ISLAMIC FINANCE

COMPENDIUM
2025

BASHAR AL NATOOR
Global Head of Islamic Finance
[email protected]
 Islamic Finance Compendium | 2

Contents
Forward 3 Indonesia Takaful Sector’s New Capital Requirements to
Shape Sector Dynamics 26
Global Sukuk Outlook Dashboard: 3Q24 5
Turkiye Debt Capital Markets Dashboard: 1Q24 27
Global ESG Sukuk Outlook Dashboard: 1H24 6
Turkish Islamic Banking Segment Expands Amid Economic
Half of All Emerging-Market Debt Issued by Core Islamic Finance Rebalancing 28
Markets 7
UK a Western Hub for Islamic Finance; Domestic Niche 29
Sukuk and Bond Prices Remained Highly Correlated in 1H24 9
Qatar’s Debt Capital Market Expected to Be Broadly Stable
Most OIC Countries Fare Low for Recoveries Given Default; Amid Gov’t Debt Repayment 31
Sukuk Default Rate Low 11
Qatari Islamic Banks Dashboard: 2024 32
GCC Debt Capital Market Dashboard: 1Q24 13
Bahraini Islamic Finance Industry Well-Developed;
Saudi Debt Capital Market Dashboard: 1H24 14 90% of Sukuk Rated ‘B+’ 33
Saudi Islamic Banks Dashboard: 2024 15 Oman’s Debt Capital Market Contracting Amidst Govt
SAMA Regulations Enhancing Saudi Islamic Banks’ Transparency, Prepayments; Sukuk Share Growing 35
Sharia Governance 16 Pakistan’s Islamic Finance Prospects Positive on Government Push 37
Saudi Asset Management Dashboard: 1H24 18 Bangladesh’s Islamic Banks Sizeable but Stagnant; Sector Liquidity
UAE Debt Capital Markets Dashboard: 1H24 19 and ICB Bank in Focus 39

UAE Islamic Banks’ Growth Prospects Remain Strong 20 Higher Capital Requirements to Support Nigeria’s Islamic Finance
Industry Growth 41
Malaysian Debt Capital Market Dashboard: 1H24 21
Majority of Fitch-Rated Islamic Banks Use Islamic Derivatives 43
Malaysia’s Supportive Environment to Sustain Islamic
Financing Growth 22 Islamic Liquidity Tools Limited Despite Initiatives in Some Markets 45

Malaysia Takaful Growth Steady Despite Macroeconomic Islamic Assets Under Management Dashboard: 2024 47
Challenges 23 Sukuk Rating Criteria 48
Indonesia Debt Capital Market Dashboard: 1H24 24 Islamic Finance Coverage list – 3Q24 58
Supportive Regulatory Environment to Boost
Indonesia’s Islamic Banking Sector 25
 Islamic Finance Compendium | 3

Forward
It gives me pleasure to present to you the Fitch Ratings
Islamic Finance Compendium for 2025.
The Compendium showcases our wide-ranging Islamic finance research and thought
leadership produced by our dedicated team of analysts. It covers areas like the global
sukuk market, Islamic banks, Islamic asset management, takaful and debt capital
market (DCM) developments in key markets. We also share our views on key industry
developments, including complexities related to sharia-compliance, sukuk default
resolution, the rise of ESG-sukuk, Islamic derivatives and liquidity management
products, among other areas.
The Islamic finance industry is on an exciting growth trajectory, with its size estimated
to cross USD4 trillion at end-2024. In many GCC and South East Asian countries, sukuk
are a major contributor to public finances and are a key part of the domestic DCM.
Global sukuk outstanding volumes are expected to cross USD1 trillion in a few years
(end-3Q24: USD900 billion). Credit conditions are generally sound, with 81.5% of
Fitch-rated sukuk being investment-grade, 95% of sukuk issuers on Stable Outlooks,
and no sukuk defaults as of end-3Q24. Fitch rates about 75% of the outstanding US
dollar sukuk market and over 90% of the US dollar ESG sukuk market.
Following the US Fed rate cuts, the improving financing conditions could provide the
sukuk market with impetus in the near term, along with other drivers. International
investors’ demand for emerging market US dollar debt issuance is also set to rise, of
which the sukuk share is sizeable at above 10% (excluding China). In the GCC, the
DCM reached USD1 trillion outstanding as of end-3Q24, with sukuk at 37%.
The market has become more diverse with many sovereign wealth funds issuing sukuk
for the first time in 2024, along with non-core issuers from the US, Ireland, South
BASHAR AL NATOOR Africa and the Philippines recently tapping sukuk. With sustainability in the global
Global Head of Islamic Finance agenda, ESG sukuk continue to find their place in the funding mix.
[email protected]
 Islamic Finance Compendium | 4

Islamic banking is now systematically important in about 15 jurisdictions globally, It is in the face of these opportunities and challenges that our role at Fitch becomes
including the GCC countries, Malaysia, Bangladesh, Jordan and Pakistan. In core more essential to the industry. At Fitch, we have been providing independent and
markets, the domestic market share of Islamic banks ranges from 15% to 85%. About objective credit ratings to the Islamic Finance market for over 15 years. We have a
two-thirds of Fitch-rated Islamic banks are investment-grade at end-3Q24. Fitch leads dedicated sukuk rating criteria that describes our approach to rating sukuk. The unique
the industry by rating more Islamic banks than any other global credit rating agency. characteristics of Islamic banks and takaful firms also have specific considerations in
Fitch’s Bank Rating Criteria and Insurance Rating Criteria, respectively.
Banking regulators in many countries are increasingly focusing on sharia governance.
Public Islamic funds globally held above USD125 billion in assets under management at To address this important segment of global finance, Fitch has a dedicated Islamic
end-1H24. In Saudi Arabia, for example, there is strong demand for Islamic products, with Finance Group, which is involved in the rating process of sukuk, Islamic banks and
about 95% of mutual funds being sharia-compliant. Takaful remains the smallest segment Islamic corporates, and which monitors and reports on this rapidly growing sector
in global Islamic finance, but is a growing part of the insurance sectors in many markets. through specialised research as well as through criteria development.
Developed markets like the UK, Ireland, Luxembourg, Jersey, Hong Kong and Japan are I am delighted to share that Fitch was recognised in 2024 with the best Islamic finance
also continuing to serve the Islamic finance industry in various global capacities such as rating agency award for the eighth year in a row by The Asset, the Excellence Award
key sukuk-listing venues, Islamic fund domiciles and key arrangers, among other roles. in Islamic Financial Ratings by the Global Islamic Finance Awards (GIFA) for the fifth
year in a row, as well as the Best Rating Agency for Islamic Finance at the Global
In spite of its notable uptick, the global Islamic finance industry continues to face
Takaful Awards by the AlHuda Centre of Islamic Banking and Economics (CIBE) for
challenges, which, depending on the jurisdiction, include additional sharia-compliance
the first time. I am also pleased to receive the Industry Leadership Award from The
complexities, lack of standardisation, regulatory hurdles, lack of awareness and
Asset. These acknowledgements validate our commitment to analytical excellence
confidence and a shortage of Islamic liquidity management products, along with more
and reflect more than 15 years of Fitch’s leadership in Islamic finance.
macro and country-specific challenges.
We hope that the selected coverage included in the Compendium will be beneficial for
The introduction of AAOIFI Sharia Standard No. 62, which is currently in draft format,
readers and relevant stakeholders in enhancing their understanding of this important
is anticipated to be disruptive and could lead to sukuk issuers and investors being
and complex industry. Please feel free to reach out to us with your invaluable thoughts.
exposed to different/additional credit, market, legal, operational and liquidity risks
For further information on Fitch’s Islamic Finance ratings, visit:
that are not faced by conventional bonds. Among the key requirements is that the legal
ownership and risks related to the underlying sukuk assets are transferred to sukuk fitchratings.com/site/islamicfinance
holders, with investors having asset recourse, so as to align more closely with sharia.
However, the magnitude and extent of its impact will depend on three key factors:
what the final standard looks like, who decides to adopt it and how it is adopted.
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Islamic Finance Compendium | 5
Islamic Finance
Sukuk
Global

Global Sukuk
Global Sukuk Outlook
Outlook Dashboard:
Dashboard: 3Q24 3Q24
Lower Rates To Lift Issues; Macro and Sharia Challenges to Watch Sukuk, Conventional Bonds Outstanding Sukuk, Conventional Bonds Issued in
Outlook: Global sukuk issuances are increasing following the US Federal Reserve’s rate cut to 5%
in Key Islamic Finance Jurisdictions Key Islamic Finance Jurisdictions
Total sukuk (LHS) Total sukuk (LHS)
in September 2024, with financing conditions improving. Rates are expected to be 4.5% at end-2024 Total bond (LHS) Total bond (LHS)
and 3.5% at end-2025, boosting 4Q24-2025 issuance activity, along with drivers such as refinancing Sukuk as a % of total (RHS) (USDbn) Sukuk as a % of total (RHS) (%)
(USDbn) (%)
upcoming maturities, funding and diversification goals. The liquidity of the Gulf Cooperation 2,500 40 800 40
Council (GCC) and other regional sukuk investors, mainly banks, is intact. 2,000 30 600 30
1,500
Following rate cuts, international investors’ demand for emerging market US dollar debt issuance is 20 400 20
1,000
likely to rise, of which sukuk are sizeable at above 10% (excluding China). Downside risks include 10 200 10
500
sharia-related complexities, rising geopolitical risks and oil volatilities. The geopolitical
0 0 0 0
developments in the Middle East have not yet affected sukuk issuance. Islamic banks and corporates

2015

2019

2023
2016
2017
2018

2020
2021
2022

1Q24
2Q24
3Q24

2015
2016
2017
2018
2019
2020
2021
2022
2023
9M24
will continue to be opportunistic sukuk issuers, though sukuk are not their main funding source.
Market Profile: Global sukuk was about USD900 billion outstanding at end-3Q24 – up 8.5% yoy, Source: Fitch Ratings, Bloomberg (including multilaterals) Source: Fitch Ratings, Bloomberg (including multilaterals)
with 26% in dollars. Sukuk held a sizeable 30% of the debt capital market (DCM) outstanding in the Fitch-Rated Sukuk Volumes by Sector Fitch-Rated Sukuk Volumes by Region
core markets of the GCC countries, Malaysia, Indonesia, Turkiye and Pakistan, with the rest in bonds End-3Q24 End-3Q24
Structured
(all currencies). In the GCC, the DCM is about USD1 trillion outstanding, with sukuk at 37%. Infrastructure and finance: ABS Africa
project finance North America 0.6%
In 3Q24, sukuk issuance reached USD32.1 billion in the core markets, down 37% qoq, while bond 3%
0.6%
4%
issuance fell by 15%, as expected, coinciding with the summer holidays in many markets. About 13% International Europe
of outstanding sukuk will mature by end-2025. ESG-sukuk were 13% of all dollar sukuk outstanding. public finance 6.5%
5%
Credit Ratings: We rate 75% of dollar sukuk globally, with total-rated sukuk of USD191 billion
Corporates and Asia
outstanding, 81.5% of which are investment-grade and 95% of which have Stable Outlooks. Fitch others 23.8%
Ratings upgraded Turkiye to ‘BB-’, with subsequent sukuk upgrades. There is still a lack of legal 13% Sovereign/ Middle
precedent on sukuk default resolution. Only 0.2% of all sukuk issued defaulted to date, with no Financial supranational East
institutions 59% 68.5%
sovereign sukuk default.
16%
In August 2024, Fitch downgraded Maldives to ‘CC’ and is monitoring their sukuk (unrated). On 7 th Source: Fitch Ratings Source: Fitch Ratings
October, the Maldives’ Ministry of Finance reported that it has settled its latest sukuk coupon
Outstanding Sukuk by Country of Risk Global Fitch-Rated Sukuk Outstanding
payment. External financing pressures will remain high.
End-3Q24 Bahrain Qatar by Ratings
AAOIFI: The timeline for the final version of AAOIFI sharia standard no. 62 is not yet known. Its Others End-3Q24
Pakistan 2% 1%
3%
CCC F1sf
adoption could alter sukuk credit profiles. This could also entail the need to assess the asset-sale 2%
B 0.5% 2.7% AAA
6.3% 11.3%
impact on the obligor’s IDR, among others. Obligors and investors could be exposed to additional Supranational
3% BB AA
credit, market, legal, operational and liquidity risks. Currently asset-backed bonds or sukuk in core 11.7%
Turkiye 3.0%
jurisdictions are very limited. 3% Malaysia
37%
Most OIC countries fare low for recoveries given default. In July 2024, the UAE’s Securities and UAE
Commodities Authority issued a decision that would enable public joint stock companies to transfer 7%
BBB
assets to special-purpose vehicles, and increase their ability to issue sukuk and debt instruments Indonesia 26.6%
A
backed by these assets. It remains untested in practice. 13%
Saudi Arabia 37.9%
29%
Bashar Al Natoor Saif Shawqi, CFA Source: Fitch Ratings, Bloomberg Source: Fitch Ratings, Bloomberg
Global Head of Islamic Finance Director – Islamic Finance
[email protected] [email protected]

Dashboard │ 7 October 2024 fitchratings.com 1

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Islamic Finance
Islamic Finance
Sukuk
Global
Sukuk
Global
Global ESG
Global ESG Sukuk
Sukuk Outlook
Outlook Dashboard:
Dashboard: 3Q24 3Q24
Global ESG Sukuk Outlook Dashboard: 3Q24 Fitch-Rated
Fitch-Rated
ESG Sukuk Issuance by
ESG Sukuk Issuance by
Country: 3Q24
Fitch-Rated ESG Sukuk Issuance by
Fitch-Rated
Sector: 3Q24ESG Sukuk Issuance by
ESG Sukuk Continues Upward Trend; Large Emerging Market Share Country: 3Q24 Kuwait Qatar
Sector: 3Q24
Infrastructure & project finance
ESG Sukuk Continues Upward Trend; Large Emerging Market Share
ESG Sukuk Issuance to Rise: Fitch Ratings expects ESG sukuk issuance to continue rising over
Turkiye 2% 3%
Kuwait Qatar Infrastructure5.4%
& project finance
1.2%
Turkiye 3%
2% 5.4%
ESG Sukuk Issuance
4Q24-2025 and crossto USD50
Rise: Fitch
billion outstanding,
Ratings expects ESG driven by issuance
sukuk investor to
demand,
continuefunding and
rising over 1.2% Corporates and
Supranationals &
diversificationand
4Q24-2025 goals, along
cross with sustainability
USD50 initiatives
billion outstanding, in some
driven by Muslim-majority
investor demand, countries.
fundingFitch
and Indonesia others and
Corporates sovereigns &
Supranationals
16% 17.2%
also expects the
diversification US Federal
goals, Reserve
along with to furtherinitiatives
sustainability cut rates to 4.5% by
in some end-2024 and to
Muslim-majority 3.5% byFitch
countries. end- Indonesia others 40%
sovereigns
16% 17.2%
2025,
also which could
expects the USimprove
Federalfinancing
Reserve to conditions andrates
further cut support debtby
to 4.5% issuance, including
end-2024 and toESG
3.5%sukuk.
by end- Saudi Arabia 40%
2025, which could improve 45.8%
Sukuk are becoming a key financing
ESG fundingconditions
tool in and support
emerging debt issuance,
markets including
(EM; outside ESG sukuk.
China), reaching United Arab
Saudi Arabia
45.8%
17.2%
Sukuk ofareallbecoming
ESG debtaissued in 9M24
key ESG (UStool
funding dollar
in only). In addition,
emerging markets40%(EM;ofoutside
all ESG bonds
China),and sukuk
reaching Emirates
United Arab
Financial
in EM (outside
17.2% of all ESGChina) were issued
debt issued by(US
in 9M24 the dollar
core Islamic
only). Infinance markets
addition, 40% ofofallthe UAE,
ESG Saudi
bonds andArabia,
sukuk 32.0% institutions
Financial
Emirates
37.4%
institutions
Qatar, Turkiye and
in EM (outside Indonesia.
China) We expect
were issued by thethis share
core to rise.
Islamic Risksmarkets
finance include aofweakening
the UAE, sustainability
Saudi Arabia, 32.0%
Source: Fitch Ratings 37.4%Ratings
Source: Fitch
drive,
Qatar,sukuk
Turkiyesharia-compliance
and Indonesia. Wecomplexities,
expect this geopolitical
share to rise.risks and
Risks oil volatilities.
include a weakening sustainability
drive, sukuk sharia-compliance complexities, geopolitical risks and oil volatilities. Source: Fitch Ratings Source: Fitch Ratings
Appeal to International Investors: ESG sukuk could help issuers diversify funding and tap ESG- ESG Sukuk Outstanding (Global & GCC) ESG Sukuk Outstanding by Country
Appeal tointernational
sensitive International Investors:
investors. These
ESGinvestors couldhelp
sukuk could alsoissuers
plug the fundingfunding
diversify gap for and
tenors
taplonger
ESG- ESG Sukuk Outstanding (Global
Global ESG outstanding (LHS)& GCC) ESG Sukuk
2021 Outstanding
2022 2023 by Country
1Q24 2Q24 3Q24
GCC ESG
Global ESGoutstanding
outstanding(LHS)
(LHS)
than seven
sensitive years, because
international IslamicThese
investors. investors (primarily
investors couldIslamic
also plugbanks) generally
the funding gapprefer sukuk
for tenors with
longer GCC (USDbn)
2021 2022 2023 1Q24 2Q24 3Q24
(USDbn) GCC% outoutstanding
ESG of total (RHS)
(LHS) (%)
maturities
than sevenof threebecause
years, to seven years.investors
Islamic Additionally, longer
(primarily tenorsbanks)
Islamic could generally
also help prefer
increase investor
sukuk with 50 GCC % out of total (RHS) 50
16
(USDbn)
(USDbn) (%)
participation
maturities of from
threeasset managers,
to seven years.insurance companies
Additionally, longer and pension
tenors couldfunds.
also help increase investor 50 50
16
12
40 40
participation
A notable casefrom asset
is the managers,
July insurancesovereign
2024 Indonesian companiesUS and pension
dollar funds.
sukuk (BBB). The 30-year green
12
8
40
30 40
30 8
4
sukuk tranche
A notable case attracted
is the July90%
2024investors from
Indonesian Europe, US
sovereign thedollar
US and Asia(BBB).
sukuk (excluding Malaysiagreen
The 30-year and 30 30
20 20 4
Indonesia).
sukuk trancheThese groups constituted
attracted 41%from
90% investors of investors
Europe,inthe
the five-year
US and Asianon-green sukuk
(excluding tranche and
Malaysia 0
20 20

Others
Malaysia

Indonesia

Supranationals
UAEUAE

Arabia
31% in the 10-year
Indonesia). non-green
These groups sukuk 41%
constituted tranche. Middle Eastern
of investors and Malaysian
in the five-year investors
non-green sukuk contributed
tranche and 10 10 0

Others
Malaysia

Indonesia

Supranationals
Arabia
only 9%
31% to the
in the 30-year
10-year green sukuk
non-green sukuktranche,
tranche.but wereEastern
Middle over half forMalaysian
and the other two tenors.
investors contributed 10
0 10
0

Saudi
only 9% to the 30-year green sukuk tranche, but 5%
were
of over half for the other twobut
tenors.

