Islamic finance is set to keep expanding in 2020 and beyond as the Gulf Cooperation Council (GCC) countries and Malaysia help drive growth in Shariah-compliant financial products, though the coronavirus outbreak may disrupt sukuk issuance, Moody’s Investors Service said in a report.

“We expect sukuk issuance to remain stable at around $180 billion this year, and the takaful insurance market will see steady growth as insurance premiums pick up in newly penetrated markets,” said Nitish Bhojnagarwala, VP-Senior Credit Officer at Moody’s. “However, downside risks are rising because of the coronavirus outbreak, as prolonged market disruption could dissuade issuers from coming to market.”

Key Points:

• Oman remains the fastest-expanding Islamic banking market in the GCC, with a growth rate of 10% in the first nine months of 2019.

• Islamic banking penetration in the core Islamic financial markets in the GCC, Malaysia, Indonesia and Turkey, increased to 31.2% in September 2019, from 25.5% in 2013, while annual global sukuk issuance increased to $179 billion from $131 billion.

• Saudi Arabia remains the largest market for Islamic finance globally, with financing assets rising to $309 billion as of September 2019 from $296 billion in December 2018.

• Moody’s expects mergers between Islamic and conventional banks in the GCC region will drive one-off increases in assets, as they did in 2019.

Saudi Arabia will remain the world’s largest Islamic banking market, while the sector will continue to expand rapidly in Malaysia. Moody’s expects mergers between Islamic and conventional banks in the GCC region will drive one-off increases in assets, as they did in 2019. There will be continued focus on the sukuk industry and increased issuance by the governments of the core Islamic finance markets. The deficit financing needs of some GCC sovereigns, amid weaker oil prices and higher sukuk refinancing, will also provide support. Islamic banking penetration in the core Islamic financial markets of the Gulf Cooperation Council, Malaysia, Indonesia and Turkey, increased to 31.2% in September 2019, from 25.5% in 2013, while annual global sukuk issuance increased to $179 billion from $131 billion.