finance, Mohamed Damak said high levels of liquidity in Indonesia, Turkey's efforts to tap all available financing sources, and the return of Qatari and Saudi Arabian issuers to the market have boosted issuance of sukuk 17.6% in the first five months of 2019. S&P expects the total Sukuk issuance will average $105 billion-$115 billion this year, assuming the Brent oil price stabilizes at $55 per barrel. This follows a mild performance in 2018 when issuance dropped to $114.8 billion, a 5% decline compared with 2017; US dollar Sukuk alone fell by 15% year on year. Tightening liquidity conditions, high geopolitical risks in the Middle East, and challenges inherent to sukuk issuance will likely dampen sukuk market performance in 2019.

S&P: GCC Islamic Banks to Show Resilience in 2019,2020

According to S&P Global Ratings, Islamic banks of the Gulf Cooperation Council (GCC) are expected to show resilience over the next two years after weathering tough market conditions in 2018. Last year they expanded slower than conventional peers for the first time in five years. The growth forecast for Islamic banks for 2019-2020 is the same as what the rating agency is estimating for conventional lenders in the region. S&P Head of Islamic Finance Mohamed Damak forecasts a muted GCC economic growth over this period, despite some benefit from government spending and strategic initiatives such as national transformation plans and Dubai Expo 2020. However, with the transition to IFRS9/FAS 30, Islamic and conventional banks will even more closely align. Another trend is the significant increase in Islamic banks’ coverage ratios at end-2018, coupled with a stable cost of risk that is lower than conventional banks.

GCC Islamic Banks' Financial Profiles to Stabilize in 2018

According to S&P Global Ratings, Islamic banks in the Gulf Cooperation Council (GCC) countries should see their financial profiles stabilize through 2018. S&P's Global Head of Islamic Finance, Mohamed Damak expects that GCC Islamic banks' total asset growth will remain in the low single digits over the next 12-24 months, after stabilizing at about 4% for the GCC system in 2017. He also expects that cost of risk for Islamic banks will rise, due to the adoption of International Financial Reporting Standard 9 and Financial Accounting Standard 30. Combined with the introduction of value-added tax, the increase in risk costs will result in a dip in the profitability of Islamic banks in the next two years.

Islamic bonds face 'uncertain and muted' 2018 amid central bank tightening and geopolitics

According to S&P Global Ratings, the outlook for 2018 is uncertain because of geopolitical risks and economic uncertainties. Sukuk issuance was strong last year with $97.9 billion, up 45.3% from the $67.4 billion issued in 2016. So-called "jumbo issuances" were seen in Saudi Arabia and other Gulf Cooperation Council (GCC) economies in 2017. Mohamed Damak, senior director at S&P Global Ratings, said the first two months of 2018 had been marked by a good performance for local currency issuance and a drop in foreign currency issuance. He added that 2018, as a whole, was expected to see a drop in sukuk issuance, with expectations for around $70-80 billion in total. There are a number of reasons for this, including central bank tightening, lower financing needs of GCC banks and geopolitical risks. Another reason for lower sukuk performance could be the slow progression of the standardization in the sukuk market.

Opinion: Global #sukuk market unlikely to repeat 2017 performance

In 2017 the exceptional performance of sukuk was driven by good liquidity conditions, alongside certain countries’ desire to develop their Islamic finance industries. However, the outlook for sukuk in 2018 is more uncertain. According to Mohamed Damak, S&P Global Ratings’ Head of Islamic Finance, tighter global liquidity conditions, mounting geopolitical risks and slow progress on the standardisation of Islamic finance products will continue to hold the market back from its full potential. While sukuk issuance may decrease in 2018, there are a couple of interesting trends. These include the more stringent application of the profit-and-loss-sharing principle supported by several Sharia scholars. The sukuk investor base is broadening, but there is a lack of a specific regulatory framework to protect retail investors.
Dubai Islamic Bank (DIB) has successfully issued a $1bn sukuk with a five-year tenor. It is the first US dollar benchmark sukuk transaction from the GCC in 2018. The issuance emanates from DIB’s $5bn sukuk programme and carries a profit rate of 3.625%. The instrument will carry a dual listing on the Irish Stock Exchange and Nasdaq Dubai.