2022
2021

2023

2Q24
1Q24

3Q24
Expanding Market Share: ESG sukuk were only global sukuk outstanding, had expanded 0 0

Saudi
2022
2021

2023

2Q24
1Q24

3Q24
Expanding
34% yoy toMarket
USD44.6 Share:
billion outstanding
ESG sukuk wereatonly
end-3Q24 (all currencies),
5% of global outpacingbut
sukuk outstanding, thehadglobal sukuk
expanded Source: Fitch Ratings, Bloomberg Source: Fitch Ratings, Bloomberg
market
34% yoygrowth of 8.5%
to USD44.6 yoy. In
billion 9M24, ESGatsukuk
outstanding issuance
end-3Q24 (all rose by 14.7%
currencies), yoy in the
outpacing theIslamic
globalfinance
sukuk Source: Fitch Ratings, Bloomberg Source: Fitch Ratings, Bloomberg
core markets
market growth(the GCC,yoy.
of 8.5% Malaysia, Indonesia,
In 9M24, ESG sukukTurkiye and rose
issuance Pakistan) to USD8.9
by 14.7% billion,
yoy in the while
Islamic ESG
finance Fitch-Rated ESG Sukuk Issuance by Hard-Currency ESG Sukuk Outstanding
bondmarkets
core issuance(the
fell GCC,
by 18% yoy (USD12.9
Malaysia, billion),
Indonesia, withand
Turkiye outstanding
Pakistan) ESG sukuk billion,
to USD8.9 at about 44%ESG
while (all Fitch-Rated ESG Sukuk
Ratings: 3Q24 B Issuance by Hard-Currency
Out of Total ESGESG Sukuk
Bonds Outstanding
& Sukuk – 3Q24
1%
currencies).
bond In the
issuance fellGCC, ESG
by 18% debt
yoy was USD46.3
(USD12.9 billion,
billion), with with about 42%
outstanding ESG in sukuk
sukuk. at about 44% (all Ratings: 3Q24 B AAA Out of Total ESG Bonds & Sukuk – 3Q24 (%)
Country
1% 24%
currencies). In the GCC,
Largely Investment ESGESG
Grade: debt was USD46.3
sukuk billion,
market credit with about
conditions are42% in sukuk.
sound in general, with 99% of AAA
BBB 24%
Country
Bahrain (%)
100
Largely Investment
Fitch-rated ESG sukukGrade:
beingESG
investment-grade and noconditions
sukuk market credit defaults. Fitch rates about
are sound 91% of
in general, the99%
with global
of 28%
BBB Bahrain 100
Malaysia 52
ESG sukuk issued
Fitch-rated in hard
ESG sukuk currency
being (USD27.6 billion;
investment-grade and noup 46% yoy).
defaults. Fitch
Fitch rated
rates the91%
about firstof
sustainable
the global 28%
Malaysia
Indonesia 52
51
sukuk
ESG out ofissued
sukuk Kuwait, issued
in hard by Warba
currency Bank K.S.C.P.
(USD27.6 billion;(A/Stable) in 3Q24.
up 46% yoy). Fitch rated the first sustainable AA
sukuk out of Kuwait, issued by Warba Bank K.S.C.P. (A/Stable) in 3Q24. Indonesia
Kuwait 51
50
Regulations Support ESG Sukuk: The Central Bank of Oman issued a new circular aimed at 4%
AA
4% Kuwait
Saudi Arabia 50
47
Regulations
strengtheningSupport ESG Sukuk:
the banking sector’sThe
resilience
CentraltoBankclimate-related risks.aItnew
of Oman issued encourages banks to
circular aimed at
actively participate
strengthening in sustainable
the banking finance
sector’s initiatives
resilience by issuing sustainable/green
to climate-related sukuk and
risks. It encourages bonds,
banks to Saudi
UAE Arabia 47
40
and to adopt
actively broaderinESG
participate factors. This
sustainable could
finance support by
initiatives Oman’s ESG
issuing debt capital market
sustainable/green development.
sukuk and bonds, A UAE 40
Qatar 19
43%
A
and to adopt broader ESG factors. This could support Oman’s ESG debt capital market development. Source: Fitch Ratings Qatar
Turkiye 19
2
Bashar Al Natoor Amjad Alkabra 43%
Global Head of Islamic Finance Senior Analyst Source: Fitch Ratings Turkiye 2
Bashar Al Natoor Amjad Alkabra– Islamic Finance Source: Fitch Ratings, based on Bloomberg adjusted data
[email protected]
Global Head of Islamic Finance [email protected]
Senior Analyst – Islamic Finance Source: Fitch Ratings, based on Bloomberg adjusted data
[email protected] [email protected]

Dashboard │ 30 October 2024 fitchratings.com 1

Dashboard │ 30 October 2024 fitchratings.com 1
 Islamic Finance Compendium | 7

Half of All Emerging-Market Debt Issued

by Core Islamic Finance Markets
Non-Rating Action Commentary BASHAR AL NATOOR
Global Head of Islamic Finance
Dubai-25 June 2024 [email protected]
GCC countries, Malaysia, Indonesia, and Turkiye are increasingly major emerging- SAIF SHAWQI, CFA
market (EM) debt issuers, Fitch Ratings says. In the first five months of 2024, they
Director - Islamic Finance
accounted for 51% of all US dollar debt issued by EMs (excluding China; 2023: 43.7%; [email protected]
2020: 32.8%). We expect this growth to continue in 2024–2025, driven by government
initiatives to develop the debt capital markets (DCM), diversify funding, finance fiscal
deficits, government projects, and maturing debts. Sukuk is also maturing as a key
funding and policy tool, accounting for 12.4% of all EM dollar debt issued so far in
2024 (excluding China; 2023: 15%; 2017: 5%).
EM dollar debt issuance (excluding China) exceeded USD200 billion in 5M24, with
issuers from Saudi Arabia issuing the most debt (18.5%), followed by Argentina (9.1%),
the UAE (9%), Brazil (8.5%), Turkiye (7.8%), Indonesia (5.7%), Mexico (5.2%), and Chile
(3.8%). Fitch follows the IMF’s definition of EMs, including 44 countries globally.
The inclusion of the GCC, Malaysia, Turkiye, and Indonesia in global bond indices
supports dollar bond demand from international investors. Fitch has upgraded the
ratings of Saudi Arabia, Turkiye, Qatar and Oman over the past 15 months. Expectations
of falling interest rates (US policy rate 2024F: 5%; 2025F: 3.75%) are likely to support
investor demand for higher-yielding debt. For sukuk, demand is supported by Islamic
banks, which cannot invest in bonds.
Sukuk makes up the majority of domestic DCM issuance (all currencies) in Malaysia
(2023: 60%), Saudi Arabia (56%), and Indonesia (55.3%), and is also significant in
some other countries. Most Fitch-rated sukuk create an economic effect similar to
bonds, are senior unsecured obligations of the issuer, and rank pari passu with other
senior unsecured obligations. Sukuk and comparable bonds were priced at similar
levels in 2023. Fitch rates above 70% of US dollar sukuk globally, with close to 80% of
outstanding rated sukuk being investment-grade in 1Q24.
 Islamic Finance Compendium | 8

Saudi Arabia is aiming to deepen sukuk and debt markets, with issuance driven by
budget deficits. In the UAE, while surpluses are expected, issuers are seeking funding
diversification. In Indonesia, we expect DCM issuance to slow over 2024–2025,
because of fiscal restraint and an assumed continued gradual fall in government debt.
Indonesia has the largest share of DCM in the ASEAN (end-2023: 24% outstanding),
followed by Singapore (22%) and Malaysia (20%).
The Malaysian government’s slightly expansionary 2024 budget will drive DCM
growth, with the authorities planning several development initiatives guided by the
Ekonomi MADANI framework. In Turkiye, the recent revival in foreign-currency
debt issuances signals lower near-term refinancing risks due to improved investor
sentiment since Turkiye’s adoption of more conventional macroeconomic policies.
Outstanding EM dollar debt (excluding China) reached USD2.3 trillion at end-May
2024, with Mexico having the majority (11.4%), followed by Argentina (8.5%), the
UAE (8.5%), Saudi Arabia (8.4%), Brazil (7.9%), Turkiye (5.7%), Indonesia (5.7%),
Chile (4.2%), and Qatar (3.5%). Across all currencies, 16.5% of all debt in EMs
(excluding China) were issued by the GCC, Malaysia, Indonesia, and Turkiye in
5M24. Sukuk was 5.2% of all EM debt issued year-to-date in 2024.
In the J.P. Morgan Corporate Emerging Markets Bond Index, the GCC,
Kuwait, Indonesia, Malaysia and Turkiye collectively had 23.2%
market capitalisation in May 2024. However, the index does not
include sovereigns, who are key issuers in these countries.
Moreover, only sukuk compliant with the AAOIFI sharia
standards and guidelines issued by the Higher Sharia
Authority of the UAE central bank will be included in
the J.P. Morgan Global IG Sukuk Index as of end-
May 2024.
 Islamic Finance Compendium | 9

Sukuk and Bond Prices Remained Highly

Correlated in 1H24
Fitch Wire BASHAR AL NATOOR
Global Head of Islamic Finance
Dubai/London-17 September 2024 [email protected]
Prices of comparable sukuk and bonds analysed by Fitch maintained high correlation over
AMJAD ALKABRA
1H24, continuing the pattern observed over the previous five years, although there are
sometimes brief instances of price volatility when correlation falls, Fitch Ratings says. Senior Analyst – Islamic Finance
[email protected]
We expect this trend to continue in 2H24 and 2025. However, additional complexities
due to macro developments or sharia-related issues could affect this trend. Similar pricing SAIF SHAWQI, CFA
trends were also observed in certain global bond and sukuk indices analysed by Fitch. Director - Islamic Finance
[email protected]
About 81% of Fitch-rated sukuk are investment-grade. Most are senior unsecured
obligations of the issuer and rank pari passu with other senior unsecured obligations, MARK BROWN
including bonds. However, sukuk are structurally more complex than bonds, with Senior Director, Fitch Wire
extra dissolution triggers, such as tangibility event, total loss event, and others. [email protected]
We examined the pricing of over 50 sukuk and bonds issued by the same entities from
the Gulf Cooperation Council (GCC), Indonesia and Turkiye. Sukuk and bonds showed
a high average pricing correlation between 2019 until August 2024, with a yield-to-
maturity correlation of about 0.9 (on a scale of 0 to 1).

Average Spread of Sukuk over Comparable Bonds

(%) Average Spread
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
-1
Jan 19
Mar 19
May 19
Jul 19
Sep 19
Nov 19
Jan 20
Mar 20
May 20
Jul 20
Sep 20
Nov 20
Jan 21
Mar 21
May 21
Jul 21
Sep 21
Nov 21
Jan 22
Mar 22
May 22
Jul 22
Sep 22
Nov 22
Jan 23
Mar 23
May 23
Jul 23
Sep 23
Nov 23
Jan 24
Mar 24
May 24
Jul 24

Note: Spread between 54 sukuk and bond issues (mostly from governments). Bonds compared were the same payment rank,
very close in maturity, from the same issuer and denominated in the same currency. The spread was measured by the
difference in yield to maturity based on bid prices.
Source: Fitch Ratings, Bloomberg
 Islamic Finance Compendium | 10

There is still a scarcity of directly comparable sukuk and bonds in terms of payment Yield-to-Maturity Difference of MENA Sukuk, Bonds
priority, issuance dates, maturity and currency denomination from the same issuer, (%) Difference
but we believe these metrics at least partially capture investors’ perceptions of
0.2%
relative credit risk for sukuk and bonds.
0.0%
Fitch also analysed the yield-to-maturity (YTM) of the S&P MENA Sukuk Index and -0.2%
the S&P MENA Bonds Index. These indices showed a high correlation of 0.99 over the -0.4%
five years to end-August 2024. The difference in the YTM averaged only -26bp over
-0.6%
the past five years, with the YTM of sukuk generally lower than that of bonds. In 1H24,
the YTM differential narrowed, and it has averaged -10bp year-to-date. -0.8%
-1.0%
However, the sukuk-bond spread has widened abruptly during periods of market

Sep 19
Nov 19
Jan 20
Mar 20
May 20
Jul 20
Sep 20
Nov 20
Jan 21
Mar 21
May 21
Jul 21
Sep 21
Nov 21
Jan 22
Mar 22
May 22
Jul 22
Sep 22
Nov 22
Jan 23
Mar 23
May 23
Jul 23
Sep 23
Nov 23
Jan 24
Mar 24
May 24
Jul 24
Sep 24
stress before reverting to the mean. These stresses might reflect broader financial
market volatility around interest rates or oil prices, or geopolitical events. But they
Source: Fitch Ratings, S&P Dow Jones Indices LLC
have also been caused by sharia-related uncertainties that are specific to sukuk. For
example, the average YTM differential widened to -64bp in 2021, partly due to the Yield-to-Maturity of MENA Sukuk, Bonds
implementation of AAOIFI Sharia Standard No. 59 and resulting uncertainty over
(%) S&P MENA Sukuk Index S&P MENA Bond Index
potential differences in sukuk and bondholder treatment in some markets. A more 7%
sudden widening occurred on the onset of the coronavirus pandemic, when the YTM
6%
differential peaked close to -100bp in March 2020 before normalising rapidly.
5%
Fitch expects 4Q24 global sukuk issuance to pick up due to funding diversification 4%
efforts, refinancing goals and governments’ need to finance budget deficits and 3%
support development plans. Global outstanding sukuk was about USD888 billion at 2%
end-2Q24, up 10.2% yoy. 1%
0%
AAOIFI Sharia Standard No. 62 on sukuk, currently in exposure draft format, could

Sep 19
Nov 19
Jan 20
Mar 20
May 20
Jul 20
Sep 20
Nov 20
Jan 21
Mar 21
May 21
Jul 21
Sep 21
Nov 21
Jan 22
Mar 22
May 22
Jul 22
Sep 22
Nov 22
Jan 23
Mar 23
May 23
Jul 23
Sep 23
Nov 23
Jan 24
Mar 24
May 24
Jul 24
Sep 24
be finalised this year. Its adoption could alter the structure of sukuk from asset-based
to asset-backed by requiring the transfer of ownership of the underlying assets to
Source: Fitch Ratings, S&P Dow Jones Indices LLC
investors, among other changes. However, it is early to conclude how Standard No. 62
will affect the market as its final format has not yet been confirmed, and it is unclear
by whom or how it will be implemented.
 Islamic Finance Compendium | 11

Most OIC Countries Fare Low for Recoveries

Given Default; Sukuk Default Rate Low
Non-Rating Action Commentary BASHAR AL NATOOR
Global Head of Islamic Finance
Dubai-15 August 2024 [email protected]
There is still a lack of precedent on how bankruptcy courts would treat sukuk holders
SAIF SHAWQI, CFA
in the event of default in most countries, Fitch Ratings says. This is partly due to the low
sukuk default rates globally and the still-developing debt capital markets in countries Director - Islamic Finance
[email protected]
where sukuk are prevalent. Less than 0.25% of all sukuk ever issued had defaulted as of
end-1H24. About 81% of Fitch-rated sukuk were investment-grade at end-1H24.
In Fitch’s Country Groups for Country-Specific Treatment of Recovery Ratings,
the UAE and Qatar continue to have the highest classification among the covered
Organisation of Islamic Cooperation (OIC) countries, where recoveries given default
range from superior to poor (Group B). However, the majority of the OIC countries
are in the last group (Group D; average to poor). None of the fifteen OIC countries
covered in Fitch’s Country Groups is in Group A (outstanding to poor).
No sovereign sukuk has defaulted, with most defaults linked to corporates, and some
by financial institutions. Many cases of sukuk default resolution were resolved out
of court, with limited insights on the final outcome. In many sukuk-issuing countries,
including in the GCC, there is no doctrine of binding precedent, i.e. the decisions of a
court in one case will have no binding authority with respect to another case, which
adds resolution uncertainty for both sukuk and bonds.
Fitch has observed some of the court-supervised sukuk default resolutions in Malaysia,
Indonesia, and UAE over the past five years. Nevertheless, in most cases sukuk defaults
were resolved out of court, which didn’t provide adequate transparency. Similar to bonds,
the tools deployed in sukuk default resolution can range from maturity extension, lower
rates, face value reduction, new debt issuance, and debt-to-equity swap (including a
combination of each), or liquidation of the issuer.
Following the AAOIFI Sharia Standard No. 59 implementation for many international
sukuk, sukuk investors may benefit from a put option upon the occurrence of
“tangibility event” and an ability to accelerate repayment before maturity, which may
be an advantage over bond investors.
 Islamic Finance Compendium | 12

However, this remains untested. Most Fitch-rated sukuk issuers have adequate
headroom against any tangibility event, and are asset-based, senior unsecured
obligations that rank pari passu with other senior unsecured obligations, including
bonds. Sukuk investors generally have no rights of enforcement against the
underlying trust assets.
However, with the AAOIFI Sharia Standard No. 62 on sukuk, which is in exposure
draft format, the standard-setting body is encouraging a move towards asset-backed
sukuk from asset-based sukuk so as to align more closely to shariah principles. The
standard adoption could alter sukuk credit profiles, as investors could have recourse
to the underlying assets and bear asset risk. However, it is too early to conclude the
potential impact.
The UAE is amongst around 20 jurisdictions that fully adopts AAOIFI Sharia Standard.
However, adoption varies significantly between countries. In July, the UAE’s Securities
and Commodities Authority issued a decision regulating special-purpose vehicles
(SPVs), aiming to encourage securitisation and sukuk issuance. It aims to enable
public joint stock companies to transfer assets to SPVs, and boosting their ability
to issue sukuk and debt instruments backed by these assets.
In Fitch’s Country Groups, OIC countries that are part of Group C include
Saudi Arabia, Malaysia, Bahrain, and Oman, where recoveries given
default ranged from good to poor. In Group D, where recoveries
given default range from average to poor, OIC countries
included Turkiye, Indonesia, Bangladesh, Morocco, Nigeria,
Azerbaijan, Jordan, Kazakhstan, and Uzbekistan. Fitch’s
sukuk ratings do not imply any confirmation that it is
enforceable under any applicable law.
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Islamic Finance
Sukuk
GCC

GCC DebtCapital
GCC Debt Capital Market
Market Dashboard:
Dashboard: 1Q24 1Q24
Fragmentation Across the Bloc; Saudi Arabia, UAE Most Mature
Sukuk, Conventional Bonds Outstanding in Sukuk And Conventional Bonds Issued
Outlook: Fitch Ratings expects GCC debt capital market (DCM) issuances will continue to rise the GCC in GCC
through 2024 and 2025, although more slowly than in 1Q24, and approach USD1 trillion outstanding All currencies US Dollar only
with about 40% in sukuk format. Government issuances will be driven by expected lower oil prices Total sukuk (LHS)
Total bond (LHS) Total sukuk (LHS)
(2024F: USD80/bbl; 2025F: USD70) and interest rates (US policy rate 2024F: 4.75%; 2025F: 3.5%) as (USDbn)
Sukuk as a % of total (RHS)
(%) Total bond (LHS)
800 40 (USDbn) Sukuk as a % of total (RHS) (%)
well as initiatives to develop the DCMs and further diversify funding channels. DCM development is
100 50
fragmented across the bloc. Fitch upgraded Saudi Arabia, Qatar and Oman over the past 15 months. 600 30 80 40
400 20 60 30
Market Profile: The GCC DCM grew by 7% yoy, reaching around USD940 billion outstanding at
40 20
end-1Q24, with the largest share in Saudi Arabia (43%), followed by the UAE (30%), Qatar (13%), 200 10
20 10
Bahrain (5.2%), Oman (4.9%) and Kuwait (3.8%). About 60% was in US dollars, 21% in Saudi riyals, 0 0
0 0
and 7% in UAE dirhams; with over 60% issued by sovereigns. Dollar issuance was strong in 1Q24 at

2020

2021

2022

2023

1Q24
2019 2020 2021 2022 2023 1Q24
USD48.1 billion. About USD209 billion of debt will mature in 2024 and 2025 across all currencies. Source: Fitch Ratings, Bloomberg
Source: Fitch Ratings, Bloomberg
The GCC accounted for 32.3% of total emerging-market dollar issuance (excluding China) in 1Q24
GCC Debt Capital Market Outstanding GCC Sovereign Ratings
(2023: 27.3%; 2020: 20%). Global investor demand is supported by GCC inclusion in global bond
End-1Q24
indices, such as those by J.P. Morgan, FTSE, and Bloomberg. ESG debt totalled USD35.3 billion. Gross government
Kuwait
Oman debt (% of GDP)
Sovereign: Four out of six GCC sovereigns are investment-grade and all on Stable Outlook. Saudi 4%
5%
Arabia is aiming to deepen sukuk and debt markets, with issuance driven by budget deficits (2024F: Country Rating Outlook 2024F 2025F
3% of GDP; 2025F: 3.4%). While surpluses are expected in the UAE, issuers are seeking funding Bahrain Qatar AA Stable 46.9 45.2
diversification. Bahrain is dependent on DCM access and GCC funding amid wide deficits. Qatar’s and 5% Saudi Arabia
Kuwait AA- Stable 2.7 11
Oman’s DCMs are contracting, with governments expected to further repay debt in 2024. The debt 43%
Qatar UAE AA- Stable 26.4 27.2
law absence limits Kuwait’s funding options. 13%
Saudi Arabia A+ Stable 28.5 31.3
Non-Sovereign: GCC banks are key debt investors and are likely to diversify funding through
UAE Oman BB+ Stable 33.2 33.7
wholesale channels such as DCM. GCC banks’ 1Q24 dollar debt issuance exceeded full-year 2023. 30%
Bahrain B+ Stable 129.8 135.1
Reducing bank reliance and the government DCM development push could drive corporate issuances. Source: Fitch Ratings
Source: Fitch Ratings
Sukuk: Sukuk grew to 37% of GCC DCM outstanding (1Q23: 34.9%; 2019: 30%) at end-1Q24, with
the rest in bonds. Dollar sukuk issuance in 2023 shot up by 212% yoy, outpacing bonds (68% yoy),
GCC Sukuk Volumes by Ratings GCC US Dollar Debt Maturity by Year
to account for 41% of DCM (2020: 20.8%). Fitch rates 72% of GCC US dollar sukuk (USD104.3 End-1Q24 As of 1Q24 outstanding
billion; 81%: investment-grade). The GCC had 35% of global outstanding sukuk. Saudi Arabia and
BBB Saudi Arabia Qatar Oman
the UAE federal government issue local-currency debt only in the form of sukuk, rather than bonds. 10% Kuwait Bahrain UAE
BB (USDbn)
Vulnerabilities: GCC DCMs are in different stages of maturity, but relatively less established than 250
10%
more developed regions. The regulatory and bankruptcy resolution frameworks are still developing. 200
DCMs face geopolitical and oil price volatilities. Diversifying and expanding investor and issuer 150
participation would support the DCMs. Corporate funding culture is geared towards bank financing, B
A
100
and banks are mostly deposit-funded. Sukuk faces limited standardisation and sharia complexities. 10% 50
66%
AA 0
4%

2024-

2027-

2030-

onwards
2026

2029

2032
Bashar Al Natoor Saif Shawqi, CFA

2033
Global Head of Islamic Finance Director – Islamic Finance
[email protected] [email protected] Source: Fitch Ratings Source: Fitch Ratings, Bloomberg

Dashboard │ 22 May 2024 fitchratings.com 1

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Islamic Finance
Saudi Arabia

