Credit ratings of Islamic finance firms stable - Moody's

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ISLAMIC FINANCE: Moody's says credit ratings of Islamic finance companies is stable. (Getty Images)

The credit ratings of Islamic finance companies are stable, thanks to their ample liquidity, high profit margins and conservative leveraging, but a lack of long-term financing and weak corporate governance could limit upgrades, Moody’s has said.

A scarcity of medium- and long-term funds to reduce the gap between assets and liabilities poses a liquidity risk to the Islamic finance sector, Moody’s said in a special comment on Tuesday.

“Liquidity-risk-related issues will persist, unless they are addressed by innovative solutions such as the introduction of a range of Shariah-compliant instruments and the management of asset-liability mismatches,” a team of analysts including Khalid Howladar wrote.

The sukuk market has been seen as a solution to the sector’s reliance on deposits and expensive liquid assets, but despite growing demand by banks, corporations and governments in the GCC region, issuance has been limited and the market remains relatively illiquid.

The development of new Shariah-compliant instruments is essential for the sector to develop into a dominant regional financial industry, Moody’s said.

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