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Meagre Economic Growth to Pose Potential Hit to Sukuk Issuance

By IM Insights | March 26, 2020

According to Chief Economist of Malaysia Rating Corp Bhd (MARC)Nor Zahidi Aliaspoor economic growth conditions are likely to drag down overall Sukuk Issuance in Malaysia, but the prevailing low interest-rate environment coupled with accommodative policies by Bank Negara Malaysia (BNM) may negate the impact on Sukuk Issuance to an extent.  

The downside risk will be largely dependent on the nature of the spread of the Coronavirus, where continued lockdown periods across global economies and outbreaks at unmanageable levels could be damaging.  

The global head of Islamic finance at Fitch Ratings IncBashar Al Natoor, stated that the Coronavirus pandemic is negatively affecting primary Sukuk markets’ activity, increasing volatility significantly.  

He highlighted that global Sukuk markets witnessed robust activity during the first two months of 2020, but a majority of the issuing countries are now experiencing a rare mix of challenges, including health issuesreduced oil revenues and severe financial market dislocation, causing investors to withdraw from such markets. 

Al Natoor further mentioned that Sukuk Issuance are expected to gradually pick-up with the aid of high-rated Gulf Cooperation Council (GCC) sovereigns, once the Coronavirus situation stabilises and investors and issuers re-adjust. 

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