IslamicFinance.de

Islamic finance could contribute to meeting some of the sustainable development goals adopted by the UN General Assembly under its 2030 agenda, said Standard & Poor's Ratings Services in its report "Islamic Finance Could Aid Modestly In Achieving Sustainable Development Goals." Agreed on in September 2015, the UN General Assembly set 17 sustainable development goals (SDGs) and 169 measurable targets centred on five pillars: people, planet, prosperity, peace, and partnership. Islamic finance could play a role--a modest one at least--in meeting some of the SDGs, particularly those that are in line with the core principles of Islamic finance, according to S&P.

Standard & Poor's Ratings Services has revised its outlook on Qatari insurer Al Khaleej Takaful Group (KTG) to positive from stable. At the same time, the ratings agency affirmed its 'BBB' long-term insurer financial strength and counterparty credit ratings on KTG. The outlook revision follows a significant improvement of KTG's operating performance in 2015, which has strengthened the company's competitive position, said S&P. Last year, KTG reported a stronger combined (loss and expense) ratio of 86 per cent compared with 97 per cent in 2014. This was mainly thanks to organizational changes during 2014 and 2015 that helped optimize the use of resources and enhanced claims management.

Standard & Poor’s Ratings Services said that overall sovereign creditworthiness in the Middle East and North African (MENA) region has deteriorated since Standard & Poor’s last published six months ago. The rating agency has published the report Middle East And North Africa Sovereign Rating Trends 2016. The average rating for the hydrocarbon-endowed sovereigns of Abu Dhabi, Bahrain , Iraq, Kuwait, Oman, Qatar, and Saudi Arabia, is currently close to ‘A’, having been at ‘A+’ prior to the downgrade of Saudi Arabia and the inclusion of Iraq in the average. For those with more limited hydrocarbon resources (Egypt, Jordan, Lebanon, Morocco, Ras Al Khaimah, and Sharjah), it is closer to ‘BB+’. The outlooks are negative on Bahrain and Saudi Arabia, reflecting weakening fiscal profiles and uncertain policy responses.

The global market for sukuk will remain at below – peak levels in 2016, Standard & Poor’s Rating Services forcast, predicting issuance to reach $50 billion – $55 billion in 2016, compared with $63.5 billion in 2015 and $116.4 billion in 2014. The correction started last year, mainly because the central bank of Malaysia (Bank Negara Malaysia; BNM) stopped issuing. Excluding the BNM effect, sukuk issuance dropped by around 5% in 2015 from 2014. According to S&P, three main factors will shape the performance of the sukuk market in 2016: monetary policy developments in the US and Europe, the drop in oil prices, and the possible lifting of sanctions on Iran. The first two factors are likely to drain liquidity from global and local markets.

On Oct. 30, 2015, Standard & Poor's Ratings Services lowered its unsolicited long- and short-term foreign- and local-currency sovereign credit ratings on the Kingdom of Saudi Arabia to 'A+/A-1' from 'AA-/A-1+'. The outlook remains negative. At the same time, S&P revised its transfer and convertibility (T&C) assessment on Saudi Arabia to 'AA-' from 'AA'. Standard & Poor's has converted its sovereign credit ratings on Saudi Arabia to "unsolicited" following Saudi Arabia's decision to terminate its rating agreement. A pronounced negative swing in Saudi Arabia's fiscal balance has prompted our downgrade. The kingdom has run fiscal surpluses over the 10 years to 2013 (averaging 13% of GDP).

Standard & Poor's Ratings Services said that it lowered its long-term counterparty credit and insurer financial strength ratings on United Arab Emirates-based Takaful Re Ltd. (TRL) to 'BBB-' from 'BBB'. the ratings agency subsequently withdrew the ratings on TRL at its request. At the time of the withdrawal, the outlook was stable. The downgrade reflects the deterioration of TRL's business risk profile, mostly due to challenges within the Islamic insurance sector that have been exacerbated by the company's lack of scale, S&P said. The stable outlook at the time of withdrawal reflected S&P's view that TRL's risk-based capital would remain at extremely strong levels. This is supported by TRL's excess level of capital relative to its low level of premium income.