SaudiDebt
Saudi Debt Capital
Capital Market
Market Dashboard:
Dashboard: 1H24 1H24
Largest Dollar Debt Issuer in Emerging Markets; Regulations Easing Sukuk, Conventional Bond Issuance in Sukuk, Conventional Bonds
Outlook: Substantial issuances in 1H24 placed Saudi Arabia as the largest dollar debt issuer in Saudi Arabia Outstanding in Saudi Arabia
All currencies US dollars only
emerging markets (excluding China) and the largest sukuk issuer globally in 1H24. However, Fitch Total sukuk (LHS) Total sukuk (LHS)
Ratings does not expect the same issuance pace to continue in 2H24. Large dividend payments by Total bond (LHS) Total bond (LHS)
(USDbn) Sukuk % of total (RHS) (%) (USDbn) Sukuk % of total (RHS) (%)
Saudi Arabian Oil Company are used to temper sovereign financing needs. In 2025, we expect 200 34
45 100
further substantial dollar debt issuance as oil revenues moderate.
37 80 150 32
The debt capital market (DCM) is likely to cross USD500 billion outstanding in the medium term on 29 60
100 30
back of it financing the government’s giga projects under Vision 2030, deficit funding, 21 40
50 28
diversification efforts, and ongoing reforms. The DCM is exposed to oil price and interest rate 13 20
volatility, investors’ concern over the scale and use of issuance, and geopolitical risks. Compared to 5 0 0 26
2021 2022 2023 1H24 2021 2022 2023 1H24
most G20 countries, the DCM is fairly shallow, with limited issuer diversity, investor base
Source: Fitch Ratings, Bloomberg Source: Fitch Ratings, Bloomberg
concentrated to banks, and evolving regulations. However, it is amongst the most developed in OIC.
Banks and Corporates: Saudi banks have been growing faster than banks in other GCC countries in
Saudi & GCC DCMa - 1H24 Saudi Arabia DCM Issuance by
Outstanding (all currencies) Currency
recent years, with the growth propelling them to diversify funding through wholesale channels, Sukuk issuance in SAR
including DCM. Local banks are also the anchor investors in local sovereign issuances, with 77.6% (USDbn) Saudi Arabia GCC Sukuk issuance in USD
of the investor base in 1H24 (2023: 71%). Investments in securities (mainly sukuk and bonds) were 1,000 Bond issuance in USD
(USDbn)
21% of total assets of Fitch-rated banks at end-1Q24, and usually held for liquidity-management. 800 40
600 30
While the corporate funding culture is geared towards bank loans, it is likely to diversify through
400 20
DCM as corporates seek to benefit from demand from a large investor base. Many Saudi banks and
corporates can only issue sukuk and not bonds to meet sharia requirements. 200 10
0 0
Market Profile: The DCM expanded 18% yoy to USD407.7 billion outstanding at end-1H24, equally Sukuk Bonds Total DCM 2019 2020 2021 2022 2023 1H24
split between US dollars and Saudi riyal issues. Most (61%) 1H24 issuance was in sukuk format. a Sukuk and bonds There has been no bond issuance in SAR in 2019-2024
Sukuk issuance grew 170% yoy (all currencies) to USD41.1 billion, while bonds fell 4%. Close to 10% Source: Fitch Ratings, Bloomberg Source: Fitch Ratings, Bloomberg
of dollar DCM outstanding is ESG debt , with around half in sukuk. The Ministry of Finance published
ESG Sukuk and Bonds Issued in Saudi Saudi Outstanding Sukuk Rating Distribution: 1H24
the Green Financing Framework, which is a key step to supporting sustainability initiatives.
Arabia Sector % of sukuk volumes
Credit Ratings: Fitch rated USD52.7 billion of Saudi sukuk at end-1H24, 97.2% of which is All currencies Corporates and others 26.0
investment-grade, with 92.9% rated ‘A-’ and above. All issuers have Stable Outlooks. Sovereigns (USDbn) Sukuk Bonds A+ 23.2
9
was the majority of rated sukuk (46.4%), followed by corporates (25.9%), financial institutions 8 BB+ 2.8
(14.4%), international public finance (10.4%) and infrastructure and project finance (2.9%). 7 Financial institutions 14.2
6
5 A- 9.9
Foreign Inflow Boost: The growing DCM has attracted notable interest from regional and 4 BBB 4.3
international investors. Foreign investors made up 7.2% of government local issuances at end-1H24 3
Infrastructure and project finance 2.9
(2022: 0.2%). This follows changes since 2022, such as the inclusion of issuance in global indices such 2
1 A+ 2.9
as FTSE Emerging Markets Government Bond Index and iBoxx Global Government Bond Index, and 0 International public finance 10.5
linkages with international central securities depositories (Euroclear and Clearstream). 2020 2021 2022 2023 1H24
A+ 10.5
Source: Fitch Ratings, Bloomberg
Sovereign 46.6
Bashar Al Natoor Saif Shawqi, CFA A+ 46.6
Global Head of Islamic Finance Director – Islamic Finance
Source: Fitch Ratings
[email protected] [email protected]

Dashboard │ 9 September 2024 fitchratings.com 1

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Banks
Islamic Banks
Saudi Arabia

Saudi Islamic
Saudi Islamic Banks
Banks Dashboard:
Dashboard: 2024 2024
Solid Operating Environment; Liquidity at Higher Cost Asset Quality FICs/Average Gross Financing
Key Trends: Saudi Islamic banks’ strong 2023 performance was supported by solid operating Impaired financing/gross financing (%) Conventional banks Islamic banks
conditions and underpinned by non-oil economic growth. Saudi Islamic banks are well placed with (%) Conventional banks Islamic banks 1.0
larger retail franchises, supporting higher margins, lower funding costs and better asset quality. In 4.0 0.8
general, financing growth continues to outpace lending, supported by the requirement for 3.0 0.6
residential mortgages to all be sharia-compliant. Saudi Arabia has the largest proportion of Islamic 2.0 0.4
financing (85%) of any country that allows conventional banks to operate alongside Islamic banks. 1.0 0.2
0.0 0.0
SAMA continues to develop and benefit the Islamic banking regulatory landscape, with notable new
YE21 YE22 YE23 FY21 FY22 FY23
regulation on capital adequacy, profit-sharing investment accounts and risk management.
Source: Fitch Ratings Source: Fitch Ratings
Asset Quality: As for conventional banks, Islamic bank’s impaired financing ratio declined to 1.5% Earnings & Profitability Net Financing Margin
at end-2023 (end-2022: 1.7%), supported by high financing growth and favourable operating Operating profit/risk-weighted assets (%) Conventional banks Islamic banks
conditions – a better ratio than at conventional banks due to lower levels of corporate financing. (%) Conventional banks Islamic banks 4.0
4.0
Profitability: Sector profitability was stable in 2023, albeit at high levels, as higher funding costs 3.0
3.0
offset the benefit from credit growth and lower impairment charges. Islamic banks’ profitability 2.0
2.0
remained above conventional banks’ due to higher margins supported by lower funding costs (in
1.0 1.0
turn due to stronger retail franchises and a higher proportion of non-profit-bearing deposits).
0.0 0.0
Capital: Islamic banks remain well capitalised, with an average common equity Tier 1 (CET1) ratio FY21 FY22 FY23 FY21 FY22 FY23
of 16.4% at end-2023 (in line with their conventional peers’ at 16.6%). Islamic banks’ higher Source: Fitch Ratings Source: Fitch Ratings
proportions of retail banking assets and lower off-balance-sheet activities result in lower risk Capital Ratios Equity/Assets
weighted assets to total assets (70%, vs 84% for conventional banks at end-2023). Conventional banks CET1 ratio
(%)
Conventional banks Islamic banks
Islamic banks CET1 ratio 18
Funding & Liquidity: Customer deposits formed 80% of Islamic banks’ funding at end-2023, (%) Conventional banks CAR
15
compared to 84% for conventional banks. Islamic banks’ average financing/deposits ratio increased 25
Islamic bank CET1 CAR
12
to 102% at end-2023 (end-2022: 99%) as their financing growth outpaced deposit growth. Deposit 20 9
concentration is high, except at Al Rajhi Banking and Investment Corporation, which benefits from 15
10 6
a granular retail deposit base. Despite tighter conditions, Islamic banks’ liquidity management is 5 3
supported by the increasing availability of government sukuk and liquidity-management tools from 0 0
the central bank. YE21 YE22 YE23 YE21 YE22 YE23
Source: Fitch Ratings Source: Fitch Ratings
Key Expectations for 2024 and 2025: Saudi Islamic banks’ Standalone Credit Profiles will remain Funding & Liquidity Customer Deposits/ Total Funding
strong, supported by high oil prices and benign operating conditions. Strong credit growth will put Gross financing/customers' deposits Conventional banks Islamic banks
(%)
pressure on capital, funding and liquidity, and we expect banks to continue diversifying their funding (%) Conventional banks Islamic banks 90
bases through wholesale funding, including sukuk issuance, which is becoming a bigger part of the 105
funding mix – although we expect deposits will remain the main source of funding. 86
100
82
95
90 78
Redmond Ramsdale Bashar Al Natoor
Head of Middle East Bank Ratings Global Head of Islamic Finance 85 74
+44 20 3530 1836 +971 4 424 1242 YE21 YE22 YE23 YE21 YE22 YE23
[email protected] [email protected] Source: Fitch Ratings Source: Fitch Ratings
For this report, Saudi National Bank was considered an Islamic bank in the ratio calculations.

Dashboard │ 25 June 2024 fitchratings.com

 Islamic Finance Compendium | 16

SAMA Regulations Enhancing Saudi Islamic Banks’

Transparency, Sharia Governance
Non-Rating Action Commentary BASHAR AL NATOOR
Global Head of Islamic Finance
London/Dubai-09 July 2024 [email protected]
Islamic finance-specific rules issued by the Saudi Central Bank (SAMA) over 2020–1H24
are enhancing Islamic banking regulations to some extent, says Fitch Ratings, through SAIF SHAWQI, CFA
better transparency and reporting requirements, standardisation and sharia governance, Director - Islamic Finance
and increased consumer confidence in the products’ sharia-compliance. While the Saudi [email protected]
Islamic banking market is the largest globally, and we expect the operating environment
to be favourable over 2H24–2025, persisting issues include low standardisation, still- REDMOND RAMSDALE
developing Islamic-finance regulations, and fragmented disclosures. Head of Middle East Bank Ratings and
Islamic Banking
There is still no centralised sharia board, which could further harmonise industry [email protected]
practices. One of the goals of the government’s Financial Sector Development
Program Charter 2021 is to enhance the sharia governance structure and increase
transparency. The regulations issued cover profit-sharing investment accounts
(PSIAs), aiming to enhance sharia compliance, raise transparency, and set minimum
regulatory requirements.
Saudi Islamic banks have included PSIA-related disclosures in their financial
statements since end-2023. While the bank would bear losses in the case of its default,
or negligence or violation of any terms and conditions of the PSIA agreement, losses
otherwise could be borne by investors (depositors). This is in line with rated Islamic
banks in other jurisdictions, and Fitch would view PSIAs bearing a loss as a default.
In practice, Fitch believes that depositors will not bear losses due to the impact this
would have on confidence in the banking system. PSIAs grew to 7.1% of sharia-
compliant deposits at end-2022 (2021: 6.4%).
SAMA also issued additional capital adequacy requirements for sharia-compliant
banking. It intends to ensure risks associated with Islamic banking products and
contracts are appropriately captured, with capital requirements for credit risk and
market risk. We do not expect a material impact from the adoption of this rule as there
is no material change in the treatment between SAMA’s existing framework applicable
for conventional banks and that for Islamic banks.
 Islamic Finance Compendium | 17

SAMA also released a risk-management framework for banks practicing Islamic

banking, including establishing minimum principles for risk management. Financial
statement disclosure shows that Saudi Islamic banks are required to maintain profit
equalisation reserves or investment risk reserves to mitigate displaced commercial
risk and smooth out returns to depositors. This could also help ensure that Saudi
Islamic banks do not share losses on PSIAs.
The regulator has released a sharia governance framework for local banks and
finance companies, with the aim of strengthening sharia-governance procedures
and boosting confidence in the Islamic finance sector. SAMA also issued a standard
retail consumer finance contract, which covers murabaha and tawarruq, and is likely
to aid standardisation.
Rules on new banking products and services include the need for sharia committee
approvals for new Islamic products, among other requirements. Guidelines on
repurchase agreements were also issued, with provisions related to late payment
amounts and that parties will not claim any dispute on the grounds of sharia-
compliance of the repo agreements. Related-party rules for banks were also
updated to include sharia committee members.
A further planned government initiative is to set up a centralised sharia
board to harmonise all banks approaches to sharia compliance. Many
of these regulations are on back of SAMA implementing the Islamic
Financial Services Board standards.
SAMA previously regulated Islamic banks in the same way as
it regulates conventional banks. The new rules are a slight
change on this approach. There have been further changes
in previous years, such as the fact that all residential
mortgages in Saudi Arabia must be sharia-compliant,
in accordance with the Real Estate Finance Law.
This, along with strong public demand, has
supported the strong Islamic financing
growth in Saudi Arabia.
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Islamic Finance
Saudi Arabia

SaudiAsset
Saudi Asset Management
Management Dashboard:
Dashboard: 1H24 1H24
AUM and Profits Expand; Competition from International Managers AUM of All Saudi Capital Market Public Islamic Fund Assets by Value
Outlook: Fitch Ratings expects assets under management (AUM) for the Saudi Arabian asset Institutions End-1H24
Others
management industry (AMI) to cross USD300 billion within a couple of years. The sector continues to Total in USDm (LHS) AUM (% of GDP) (RHS) 11.3%
Malaysia
have positive inflows, with AUM having increased by 13.5% yoy at end-1H24, to over USD250 billion. Pakistan
300000 30% 26.0%
3.7%
This follows ongoing regulatory reforms and government development initiatives in line with Vision 250000 25%
Luxembourg
2030’s Financial Sector Development Program, growing domestic equity and debt capital markets, 200000 20%
150000 15% 4.3%
and an increasing base of high-net-worth individuals seeking asset-management services.
100000 10% USA
50000 5% 7.8%
Asset managers affiliated with Saudi banks held most industry revenues (63%), followed by other 0 0%
local managers (20.5%) at end-2023. However, international and regional asset managers could Saudi Arabia

2018

2019

2020

2021

2022

2023

1H24ᵃ
Jersey

2017
pose competition as the government aims to attract them to shift their regional headquarters to 10.5% Ireland 18.5%
Saudi Arabia (currently 12.5%). BlackRock recently partnered with the Public Investment Fund to ᵃ 2024 GDP forecast 17.9%
launch a Riyadh-based multi-asset investment-management platform, with investments from the Source: Fitch Ratings, Capital Markets Authority
Source: Fitch Ratings, Lipper
latter. As the AMI matures, it could attract funds that had been placed with offshore asset managers.
Private Investment Funds Classified by Public Investment Funds Classified by
Market Profile: The industry’s AUM reached 22% of the GDP in 2023. The private funds market is Investment Type in Saudi Arabia Investment Type in Saudi Arabia
about three times larger by AUM than the public funds market. The rising IPOs and uptick in the Equities Real estate Multi-assets Money markets Equities
performance of Tadawul All-Share Index is helping attracting more equity funds. This further Private equity Others REITs Debt instruments
Others
cements Tadawul as the GCC’s largest stock exchange and world’s tenth-largest, of 80 exchanges (USDm)
140,000 (USDm)
globally, as of end-1H24. Real estate has the largest share of private funds by fund count (44%). 120,000 80,000
100,000 60,000
The private funds’ AUM doubled since 2020 and was up 18.5% yoy to USD126 billion, with 43% in 80,000
60,000 40,000
equities and 40.5% in real estate. Public funds’ AUM grew by 19.7% yoy to USD39.1 billion, with 40,000
20,000 20,000
28% in money markets (MMFs), 25.6% in equities, 18.7% in REITs, and 16% in debt instruments. 0 0
About 86% of public funds are in domestic assets. The public AUM is still much lower than its 2021

2021
2020

2022

2023

1H24

2020

2021

2022

2023

1H24
peak of USD61.3 billion. Interest rate rises led to MMF outflows in 2022 and 2023.
Source: Fitch Ratings Source: Fitch Ratings, Capital Markets Authority
Islamic Majority: Around 95% of the mutual funds in Saudi Arabia are sharia-compliant as of 9M24,
with strong demand for sharia-compliant products across both retail and institutional investors. Profitability of All Saudi Capital Market Capital Position of All Saudi Capital
Many asset managers also can only offer Islamic products. The Saudi AMI is the largest in the GCC, Institutions Market Institutions
Total equity (LHS)
the second-largest public Islamic AUM share globally, and the fifth-largest in the OIC (Lipper data). Net income (LHS) Return on equity (RHS)
(USDm) (%) (USDm) Capital adequacy ratio (RHS) (%)
Financial Performance: The combined net income of all capital market institutions from asset 2,000 20 12,000 30
management activity increased by 29% yoy to around USD1.1 billion in 1H24. In 2023, the industry 1,500 15
10,000 29
return on equity reached 15% (2022: 16.4%). The capital adequacy ratio of the sector was 28.1% at 8,000
28
1,000 10 6,000
end-1H24 (1H23: 29.7%), above the 8% minimum requirement. 27
500 5 4,000
Vulnerabilities: The AMI is exposed to oil price, interest rate and geopolitical volatilities. It is 2,000 26
concentrated, with five of the 95 domestic asset managers making up 64% of industry AUM. 0 0 0 25

2020

2021
2017

2018

2019

2022

2023

2020
2017

2018

2019

2021

2022

2023
Source: Fitch Ratings, Capital Markets Authority Source: Fitch Ratings, Capital Markets Authority
Saif Shawqi, CFA Bashar Al Natoor
Director – Islamic Finance Global Head of Islamic Finance
[email protected] [email protected]

Dashboard │ 1 October 2024 fitchratings.com 1

 Exclusively for the use of Monika Tonkol at Fitch Group, Inc.. Downloaded: 05-Nov-2024
Cross-Sector
Islamic Finance Compendium | 19
Exclusively for the use of Monika Tonkol at Fitch Group, Inc.. Downloaded: 05-Nov-2024
Islamic Finance
Cross-Sector
UAE
Islamic Finance

UAE Debt Capital Markets Dashboard: 1H24

UAE
UAE Debt Capital Markets Dashboard: 1H24 Sukuk, Conventional Bond Issuance in
the UAE (USD Only)
Sukuk, Conventional Bonds
Outstanding in the UAE (USD Only)
UAE Largest
Among DebtEMCapital Markets
Issuers; Dirham Dashboard:
Share Up; 1H24 Sukuk, Conventional
ESG Slows Post COP28 Bond
Total sukuk (LHS)Issuance in
Tot al bond (LHS)
the UAE (USD Only)
Sukuk, Conventional Bonds
Total sukuk
Outstanding inTotal
the
(LHS)
bond (LHS)
UAE (USD Only)
Outlook: The UAE’s debt capital markets (DCM) outstanding rose by 11.8% yoy to USD281 billion at end- (USDbn) Sukuk % of tot al (RHS) (%) Sukuk % of total (RHS)
(USDbn) (%)
Among Largest
1H24 (US dollar EM Issuers;
share: 71.5%), Dirham
and it is expected Share
to reach USD300 Up; ESG
billion Slows Post
in 2H24-2025. This is COP28
on the back 40 Total sukuk (LHS)
Tot al bond (LHS)
40 800 Total sukuk (LHS)
Total bond (LHS)
28
of structural
Outlook: Thereforms, issuers
UAE’s debt seeking
capital to diversify
markets funding, therose
(DCM) outstanding generally resilient
by 11.8% yoy toinvestor
USD281appetite
billion and the
at end- (USDbn)
30 Sukuk % of tot al (RHS) (%)
30 600
(USDbn) Sukuk % of total (RHS) 27
(%)
government’s
1H24 implementation
(US dollar share: 71.5%), of
andthe Dirham
it is Monetary
expected Framework.
to reach Sukuk
USD300 billion in are likely to remain
2H24-2025. This is aon
significant
the back 40 40 800 28
26
funding and policy tool.issuers
The development of the UAE’s DCMtheis one of the priorities of the Ministry of Finance. 20 20 400
of structural reforms, seeking to diversify funding, generally resilient investor appetite and the 30 30 600 27
25
government’s
However, gapsimplementation of the Dirham
include the still-nascent Monetary
UAE dirham Framework.
market, Sukuk
the investor are likely
base’s to remainin
concentration a significant
banks, and 10 10 200 26
24
funding and policypreferring
tool. The development of the 20 20 400
most corporates bank financing overUAE’s DCM
bonds is oneSome
or sukuk. of theissuers
priorities of thetoMinistry
prefer of Finance.
issue bonds rather 0 0 0 25
23
than sukuk, due to the complexities related to the compliance with the sharia standards of the Accounting
However, gaps include the still-nascent UAE dirham market, the investor base’s concentration in banks, and 10 2020 2021 2022 2023 1H24
Year 10 200 2020 2021 2022 2023 1H24 24
and Auditing
most Organization
corporates for Islamic
preferring bank Financial
financing Institutions
over bonds or sukuk.(AAOIFI). There
Some issuers is also
prefer a lack
to issue of Islamic
bonds rather Source: Fitch Ratings, Bloomberg Source: Fitch Ratings, Bloomberg (including multilaterals)
0 0 0 23
alternatives to M-bills.
than sukuk, due to the complexities related to the compliance with the sharia standards of the Accounting 2020 2021 2022 2023 1H24
and Auditing Organization for Islamic
ESG Sukuk and Bonds Issued in Year
the Total 2020
Sukuk2021 Outstanding
2022 in the1H24
2023 UAE
Sukuk Outpace Bonds: In 1H24, sukukFinancial
issuance Institutions (AAOIFI).
in all currencies jumpedThere is also
by 9.8% yoya(USD8.4
lack of billion),
Islamic Source: Fitch Ratings, Bloomberg Source: Fitch Ratings, Bloomberg (including multilaterals)
alternatives to M-bills. UAE By rating and maturity; as of end-1H24
outpacing bond issuance, which fell by 44.3% (USD39 billion). Among dollar-denominated DCM issuances,
sukuk were sizeable at 27.7% in 1H24 (1H23: 35.3%). ESG Sukuk Sukuk
and Bonds Issued in the
Bonds Total Sukuk
AA Outstanding
A inBBB
the UAE BB
Sukuk Outpace Bonds: In 1H24, sukuk issuance in allFitch rates USD26.5
currencies jumped billion
by 9.8% of yoy
UAE(USD8.4
sukuk, 94.3% of
billion), (USDbn) (USDbn)
which are investment-grade (2023: 96.5%). In some instance, UAE banks, both Islamic and conventional, UAE
12
By
8
rating and maturity; as of end-1H24
outpacing bond issuance, which fell by 44.3% (USD39 billion). Among dollar-denominated DCM issuances,
have been Sukuk Bonds AA A BBB BB
sukuk wereable to invest
sizeable in certain
at 27.7% in 1H24sukuk only 35.3%).
(1H23: on the condition
Fitch rates that they arebillion
USD26.5 held-to-maturity rather
of UAE sukuk, 94.3%than
of 10
(USDbn) 6
(USDbn)
traded due to the requirement of the Higher Shariah Authority of the Central Bank.
which are investment-grade (2023: 96.5%). In some instance, UAE banks, both Islamic and conventional, 8
12 8
have been able to invest in certain sukuk only on outstanding
the condition that 6 4
Dirham Expansion: The dirham share in the DCM rose tothey
21.1%areatheld-to-maturity rather
end-1H24 from only than
0.5% at 10
6
traded due to the requirement of the HigherinShariah Authority 4
end-2020. When the programme started 2022, the federalofgovernment
the Central Bank.
was considering bringing the 8 2
2 4
dirham outstanding
Dirham debtdirham
Expansion: The to slightly
sharebelow
in theAED50 billion in the
DCM outstanding coming
rose yearsatto
to 21.1% build a dirham
end-1H24 yield0.5%
from only curve.
at 6
0 0
Banks wereWhen
end-2020. amongthe
theprogramme
first institutions to test
started the dirham
in 2022, DCM, government
the federal once the authorities were satisfied
was considering that the
bringing the 4
22024 2025 2026 2027