Global #sukuk issuance jumps 45.3% to $98bn in ’17: S&P

According to Standard & Poor’s (S&P), global sukuk issuance increased 45.3% year-on-year to $97.9bn in 2017. This performance was primarily driven by good liquidity conditions in the Gulf Cooperation Council (GCC) countries. S&P head of Islamic Finance, Dr Mohamed Damak said the outlook for sukuk in 2018 looked uncertain. He added that tighter global liquidity conditions, mounting geopolitical risks and slow progress on the standardisation of Islamic finance products would continue to hold the market back. The US Federal Reserve is expected to increase rates by 75 basis points. Central banks in the GCC countries would probably mirror such an increase due to the peg of their currencies with the US dollar. Regarding retail sukuk, the agency believes that development of this part of the market necessitates a specific regulatory framework. Retail sukuk issuance has been successful in some countries where authorities provided a tax incentive to drain a portion of the savings toward this market.

MIDEAST DEBT - #Sukuk documents seek to reassure investors after Dana Gas scare

Sukuk issuers are changing the language in documentation for new issues to reassure investors after Dana Gas refused to redeem $700 million of maturing sukuk. Dana Gas said it would not repay sukuk maturing in October because changes in the interpretation of Islamic finance had made the bonds unlawful in the UAE. Issuers are now amending their documentation to preclude the use of this argument. According to Mohamed Damak, global head of Islamic finance at Standard & Poor's, clauses seeking to reduce sharia compliance risk have become normal in the global industry, but the complexity of sukuk makes it difficult to remove the risk entirely. According to Mohammed Khnifer, senior associate at the Islamic Development Bank, sukuk holders and issuers will now rely more on English law and avoid local laws with dollar-denominated issuance.

S&P report discusses whether #Fintech could disrupt GCC banks' business models

S&P Global Ratings believes that financial technology could reduce the profitability of some business lines of Gulf Cooperation Council (GCC) banks. S&P's credit analyst Mohamed Damak said fintech could impinge on retail banking, particularly money transfer and foreign-currency exchange. This would push some banks to adjust their operations through increased digitalization, branch network reduction, and staff rationalization. He added that fintech alone is not expected to have a significant influence on GCC banks ratings in the next two years. He believes that banks will be able to adapt to the changing operating environment through collaboration with fintech companies and cost-reduction measures. Furthermore, regulators in the GCC will continue to protect the financial stability of their banking systems. Fintech is not yet a negative rating driver. However, it will increasingly become a force to be reckoned with.

S&P Global Ratings: Global issuance of #sukuk to moderate in 2018 as Islamic finance moves into slower growth

S&P Global Ratings highlighted global issuance of sukuk in the first half of 2017 was good, but expects it to moderate in 2018. S&P head of Islamic finance Mohamed Damak said 2018 was less certain, as the large issuances of last year are not expected to repeat. Among some of the downside trends relating to Islamic finance includes subdued economic performance in Islamic finance core countries, primarily due to low oil prices. The long-standing debate about standardisation will continue to hinder the industry. S&P's report is entitled "Islamic Finance 2018: Slow Growth Is The New Normal" and the rating agency expects the industry to lose momentum in 2018. The contribution of Islamic finance has so far been limited by the industry's relatively small size and structure.

ANALYSIS: Can GCC Islamic banks escape the oil-price cycle?

More and more stakeholders concede that the Shari’ah-authorized way of banking has hit a glass ceiling. They acknowledge that Islamic banking and financial services have largely failed to innovate at the speed they were expected to. It is also admitted that Islamic finance is caught in an oil-price cycle, definitely in the Gulf and wider Middle East region. Global rating agency, Standard & Poor’s, estimates that Islamic banks in the GCC are expected to face a tough year ahead. According to S&P Head of Islamic Finance, Mohamed Damak, GCC Islamic banks’ asset quality indicators will deteriorate in the second half of this year and in 2018. Very few Islamic banks have set aside significant amounts of profit-equalization reserves. As for oil price, both Islamic and conventional banks are affected and must adopt a new strategy that is not highly dependent of energy prices. For that a diversification of the economy is needed, which doesn’t seem to be happening anytime soon.

#GCC governments seek to diversify funding with Islamic #bonds

According to S&P Global Ratings, GCC sukuk issuances jumped 37.7% in the first half of 2017 as governments are seeking to plug deficits amid low oil prices. The rating agency added that issuances of sukuk will not grow at the same rate in the next couple of years, with hurdles such as a lack of standardisation of sukuk rules deterring sales. Mohamed Damak, primary credit analyst at S&P, said the volume of sukuk issuance is expected to remain strong in 2017, but this is likely to be the exception rather than a new norm. 2016 was a record year for regional bond issues in the GCC region, with over $60bn worth of fixed income sold. Last year Saudi Arabia sold $17.5bn worth of bonds in its first international sale and Qatar sold $9bn. Despite the record value of issuances, S&P said that a big funding gap remains. It is estimated at $275bn and about half of that gap is expected to be raised through bonds and sukuk.