The agreement Iran has reached regarding its nuclear programme could bring about its eventual economic rebound, and help boost Islamic finance, according to a report published by Standard & Poor's Ratings Services titled ‘Lifting sanctions augurs well for Iran's economy and the growth of Islamic finance’. Iran agreed the joint comprehensive plan of action with the P5+1 (China, France, Russia, the UK and the US plus Germany) in July. If the agreement is approved and Iran meets all deliverables, sanctions may start to lift in the first half of 2016. The World Bank estimates this would help Iran's oil exports rebound to pre-2012 sanction levels within 8-12 months. Sanctions lifting could also restore Iran's access to the global financial markets.

Standard & Poor's Ratings Services has revised its outlook on Bahrain-based Al Baraka Banking Group (ABG) to stable from negative. At the same time, it affirmed the 'BB+' long-term and 'B' short-term counterparty credit ratings on the bank. The outlook revision reflects the agency's expectations that ABG's capitalisation will improve in the next quarters, which would allow it to maintain a Standard & Poor's risk-adjusted capital (RAC) ratio above five per cent. It also reflects the lower pressure in the operating environments - namely Egypt and Jordan - of some of ABG's major subsidiaries. S&P views funding as average and liquidity as adequate. Although ABG has no access to its central bank's funding mechanisms, all subsidiaries are self-funded and would have access to funding mechanisms provided by their domestic authorities in case of need.

Standard & Poor's Ratings Services has assigned its preliminary 'A-' issue rating to the proposed US dollar-denominated Sukuk trust certificates to be issued by Malaysia Sovereign Sukuk Bhd. The ratings agency said Malaysia Sovereign Sukuk Bhd. is a special-purpose company incorporated in Malaysia for issuing sukuk trust certificates. Under this arrangement, the issuer will enter into an asset sale and purchase agreement for not less than 26% of the issued amount, a grant of rights to services agreement for no more than 26% of the issued amount, and Murabaha agreement agreement for not more than 48% of the issued amount with Malaysia.

Regulatory proposals for a liquidity coverage ratio for Islamic financial institutions could help address some of the industry's long-standing weaknesses, particularly the lack of high quality liquid assets (HQLA), Standard & Poor's Ratings Services said in the report “Basel III Requirements Could Strengthen Islamic Banks' Liquidity Management”. Moreover, last year, the Islamic Finance Services Board (IFSB) published guidance on quantitative measures for liquidity management in institutions offering Islamic financial services. This note set three main characteristics of high quality liquid assets (HQLA): low correlation with risky assets, an active and sizable market, and low volatility.

Standard & Poor's Ratings Services has assigned its preliminary 'A-' issue rating to the proposed US-dollar-denominated Wakala trust certificates to be issued by Petronas Global Sukuk Ltd. Petronas Global Sukuk - a special-purpose company incorporated in Labuan for issuing sukuk trust certificates - will enter into a "Wakala" agreement with national oil corporation Petroliam Nasional Bhd. Under this agreement, the issuer will enter into an Ijara for at least 33 per cent of the issued amount and a Murabaha for at most 67 per cent of the issued amount with Petronas. S&P assesses remote the risks that a total loss event jeopardises the full and timely repayments of the trust certificates.

More Islamic banks are expected to issue sukuks eligible for Additional Tier (AT1) capital over the next two years as countries start to implement Basel III, according to Standard & Poor's Ratings Services. Over the past two years, there have been Tier 1 sukuk issuances from three UAE Islamic banks that reportedly qualify as Additional Tier 1 (AT1) capital under Basel III. The oversubscription rates of these three Tier 1 sukuk and their tight pricing suggest a very strong market appetite, which S&P expects to linger unless market conditions shift over the next few months. The introduction of a liquidity coverage ratio might address some of the industry's long-standing weaknesses, particularly the lack of high quality liquid assets.