2019
2017

2018

2020

2021

2022

2023

1H24 1H24
financialoutstanding
dirham infrastructure
debtwasto in place,below
slightly making use of billion
AED50 strongin dirham liquidity.
the coming years to build a dirham yield curve. 2 and lat er
0 0
Banks
Large were amongThe
EM Player: the first
UAEinstitutions to test the
is the third-largest USdirham
dollarDCM, once the
debt issuer authorities
in emerging were satisfied
markets that the
(EM; excluding Source: Fit ch Rat ings Source:
2024 Fitch Ratings
2025 2026 2027

2019
2017

2018

2020

2021

2022

2023
financial infrastructure was in place, making use of strong dirham liquidity.
China), with a share of 8.9% of the total in 1H24, only behind Saudi Arabia (17.4%) and Brazil (9.4%). Fitch and lat er
followsEM
thePlayer:
IMF’s definition
Fitch-Rated Outstanding Sukuk by UAE Outstanding Sukuk Rating Distribution -
Large The UAE of is EM, which includes
the third-largest US44 countries.
dollar In the GCC,
debt issuer the UAE
in emerging and Saudi
markets Arabia
(EM; have
excluding Source: Fit ch Rat ings
Sector in the UAE
Source: Fitch Ratings
End-1H24
equally large US dollar DCM shares of 35% each at end-1H24, followed by Qatar (14.7%).
China), with a share of 8.9% of the total in 1H24, only behind Saudi Arabia (17.4%) and Brazil (9.4%). Fitch
follows theDebt:
IMF’s We
definition of EM, which includes 44 countries. In the GCC,ofthe UAE
Fitch-Rated
End-1H24 Outstanding Sukuk by Row Labels
UAE Outstanding Sukuk Rating Distribution -Sum of %
Moderate forecast consolidated UAE government debt at 24% GDP atand Saudi Arabia
end-2024, have
well below Sovereign Int ernat ional public Corporates and others
End-1H24 19.3
equally Sector in the UAE
4%
the 49%large
‘AA’ US dollarmedian.
category DCM shares of 35%
Individual each athave
emirates end-1H24, followed
varied debt by Qatar
profiles; (14.7%).
Sharjah stands out with a higher finance A
Row Labels
3.3
Sum of %
End-1H24 4% B 2.4
debt burden. Dubai Infrast ruct ure
Moderate Debt: Werepaid AED29
forecast billion (1.5%
consolidated UAEof the UAE’s GDP)
government in 24%
debt at market and private
of GDP debt inwell
at end-2024, 2023. We
below and project
Sovereign Int ernat ional public Corporates
BB and others 19.3
3.4
expect
the 49%consolidated
‘AA’ categorybudget
median.surpluses
Individual(2024: 4.1%
emirates of GDP;
have varied2023: 7.8%), with
debt profiles; surpluses
Sharjah standsinout
Abu Dhabi
with and
a higher 4% finance A
BBB 3.3
10.2
finance
Dubaiburden.
and deficits 4%
debt Dubaiinrepaid
Ras AlAED29
Khaimah (RAK)
billion and Sharjah.
(1.5% FitchGDP)
of the UAE’s upgraded RAK to
in market ‘A+’
and from ‘A’
private debtin May 2024.
in 2023. We Infrast ruct ure
21%
B
Financial institutions 2.4
52.4
and project BB
A 3.4
37.1
expect
ESG Slowsconsolidated
Post COP28:budget surpluses
In 1H24, ESG (2024: 4.1% ofreached
debt issuance GDP; 2023: 7.8%),
USD3.3 with
billion surpluses
(35% in Abu
lower yoy); Dhabi and
ESG-labelled BBB 10.2
financees
Corporat Financial AA 12.5
Dubai and deficits in Ras Al Khaimah (RAK) and Sharjah. Fitch upgraded RAK to ‘A+’ from ‘A’
issuance was sizeable at 17% of all dollar debt issuance, but below 40% in 2023. The majority of ESG in May 2024.
debt and21%
others Financial
BBB institutions 52.4
inst it ut ions 2.8
issued in 1H24 was in sukuk format at 67.5%. In April 2024, the regulator extended the fee exemption for 19% A 37.1
ESG Slows Post COP28: In 1H24, ESG debt issuance reached USD3.3 billion (35% lower yoy); ESG-labelled 52% Infrastructure and project finance 20.7
Corporat es Financial AA 12.5
listing ESG bonds and sukuk, which can support the issuance.
issuance was sizeable at 17% of all dollar debt issuance, but below 40% in 2023. The majority of ESG debt and others
BBB 20.7
inst it ut ions BBB
International public finance 2.8
3.8
issued in 1H24 was in sukuk format at 67.5%. In April 2024, the regulator extended the fee exemption for Source:
19%Fit ch Rat ings 52% Infrastructure and project finance 20.7
AA 3.8
listing ESG bonds and sukuk, which can support the issuance. BBB
Sovereign 20.7
3.8
Bashar Al Natoor Saif Shawqi, CFA International
A public finance 3.8
3.8
Global Head - Islamic Finance Director - Islamic Finance
Source: Fit ch Rat ings
AA
Total 3.8
100
[email protected] [email protected] Sovereign 3.8
Bashar Al Natoor Saif Shawqi, CFA Source:
A Fitch Ratings 3.8
Global Head - Islamic Finance Director - Islamic Finance Total 100
│ 17 July 2024
[email protected] [email protected] fitchratings.com 1
Source: Fitch Ratings
 Islamic Finance Compendium | 20

UAE Islamic Banks’ Growth Prospects Remain Strong

Non-Rating Action Commentary BASHAR AL NATOOR

Global Head of Islamic Finance
London-08 October 2024 [email protected]
Favourable operating conditions for 2024 and 2025 should support UAE Islamic banks’
REDMOND RAMSDALE
strong credit fundamentals, says Fitch Ratings. The recent, and further expected,
Head of Middle East Bank Ratings and
interest rate cuts will be negative for banks’ earnings, but will be manageable. Fitch’s
Islamic Banking
upgrade of the UAE bank operating environment score to ‘bbb+’ from ‘bbb’ reflects
[email protected]
the beneficial economic environment, continued non-oil sector expansion, strong
liquidity, and improved asset quality.
Fitch views the UAE as a key hub for Islamic finance, with Islamic financing accounting
for 29% of total sector financing at end-1H24. Financing growth was slightly higher in
1H24 (5.7%) than for conventional banks (5.3%), despite conventional banks’ strong
government links. Fitch expects Islamic banks to continue to grow faster than their
conventional peers over the medium term.
The stable gross financing/deposits ratio (end-1Q24: 96%) was still well above
that of conventional banks. Islamic banks continue to be mainly deposit-funded –
84% of total funding (conventional banks: 80%). The wider availability of Islamic
liquidity instruments in the UAE than in most other countries supports UAE Islamic
banks’ liquidity. Islamic bank investments in Islamic certificates of deposit have
increased (end-1H24: AED44 billion) as Islamic M-Bills have not been introduced,
while conventional M-Bills are available. The UAE central bank introduced a Sharia
Compliance Function Standard, effective from 1Q25, as a second line of defence
focused on monitoring sharia compliance risk.
Capitalisation has increased, with an average common equity Tier 1 ratio of 15.7% at end-
1Q24 (end-2023: 13.5%), due to low growth and robust internal capital generation. The
operating profit/risk-weighted assets ratio improved significantly in 1Q24 due to lower
financing impairment charges (49bp; 2023: 76bp). Still-high margins were supported by
substantial low-cost CASA deposits, reflecting the banks’ strong retail franchises, and
remained significantly above those of conventional banks.
 Exclusively for the use of Monika Tonkol at Fitch Group, Inc.. Downloaded: 05-Nov-2024
Islamic Finance Compendium | 21
Cross-Sector
Islamic Banks
Malaysia

Malaysian Debt
Malaysian Debt Capital
Capital Market Dashboard:
Market Dashboard: 1H24 1H24
Market Crosses USD550 Billion, Mostly Sukuk; 2H24 Likely Slower Sukuk, Conventional Bonds Sukuk, Conventional Bond Issuance in
Outlook: Fitch Ratings expects 2H24 debt capital market (DCM) issuance in Malaysia to remain at Outstanding in Malaysia 1H24 – All Malaysia – All Currencies
similar levels to 1H24 or potentially fall due to the government’s gradual fiscal consolidation. However, Currencies Total sukuk (LHS)
efforts by banks and corporates to diversify funding and refinance through debt issuance could Total sukuk (LHS) Total bond (LHS)
Total bond (LHS) (USDbn) Sukuk % of total (RHS) (%)
provide impetus. Federal deficit is likely to fall (2024F: 4.3% of GDP; 2025F: 3.7%; 2026F: 3.4%), with Sukuk % of total (RHS)
(USDbn) (%) 80 66
a modest drop in general government debt in the medium term (2023: 76% of GDP; 2026F: 74%).
800 60 60 64
Sukuk development is among the government’s priorities and likely to stay dominant due to the 60 62
600
59 40
supportive ecosystem, tax incentives and notable demand from a varied investor base, including 400 59
60
Islamic banks. In May, Bank Negara Malaysia (BNM) maintained the Overnight Policy Rate at 3%, 20 58
58
200
with the same likely through 2H24 and 2025. The market faces risks from the ringgit, interest rate 58 0 56
commodity price volatilities, and global geopolitical events. 0 57 2021 2022 2023 1H24
Year
2021 2022 2023 1H24 Source: Fitch Ratings, Bloomberg
Ringgit Focus: We expect the factors driving the ringgit depreciation, including negative interest-rate Source: Fitch Ratings, Bloomberg
differentials and portfolio investor sentiment to wind down in 2H24. Government efforts to support
the ringgit included encouraging government-linked companies and government-linked investment ESG Sukuk and Bond Issuance in Outstanding Sukuk & Bonds by
companies to consistently repatriate foreign investment income and convert it to ringgit. A stronger Malaysia – All Currencies Currency in Malaysia
ringgit could attract more non-resident holding of domestic government bonds (3M24 share: 21.3%). Sukuk Bonds End-1H24
(USDbn) Others
7 1%
Market Profile: The Malaysian DCM is deep and well developed compared to most Muslim-majority US Dollars
6
countries, with a varied base of issuers, investors, and products. The DCM grew 4.4% yoy to cross 5 7%
USD550 billion outstanding at end-1H24, which we estimate at around 130% of GDP. DCM 4
issuance in 1H24 fell by 8.3% yoy to USD45.2 billion due to fiscal consolidation, with the deficit in 3 Malaysian
1H24 lower than 1H23. The government made around 60% of total issues in 1H24 or USD28 billion, 2 Ringgit
and financial institutions, corporates, project finance, and others held the rest. 1
92%

0
Outstanding issuance is mostly domestic with 92% ringgit, and the US dollar share only 7%, partly
2017 2018 2019 2020 2021 2022 2023 1H24
due to regulatory restrictions on foreign-currency borrowing. ESG issuance in 1H24 fell 49% yoy.
Source: Fitch Ratings, Bloomberg Source: Fitch Ratings, Bloomberg
Sukuk Majority: Around 60% of DCM outstanding was sukuk. Malaysia is the largest issuer of sukuk
globally, with 37% of the global share outstanding, followed by Saudi Arabia (28.9%), Indonesia Debt Capital Market in the ASEAN Maturity of Fitch-Rated Sukuk
(12.9%), and the UAE (6.4%). Fitch rates USD16 billion of Malaysian sukuk, all investment grade and Region - Outstanding Share by Country Outstanding in Malaysia
issuers on Stable Outlook. BNM is now providing regulatory flexibility for multilateral development End-1H24 End-1H24, BBB
Vietnam Rest
banks to issue ringgit sukuk and provide ringgit financing to resident entities without prior approval. 3% 0% (USDbn)
Philippines 12
The BNM’s Shariah Advisory Council decided that it is permissible for Malaysian government 11% Indonesia
10
24%
investment issues to be made using wakalah and its variants as an alternative to murabaha. It 8
decided that aside from tangible assets, intangible assets that are non-debt in nature (e.g. usufructs) Thailand 6
are permissible to be the underlying assets. It is yet to be seen if the structure meets GCC Islamic 19% 4
banks’ sharia filter to invest, which was previously an obstacle along with currency risks. 2
Malaysia Singapore 0
20% 23%
Bashar Al Natoor Saif Shawqi, CFA 2024 2025 2026 2027
and later
Global Head - Islamic Finance Director - Islamic Finance Source: Fitch Ratings, Bloomberg Source: Fitch Ratings
[email protected] [email protected]

Dashboard │ 12 August 2024 fitchratings.com 1

 Islamic Finance Compendium | 22

Malaysia’s Supportive Environment to

Sustain Islamic Financing Growth
Non-Rating Action Commentary BASHAR AL NATOOR
Director, Financial Institutions, Banks
Singapore/Dubai-06 February 2024 [email protected]
Fitch Ratings expects the growth of Malaysian Islamic banks to continue to outpace that TAMMA FEBRIAN
of conventional banks in the medium term, after financing reached USD190 billion in Global Head of Islamic Finance
2023, cementing the country’s Islamic banking market as the third-largest globally. [email protected]
The share of Sharia financing rose to 42% of domestic banking system loans, from
41% at end-2022, as banks continued to champion an ‘Islamic First’ strategy.
The sector’s financial performance was relatively steady in 2023, despite the higher
rate environment, and we expect the trend to be sustained in the near-term on a
stable local policy rate and an economy that we forecast will expand by more than
3% in 2024.
Malaysia will see the entrance of its first Islamic digital bank in 1H24, which will cater
to the country’s underserved banking population. The new entrant is likely to compete
aggressively for deposits as it builds its franchise, but we do not expect this to change the
industry’s competitive dynamics in the near to medium term.
 Islamic Finance Compendium | 23

Malaysia Takaful Growth Steady Despite

Macroeconomic Challenges
Non-Rating Action Commentary JESSICA PRATIWI
Associate Director Insurance
Jakarta, Dubai-01 March 2024 [email protected]
The increased awareness of medical and weather events coverage is likely to BASHAR AL NATOOR
stimulate takaful growth in Malaysia but will face some headwinds, including the Global Head of Islamic Finance
inflationary environment, market volatility, weakening ringgit, and the end of the [email protected]
passenger cars tax exemption, says Fitch Ratings.
Fitch expects profitability and capitalisation of the takaful sector to remain stable on
sustained growth despite macroeconomic challenges. A supportive Islamic finance
ecosystem, digital transformation and rising awareness of takaful, will strengthen
Malaysia’s position further as one of the global centres of Islamic finance and takaful.
The family takaful contribution declined by 3.9% yoy in 1H23 after rising significantly over
two consecutive years. Growth in protection products is steady, but the contributions
are offset by a decline in investment-linked products amid market uncertainties. General
takaful growth of 20.1% yoy in 1H23 was driven by the motor contribution, boosted
by tax-free sales of passenger cars booked before 31 March 2023. The takaful sector
maintained its market share at 32% of the insurance market in 1H23.
Fitch views improvement in risk selection as the main driver for wider margins. The
higher general takaful claim ratio of 64.3% in 2023 (2022: 60%), due to frequent
floods, resulted in underwriting losses. Meanwhile, family takaful’s underwriting
margin was hit by medical inflation.
Fitch sees growing demand for digital services as a catalyst for takaful growth. Bank
Negara Malaysia plans to finalise the regulatory framework for Digital Insurers and
Takaful Operators by 1H24.
Malaysia Takaful has applied Malaysia Financial Reporting Standard (MFRS) 17 since
1 January 2023, and the impact of reporting changes on family takaful is mostly
positive. Meanwhile, the financial outcomes of general takaful are similar to MFRS 4,
affected by its shorter duration.
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Islamic Finance Compendium | 24
Islamic Finance
Indonesia

Indonesia
Indonesia Debt
Debt Capital
Capital Market
Market Dashboard:
Dashboard: 1H24 1H24
Slower Supply Growth Expected; Sukuk Notable Sukuk, Conventional Bonds Outstanding Sukuk, Conventional Bond Issuance in
in Indonesia (All Currencies) Indonesia (All Currencies)
Outlook: Fitch Ratings expects Indonesia to remain one of the largest US dollar debt issuers in Total sukuk (LHS) Total sukuk (LHS)
Emerging Markets (EM; excluding China) and one of the largest global sukuk issuers over the Total bond (LHS) Total bond (LHS)
medium term. Its debt capital market (DCM) is likely to cross USD750 billion, with a sizeable share Sukuk % of total (RHS) Sukuk % of total (RHS)
(USDbn) (%) (USDbn) (%)
in sukuk, mainly due to government funding diversification and Islamic-finance development goals. 800 20 150 80
However, DCM issuance is expected to grow more slowly in the short term, as the 2025 budget 600 15 60
100
suggests fiscal policy continuity by the next government. We assume Indonesia's government debt
400 10 40
to continue gradually declining, from 39.1% of GDP in 2024 to 37.2% in 2027. However, fiscal risks
50
remain over the medium term, as the transition team of the next government has given mixed 200 5 20
signals on fiscal policy. Government securities are relatively developed at over 80% of DCM. 0 0 0 0
Fitch expects Bank Indonesia to cut its policy rates to 5.25% later this year, after raising it to 6.25% 2021 2022 2023 1Q24 2Q24 2021 2022 2023 1Q24 2Q24
in April amid the falling US dollar–Indonesian rupiah exchange rate. The DCM faces risks from rising Source: Fitch Ratings, Bloomberg Source: Fitch Ratings, Bloomberg
borrowing costs, rupiah and commodity prices volatility, weaker growth in China (Indonesia’s major
export partner), and shifting global investor sentiment towards EM debt. Onshore Corporate Notes Outstanding Onshore Corporate Note Defaults by
Sovereign-Driven Sukuk: Sukuk made up 30% of 1H24 DCM issuance (2023: 57%), with the rest in December 2019 up to June 2024 Instrument Type
bonds, following government initiatives to develop the Islamic finance industry. Over 95% of sukuk Sukuk (LHS) Proportion based on principal amount of defaulted
MTN (LHS)
issuances were by the sovereign and Bank Indonesia. Fitch rates 98% of the total US dollar Corporate bonds (LHS)
instrument
Corporate bonds MTN Sukuk
Indonesian sukuk outstanding, 100% of which is investment-grade. A number of Fitch-rated rupiah Growth yoy (RHS)
(IDRtrn) 100%
sukuk have extra credit triggers in the form of dissolution events linked to sharia non-compliance. 300 10%
Many rated issuers are required to conduct annual sharia reviews. 80%
250 5%
200 60%
Banks and Corporates Focus: We expect bank issuance to be light in 2H24 as most have adequate 0%
150 40%
liquidity and capital cushions, with most large banks planning to repay maturing bonds with internal 100 -5% 20%
cash, rather than refinancing amid higher rates. Banks’ DCM issuances will probably be under Dec 19Dec 20Dec 21Dec 22Dec 23 Jun 24
0%
IDR5 trillion (USD319 million) up to end-2024. Impetus could come from corporates, whose Excluding financial institution issuance. Based on
instruments registered at KSEI 2019 2020 2022 2023 1H24
onshore note issuances are likely to exceed IDR65 trillion (USD4.1 billion) in 2024 (2023: IDR60
Source: Fitch Ratings, KSEI Source: Fitch Ratings, KSEI
trillion), underpinned by continued capex and higher refinancing needs, despite rising coupons.
Profile: The DCM grew 9.5% yoy to USD677 billion outstanding at end-1H24, with rupiah dominant Debt Capital Market in the ASEAN Outstanding Sukuk by Country of Risk
(77%) followed by US dollars (20%). DCM issuance in 1H24 reached USD83.4 billion (all currencies), Region - Outstanding Share by Country End-2Q24
Qatar
up 11.6% from 2H24. Foreign investors’ share of tradeable domestic government securities fell End-1H24
Vietnam Rest
Bahrain
2% Others
Pakistan 2%
(1H24: 14%; 2019: 39%). Corporate and bank issues are shallower. ESG debt was USD12.5 billion 3% 0% 2% 3%
outstanding (sukuk: 54%). There were fewer corporate defaults in 1H24 than in 2023. Philippines Supranational
11% Indonesia 3%
ASEAN & OIC Leader: Indonesia has the largest DCM in ASEAN, with a 24% share, followed by 24% Turkiye
Singapore (23%) and Malaysia (20%), primarily because it is the largest economy in south east Asia. Malaysia
3%
37%
Indonesia has the largest DCM of the 57 Organisation of Islamic Cooperation countries, the third- Thailand UAE
19% 6%
largest sukuk issuer globally, and was the sixth largest EM US dollar debt issuer (ex. China) in 1H24.
Indonesia
Bashar Al Natoor Amjad Alkabra Malaysia Singapore 13%
Global Head of Islamic Finance Senior Analyst – Islamic Finance 20% 23% Saudi Arabia
[email protected] [email protected] 29%
Source: Fitch Ratings, Bloomberg Source: Fitch Ratings, Bloomberg

