Saudi Arabia remains world’s largest Islamic finance market: Moody's

Saudi Arabia remains the largest market for Islamic finance in the world, with Islamic financing assets totalling $292 billion in the first nine months of 2017, Moody's Investors Service said in a report.

Islamic banking penetration in the Gulf Cooperation Council (GCC) countries increased to 45 percent of the total banking market as of September 2017, from 31 percent in 2008.

During the same period, annual sukuk issuance more than doubled to $100 billion from $42 billion, Moody’s said.

“The growth of the Islamic finance sector will continue to outstrip the growth of conventional assets across core Islamic finance markets in coming years, as demand for Sharia-compliant financial instruments rises,” said Nitish Bhojnagarwala, a Vice President and Senior Analyst at Moody's.

The sector will be supported by governments aiming to grow the Islamic finance industry both domestically and globally, as well as by continued demand for Islamic products from individuals, he added.

Islamic insurers’ penetration into Southeast Asia and North Africa will also drive growth in the industry, the report said.

While Saudi Arabia remains the largest market for Islamic finance in the world, Oman is the fastest-growing Islamic banking market.

The sultanate logged a growth rate of 20 percent in the first nine months of 2017, driven by its late entry into Islamic banking.

According to the report, sukuk issuances rose 17 percent in 2017 to $100 billion, driven largely by GCC sovereigns.

Moody's expects a similar level of sukuk issuance in 2018, despite the recent recovery in oil prices, which could lower financing needs for some sovereigns.

Corporate and asset-backed sukuk activity remained muted last year because of more attractive conventional market opportunities.

Moody’s said it expects activity to remain at the same level in 2018.

Meanwhile, the takaful sector continues to benefit from strong growth in the market, attracting gross premium contributions of over $20 billion last year compared to $14.9 billion in 2015.

"We expect this growth momentum to continue in 2018 and over the medium term, spurred by strong growth prospects in Southeast Asia and North Africa," the ratings agency said.