Standard & Poor's Ratings Services has affirmed at 'BBB' its insurer financial strength and counterparty credit ratings on Saudi Arabia-based Weqaya Takaful Insurance and Reinsurance Co. (Weqaya) but the outlook is negative. The affirmation reflects S&P’s view that despite a comprehensive net loss of Saudi Arabian riyal (SAR) 90.7 million ($24.2 million) for 2013 Weqaya's new senior management is taking appropriate remedial action. Consequently, policyholder confidence will be maintained and Weqaya will continue to enjoy both a satisfactory business risk profile, and at least a lower adequate financial risk profile. The negative outlook reflects S&P's belief that senior management at Weqaya must continue to work quickly and effectively to reinforce capital and earnings.

Islamic finance could develop in North Africa, according to a report titled "Islamic Finance Could Make Inroads Into North Africa" published by Standard & Poor's Ratings Services. Large current account deficits and declining conventional financing sources have prompted governments from Arab spring countries to look at opportunities offered by Islamic finance. Moreover, public awareness is increasing. Egypt, Tunisia, and Morocco have recently taken steps to implement policies to support the development of Islamic finance. Nevertheless, Islamic finance in this region has yet to demonstrate its economic added value, through creating access to a new class of investors or by offering Sharia-compliant products at costs comparable with their conventional counterparts.

According ot a report by Standard & Poor's Ratings Services, a trend to develop and globalize the sukuk market is being set. Since conventional banks worldwide tend to producing fewer and shorter loans, companies look for an alternative in terms of financing. In this case, it is very probable that Islamic financial instruments become a significant source of funding, particularly in the GCC and Asia. While these regions mark the center of a huge estimated $1 trillion market, they also need high capital for developing their infrastructure.

Standard & Poor's Ratings Services assigned its 'A' issue rating to the proposed sukuk trust certificates to be launched late November, subject to investor demand, by ADCB Islamic Finance (Cayman) Limited, a special purpose company (SPC) of Abu Dhabi Commercial Bank (ADCB; A/Stable/A-1).
The rating on the five-year US$750 million trust certificates shows ADCB's irrevocable undertaking to purchase the assets held by the issuer at the redemption date of the sukuk.
ADCB has implied that the aim of this sukuk is to enable it to raise funds in accordance with Sharia law, and use them for general funding purposes.

Standard & Poor’s Ratings Service (S&P) has the strong oppinion that Turkey's Islamic banks could persist recent strong growth if they can cultivate stronger ties with their international owners and create a sustainable brand image.
Besides the growth of the total sector assets accounting for about five % of total system assets, this sector has also encountered other developments like: A law conferring tax neutrality on Sukuk products;A $100 million debut Sukuk by Kuveyt Türk (not rated); the launch of several Shari’ah-compliant funds; and The creation of a domestic index of Shari’ah-compliant banks and companies by the Istanbul Stock Exchange.

Standard & Poor's Ratings Services said today that its 'BBB-' counterparty credit and insurer financial strength ratings on Kuwait-based First Takaful Insurance Co. ( First Takaful) remain on CreditWatch with negative implications, where they were placed on May 12, 2010.

Sharia-compliant investors are taking a renewed interest in commercial and residential real estate across the gulf region, trying to time any investments to catch a rebound in prices, Standard & Poor's told Reuters on Wednesday.

Press Release

Bahrain-Based Gulf Finance House Lowered To 'SD/SD' (Selective Default) On Partial Debt Extension

*Bahrain-based Gulf Finance House (GFH) yesterday extended the maturity of $100
million of its $300 million syndicated loan by six months. *Because we consider the
partial debt maturity extension a "distressed exchange", we are downgrading GFH to
'SD/SD' (selective default) from 'CC/C'. *We expect GFH to soon extend the maturity
of another facility (subject to final approval from all syndicate members). Once the
maturity extension is finalized, we plan to reassess GFH's credit standing and
change the ratings accordingly.

PARIS (Standard & Poor's) Feb. 10, 2010--Standard & Poor's Ratings Services said
today it lowered its long- and short-term counterparty credit ratings on
Bahrain-based Gulf Finance House G.S.C. (GFH) to 'SD/SD' (selective default) from
'CC/C'.

"The downgrade to 'SD/SD' follows GFH's completion of the extension of maturity of
$100 million of its $300 million syndicated loan facility due Feb. 10, 2010," said
Standard & Poor's credit analyst Emmanuel Volland.