Global outstanding sukuk market hits $823bn in Q3 2023

The total volume of outstanding sukuk surged by a robust 9.8 per cent year-on-year (YoY) growth in Q3 2023 to reach $823.4bn, a senior Fitch Ratings official told Emirates News Agency.

Bashar Al-Natoor, the global head of Islamic Finance and managing director at Fitch Ratings attributed the growth to several key factors that are driving the adoption of sukuk.

These include issuers that are keen to plug budget deficits, diversification of funding options as well as establishing flexible financial tools for institutions and expanding liquidity sources for banks.

While higher oil prices have bolstered GCC countries’ coffers, the region is seeing an in sukuk issuance not just for immediate funding needs, but to achieve strategic goals such as building robust debt market structures and diversifying their funding options.

Al-Natoor explained that soaring interest rates have a negative impact on global issuances of Islamic bonds, and therefore on the global sukuk market.

High interest rates reduce the appetite of global investors to enter emerging markets and increase concerns about growth rates. Similarly, some issuers are often forced to adapt to the high levels of interest rates due to existing obligations they must meet.

Al-Natoor highlighted that the impact of rising interest rates on GCC investors is different, especially as many local investors are Islamic banks that have healthy liquidity and a desire to invest that liquidity. “This category of investors is active and their desire to invest in sukuk increases,” he said.

An important player in the global sukuk market

Al-Natoor said the UAE is an important issuer and investor in the global sukuk market.

The country requires banks to comply with the standards of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), especially Sharia Standard No. 59, which helps to avoid the possibility of loss for investors and the loss of entry into deal arrangements.

Furthermore, a growing number of issuers are listing their Islamic bonds on the Nasdaq stock exchange in the Dubai International Financial Centre, which is considered a global listing destination for sukuk.

Sukuk issuances in core Islamic markets, including the GCC countries, Malaysia, Indonesia, Turkey and Pakistan, reached $51.7bn in the third quarter of this year. This is the same level of issuances as in the previous quarter, but it represents a decrease of 12.3 per cent on an annual basis.

Al-Natoor noted that sukuk issuance declined by 24.7 per cent YoY to $154.6bn in the first nine months of 2023. “The decline was less severe than the 17 per cent drop in bond issuance, which rose by 1.2 per cent on a quarterly basis,” he said.

The global sukuk market reached $823.4bn at the end of Q3 2023, of which 40 per cent were issued by Malaysia, 28 per cent in Saudi Arabia, 13 per cent by Indonesia, 6 per cent by the UAE and 3 per cent by Türkiye.

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