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Monday, 7 December 2015

Turkish gov’t commences prep work to launch Islamic banking coordination mechanism

Deputy Prime Minister Mehmet Şimşek has said preparatory work to launch a coordination mechanism for Islamic banking in Turkey have started, and the related circular note has recently been sent to the Prime Ministry. 

Şimşek particularly stressed the rising popularity of interest-free Islamic banking, dubbed “participation banking” in Turkey, around the world since the 2008 financial crisis. 

“Britain performed its first sukuk export worth 200 million pounds in June 2014. TheCityUK group launched its ‘Secretary on Islamic Finance’ in 2011 to coordinate and support the development of Islamic finance. The Islamic Finance Task Force [IFTF] in the U.K. was established in 2013 with the aim of making the county an Islamic finance hub and to lure further investments in this field, so Britain aims to be a hub in Islamic finance,” he said. 

“Luxembourg has the largest Islamic finance investment funds among non-Muslim countries with its 5 billion euros of funds, following Saudi Arabia and Malaysia,” he added, as quoted by Anadolu Agency. 

Şimşek also stated that Russia’s Sberbank had earlier announced that it would launch Islamic finance services in its own country. 

“Turkey has had one of the highest potentials in developing alternative banking activities in addition to traditional banking. In order to be able to realize this potential, new additional initiatives need to be created in addition to existing ones,” he said. 

The development of Islamic financial instruments and the launch of the mechanism for coordination are one of the priorities of the 64th Government Program and the 10th Development Plan, he added. 

Şimşek noted that preparation has started in order to establish this coordination mechanism. 

(Daily News / 07 December 2015)
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Sukuk demand poised to outstrip supply by $253.7 billion in 2020

In spite of high demand for new sukuks, issuances had slowed down due to the persistent uncertainty, according to findings of Thomson Reuters-Barwa bank Sukuk Perceptions and Forecast study.
However, sukuk market players are optimistic for another robust year but. The global sukuk market in 2015 welcomed significantly fewer new issuers compared to 2014.
Total sukuk issued in the first nine months of 2015 dropped a drastic 38.6 per cent to $48.8 billion from $79.5 billion for the same period in 2014. The sukuk papers were also issued in 12 currencies in first nine months of 2015 compared to 16 over the same period in 2014.
Islamic finance analysts said the drop in oil prices has failed to dent investor appetite for Islamic bonds as markets across the region have ample liquidity to meet credit demand at competitive pricing. They said global sukuk market is expected to sustain the upward trend in 2015 and will reach $145 billion compared to $116.4 billion last year. The World Bank also estimates that sukuk represents approximately 15 per cent of the $1.8 trillion in global Islamic assets, growing at around 20 per cent annually for the past five years.
Nadim Najjar, managing director for the Middle East and North Africa at Thomson Reuters, said the global sukuk market in 2015 has dropped in terms of volume.
"We understand that the volatility in global markets has made the issuers more cautious with their funding decisions, as a result the volume has substantially dropped. Apart from market conditions, the decision by Bank Negara Malaysia to cut short term sukuk also resulted in further drop in sukuk issuance," said Najjar.
"As we have mentioned last year, the debutante sovereigns and corporates of 2014 may not continue to tap the sukuk market in 2015 and it did not, but the outlook remains stable and growth is forecasted for the upcoming years. With a strong pipeline of $32 billion from issuers in different countries and sectors, the sukuk market is forecasted to grow by 15 per cent in 2016," he added.
The report found that the potential demand and supply pipeline of sukuk is expected to grow.  Despite this increase, demand is still expected to outstrip supply substantially until 2020 reaching $253.7 billion.
Initially, the gap between supply and demand is forecasted to be $115.9 billion in 2016, increasing to $145.6 billion in 2017 as demand is growing faster than supply. It is expected that supply to increase in 2016 by 15 per cent as governments of oil-exporting countries start issuing sukuk to cover their deficits.
This growth will then slide down to eight per cent in 2017 and steady growth will settle in for the following three years - from 2018-20 - to be in line with the expected growth of Islamic financial assets.
The report argues that in the era of low oil prices and anticipation of increasing interest rates the outlook for the global sukuk market remains positive.

The drop in oil prices is a double-edged sword; many oil-exporting countries, such as Bahrain and Saudi Arabia, have started considering sukuk as a source of funding to cover their budget deficits. At the same time, the oil price drop could hurt their credit ratings; this has already happened.

(Khaleej Times / 04 December 2015)
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