Islamic finance assets seen doubling to $1.8trn by 2016

Deutsche Bank report says alternative financing may be helped by global debt crisis
Islamic finance assets seen doubling to $1.8trn by 2016
Islamic finance, sharia
By Reuters
Tue 15 Nov 2011 07:14 PM

The global debt crisis may help Islamic finance nearly double to $1.8trn in assets by 2016 as stagnant corporate lending pushes institutions to seek alternative financing to traditional methods, according to a report by Deutsche Bank.

The bank forecasts that there is over $2trn of deleveraging in the United States and Europe, creating a financing glut for both struggling countries and countries in developed markets.

But the $50bn Islamic bonds industry, which currently makes up only 1 percent overall debt issuance, is increasingly drawing issuers, providing significant fee income growth prospects for Islamic financial institutions.

Islamic bonds, or sukuk, issuances have dominated the Gulf region in recent months.

In November alone, Bahrain and Indonesia mandated banks to issue sovereign sukuk while lenders such as Abu Dhabi Commercial Bank and Al Hilal Bank, wholly-owned by the Abu Dhabi Investment Council, have also begun the process of issuing an Islamic bond.

Turkish banks have also emerged on the scene with sukuk issuances, providing Gulf investors with a means to diversify geographically.

Islamic liquidity has also drawn interest from international players such as Goldman Sachs to create a $2bn sukuk programme, following the success of HSBC Middle East's benchmark issue.

Deutsche Bank said the pipeline for foreign corporate issuance of sukuk could be strong going forward, given the fact that many European bluechips, struggling with the European debt crisis, are owned in part by Gulf-based sovereign wealth funds, creating opportunity to tap alternative funding.

"The Islamic credit market may represent a more feasible and shorter-term reality for the corporate space than for the sovereign space," said the report, led by Deutsche Bank analyst Ryan Ayache.

But sukuk will not be the only driver of growth. Deutsche Bank expects that mortgage financing, particularly in Saudi Arabia which is facing a housing shortage, could provide $100bn in assets to the overall industry.

Retail banking, project finance and Islamic trade finance are also expected to show significant growth as the global Muslim population grows and the gross domestic products (GDP) of Muslim countries outpace global GDP.

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