There was a sharp rebound in the Gulf banks' activity in debt capital markets in 2012 as they took the opportunity to issue long-term debt at heal (more)
There was a sharp rebound in the Gulf banks' activity in debt capital markets in 2012 as they took the opportunity to issue long-term debt at healthy prices under favorable market conditions. The sukuk segment is becoming more active as conventional banks are increasingly tapping into sharia-compliant products to diversify their funding bases, a research note issued by Standard & Poor's (S&P) said yesterday.
"In view of supportive debt capital market conditions, we forecast banks' issuance levels to remain elevated in 2013. We expect most of the impetus to come from banks in the UAE, the largest issuers in 2012, and Qatar, where issuance has been steadily increasing", S&P noted.
Gulf banks are benefiting from investors' increased appetites for long-term debt in regional and international debt capital markets and are doing so at attractive prices. According to data from the Bond and Sukuk Monitors, issuances reached $15bn in 2012, representing 166 percent growth relative to 2011. The bulk of the issuances were in the form of five-year bonds and sukuk, but certain banks also issued noted with longer terms.
The ratings agency noted that it has observed significant increase in sukuk issuance, which was a small sub segment of GCC's debt market until a few years ago, but now represents a larger share of the region's issuance. About 50 percent of banks' debt issued in 2011 and 45 percent in 2012 was in the form of sukuk. Last year, banks issued $6.7bn of sukuk, representing year-over-year growth of 136 percent.
In Qatar, the level of bank issuances is rising alongside the country's high-paced credit growth; a trend the ratings agency believes is here to stay.
Credit growth is the main driver of issuance of sukuk in Qatar. Banks in Qatar issued $4.5bn bonds and sukuk last year. QNB, the country's largest bank, issued $2bn of this, followed by two Islamic lenders- Qatar Islamic Bank ($750m) and Qatar International Islamic Bank ($700m). Commercial Bank of Qatar and Doha Bank also issued $500m each in five-year notes.
"Qatar continues to display very strong domestic growth that is fostering the increase in issuances. Between the end of 2011 and November 2012, domestic credit rose by 24.7 percent on the back of 24.2 percent growth in public-sector lending, which now accounts for 46 percent of total domestic credit. We expect credit growth in Qatar to stay above 20 percent in 2013, pushing up the demand for funding by Qatari banks and, consequently, the level of debt capital market".
Additionally, Islamic banking in Qatar is expanding rapidly. This is largely due to the efforts of Qatar's government and its related entities, key sponsors of the country's Islamic banking market. Qatari Islamic banks' aggregate asset base accounted for almost on-quarter of the domestic banking system, and the ratings agency expects this share to increase markedly over the next few years.
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