Dashboard │ 21 August 2024 fitchratings.com 1

 Islamic Finance Compendium | 25

Supportive Regulatory Environment to Boost

Indonesia’s Islamic Banking Sector
Non-Rating Action Commentary SILVONY GATHRIE
Senior Analyst, Banks
Dubai/Jakarta-07 February 2024 [email protected]
Fitch Ratings expects the Indonesian sharia banks to benefit from a supportive regulatory
LUCKY ARIESANDI, CFA, FRM
environment that could promote more industry consolidation and improve sector
competitiveness, especially for larger sharia business units (SBUs). This should help Director, Banks
[email protected]
tackle existing challenges the Islamic banking sector faces, such as stiff competition with
conventional banks and low sharia financial literacy of 9.1% in 2022.
BASHAR AL NATOOR
Indonesia Islamic banks’ financing market share increased to 8.0% at end-9M23 (2022: Global Head of Islamic Finance
7.7%), with year-to-end sharia financing growth of 11.4% outpacing conventional loan [email protected]
growth of 6.4%. We expect this trend to continue in 2024-2025.
Conventional banks must divest their SBUs into a new entity, or merge them with
existing sharia banks, within two years if their SBU assets reach 50% of total assets
or IDR50 trillion. Fitch estimates the new spin-off criteria would affect CIMB
Niaga, whose SBU total assets surpassed the minimum requirement at end-9M23.
PT Maybank Indonesia Finance (AAA(idn)/Stable) and PT Bank Tabungan Negara
(Persero) Tbk (BTN/AA+(idn)/Stable) may also be included, as their SBU assets totalled
IDR42.1 trillion and IDR48.1 trillion, respectively. BTN aims to acquire a sharia bank
and merge it with its existing SBU as part of its spin-off strategy.
We expect sharia banks’ non-performing financing ratios to stabilise, supported
by an acceleration in consumer financing from presidential election spending in
1H24, higher minimum wage and manageable inflation. We also expect the banks’
profitability to improve as credit costs decline, operational efficiency improves and
financing continues to accelerate.
Indonesia’s Islamic banking market is the ninth largest market globally by total assets,
ahead of Pakistan, Egypt, Jordan, Bahrain and Oman, according to Islamic Financial
Services Board data.
 Islamic Finance Compendium | 26

Indonesia Takaful Sector’s New Capital Requirements

to Shape Sector Dynamics
Non-Rating Action Commentary FEMMY NOVARYANI
Senior Analyst, APAC Insurance
Dubai/Jakarta-20 February 2024 [email protected]
The new equity requirements for Indonesia’s takaful and retakaful sector will
encourage healthy competition and spur consolidation, says Fitch Ratings, with some BASHAR AL NATOOR
weaker insurers likely to fall short of the requirements. Global Head of Islamic Finance
[email protected]
We forecast the sector’s contributions to grow by 5%-10% in 2024, supported by
Indonesia’s position as the sixth-largest takaful market globally and the potential from
its low insurance penetration rate, halal businesses and takaful window spin-offs. This
is despite multiple challenges including the new requirements, the population’s low
financial literacy in sharia products (9% in 2022), volatile profitability, distribution
channel gaps and the sector’s small capital base.
Almost half the companies will have to raise capital to meet the requirement by end-
2026 based on their latest equity levels, and almost two-thirds of them by end-2028,
as capital generated through growth is unlikely to be sufficient. The takaful sector’s
market share shrank to 8.2% in 4M23, from 9.4% in 4M22, mainly due to lower
contributions from life sharia.
We expect the Indonesian Financial Services Authority’s (OJK) spin-off requirements
will encourage takaful companies to optimise their business development potential,
even as they benefit from less competition amid the stringent requirements. Over
70% of (re)takaful windows will be spun off by end-2026, while the remaining 30%
will transfer their sharia portfolios to full-fledged (re)takaful companies.
The capital requirements will rise to IDR100 billion and IDR200 billion for takaful
and retakaful companies, respectively, from IDR50 billion and IDR100 billion at end-
2026. By end-2028, they will rise to IDR200 billion for takaful and IDR400 billion
for retakaful, for those offering simple takaful products. Companies that offer a full
range of takaful products will be required to have at least IDR500 billion, for takaful,
and IDR1 trillion, for retakaful.
 Exclusively for the use of Monika Tonkol at Fitch Group, Inc.. Downloaded: 05-Nov-2024
Islamic Finance Compendium | 27
Cross-Sector
Islamic Finance
Turkiye

Turkiye Debt
Turkiye Debt Capital
Capital Markets
Markets Dashboard:
Dashboard: 1Q24 1Q24
Dollar DCM Reviving Upon Improved Investor Sentiment Sukuk, Conventional Bonds Sukuk, Conventional Bond Issuance in
Outstanding in Turkiye Turkiye
Outlook: Turkish debt capital market (DCM) issuance will continue to be driven primarily by sovereign Total sukuk (LHS) Total sukuk (LHS)
financing, funding diversification goals, and the Islamic finance development agenda over the next 12– Total bond (LHS) Total bond (LHS)
(USDbn) Sukuk % of total (RHS)
24 months. Fitch Ratings expects the bank and corporate DCM share to continue being smaller than (USDbn) Sukuk % of total (RHS)
(%)
(%)
sovereigns, with issuance mostly opportunistic given the still-high costs. In the medium term, DCM will 500 8 100 25
likely cross USD450 billion outstanding, with sukuk to cross 20% of the issuance mix. 400 6
80 20

The recent revival in foreign-currency debt issuances is a sign of lower near-term refinancing risks 300 60 15
4
due to improved investor sentiment since Turkiye’s adoption of more conventional macroeconomic 200 40 10
policies. At end-2023, USD226 billion total external debt was maturing in the next 12 months, 100 2 20 5
leaving Turkiye vulnerable to investor sentiment, although the sovereign and private sector have 0 0 0 0
resilient records in accessing external financing. In March, Fitch upgraded Turkiye to 'B+'/Positive. 2021 2022 2023 1Q24 2021 2022 2023 1Q24
Fitch rates 90% of Turkish US dollar sukuk (USD12.3 billion), with 93% rated ‘B+’. Source: Fitch Ratings, Bloomberg Source: Fitch Ratings, Bloomberg

Profile: The Turkish DCM rose 8% yoy to USD422.6 billion outstanding at end-1Q24, with the Fitch-Rated Outstanding Sukuk by Fitch-Rated Turkish Sukuk
majority in Turkish lira (63%), followed by US dollars (32%), and euros (5%). To control inflation, the Sector in Turkiye Outstanding
central bank hiked interest rates to 50% in March 2024, from 8.5% in June 2023, and is expected to End-1Q24 Financial
End-1Q24 B-
B 3.0%
maintain a relatively tight policy. More than 85% of the outstanding DCM are sovereign issuances. institutions
4.0%
7%
The non-resident investors’ holdings as a share of domestic sovereign debt was a low 1.7% in 3M24
(2017: 19.4%) due to risk aversion amid an unsustainable economic policy mix that distorted
interest rates. However, non-resident investors are starting to return (2022: 0.8%). Resident banks
are the key debt investors, holding 78% of domestic sovereign debt as of 1Q24. Fixed-coupon lira
bonds had 39.3% of domestic borrowing in 1Q24, followed by gold bonds and lease certificates B+
Sovereign 93.0%
(sukuk) at 25.9%. ESG bonds accounted for USD11 billion outstanding. 93%
Sukuk Rising: Turkiye is the fourth-largest sukuk issuer globally and among the three G20 countries
active in the sukuk market. Sukuk rose to 15% of 2023 DCM issuance (2018: 6.2%), and 6.5% of Source: Fitch Ratings Source: Fitch Ratings
DCM outstanding in 1Q24 (2021: 4.7%). US dollar sukuk issuers generally aim to comply with Low Government Debt Turkish Domestic Debt by Holders (%)
AAOIFI sharia standards to not exclude UAE Islamic banks. In 2022, on back of the sovereign General govt. debt Year 2019 2020 2021 2022 2023 1Q24
seeking alternative funding amidst weak investor demand, sukuk peaked at 40% of US dollar DCM
issues. Turkiye GG debt GG debt B median Residents 89.9 96.0 97.1 99.2 98.1 98.3
GG debt BB median Banking 58.0 67.8 72.7 76.9 79.0 78.0
Low Public Debt: General government debt is low, with a strong revenue base, manageable debt (% GDP) sector
amortisations and improved financing conditions. Turkiye issued USD10 billion in external markets 80 Non-banking 29.7 20.8 19.6 17.5 15.4 17.0
in 2023, and the current financing plan assumes a similar amount for 2024. The sovereign issued a Sector
60
USD3 billion bond in February 2024 with the lowest spread of the past four years. Central Bank 2.2 7.4 4.8 4.8 3.7 3.3
40
Market Opening: There are signs of rated banks and corporates returning to the dollar debt market of the
since 2H23, reflecting improved access and strategic moves to maintain their presence by locking
20 Republic of
0 Türkiye
in more acceptable, although still high, pricing, following a prolonged period of very limited issuance.
2019 2020 2021 2022 2023 Non- 10.1 4.0 2.9 0.8 1.9 1.7
Source: Fitch Ratings, national authorities Residents
Bashar Al Natoor Saif Shawqi, CFA
Total 100 100 100 100 100 100
Global Head - Islamic Finance Director - Islamic Finance
[email protected] [email protected] Source: Fitch Ratings, Ministry of Treasury and Finance

Dashboard │ 15 May 2024 fitchratings.com 1

 Islamic Finance Compendium | 28

Turkish Islamic Banking Segment Expands

Amid Economic Rebalancing
Non-Rating Action Commentary AHMET KILINC
Director
Dubai/London-05 March 2024 [email protected]
Turkish Islamic banking should maintain above sector-average growth in 2024, albeit
at a slower rate than in previous years says Fitch Ratings in a new report. This expected BASHAR AL NATOOR
relative slowdown in growth stems from the authorities’ efforts to curb inflation via Global Head of Islamic Finance
stricter monetary policies and macroprudential measures. [email protected]

The segment’s market shares have risen in recent years, mainly due to the entry and
rapid growth of three state-owned banks and the government’s strategic focus on the
segment to reach 15% of banking sector assets by 2025. At end-2023, Islamic banks
accounted for 8.7%, 7.8% and 10.2% of banking sector assets, financing and deposits,
respectively. Limited distribution channels, product gaps, and low public awareness
could constrain the segment’s prospects.
The risks to asset quality of the Islamic banks will be a key driver of performance in
2024. We expect a moderate increase in the non-performing financing ratio in 2024,
reflecting lower GDP growth, higher interest rates in lira, persistently high inflation,
and slower financing growth.
Turkish Islamic banks are largely deposit funded, which results in fairly limited
external foreign-currency debt exposure, mitigating refinancing risks. Nevertheless,
segment deposit dollarisation is high, and foreign-currency liquidity could come under
pressure from sector-wide deposit instability, if not offset by shareholder support, or
prolonged market closure. We expect external funding access to increase, but this will
be opportunistic as pricing is still high.
Segment capitalisation is adequate, supported by full total reserves coverage of non-
performing financing and pre-impairment profit buffers. The segment common equity
Tier 1 ratio (end-2023: 15.6%) includes a 400bp and 250bp uplift (Fitch estimates) from
the alpha factor and sector-wide forbearances, respectively. Nevertheless, capitalisation
is sensitive to macro and asset-quality risks, lira depreciation and growth.
 Islamic Finance Compendium | 29

UK a Western Hub for Islamic Finance;

Domestic Niche
Non-Rating Action Commentary BASHAR AL NATOOR
Global Head of Islamic Finance
Toronto/Dubai-27 August 2024 [email protected]
The UK remains a western hub for the Islamic finance industry, Fitch Ratings says.
SAIF SHAWQI, CFA
However, the domestic Islamic finance industry remains niche and is unlikely to gain
Director - Islamic Finance
mainstream relevance at least till the medium term.
[email protected]
The London Stock Exchange is the third-largest listing venue for US dollar sukuk
globally, with 35% global share and around USD80 billion outstanding at end-1H24. AMJAD ALKABRA
English Law is the governing law for most dollar sukuk and Islamic syndications Senior Analyst - Islamic Finance
globally. UK banks are among the key sukuk arrangers, and Islamic interbank and [email protected]
derivatives counterparts for Islamic banks. Additionally, London Metals Exchange
is accessed by Islamic banks in many countries to facilitate cash financing through
tawarruq contracts.
The UK continues to attract foreign direct investments from the GCC and other OIC
countries, including from Islamic investors. The UK is home to four Islamic banks, all
with GCC ownership, and is on course to have its fifth Islamic bank, which is likely to
increase competition and add depth to the sector. The conversion of Ahli United Bank
(UK) PLC (A/ Stable) to an Islamic bank, following the acquisition of its Bahraini parent
by Kuwait Finance House (A/ Stable) in 2023, is expected to be completed in 2024.
Despite their longstanding presence in UK and supportive regulations, Islamic banks
held only 0.1% of the UK banking system assets at end-2023. Demand drivers are low as
Muslims are only around 6.5% of UK’s population, with generally limited awareness of
Islamic finance, as well as varying levels of sharia-sensitivity and confidence in the product
offering. Supply drivers are also limited as Islamic banks have a narrower product range,
limited branches, and may lack competitiveness versus conventional banks.
While the UK government issued sukuk in 2021, it has no such plans in 2024-2025.
Sukuk issuance is not part of the government’s regular debt management policy but is
instead intended to deliver wider benefits such as reinforcing the UK as the western
hub for Islamic finance. Sukuk out of the UK by corporates and banks are also rare.
 Islamic Finance Compendium | 30

Islamic banks’ total assets grew 26% year on year (YoY) to USD8.2 billion at end-2023.
Most Islamic banks primarily offer wealth management and real estate financing
solutions to GCC clients. Two Islamic banks are seeking to expand outside the UK.
Bank of London and the Middle East plc (A/Stable) commenced its operations in Saudi
Arabia in 1H23 through its subsidiary BLME Capital. The new strategy of Al Rayan
Bank PLC also seeks expansion in Saudi Arabia and the UAE, and increasing business
origination in Qatar.
UK-domiciled public Islamic funds expanded 115% yoy to USD1.8 billion in assets
under management (AUM) at end-2023, outpacing conventional public funds AUM,
which grew 17.5% YoY to USD3.4 trillion at end-2023. About 95% of Islamic fund
AUMs were under equity funds. UK-Islamic funds face stiff competition from leading
western jurisdictions such as Luxembourg, Ireland, USA, and Jersey.
Despite being a niche, we expect the UK’s Islamic finance industry size to reach
USD15 billion in the medium term, up from USD10 billion at end-2023, on the back of
the conversion of a conventional bank to an Islamic bank, continued asset growth
of Islamic banks and funds, and supportive regulations. The UK government
intends to launch a sharia-complaint alternative student finance product as
soon as possible after 2025, which could increase financial inclusion.
In January, HM Treasury published a consultation document “Tax
Simplification for Alternative Finance”, acknowledging differences
in tax treatment when a commercial or residential property is
refinanced using alternative (Islamic), rather than conventional,
financing. This may lead to capital gains liabilities and capital
allowances could be lost for those using alternative
financing. The document suggests a proposal for
legislative change. Fitch will monitor its impact.
 Islamic Finance Compendium | 31

Qatar’s Debt Capital Market Expected to Be

Broadly Stable Amid Gov’t Debt Repayment
Non-Rating Action Commentary In 1H24, sukuk issuance expanded by 122% yoy to USD500 million, while bond
issuance was up by 59% yoy to USD12.4 billion. The QCB regularly issues Treasury
Dubai/Toronto-23 September 2024 bills and sukuk, which provides domestic Islamic banks a venue to invest their excess
Qatar’s debt capital market (DCM) issuance is expected to be broadly stable amid liquidity. Fitch rated about USD3.2 billion of Qatari sukuk, and rated ‘A’ at end-1H24.
the government’s continued debt repayments and limited corporate DCM access, Fitch has recently upgraded Qatar’s rating to ‘AA’ with a Stable Outlook –the highest
Fitch Ratings says. credit rating among the GCC countries.

Bank issuances are expected to continue as they replace upcoming maturities and The Qatari government has been repaying external debt as it matures, and debt
strive to diversify their funding bases. Qatar’s DCM reached about USD130 billion decreased by QAR27 billion (USD 7.4 billion) in 2023. We project debt/GDP to fall to
outstanding at end-1H24, same as end-1H23, with sukuk at 10% (1H23: 13%). Since about 48% of GDP in 2024 and 46% in 2025, from a peak of 85% in 2020. This reflects
the start of 2024, the diversity of issuance has increased, with the issuance of the first our expectation that the government will continue to repay maturing external debt
sovereign green bond in the Gulf Co-operation Council (GCC), the first Qatari riyal in 2024 (USD4.8 billion), but is likely to refinance its USD2 billion 2025 maturity in
corporate sukuk and a Formosa bond. 2024, and will gradually pay down some of its domestic debt.

Qatar’s DCM is the third-largest in the GCC after Saudi Arabia and the UAE. The We assume the government will repay the upcoming maturities in 2025. The
sovereign holds the majority of the DCM. Most Qatari banks have also issued senior subsequent debt path will depend on how the government chooses to deploy its fiscal
unsecured debt to extend their maturity profiles and diversify funding. Corporate surpluses. We forecast Qatar’s general government budget surplus at about 8.6% of
issuances have been small. The majority of the DCM outstanding were denominated in GDP in 2024 (2023: 9.3% of GDP).
US dollars at 65%, followed by riyals at 30%. About 9.1% of the DCM have maturities
in 2H24, 13.4% in 2025, and 77.5% in 2026 and beyond.
BASHAR AL NATOOR
The regulator has taken steps to advance the still-developing DCM in recent years. Global Head of Islamic Finance
However, DCM limitations remain, such as the nascent riyal-DCM market, the [email protected]
concentration of the investor base in banks and most corporates preferring bank
financing over bonds or sukuk. AMJAD ALKABRA
Senior Analyst - Islamic Finance
The Qatar Central Bank (QCB) published its ESG and sustainability strategy for the
[email protected]
financial sector in June 2024, aiming to boost sustainable finance and develop ESG
sukuk and bonds. The strategy includes outcomes such as the increased transparency
of the financial sector’s role in national sustainability through a taxonomy of sustainable
activities and guidelines for issuing sustainable products like loans, bonds and sukuk.
ESG debt in Qatar was USD3.8 billion at end-1H24, with sukuk at 19.5%. The inclusion
of sukuk will attract investors seeking shariah-compliant, ESG options. These initiatives
are intended to enhance Qatar’s appeal to global investors focused on sustainability.
 Exclusively for the use of Monika Tonkol at Fitch Group, Inc.. Downloaded: 05-Nov-2024
Exclusively for the use of Monika Tonkol at Fitch Group, Inc.. Downloaded: 05-Nov-2024 Islamic Finance Compendium | 32
Banks
Banks
Islamic Banks
Islamic Banks
Qatar
Qatar