#Africa Finance Corp plans maiden #sukuk soon - sources

Africa Finance Corp (AFC), a pan-African multilateral institution based in Nigeria, is likely to make a debut U.S. dollar sukuk issue by early February. If AFC makes a final decision to go ahead with the proposed debt sale over coming days, the sukuk will be issued in two or three weeks through a private sale. The sukuk would be structured with a murabaha format and use Nasdaq Dubai's platform for murabaha transactions. Mohamed Damak, global head of Islamic finance at S&P Global Ratings, said more sukuk issuance will come from Africa-based issuers over the next few years as borrowers seek to expand their investor bases. Another reason for issuers in Africa is that sometimes sukuk can be cheaper than conventional bonds, especially when it attracts significant interest from the market.

#Sukuk ‘too complex’ as tool to raise funds

Sukuk issuance growth in the Arabian Gulf is likely to remain subdued this year even as ­countries in the region need to raise more debt to plug budget deficits. According to the latest research from S&P Global Ratings, the reason lies in the complexity of selling Sharia-compliant bonds. S&P's analyst Mohamed Damak said sales of Islamic bonds fell in 2015 and 2016 in the GCC as the issuance of conventional bonds soared. Globally, the market for sukuk is also expected to remain stable this year at between US$60 billion and $65bn. Despite the recent rebound in oil prices, the GCC will need about $275bn of financing between this year and 2019, of which half is expected to come from bonds and sukuk. Complexity of sukuk issuance is not the only headwind facing Islamic financing. According to S&P, rising interest rates in the US will also dampen appetite for sukuk this year.

Global #sukuk issuance likely to hit $65bn this year: S&P

According to S&P's latest report, the global sukuk market is expected to remain fairly quiet in 2017, with total issuance reaching around $60bn -$65bn. The relatively subdued sukuk market anticipated for this year is mainly due to reasons related to complexity of sukuk issuance. S&P Global Ratings’ Global Head of Islamic Finance Dr Mohamed Damak said returning issuers, new entrants, and regulatory developments can stimulate issuance activity, but more likely in the medium term. S&P anticipates some GCC countries might take the Islamic finance route alongside a conventional one. Bahrain will most likely remain a prominent player after issuing $3.2bn of sukuk in 2016. Other GCC members will probably tap the market in 2017. The buyers of sukuk are not only in the GCC or Malaysia, but come from a broad range of investors, including conventional financiers in developed markets. More importantly, there is reportedly a large gap between sukuk issuance and demand.

Global #sukuk market to remain subdued this year: S&P

According to Standard & Poor’s (S&P), global sukuk issuance fell short of market expectations last year, although it was higher than in 2015. The sukuk market will remain subdued in 2017, since the issuance process is still quite complex. S&P Global Ratings' Global Head of Islamic Finance Dr. Mohamed Damak said the sukuk market did not play a countercyclical role in core Islamic finance markets in 2016 and a stabilisation of total issuance in 2017 is forecasted at around $60 billion-$65 billion. Standard & Poor’s do not foresee a substantial increase in sukuk issuance in the GCC this year. The rating agency thinks that some member countries might take the Islamic finance route alongside a conventional one. Bahrain will most likely remain a prominent player after issuing $3.2 billion of sukuk in 2016. Other GCC members will probably tap the market in 2017.

Islamic Finance’s total assets will reach $2.1 trillion by year-end, says S&P

S&P Global Ratings believes that the drop in Islamic finance growth is likely to continue in 2017. Nevertheless, it estimates the industry’s total assets will reach $2.1 trillion at year-end 2016. S&P Global Head of Islamic Finance Mohamed Damak said Islamic finance will maintain growth of around 5% in 2017. The oil price environment will weigh negatively on economic growth in the GCC for the next two years. A broader consensus around the need to standardize legal structures and Sharia interpretation could help the industry to progress. Another great help could be the industry’s potential contribution to the United Nation’s sustainable development financing goals.

S&P: Global #sukuk market likely to undergo correction

According to Standard & Poor’s the global sukuk market is expected to undergo correction for the next 6 to 18 months. The total issuance of sukuk fell in the first half of the year by 12.5% in contrast with the booming conventional debt as the oil exporting countries tapped the market to raise funding. The correction in the sukuk space started with Bank Negara Malaysia’s decision last year to stop the issue of short-term sukuk and switch to other instruments for liquidity management for Islamic financial institutions. S&P global head of Islamic finance Mohamed Damak said the positive news for sukuk is that the European Central Bank is opening its liquidity tap and with yields low, that could push investors to look at the sukuk market. He added that the sukuk industry needs more standardisation otherwise volumes will likely remain low.

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