IslamicFinance.de

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.
“The implementation of Basel III and its new liquidity coverage ratio could increase offerings of liquidity management instruments and could help address some of the industry’s long-standing weaknesses, particularly the lack of high quality liquid assets, said Mohammad Damak, a credit analyst with Standard & Poor’s.
Credit rating agencies expect that the implementation of Basel III and its new LCR will increase offerings of liquidity management instruments while issuers are likely to list more of their sukuk on exchanges and that some regulators will start to accept sukuk as collateral for liquidity provisions. From last year the UAE Central Bank started accepting a wide range of sukuk as collateral for banks to access its special lending facility.