Qatari Islamic
Qatari Islamic Banks
Banks Dashboard:
Dashboard: 2024 2024 Asset Quality
Qatari Islamic Banks Dashboard: 2024 Asset Quality
FICs/Average Gross Financing
FICs/Average Gross
Conventional banks Financing
Islamic banks
Solid Market Share; Stable Asset Quality Conventional banks Islamic banks (%) Conventional banks Islamic banks
Solid Market Share; Stable Asset Quality
Key Trends: Fitch Ratings upgraded three Qatari Islamic banks in March to reflect a higher ability (%) Conventional banks Islamic banks 1.2
(%)
5
(%) 1.2
1.0
Key Trends:
of support Fitch
from theRatings
Qatariupgraded
authorities. three
SolidQatari Islamic
oil prices andbanks
stableinoperating
March to conditions
reflect a higher
continueability
to 5 1.0
4 0.8
of support
support fromIslamic
Qatari the Qatari
banks’authorities.
performance. SolidThe
oil sector’s
prices and stable growth
financing operatingwas conditions continue
flat in 2023, owing to 4
3 0.8
0.6
support Qatari Islamic
large government banks’ performance.
repayments and subduedThe sector’s
public financing
sector demand. growth was flat
However, the in 2023, owing
sector’s share toof 3
2 0.6
0.4
large assets
total government repayments
was stable and subdued
at 25%, reflecting public sectorofdemand.
the prominence However,
Islamic banking the sector’s share of
in Qatar. 2
1 0.4
0.2
total assets was stable at 25%, reflecting the prominence of Islamic banking in Qatar. 1
0 0.2
0.0
Asset Quality: Islamic banks’ asset quality remained resilient in 2023. The sector’s impaired 0 YE21 YE22 YE23 0.0 FY21 FY22 FY23
Asset
financing Quality:
ratio Islamic banks’
was stable, at asset
3.9% quality
(end-2022:remained
3.9%),resilient in 2023.
benefitting from Thethe sector’s impaired
benign operating Source: FitchYE21
Ratings YE22 YE23 Source: Fitch FY21
Ratings FY22 FY23
financing
conditions,ratio wasabove
and just stable,theatconventional
3.9% (end-2022: banks’ 3.9%),
ratio ofbenefitting from to
3.5%, due mainly thehigher
benign operating
impairments Source: Fitch Ratings
Source: Fitch Ratings
Earnings & Profitability Cost to Income Ratio
conditions,
in real estate and
andjust above theRisks
contracting. conventional banks’ from
to asset quality ratio concentrations
of 3.5%, due mainly to higherto
and exposure impairments
real estate Cost toConventional
Income Ratio
Earnings & Profitability banks Islamic banks
in real estate and contracting. Risks to asset quality from concentrations and
still stand, but are mitigated by adequate provisioning levels and strong underwriting standards, exposure to real estate Conventional banks Islamic banks (%) Conventional banks Islamic banks
still stand, but are mitigated by adequate provisioning levels and strong underwriting standards, (%) Conventional banks Islamic banks 40
(%)
Performance: The operating profit/risk-weighted assets ratio improved slightly, to 2.2% in 2023, 4.0 40
(%) 30
Performance: The operating
due to lower financing profit/risk-weighted
impairment charges, but fared assets
worseratio
thanimproved slightly,banks
at conventional to 2.2%
(3%),in owing
2023, 4.0
3.0 30
duelower
to to lower
net financing
financingimpairment charges,
margins. Islamic but fared
banks’ average worse than at conventional
cost/income banks (3%),
ratio was broadly stableowing
and 20
3.0
2.0
to lower
below net
that of financing
conventional margins.
banks. Islamic banks’ average cost/income ratio was broadly stable and 20
2.0 10
below that of conventional banks. 1.0
Funding and Liquidity: The gross financing/deposits ratio was broadly stable at 109% at end-2023, 10
1.0
0.0 0
Funding
260bp above and Liquidity: The gross financing/deposits
that of conventional banks. Qatari Islamic ratiobanks
was broadly stable
are mainly at 109% at end-2023,
deposit-funded (74% of 0 FY21 FY22 FY23
0.0 FY21 FY22 FY23
260bp above that
total funding; ofwith
in line conventional
conventionalbanks. Qatari
banks) andIslamic
have abanks
higherare mainly
share deposit-funded
of retail deposits and (74%
lowerof Source: FitchFY21
Ratings FY22 FY23 Source: FitchFY21
Ratings FY22 FY23
total
reliancefunding; in line with funding
on non-resident conventional banks) and have
than conventional a higher
banks. share ofthe
This reflects retail deposits
Islamic bank’and lower
stronger Source: Fitch Ratings Customer Deposits/ Total
Source: Fitch Ratings Funding
Funding & Liquidity
reliance on non-resident
retail franchises and higher funding
focus than
on the conventional
domestic market.banks. This reflects the Islamic bank’ stronger Funding & Liquidity deposits
Gross financing/customers' Customer Deposits/
Conventional banks Total Funding
Islamic banks
retail franchises and higher focus on the domestic market. Gross financing/customers' deposits (%) Conventional banks Islamic banks
The Central Bank of Qatar has recently launched Islamic structured deposit and financing facilities Conventional banks Islamic banks
77
(%)
(%)
The Central
in Qatari Bank ofMarket
Monetary Qatar has recently
Rate and Repolaunched Islamicwhich
operations, structured depositto
will continue and financing
support thefacilities
sector’s 112
Conventional banks Islamic banks
77
(%) 76
in Qatari Monetary Market Rate and Repo operations, which will continue to support the sector’s
liquidity. 110
112 76
75
liquidity. 108
110
Capital: The average common equity Tier 1 ratio rose to 16.3% at end-2023, due to internal capital 106
108 75
74
Capital:
generation Theand
average
muted common equity Tier
risk-weighted asset1 ratio roseIslamic
growth. to 16.3% at end-2023,
banks’ due to internal
core capitalisation was capital
140bp 104
106 74
73
generation and muted risk-weighted asset growth. Islamic banks’ core capitalisation was 140bp 102
104
above that of conventional banks. 100 73
72
102
above that of conventional banks. 100 YE21 YE22 YE23 72 YE21 YE22 YE23
Key Expectations for 2024: Islamic bank’s financing growth will remain subdued in 2024, similar to
Source: FitchYE21
Ratings YE22 YE23 Source: FitchYE21
Ratings YE22 YE23
Key Expectations
the sector, for 2024: Islamic
while profitability bank’sstable.
will remain financing
Thisgrowth will remain
will support subdued
the banks’ in 2024,
capital similar
buffers, whichto
the sector,will
we expect while profitability
remain adequate will
forremain stable.
the risks. AssetThis will support
quality risks fromthehigher
banks’rates
capital buffers,
appear which
contained
Capital Ratios
Source: Fitch Ratings Equity/Assets
Source: Fitch Ratings

we
Capital Ratios
Conventional banks CET1 ratio Equity/Assets
Conventional banks Islamic banks
andexpect will remain
we expect adequate
performance for the
to stay risks. Asset
resilient. qualityQatari
We expect risks from
bankshigher rates appear
to continue issuing contained
sukuk in Islamic banks CET1
Conventional banksratio
CET1 ratio (%) Conventional banks Islamic banks
and
2024we asexpect performance
they replace upcoming to stay resilient.
maturities thisWe
yearexpect Qatari
and strive tobanks to continue
diversify issuing
their funding sukuk in
bases. Conventional
Islamic banksratio
banks CET1 CAR 15
(%)
2024 as they replace upcoming maturities this year and strive to diversify their funding bases. (%) Islamic banks CAR
Conventional banks CAR 15
40
(%) Islamic banks CAR 10
40
10
Redmond Ramsdale Bashar Al Natoor 20 5
Redmond Ramsdale
Head of Middle East Bank Ratings Bashar Al Natoor
Global Head of Islamic Finance 20 5
Head of3530
+44 20 Middle East Bank Ratings
1836 Global
+971 4Head of Islamic Finance
424 1242 0
0
+44 20 3530 1836
[email protected] +971 4 424 1242
[email protected] 0 YE21 YE22 YE23
0 YE21 YE22 YE23
[email protected] [email protected] Source: FitchYE21
Ratings Source: FitchYE21
Ratings YE22 YE23
YE22 YE23
Source: Fitch Ratings Source: Fitch Ratings
Dashboard │ 28 March 2024 fitchratings.com
Dashboard │ 28 March 2024 fitchratings.com
 Islamic Finance Compendium | 33

Bahraini Islamic Finance Industry Well-Developed;

90% of Sukuk Rated ‘B+’
Non-Rating Action Commentary BASHAR AL NATOOR
Global Head of Islamic Finance
Dubai-20 February 2024 [email protected]
The Bahraini Islamic finance industry is well-developed, and Fitch Ratings expects
SAIF SHAWQI, CFA
continued growth in 2024–2025, driven by banking sector consolidations, bottom-up
Director - Islamic Finance
demand, sukuk’s growing role in diversifying government funding and meeting fiscal
[email protected]
deficits, and increasingly enabling regulations. Fitch rates over 80% of the US dollar
sukuk outstanding from Bahrain (USD11.4 billion), with 90.3% rated ‘B+’ at end-2023.
We estimate the Bahraini Islamic finance industry at USD77 billion as of end-2023,
split between Islamic banking assets (79%), outstanding sukuk (21%), and takaful
contributions (0.2%).
The expansion in Islamic banks’ domestic market share (end-2023: 42%; end-2022:
38.4%) is partly due to Ahli United Bank B.S.C.’s ongoing conversion into an Islamic bank
after its acquisition by Kuwait Finance House. Outstanding sukuk expanded 12.5% yoy
(end-2023: USD16.1 billion), with 34% in the local debt capital market (2020: 27%),
and the rest in bonds. Bahrain has no history of default, and has received extensive and
repeated financial support from Saudi Arabia, the UAE and Kuwait since 2011, which
helps support market access. Takaful had a sizeable 35.6% share of the insurance sector
at end-9M23, based on gross premiums (end-2020: 33.6%).
Higher oil prices and strong financial backing from partners in the GCC have eased
operating environment pressures in Bahrain. The concentrated system in the smallest
GCC economy are key challenges to both the Islamic and conventional banking
sectors. The Bahraini debt capital market is mostly comprised of government issues.
Total Islamic banking assets expanded by 46.4% yoy (end-2023: USD60.9 billion),
outpacing conventional banking assets, which fell 2.6% yoy. Islamic banks’ total market
share reached 25.5% of banking system assets (including foreign assets) at end-2023
(end-2022: 18.5%). Bahrain’s Islamic banking market is the tenth-largest globally
by total assets, based on IFSB data, behind the UAE, Kuwait, Turkiye, Bangladesh,
and Indonesia, but ahead of Pakistan, Egypt, Jordan, and Oman. Bahrain has made
significant strides in fintech and the adoption of digital payment.
 Islamic Finance Compendium | 34

Islamic retail banks are adequately liquid (end-3Q23 liquid assets ratio: 19.2%; end-
2022: 17%), but less so than conventional retail banks (end-3Q23: 30.6%; end-2022:
32.8%) due to the notably lower availability of Islamic liquidity-management products.
The capitalisation profile of Islamic retail banks was satisfactory (end-3Q23 capital
adequacy ratio: 20.5%, end-2022: 21.2%), with conventional retail banks at similar
levels, although Islamic banks’ capital ratios receive an uplift from the 30% alpha factor.
However, Islamic retail banks’ profitability (end-3Q23 return on equity: 7%; end-2022:
10.6%) and asset-quality (end-3Q23 non-performing loans (NPL) ratio: 5.7%; end-2022:
4.8%) metrics have deteriorated, more than conventional retail banks’ (end-3Q23
return on equity: 10.3%; end-2022: 11%; end-3Q23 NPL ratio: 3.4%; end-2022: 3.3%).
Mergers and acquisitions are a recurrent theme. On 18 February, Al Salam Bank B.S.C.
announced that it reached agreement to solely acquire KFH Bahrain, a wholly owned
subsidiary of KFH Group, after renegotiating with KFH Group. Esterad Investment
Company acquired Venture Capital Bank in 2023, with the latter planning to merge with
the former. In 2023, Dallah AlBaraka Holding Company, a majority shareholder of Al
Baraka Group (ABG), increased its stake in ABG. On the takaful front, Solidarity
Bahrain signed an agreement with Ahli United Bank to acquire its entire stake in
the insurer Al Hilal Life and its subsidiary Al Hilal Takaful.
Increased sukuk and bond issuances are likely in 2024–2025. Bahrain
has the highest fiscal break-even oil price in the GCC, forecast at
USD96/bbl in 2024. In 2024, Fitch also forecasts budget deficits
at -2.9% of GDP. However, fiscal consolidation will continue
– driven by improvements on non-oil tax collection and
continued spending restraints – but from a weak starting
point. Bahrain’s gross general government debt
significantly exceeds the ‘B’ median.
 Islamic Finance Compendium | 35

Oman’s Debt Capital Market Contracting Amidst Govt

Prepayments; Sukuk Share Growing
Non-Rating Action Commentary BASHAR AL NATOOR
Global Head of Islamic Finance
Dubai-03 April 2024 [email protected]
Oman’s debt capital market (DCM) contracted by 7% yoy, to USD44 billion outstanding,
SAIF SHAWQI, CFA
in 2023 as the government pre-paid more of its debt using the budget surplus from
Director - Islamic Finance
high oil prices, Fitch Ratings says. In contrast, the share of sukuk in the outstanding
[email protected]
DCM mix grew to 21.1% (2022: 18%).
The Omani DCM market is in an early stage of development, and is the second-smallest
amongst GCC countries. However, the government has taken initiatives to develop
the market, including the Financial Services Authority’s (FSA) newly published Sukuk
and Bond Regulation, an essential step in the DCM development, which also adds
regulatory clarity. The Ministry of Finance also launched its Sustainable Finance
Framework in January, under which it intends to issue green, social, and sustainable
sukuk, bonds, or loans.
The new regulations are expected to help build confidence among both sharia-
sensitive and ESG-sensitive investors. The FSA regulation caters for sukuk with a
chapter on sharia oversight, which requires the issuer submit a report every year
proving the compatibility of the sukuk with the provisions of Islamic sharia, starting
from the sukuk issuance date. The new regulation also has disclosure requirements
for green and sustainable bonds and sukuk, with the requirement to appoint an
independent external auditor to assess ESG compliance. Under the regulation, debt
issuers are required to submit a credit rating certificate.
According to the Sustainable Finance Framework, it will not be an event of default or
breach of contractual obligations under the terms and conditions of any ESG issuance
if the government fails to adhere to the framework, whether by failing to fund or
complete eligible green and social projects, or by failing to provide investors with
reports on uses of proceeds and environmental impact.
Sukuk issuance in Oman expanded by 231% yoy in 2023, to USD1.2 billion, while
bond issuance fell by 56% yoy to USD4.8 billion. Fitch rated around USD7.5 billion
of outstanding Omani sukuk – all at ‘BB+’ in 1Q24, issued by the sovereign (67%)
and by corporates (33%). In September 2023, Fitch upgraded Oman to ‘BB+’ with a
Stable Outlook.
 Islamic Finance Compendium | 36

We do not expect a significant short-term surge in the DCM size, mainly due to
the indication in Oman’s budget, published in January 2024, that the authorities
will continue to pay down government debt. This will strengthen the sovereign’s
resilience to potential shocks, but the increased social spending will slow the pace of
debt reduction in 2024, relative to 2023. However, over the medium-to-long term, we
expect the DCM market to grow, supported by government initiatives and issuance
mainly from both the sovereign and government related entities.
The Islamic finance industry in Oman crossed USD28 billion as of end-2023, Fitch
estimates, split between Islamic banking assets (66%), outstanding sukuk (32%),
and takaful contributions (2%). The Islamic banking market share reached 17.4% of
banking sector assets (2022: 16.4%), 20% of sector financing (2022: 18.6%), and 19%
of sector deposits (2022: 18.8%) at end-2023. Islamic banks’ financing grew by 11.8%
yoy, exceeding conventional banks’ 2.5% growth. However, deposits for both Islamic
and conventional banks grew at the same level, of about 12.5% yoy.
Our sector outlook for Omani banks is neutral for 2024. We expect real GDP to
grow by 2% in 2024 (2023: 4.3%), which will support revenue and business
generation for banks. Fitch expects sector loan growth of about 6% in 2024,
driven by higher credit demand from corporates, in line with higher
government spending in infrastructure projects as part of Vision 2040.
Islamic banks have smaller capital bases than their conventional
peers, hindering their ability to participate in large government
financing projects.
 Islamic Finance Compendium | 37

Pakistan’s Islamic Finance Prospects

Positive on Government Push
Non-Rating Action Commentary BASHAR AL NATOOR
Global Head of Islamic Finance
Dubai-30 January 2024 [email protected]
The Pakistani Islamic finance industry has been growing on the back of government
SAIF SHAWQI, CFA
initiatives to convert the financial sector into being sharia-compliant, along with
Director - Islamic Finance
notable demand from the Muslim-majority population, Fitch Ratings says. The
[email protected]
industry crossed USD53 billion as of end-2023. Fitch expects that, in the medium
term, Islamic banking would reach 25% of industry assets, while sukuk would reach
20% of the debt capital market. However, this growth could be dampened by the
challenging operating environment, product and distribution gaps, and cases of lower
pricing competitiveness than conventional banks. It is also too early to assess if the
government will achieve its sharia-conversion targets.
The State Bank of Pakistan’s (SBP) strategic plans for 2023–2028 include transforming
existing conventional banks into Islamic banks. SBP had aimed for Islamic banks to
have 30% of overall banking assets and deposits by 2025. In 2022, the Federal Shariat
Court of Pakistan (FSC) directed the government to adopt sharia-compliant modes
while borrowing from domestic or foreign sources, and set a five-year timeline to
convert the economy into an “equitable, asset-based, risk sharing and interest-free
economy” by end-2027.
Pakistan’s diverse Islamic finance ecosystem consists of Islamic banking assets (55%),
followed by outstanding sukuk (37.6%), Islamic non-bank financial institution (NBFI)
assets (7%), and takaful assets (0.4%). The financial sector in general is underdeveloped.
Sharia-compliant assets made up 36.1% of NBFIs as of end-9M23.
The market share of Islamic banking system assets (end-September 2023: 19.6%; end-
2019: 14.9%) and deposits (22.5%; 16.6%) have consistently risen over the past five
years. A number of conventional banks are converting to Islamic banks due to growth
potential, a government push, and more lax regulations. Faysal Bank Limited completed
its conversion to an Islamic bank in 2023. Summit Bank secured approval from SBP to
change its name to Bank Makramah, and is transitioning into an Islamic bank, and the
Bank of Punjab announced its plans to convert into an Islamic bank in the near term.
 Islamic Finance Compendium | 38

Part of the drive to convert is due to regulations that require conventional banks to
offer a minimum rate of return on saving deposits, which is 150 basis points less than
the prevailing benchmark interest rate. However, Islamic banks are exempt from this.
In practice, some Islamic banks offer depositors with minimum rate of return, while
for others, the offered rates are lower. While the regulatory exemption may support
Islamic banks’ profitability through lower cost of funding, their competitiveness could
reduce if they offer lower deposit rates than conventional banks.
Sukuk is helping the government diversify its funding and meet fiscal gaps. Outstanding
sukuk reached about 12.8% of the debt capital market at end-2023 (2022: 10%).
The government has increased its recourse to domestic borrowing, given limited
external financing options for the government. About 95% of outstanding sukuk are
denominated in Pakistani rupees. However, the amount that can be raised through
sukuk could also be constrained by the value of underlying assets. During the first
half of the fiscal year ending 30 June 2023 (FY23), the government’s sukuk offerings
were undersubscribed, with only 54% investor acceptance. The consolidated general
government fiscal deficit was a wide 7.8% of GDP in 2023 (2024F: 6.8%).
The government’s 2024 funding target includes a USD1.5 billion issuance in
Eurobonds/sukuk. This will likely prove challenging as Pakistan remains
vulnerable to shifts in investor confidence and bilateral funding due to
low reserve coverage and high gross financing needs. Fitch’s December
affirmation of Pakistan’s ‘CCC’ rating reflected some near-term
certainty over external liquidity and funding provided by Pakistan’s
nine-month Stand-By Arrangement with the IMF.
 Islamic Finance Compendium | 39

Bangladesh’s Islamic Banks Sizeable but Stagnant;

Sector Liquidity and ICB Bank in Focus
Non-Rating Action Commentary BASHAR AL NATOOR
Global Head of Islamic Finance
Dubai-03 June 2024 [email protected]
Liquidity challenges are still affecting Bangladesh’s Islamic banking sector, which is
SAIF SHAWQI, CFA
more vulnerable than conventional banks, Fitch Ratings says. The Islamic banking
Director - Islamic Finance
market share is sizeable but has been stagnant over the past two years, accounting for
[email protected]
just over a quarter of the sector by industry deposits (end-2023: 25.3%; end-2022:
25.8%) and financing (end-2023: 28.9%; end-2022: 29.2%).
Islamic banks’ liquidity coverage ratio (LCR) tumbled to 58.7% at end-9M23 (end-2022:
87.7%; end-2021: 188.5%), below the 100% regulatory requirement and the 154.6%
industry average LCR. This is partly due to the flight of deposits, governance issues, and
more lax prudential requirements for Islamic banks. However, the liquidity profiles are
showing signs of improvement, with some stabilisation possible in 2024 and 2025.
Fitch is monitoring several Islamic banks for their liquidity position, including ICB
Islamic Bank Ltd (not rated). The bank’s cash balance fell by over 90% yoy as of end-
1Q24, based on its unaudited financial statements. Local newspapers have reported
that ICB has failed to pay depositors. ICB reported in a media statement that it will
honour its depositors in June. Local newspapers have also reported that the bank
sought collateral-free liquidity support from Bangladesh Bank (BB) in 1Q24, but this
was not provided. ICB is the smallest Islamic bank in the country, with a 0.3% sector
share, and therefore its negative performance is unlikely to materially affect the
market share of the total Islamic banking sector.
As part of a financial sector safety net, customer deposits of Islamic banks are covered
by a Deposit Insurance Scheme that protects deposits up to BDT100,000 (USD852).
However, its efficacy is yet to be proven. In general, Fitch regards Bangladesh’s
banking sector and its governance standards as weak. The sector could be a source
of contingent liability for the sovereign if credit stress intensifies. Fitch downgraded
Bangladesh to ‘B+’/Stable on 27 May 2024, reflecting weaker external buffers. There
is a lack of precedents for default resolution for Islamic banks in Bangladesh and most
key Islamic finance markets.
 Islamic Finance Compendium | 40

It is yet to be seen how bankruptcy courts treat Islamic bank defaults compared to
conventional bank defaults, whether mudaraba-based depositors – which are based on
profit-and-loss sharing contracts – will have full recourse to the banks, and if all depositors
will be able to enforce their contractual rights in local courts. Mudaraba-based deposits
made up about 80% of all Islamic banks’ deposits at end-2023. Bankruptcy regimes in
Bangladesh, and most countries with prevalent Islamic banking sectors, are still in their
early stages, remaining largely untested and under-developed.
Islamic banks’ excess liquidity – defined as total cash reserves minus required reserves
with the central bank – increased by 43% over 4Q23 (to BDT111 billion). However,
excess liquidity fell by 13.7% over 2023. The deposit profile of the Islamic banking
sector improved slightly from 2022–1H23, when it faced sizeable customer deposit
outflows following loan irregularity reports.
In 2H22–1H23, Islamic banks received BDT960 billion through the Islamic Bank
Liquidity Facility (IBLF) and BDT1.9 billion through the Mudarabah Liquidity Support
from BB. In March 2024, the BB announced that conventional banks’ Islamic
banking branches and windows will be able to access short-term loans via BB’s
IBLF, which was previously only offered to Islamic banks.
However, the shortage of Islamic liquidity management instruments
continues. Government sukuk could serve as collateral for Islamic
repo and enable Islamic banks to seek central bank funding, but are
in low supply. The government started issuing sukuk in 2020,
with the last issuance in 2022. No sukuk were issued in 2023.
The debt capital market in Bangladesh is underdeveloped,
with sukuk even more nascent (end-1Q24: USD1.5
billion outstanding).
 Islamic Finance Compendium | 41

Higher Capital Requirements to Support Nigeria’s

Islamic Finance Industry Growth
Non-Rating Action Commentary BASHAR AL NATOOR
Global Head of Islamic Finance
Dubai-11 June 2024 [email protected]
Fitch Ratings expects the Islamic finance sector in Nigeria to continue growing over 2024–
SAIF SHAWQI, CFA
2025, driven by the anticipated increase in equity issuance for Islamic banks to comply with
Director - Islamic Finance
the Central Bank of Nigeria’s (CBN) significantly increased paid-in capital requirements.
[email protected]
While Islamic banks’ lower capital requirements compared to conventional banks could
provide an advantage, with lower barriers to entry, we expect their market share to remain AMJAD ALKABRA
below 2% as conventional banks are likely to grow faster. Senior Analyst - Islamic Finance
The CBN announced in March 2024 that Islamic (non-interest) banks, commercial [email protected]
banks, and merchant banks must meet significantly higher paid-in capital requirements
(share capital plus share premium) by end-1Q26. This follows the sharp devaluation
of the Nigerian naira since May 2023, which has depressed banking capital ratios and
heightened credit concentration risks.
The Islamic finance industry in Nigeria is estimated at USD3.8 billion at end-2023. It
is predominantly sukuk, at 59.3% of the total industry value, followed by non-interest
banks (39.8%), and Islamic funds and takaful (together 0.9%). However, long-standing
challenges include gaps in the distribution network compared to conventional banks,
a smaller, but growing, capital base, low public awareness and demand for Islamic
products, and segments of the public strongly opposing Islamic finance.
The minimum capital requirement for non-interest national banks has doubled, to
NGN20 billion. However, commercial and merchant banks are subject to even greater
capital thresholds, with commercial national banks needing NGN200 billion, up from
NGN25 billion, and merchant banks requiring NGN50 billion, up from NGN15 billion.
No Fitch-rated banks met the new requirements as of April 2024.
Jaiz Bank PLC (B-/Stable) recently signed a memorandum of understanding with the
Islamic Corporation for the Development of the Private Sector (ICD). The parties
agreed to explore investment opportunities through the introduction of additional
Tier 1 capital (mudarabah capital) for the business growth of Jaiz Bank PLC, and its
regional expansion through ICD’s partnership and networks.
 Islamic Finance Compendium | 42

Taj Bank and Lotus Bank (both unrated) must also comply with a NGN20 billion
minimum paid-in capital requirement. At end-2022, the capital gap was NGN6 billion
(around USD5 million using the current exchange rate) for each bank.
Four non-interest banks operate in Nigeria, while an additional two banks operate
Islamic windows. Non-interest banks’ total assets (end-2023: 1.1%), deposits (1.3%)
and financing (1.0%) are a small proportion of the total banking industry. However,
there is significant potential for growth in Nigeria’s Islamic finance industry,
underscored by Nigeria having the largest Muslim population (53% of total population
in Nigeria) in Africa, and by over a fifth of the Nigerian population being unbanked.
This emphasises the potential for Islamic finance to cover the financial inclusion gap.
Islamic banking in Nigeria is supported by less stringent prudential regulations than for
conventional banks, with Islamic banks having a lower liquidity ratio requirement set by
the CBN. Furthermore, Islamic banks have a 50% ‘alpha factor’, which effectively reduces
the amount of risk-weighted assets, a benefit not extended to conventional banks.
Those regulatory reliefs could enhance the capital ratios of Islamic banks, facilitating
their ability to expand their market presence without being constrained by capital
requirements as for conventional banks.
The government continued to issue domestic sukuk in 2023. However, its
sukuk market is still relatively underdeveloped. Total outstanding sukuk
reached USD2.3 billion at end-1Q24, or 2% of the Nigerian debt
capital market. While Nigeria’s sukuk market is small domestically,
it is the largest in Africa, with 42% of the continent’s sukuk,
followed by Egypt (29%) and South Africa (20%).
The CBN released new corporate governance guidelines
for various banking sectors in 2023, with specific
provisions for non-interest banks, including the
requirement of having an internal sharia audit
function.
 Islamic Finance Compendium | 43

Majority of Fitch-Rated Islamic Banks Use

Islamic Derivatives
Non-Rating Action Commentary BASHAR AL NATOOR
Global Head of Islamic Finance
Dubai-02 July 2024 [email protected]
Demand for sharia-compliant risk-management tools, such as Islamic derivatives, is
SAIF SHAWQI, CFA
gradually rising in many Muslim-majority countries as their Islamic banks’ domestic
Director - Islamic Finance
market shares grow, and financial sector development and risks due to interest rates,
[email protected]
foreign exchange rates, and commodity prices rise, Fitch Ratings says. Nearly three-
quarters of Fitch-rated Islamic banks used Islamic derivatives in 2023–1H24 to hedge AMJAD ALKABRA
risks, which could support their credit profiles. However, sharia restrictions and Senior Analyst - Islamic Finance
differing interpretations, treasury infrastructure gaps, lack of standardisation, and [email protected]
regulatory issues prevented full take-up.
The conventional derivatives market is underdeveloped in most Muslim-majority
countries, and Islamic derivatives are further behind in terms of product range,
liquidity, adoption, and awareness. The over-the-counter (OTC) interest-rate
derivatives turnover in Saudi Arabia, UAE, Bahrain, Malaysia, Indonesia, and Turkiye
was collectively less than 1% of global volumes in April 2022, according to the Bank
for International Settlements.
Malaysia is one of the most developed jurisdictions globally for Islamic finance.
While both OTC and exchange-traded Islamic derivatives are available in Malaysia,
its total derivates market was almost fully dominated by conventional derivates, with
only 0.9% being Islamic derivatives in 2023. In most GCC countries, the OTC Islamic
derivatives are more readily available than a decade ago, but exchange-traded Islamic
derivatives are almost absent and in a nascent state. Islamic derivatives availability
is even further behind in less developed Islamic-finance markets such as Indonesia,
Turkiye, Bangladesh, Jordan, and Pakistan.
Islamic banks’ credit profile could benefit from the use of Islamic derivatives such as
profit-rate swaps, forward foreign-exchange contracts, cross-currency swaps, forward-
rate agreements, and options.
In Fitch’s assessment of an Islamic bank’s standalone creditworthiness, moderate
and well-managed exposure to structural market risks (interest or profit rate risk in
banking book, FX risk, equity risk) is positive.
 Islamic Finance Compendium | 44

In contrast, high exposures to structural market risks, which are weakly mitigated or
managed, is viewed as negative. This includes the potential for outsized net interest
(profit) margin variation or a high proportion of unhedged long-duration or fixed-rate
exposures. While derivatives aid risk management, they can also expose banks to
counterparty credit, liquidity, currency-basis and operational risks.
Various regulators are taking initiatives to develop the derivatives market. In
Malaysia, the Shariah Advisory Council of Bank Negara Malaysia in 2023 ruled that
anticipatory hedging for Islamic banks is allowed based on the high probability that
the actual exposure will materialise at a future time. The Securities Commission
updated its guidelines for Islamic unit trust funds and permitted employing
derivatives, but solely for hedging purposes, and such derivatives must be Islamic
derivatives (with certain exceptions).
In the UAE, the central bank directed Islamic banks to adopt hedging techniques,
including Islamic derivatives, to manage foreign exchange exposures. In Saudi Arabia,
the Saudi Exchange launched the conventional derivatives market in 2020, and
has since introduced derivatives products, including MT30 Index Futures, single
stock futures, and single stock options. The Saudi Central Bank issued a draft
regulation to implement close-out netting legislation, which would make it
among the final G20 countries to implement it.
In Indonesia, the central bank has developed a hedging instrument
under sharia principles to maintain rupiah stability. In Qatar, the
launching of a derivatives exchange is part of the central bank’s
strategic plan, and the QFC Regulatory Authority issued
a regulatory framework for listed derivatives. In Oman,
Islamic derivatives are largely absent as the tawarruq
contract – which commonly underpins Islamic
derivatives in most markets – is not allowed.
However, Bank Nizwa (unrated), which is one of
two full-fledged Islamic banks in the country,
obtained fatwa from its sharia board,
confirming that profit rate swaps based
on investment agency contracts are
sharia-compliant.
 Islamic Finance Compendium | 45

Islamic Liquidity Tools Limited Despite

Initiatives in Some Markets
Non-Rating Action Commentary BASHAR AL NATOOR
Global Head of Islamic Finance
Dubai-05 March 2024 [email protected]
Islamic banks in many countries continue to face a limited range of Islamic liquidity
SAIF SHAWQI, CFA
management instruments (ILMI) compared with conventional banks despite recent
Director - Islamic Finance
initiatives in a number of markets, Fitch Rating says. ILMI can provide Islamic banks
[email protected]
more funding options and can help them invest their excess liquidity. Gaps in ILMI are
more prominent in countries where Islamic banking is still-developing and niche.
Sharia-compliant liquidity facilities from central banks can provide Islamic banks an
additional source of short-term funding. In February 2024, Central Bank of Jordan
introduced new short-term liquidity facilities to Islamic banks. In Bangladesh, the
central bank introduced new Islamic liquidity facilities after Islamic banks faced sizable
customer deposit outflows in 2022-2023 amid reports of financing irregularities.
Central bank Islamic liquidity facilities are also offered in most of the GCC countries,
Malaysia, Turkiye, Indonesia, Pakistan, and Tunisia. However, these facilities, which
could help avert a liquidity crunch, are not present in Oman, Morocco and Kazakhstan.
Islamic interbank markets are much shallower than conventional markets, more so
in countries with few Islamic banks. Fitch noticed cases, including in the UAE, where
Islamic banks are unable to place funding with conventional banks, unless the latter
use it for their sharia-compliant business and the contract is sharia-compliant. In
markets like Oman, regulations prevent Islamic banks and Islamic windows from
placing funds with conventional banks. This limits counterparty choice.
Government sukuk can grant Islamic banks more options to invest their excess
liquidity in high quality liquid assets (HQLA). These can also serve as collateral for
Islamic repo. In 2023 and 2022, UAE federal government and the Qatar Central Bank
started issuing local-currency Treasury sukuk for the first time. Government sukuk
are also available in Saudi Arabia, Malaysia, Bahrain, Indonesia, Türkiye, Bangladesh,
Pakistan, Oman, and Nigeria. However, regulatory hurdles are causing unavailability
in some markets. In Kuwait, the lack of public debt law prevents the government
from issuing sukuk or bonds. In some markets, government sukuk are issued in lower
volumes than bonds.
 Islamic Finance Compendium | 46

While government sukuk could qualify as HQLA, its liquidity features are constrained
by the buy-and-hold nature of Islamic investors stemming from limited sukuk supply
in both the primary and secondary markets. In contrast, sukuk liquidity is generally
good when issuers or investors seek to sell it. Sukuk that are not AAOIFI-compliant
could be less liquid as UAE Islamic banks are constrained from investing in them. If the
“tangibility event” in sukuk is triggered, the sukuk would be delisted from the relevant
exchange, affecting its liquidity.
While sukuk are generally issued with medium-to-long tenors, we do not see
enough short-term government sukuk in both local and hard currencies. Short-term
government sukuk are not present in the UAE, Saudi Arabia, Kuwait, Oman, Jordan,
Nigeria, and Egypt. However, these are issued in Malaysia, Türkiye, Indonesia, Bahrain,
Bangladesh, Brunei, Gambia, and by the supranational, the International Islamic
Liquidity Management Corporation.
Islamic banks’ usage of Islamic repos and its harmonisation is generally low due to
lack of standardisation and differences of opinions in terms of sharia-compliance.
In Malaysia, which has one of the most advanced Islamic finance ecosystems, the
Islamic repo market is far less developed than the conventional repo market
with only around 1% of the total Islamic money market volume.
In the GCC and a number of other markets, Fitch expects Islamic
banks to maintain solid liquidity in 2024-2025. As part of Fitch’s
assessment of an Islamic bank’s Viability Rating, weak access to
liquidity due to shallow markets or regulatory policies is likely
to have a negative impact on Fitch’s assessment of a bank’s
funding and liquidity.
 Exclusively for the use of Monika Tonkol at Fitch Group, Inc.. Downloaded: 05-Nov-2024
Islamic Finance Compendium | 47
Fund & Asset Management
Islamic Finance
Global

Islamic Assets
Islamic Assets Under
Under Management
Management Dashboard:
Dashboard: 2024 2024
Public AUM Flat Amid Prolonged High Rates; Malaysia Leads Islamic Mutual Fund Assets Public Islamic Fund Assets by Value
Money market Equity Sukuk End-2023
Outlook: Fitch Ratings expects public Islamic assets under management (AUM) to bounce back to the Mixed assets Real estate Other Others
2021 peak of about USD140 billion in the next two-three years, benefiting from expected lower rates Commodity Alternatives 10.7%
Pakistan Malaysia
(US policy rate 2024F: 4.75%; 2025F: 3.5%), which will likely increase the appetite for investment in (USDbn)
3.3% 28.3%
150
emerging markets, including Islamic funds. Macroeconomic fluctuations and geopolitics could bring Luxembourg
volatilities. 4.2%
100
USA
Profile: Public Islamic funds globally held over USD111 billion in AUM at end-2023, up 3% yoy. These 7.4%
50
are concentrated in Malaysia (28.3%, USD31.6 billion), Ireland (18.1%, USD20.1 billion) and Saudi Jersey
Arabia (17.2%, USD19.2 billion). However, Islamic funds, by count, are more granular with Malaysia’s 0 10.8% Saudi Ireland
18.1%
share at 36.8%, followed by Indonesia (16.9%) and Pakistan (15.3%). This classification is based on the Arabia

2017

2018

2019

2020

2021

2022

2023
17.2%
funds’ domiciled country and Lipper data, which may not capture all private funds.
Source: Fitch Ratings, Lipper Source: Fitch Ratings, Lipper
Market Share: In the Gulf Cooperation Council (GCC) countries, Islamic funds were close to 80% of
total public funds at end-2023, supported by demand from sharia-sensitive investors. They were lower Public Islamic Fund Assets by Count Share of Islamic & Conventional Funds
at 49% in Pakistan, 33% in Malaysia and 8% in Indonesia. In the core Islamic finance markets, Islamic End-2023 End-2023
AUM funds’ volumes were similar to end-2022, while conventional AUM funds were up by 2.8%. Others
% of Islamic funds % of conventional funds
Ireland 12.6% (%)
Asset Types: The largest public Islamic funds by AUM were equity funds (36.3%), money market funds 2.7% 100
(20.9%) and sukuk funds (10%). Sukuk funds’ low share shows that sukuk supply is limited compared 80
Malaysia
with demand. A number of funds and indices exclude sukuk if they do not comply with AAOIFI sharia Luxembourg
36.8% 60
standards. There is a lack of Islamic funds focused on private equity and alternative investments (eg 2.9%
40
hedge-funds and derivatives), mainly due to sharia requirements. Fitch expects private Islamic funds Saudi Arabia 20
to be much larger than public funds, with real estate being one of the key asset types. 12.8% 0

Saudi A

Malaysia

Indonesia
Oman

Bahrain
UAE
Kuwait

Qatar

Pakistan
Challenges: The fund management industry is still in the relatively early stages of development in the Pakistan
15.3% Indonesia
GCC and underdeveloped in most OIC countries with the exception of Malaysia. Islamic funds are even 16.9%
at an earlier stage of development due to limited products, lack of economies of scale, differences in Source: Fitch Ratings, Lipper Source: Fitch Ratings, Lipper
sharia interpretation and shortage of human capital.
Equity Is the Largest Islamic Asset Type Mutual Funds Dominate Islamic AUM
ESG & Regulations: In Malaysia, the income tax exemption for Islamic fund management companies End-2023 End-2023 Pension
and for companies managing Sustainable and Responsible Investments funds has been extended until Insurance funds
Mixed Commodity
2027. In 2023, Abu Dhabi Global Market issued its sustainable finance regulatory framework, 1.4%
funds 1.9%
assets 2.4%
covering funds. Saudi Arabia’s Ministry of Finance issued zakat collection rules for investment funds. 5.1%
Sukuk Mutual
Western Lens: Ireland and Jersey are key Islamic funds domiciles, with global AUM shares of 18.1% 10.0% Equity funds
36.3% ETFs
and 10.8%, respectively, in 2023. This is driven by favourable regulatory and tax frameworks that 27.8%
67.8%
support cross-border distribution, and the fact that these jurisdictions aim to be international financial Money
centres. Global firms such as HSBC and BlackRock have started offering sukuk exchange-traded funds. market
20.9%
All others
Bashar Al Natoor Amjad Alkabra 26.3%
Global Head – Islamic Finance Senior Analyst – Islamic Finance Note: Total is not 100% due to rounding.
[email protected] [email protected] Source: Fitch Ratings, Lipper Source: Fitch Ratings, Lipper

Dashboard │ 18 March 2024 fitchratings.com 1

 Islamic Finance Compendium | 48

Sukuk Rating Criteria

Cross-Sector Criteria

Scope BASHAR AL NATOOR

Global Head of Islamic Finance
This report describes Fitch Ratings’ approach to assigning and maintaining international [email protected]
and national ratings for new and existing originator-backed sukuk issues. These criteria
apply to originator-backed (or “asset-based”) sukuk structures, where investors rely SAIF SHAWQI, CFA
upon obligor direct support features and contractual commitments built into the Director - Islamic Finance
documentation. These criteria apply globally to corporates, financial institutions, [email protected]
sovereigns, supranationals, public finance, insurers and global infrastructure. They do
not apply to asset-backed sukuk, which rely on underlying collateral.
The originator typically incorporates an undertaking whereby the obligor is committed Related Criteria
irrevocably to repurchase the underlying sukuk assets on maturity (or earlier, in the
event of any dissolution event or default), covering in full the outstanding principal Sovereign Rating Criteria (April 2023)
and any accrued but unpaid periodic distribution amounts in a timely manner, during Supranationals Rating Criteria (April 2023)
the life of a sukuk or at any dissolution event. If the sukuk principal payment were
subject to market risk, which affects the repayment amount to sukuk holders, the International Local and Regional Governments Rating Criteria (September 2021)
sukuk would be unrateable. Corporate Rating Criteria (November 2023)
It is also possible for sukuk to be structured as subordinated, short-term or secured Bank Rating Criteria (March 2024)
claims. If so, they will be rated as such in accordance with Fitch’s established criteria,
with the ratings anchored on the Issuer Default Rating (IDR) or Viability Rating (VR), Non-Bank Financial Institutions Rating Criteria (January 2024)
where the case dictates. Insurance Rating Criteria (March 2024)

Key Rating Drivers Corporate Hybrids Treatment and Notching Criteria (November 2020)

Sukuk are a form of financing that complies with sharia (Islamic rulings) and do Infrastructure & Project Finance Rating Criteria (May 2023)
not have a standard structure. Each structure may involve different underlying
contractual arrangements. As a result, each structure has to be reviewed individually
to assess whether it fits within these criteria. These criteria discuss the influence of
the most common features in originator-backed sukuk issue ratings. The different
forms of sukuk means that not all factors mentioned in these criteria may be present
or relevant in all circumstances.
 Islamic Finance Compendium | 49

Rating Anchored on IDR: For originator-backed/asset-based sukuk, Fitch looks Analytical Approach
through the structure of the sukuk at the obligor/originator/issuer of the transaction.
Sukuk often require the creation of a special-purpose vehicle (SPV) and the transfer Fitch’s analytical assumption under these criteria is that the structure of the sukuk
of assets underlying the sukuk by the entity seeking to raise finance (the originator) to and the underlying transaction(s) provides full irrevocable recourse to the originator
the SPV. The rating is anchored on the rating of the originator. For a senior unsecured – as with a conventional bond issue – and the rating of the sukuk is driven solely by the
obligation, the rating would typically be in line with the originator’s IDR. originator’s rating, which is the case for rated sukuk under these criteria. Fitch may
also review the legal opinions provided by the lawyers acting for the parties to the
Full Recourse to Originator: Fitch’s analytical assumption under these criteria is that transaction, if considered helpful for its review.
the structure of the sukuk and the underlying transaction(s) provide for full recourse
to the originator – as with a conventional bond issue – and the sukuk rating is driven The sukuk analysis and rating take into account the sukuk’s legal structure and
solely by the originator’s rating. Sukuk analysis and ratings will reflect Fitch’s view documentation, reflecting Fitch’s view that the originator’s contractual commitments
that the default of these senior unsecured obligations under the legal structure and under such sukuk are senior unsecured obligations, and default on the sukuk would
sukuk documentation would reflect default of the entity in accordance with Fitch’s reflect default of the originator entity in accordance with Fitch’s rating definitions.
rating definitions. Originator-backed sukuk are typically rated as senior unsecured claims against the
Sukuk Form Affects Rating: Sukuk can take a variety of forms, which could affect originator. Fitch will therefore assign a senior unsecured rating to the instrument,
their recourse, debt ranking and recoveries upon issuer default, and, therefore, their anchored on, and usually at the same level as, an originator’s IDR. It is also possible for
ultimate effect on the analysed debt instrument rating. The sukuk ranking (senior, sukuk documentation to be structured as subordinated, short-term or secured claims,
subordinated or pari passu with other obligations) could also be influenced by a and if so they will be rated as such in accordance with Fitch’s established criteria (see
guarantee on all or part of the obligations under the documentation, which could Applicable Criteria), with the ratings being again anchored on the originator’s IDR.
make a contribution to recoveries and, therefore, affect the ratings. In a typical international sukuk structure, an originator places well-defined,
Legal Risk: Legal precedents for effective enforcement in many jurisdictions where identifiable asset(s) (which in the case of a financial institution could also include a
sukuk issuance is prevalent are lacking. It therefore remains uncertain whether pool of transactions) into a single-purpose SPV1, the shares of which are usually held in
certificate holders will be able to enforce their contractual rights in relevant courts. a trust (could be a charitable trust). The SPV in turn enters into a separate “declaration
of trust” in favour of the sukuk holders. This is sometimes expressed as a declaration
of agency, as the concept of a trust does not exist explicitly in sharia in the sense it
is generally understood in common law jurisdictions. In return, the SPV receives the
proceeds of the sukuk issue.

1
Depending on local legislation, such as in Malaysia, an SPV structure may not always be required and the
transaction may sometimes be held on the books of the originator rather than an SPV’s. This does not have any
implications for Fitch’s criteria.
Fitch will therefore assign a senior unsecured rating to the instrument, anchored on, and usually
at the same level as, an originator’s IDR. It is also possible for sukuk documentation to be
structured as subordinated, short-term or secured claims, and if so they will be rated as such in Islamic Finance Compendium | 50
accordance with Fitch’s established criteria (see Applicable Criteria), with the ratings being again
anchored on the originator’s IDR.
In a typical international sukuk structure, an originator places well-defined, identifiable asset(s)
(which in the case of a financial institution could also include a pool of transactions) into a single-
purpose SPV1, the shares of which are usually held in a trust (could be a charitable trust). The
SPV in turn enters into a separate “declaration of trust” in favour of the sukuk holders. This is
sometimes expressed as a declaration of agency, as the concept of a trust does not exist
explicitly in sharia in the sense it is generally understood in common law jurisdictions. In return,
the SPV receives the proceeds of the sukuk issue.
Simplified Example
Simplified of a Sukukof
Example Transaction
a Sukuk Transaction In the case of unsecured transaction, the sukuk holders will not have any rights of
Structure Diagram and Cashflows enforcement against the trust assets, as their rights are limited to enforcement against
Structure Diagram and Cashflows the originator of its obligation to purchase the assets pursuant to the terms of the
purchase undertaking. The documentation will usually provide that the only recourse
Originator as Purchaser
Originator as Seller of Originator as Managing of Co-Ownership and contractual claim is against the originator, which should place the sukuk investors in
Co-Ownership Interest Agent Interests (On Dissolution) a position similar to that of bondholders under a conventional unsecured bond.
The SPV is the entity that actually issues the sukuk, and is also the entity that passes
Proceeds
Management on the proportional profit distributions to investors. Investors purchase the issue
Return on
Agreement
Co-Ownership
Purchase and make a principal payment to the SPV, which then uses the proceeds to purchase
Master Purchase Interest
Agreement Undertaking Exercise the assets. The originator is then responsible, under the documentation, for example
Deed Price
under an agency agreement with the SPV, for managing the assets and making timely
and regular distributions to the SPV of the income that they generate. That structure
Issuer of Trust usually allows the originator to retain possession and control of the assets, including
Certificates the responsibility for maintaining the sukuk assets at the same value on issuance
Proceeds date during the life of the sukuk. This could also include originator obligations to
Periodic
Distribution replacement of assets and providing insurance/takaful cover to underlying assets and
Master Trust Amount and covering any shortfall of insurance/takaful coverage. Furthermore, this minimises
Deed Dissolution
Amount disruption to the originator’s business, and saves the SPV from getting involved in
operational matters.
Investors Investors are entitled to receive distributions representing a proportion of the
returns generated by the assets, which as noted above continue to be managed by
Source: Fitch Ratings
Source: Fitch
Source: Ratings
Fitch the originator. Transaction documents typically indicate a benchmark rate of return.
Upon maturity of the agreement, the originator is responsible for repurchasing the
assets, which results in the return of the principal payment to investors.
The investor shares in the returns generated by the underlying assets, but his risk
1
Depending on local legislation, such as in Malaysia, an SPV structure may not always be required and the relating to the underlying assets has, to date, typically been contractually limited, as
transaction may sometimes be held on the books of the originator rather than an SPV’s. This does not have
any implications for Fitch’s criteria.
sukuk include contractual obligations and mechanisms to pass the risk to the originator
and not the investor. Sukuk contractual commitments include timely full payment of
sukuk principal and periodical distribution during the life of the sukuk, and on maturity
or any dissolution or default event. Moreover, sukuk obligations rank as other unsecured
obligations of the obligor, and default on these commitments can usually trigger and be
triggered by other unsecured cross-acceleration/cross-default provisions.
Sukuk Rating Criteria │ 13 June 2022 fitchratings.com 2
 Islamic Finance Compendium | 51

First, the originator may provide a liquidity facility or a top-up mechanism to match It should be noted that the nature of the underlying assets will vary depending on the
receipts to the contractual periodic distributions and eliminate any volatility in the nature of the originator. For example, a sovereign or corporate may transfer just one
cash flows deriving from the assets. Second, the documentation usually incorporates asset or more, for example, a property generating a rental stream, whereas an Islamic
a purchase undertaking, whereby the originator is committed irrevocably to bank could also include a transfer of financing transactions pool.
repurchase the assets on maturity or any dissolution event (or earlier, in the event of
Warranties and waivers clauses relating to the sharia-compliant nature of the sukuk,
any dissolution or default by the originator or a total or partial loss event), covering
aiming to prevent an obligor from challenging the legitimacy and enforceability of
the outstanding principal and periodic distributions during the life of a sukuk or at any
the sukuk, have been enhanced and are becoming part of the sukuk documentation
dissolution event.
since 2018. Fitch does not express an opinion on whether the relevant transaction
The basis on which the repurchase price is set may vary according to the sukuk structure. documents are enforceable under any applicable law. However, Fitch considers the
There has been a tendency among sharia scholars to push for fair market value, rather originator’s intention to support the sukuk and its obligations.
than a fixed amount (e.g. the original sale price) to be the benchmark for a repurchase on
maturity or following an event of default. If the repurchase price on maturity were to be Covenants (Including Events of Default)
subject to market risk and therefore have an impact on the repayment amount to sukuk
Sukuk documentation incorporates covenants and events of defaults such as those
holders, the sukuk would be unrateable under these criteria.
seen in conventional bond documentation.
Moreover, if the periodic distribution amounts are not fully contractually covered in
These events of default typically include: failure to perform any obligations laid down
the sukuk, Fitch will assess other mechanisms in place to indemnify the sukuk holders
in the agreements; failure to pay any amounts due (both periodic distributions and
in the case of non-payment of timely full periodic distribution amounts. Non-payment
repayment on maturity); failure to comply with any notices; unlawful actions; non-
would trigger an event of dissolution or default, which would require the payment of
compliance with sharia and cessation of operations, insolvency or any arrangements/
the outstanding principal amount, and any accrued but unpaid periodic distribution
deferment in relation to any indebtedness. These events of default may be reinforced
amounts by the originator. Issues are not rateable when the principal would not
by negative pledge and cross-default clauses, which further link the performance of
become due because of missing periodic distributions. Contractual provisions that
the originator and the sukuk.
would provide flexibility with a view to periodic distribution payments only may be
considered subordinated issues. Sukuk documentation also increasingly contain triggers that could take the form of
put options, dissolution event or covenants related to tangibility event, which are
The purchase undertaking may be further reinforced by an explicit guarantee
specific to sukuk and are driven by certain sharia requirements. For example, sukuk
from the originator. It is, however, customary for the originator to guarantee the
documentation could include an obligation on the obligor to monitor and maintain
obligations arising under the underlying contracts (e.g. ijara or murabaha) rather
the tangible assets above 50% of the sukuk asset base throughout the tenor of the
than guaranteeing the obligation of the SPV to pass payments through to the sukuk
issuance. If this tangibility ratio falls below 33%, it could result in the exercise of
holders. In addition, in Fitch’s opinion, an explicit guarantee may not necessarily be
put options by investors to redeem the dissolution distribution amount, along with
enforceable in all applicable jurisdictions, but Fitch considers in its review whether
delisting the certificates.
it believes that the originator will, nevertheless, perform its obligations under the
guarantee and other contractual obligations in the sukuk documentation. The implication of sukuk-specific covenants, similar to other covenants, are covered
under Fitch’s obligor assessment.
 Islamic Finance Compendium | 52

Recoveries Any variations will be disclosed in the Rating Action Commentaries, including their
impact on the rating where appropriate. Fitch may not disclose the same assumptions
When rating sukuk for corporate entities Fitch uses the Corporates Recovery Ratings in subsequent commentaries, unless there are material changes.
and Instrument Ratings Criteria. For Financial Institutions and Insurance entities
their respective master criteria include equivalent recovery rating details (Bank Variations from Criteria
Rating Criteria, Non-Bank Financial Institutions Rating Criteria, Insurance Rating
Criteria). Fitch’s criteria are designed to be used in conjunction with experienced analytical
judgment exercised through a committee process. The combination of transparent
Fitch’s recovery ratings, if applicable, also include the Country-Specific Treatment of criteria, analytical judgment applied on a transaction-by-transaction or issuer-by-issuer
Recovery Ratings Criteria where Fitch has examined creditor friendliness, insolvency basis, and full disclosure via rating commentary strengthens Fitch’s rating process while
regimes and enforceability across countries to determine recovery expectations for assisting market participants in understanding the analysis behind our ratings.
rated entities. All reports are available at www.fitchratings.com.
A rating committee may adjust the application of these criteria to reflect the risks of
Transaction-Specific Disclosure a specific transaction or entity. Such adjustments are called variations. All variations
will be disclosed in the respective rating action commentaries, including their impact
In its Rating Action Commentaries, Fitch expects to disclose the following: on the rating where appropriate.
• rationale for the rating action; A variation can be approved by a ratings committee where the risk, feature, or other factor
• rating anchor; relevant to the assignment of a rating and the methodology applied to it are both included
within the scope of the criteria, but where the analysis described in the criteria requires
• recourse to originator/obligor; modification to address factors specific to the particular transaction or entity.
• Assets recourse, usually no recourse (disclosed either way);
• Key transaction parties, the mechanics and who will pay the sukuk principal, Sources of Data
income and servicing during the life of the sukuk, and in a dissolution event (or The key rating assumptions for the criteria are informed by Fitch’s analysis of previous
earlier, in the event of any dissolution or default by the originator or in the case of sukuk transactions, information received from issuers and/or obligors and various
a total or a partial loss event); participants across the fixed-income markets, general market observations, and the
• sukuk ranking (senior, subordinated or pari passu with other obligations); judgement of experienced analysts. This covers both, information used to derive the
criteria, as well as information used when assigning ratings/assessing sukuk structures.
• sukuk terms and conditions; Fitch looks through the structure of the sukuk at the obligor/originator/issuer of the
• sukuk ratings do not imply any confirmation that the sukuk are sharia compliant; transaction, and the rating is anchored on the rating of the originator.
and
• identify any sharia and/or legal limitation.
 Islamic Finance Compendium | 53

Sukuk do not have a standard structure, as each structure may involve different Without the necessary documentation, in line with Fitch criteria, sukuk could be
underlying contractual arrangements. Therefore, no standard set of documentation is considered subordinated, or Fitch may choose not to rate the notes at all. Ratings,
available, but the below can act as a general guide on key documentation that can be including Rating Watches and Outlooks, assigned by Fitch are subject to the limitations
used, where applicable, in the sukuk rating: specified in Fitch’s Ratings Definitions and available at https://www.fitchratings.com/
products/rating-definitions.
• Prospectus;
• Legal sukuk structure document; Legal Status and Governing Law
• Terms and conditions; There remains a lack of legal precedents in terms of effective enforcement in many
• Service agency agreement; jurisdictions where sukuk issuance is prevalent. Therefore, it remains uncertain whether
certificate holders will be able to enforce their contractual rights in local courts.
• Master trust deed;
Sukuk issued on the international capital markets are typically governed by English
• Agency agreement; law and subject to the jurisdiction of the courts of England (or other recognised
• Master purchase agreement; international law and jurisdiction), but part of the documentation and any judgement
would also be governed and reviewed by the courts where the originator is domiciled
• Master lease agreement (if a supplemental lease contract is executed in connection
– and would be subject to local law restrictions on enforceability.
with the relevant sukuk);
These courts would ordinarily act in accordance with local commercial law, but may be
• Management agreement;
influenced by sharia, which adds further uncertainty to any judgement, for example,
• Purchase undertaking; due to the existence of multiple schools of law, the lack of sharia codification in some
• Sale undertaking; jurisdictions and potential differences of opinion as to what properly constitutes a
default. In the event that transactions were governed solely by local commercial and/
• Master murabaha agreement; or sharia law – mainly local issuance – such transactions may prove difficult to rate,
• Fatwa; and considering the unpredictability of any judgement, similarly to local bond issuance.
• Legal opinion. Recoveries, even under commercial law, may also be subject to delays depending on
the efficiency of the local legal system. However, these risks also apply to conventional
bonds issued in the same country and are already reflected in the recoveries assigned
Limitations to the respective instrument.
This report describes Fitch’s approach to originator-backed (also called asset-based)
sukuk structures, in which investors rely upon obligor direct support features. Fitch’s
sukuk analysis, as with a conventional bond issue, is driven solely by the originator’s
rating, in addition to the clarity and strength of the contractual documentation binding
the originator to the sukuk.
 Islamic Finance Compendium | 54

Sharia Compliance
Ratings assigned to sukuk do not imply any confirmation that the sukuk are sharia
compliant. This responsibility lies with the sharia board of the lead manager/originator,
which will have issued a fatwa prior to the launch of the sukuk. There is, however,
the risk that other sharia scholars could take a different view from that of the lead
manager/originator’s sharia board.
In certain structures, sharia scholars may opine that the repurchase price on maturity
or an event of default should be at the fair market value, rather than a fixed amount
(eg the original sale price). If the repurchase price is subject to market risk and
therefore has an impact on the repayment amount to sukuk holders, the sukuk would
be unrateable under these criteria.
If the sukuk structure allows missing periodic distribution and if the principal does not
become due because of missing the periodical distribution payment this would make
the sukuk unrateable. However, issues that have contractual provisions that allow
for periodic distribution payment flexibility would only be considered rateable if the
issues are subordinated.
While there is broad agreement on sharia principles, there are differences of
interpretation that the agency would not be in a position to anticipate or assess.
Fitch will assess non-compliance with sharia if it has credit implications and if such
implications cannot be quantified under our criteria for rating sukuk, this may mean
that the sukuk are not rateable under these criteria.

Rating Assumptions Sensitivity

Fitch’s opinions are forward-looking and include analysts’ views of future performance.
Sukuk ratings are anchored to the originator ratings; as such, the sensitives of the
relevant rating anchor will apply to the relevant debt level. The rating on the sukuk
may also be sensitive to any changes to the roles and obligations of the originator
under the sukuk structure and documentation.
 Islamic Finance Compendium | 55

Appendix: Islamic Finance Concepts Asset-Backed Sukuk Excluded

Sukuk are a form of financing that complies with sharia (Islamic rulings). Sharia Asset-backed arrangements (i.e. where the underlying assets that serve as collateral are
is a broad term, representing a system of beliefs revealed in the Holy Qur’an and the only credit support) would typically be rated according to established structured
the Sunna. Scholars agree on the main principles, but there is room for differences finance criteria, including analysis of the extent to which sukuk holders would have
in interpretation between the various schools of Islamic religious scholarship recourse to the sukuk assets on the insolvency of the originator. The significance of this
and different jurisdictions. In many countries, Islamic and conventional financial is that registered title to registerable assets (for example, land or vehicles) is not always
institutions operate side by side (see Appendix: Islamic Finance Concepts). transferred to the SPV, either because of foreign ownership restrictions or because the
reregistration process is cumbersome or expensive. In those cases, the sale of the assets
“Sukuk” is the plural of the Arabic term “sakk” ( ) which means certificate or deed. takes place on an unregistered or “simple contractual” basis.
Sukuk are often referred to as “Islamic bonds”. Sukuk are typically structured around
contractual arrangements formulated according to sharia and have been developed This is usually sufficient for sharia purposes, but the enforceability of the sale on the
as the Islamic finance industry alternative to conventional debt instruments. insolvency of the originator varies from jurisdiction to jurisdiction. In addition, in the
case of asset-based sukuk, recourse to the underlying assets is specifically excluded
Islamic finance must avoid the receipt/payment of unlawful gain. Instead, the parties and the transfer cannot be considered a true sale because of the originator’s obligation
must share the risks and rewards of a business transaction. The transaction should to repurchase the assets.
have a real economic purpose without undue speculation, and not involve any
exploitation of either party or involve any activities considered sinful. In practice, The following are some of the basic concepts in Islamic finance, which are fundamentally
Islamic capital-market transactions tend to be asset-based (versus asset-backed), as based on profit and loss sharing, involving the acquisition of specific tangible assets or
the underlying assets do not necessarily constitute collateral and the transactions investment in business activities.
may, therefore, be effectively unsecured. Even where the assets constitute collateral,
the legal environment may well prevent significant and timely recoveries. Riba (Interest and Other Unlawful Gains)
Sukuk represent undivided shares in the ownership of tangible assets, including the Riba is an unlawful gain – and interest is one form of riba. In accordance with Islamic
assets of particular projects or investment activities, and their usufruct (the right to principles, invested funds can only create returns on the basis of sharing risks and
use the assets). In their structure, sukuk constitute a beneficial ownership interest, not rewards in a business venture. The sharing of risks and rewards in a proportionate
a debt. Each holder is entitled to an agreed return and will bear any losses in proportion manner is acceptable. However, it is not acceptable for the level of investment returns
to the certificates owned. However, in practice, in an originator-backed sukuk this sale to be guaranteed regardless of the outcome of the purpose for which the money was
is not usually a true sale and can be achieved by assigning rights without completing originally borrowed. In addition, gains could be unlawful if the underlying transaction
the necessary asset registration formalities. involves a business activity or commodity that is unlawful under sharia law.
Assets placed in the underlying sukuk structures are mainly to accommodate Gharar (Speculation or Risk)
sharia requirements and to produce periodic coupon payments. Typically, sukuk are
structured as entity credit-risk instruments and in a default and redemption scenario Gharar is uncertainty or speculation, and any gain that results from transactions relating
the sukuk holders would not have recourse to the assets themselves. Recovery is based to uncertain events. This particularly relates to the fundamental terms of a contract
on investors exercising their rights against the originator. Hence to date, the majority such as price, time, delivery, and each party’s obligations and rights, which might lead to
of sukuk have been issued in a manner which is supposed to create an economic effect speculation. It does not mean the avoidance of risk, as commercial risk is acceptable under
similar to bonds. sharia, provided the risk is reasonable and jointly shared among partners.
 Islamic Finance Compendium | 56

Categorically Prohibited in Islam However, unlike conventional lease agreements, if a lessee is late making payment,
lessors cannot impose any penalty, as any additional gain for the owner would be
Corporates that have an activity relating to riba, alcohol, pork or gambling are unable deemed unfair to the lessee. The lessor may, however, in that situation, impose a late
to issue sukuk. payment charge to be paid to a charity of the lessor’s choice. This provides additional
motivation to the lessee to comply with the lease.
Islamic Finance Structures
The lessor retains ownership of the asset being leased, until the maturity of the
Sukuk are typically structured to reflect the characteristics of traditional fixed-income transaction, when ownership is ordinarily transferred to the lessee. The lessor usually
products such as bonds, and are structured in a manner that is certified by scholars to appoints the lessee as his agent to manage the asset, which allows the lessee to make
be sharia-compliant. The Accounting and Auditing Organization for Islamic Financial full use of the asset and minimise interruption to his business. As a matter of sharia,
Institutions (AAOIFI) has specified types of allowable sukuk and a number of practices however, the lessor is responsible for major maintenance of the leased assets to
that can be employed to structure a sukuk deal. ensure that they are in working order, although these responsibilities will typically be
The choice of structure will depend on several aspects, including the character of the delegated to the lessee.
underlying assets, taxation and regulatory considerations, the investor base and the
views of the sharia scholars who must approve the sukuk issuance. Historically, the Istisna’a
most dominant structures used in the sukuk were ijara, mudaraba and musharaka. Istisna’a is a form of financing, under which a financier commissions the construction
However, following the AAOIFI 2008 statement criticising the use of fixed-price or manufacturing of an asset. The financier supplies specifications for the asset (eg, a
purchase undertakings to guarantee returns in al-mudaraba and al-musharaka sukuk power plant, a factory or machinery), but in practice the specifications are generated
structures, ijara and al wakala or a hybrid of more than one contract became the most by the obligor, who will usually understand the technical and commercial requirements
commonly used sukuk structures. better than the financier. The financier makes one or more down payments for the
The following is an overview of the underlying structures most commonly used in asset and agrees to purchase it when it is delivered. Meanwhile, the financier and the
sukuk issuance. Sukuk may incorporate one or more structures, eg ijara and murabaha. obligor enter into a forward ijara (lease) agreement. The combination of istisna’a and
Financial institution (FI) sukuk tend to be based on a pool of transactions, while ijara thus provides for advances to finance the construction/manufacturing phase
corporate and sovereign sukuk are generally based on returns from tangible assets, eg and subsequent use with settlement by instalments. The documents usually provide
real estate. The terms “musharaka”, “mudaraba”, “ijara” and “wakala” are broadly used in for the unwinding of the forward lease arrangement if completion of the asset is not
sukuk structures, but the actual legal structure can differ considerably. Therefore, each achieved.
structure has to be reviewed individually to assess whether it fits with these criteria.
Murabaha
Ijara Murabaha is the sale of an agreed asset or commodity at cost plus an agreed profit
The ijara structure resembles a conventional lease agreement, and while there are margin, which may then be financed in instalments. Banks also use this as a means of
some technical differences in terms of asset ownership and interest penalties, it is providing liquidity to their customers, by (a) buying the assets and (b) selling the assets
similar in terms of how it functions to a lease agreement, with the owner of the asset to the customer at a mark-up, whilst giving the customer a period of credit in which to
leasing it to a third party in exchange for a specified rental payment. Ijara contracts are pay the purchase price and mark-up. The bank and the customer will often arrange for
similar to a conventional lease in so far as they reflect the concept of usufruct. the bank to sell the assets into the market as agent for the customer and to account to
the customer for the proceeds of that on-sale.
 Islamic Finance Compendium | 57

Mudaraba In a basic sukuk-al-wakala, it is permissible for the originator to bundle its underlying
investments and sell them to the issuer in return for a purchase price. An Islamic
The investor or an FI entrusts funds to a corporate that utilises them in a pre-agreed financial institution is therefore able to bundle, for example, its ijara contracts,
investment or business. After the operation is concluded, the corporate returns the murabaha receivables and any shares or sukuk certificates held by it into a portfolio
principal and the pre-agreed share of the profit. The corporate retains the remaining which is then sold to the investors. The income derived from the portfolio is used to
profits from the business. Conversely, the investor or FI also shares in any potential service the coupon payments due under the sukuk certificates. Although the wakil can
losses, and is faced with the prospect of losing the original principal investment. The be any entity, the investments made by the wakil have to be sharia-compliant. In each
corporate does not share in the losses beyond its own investment and the time and case the wakil will charge a nominal fee for providing its expertise.
effort put into the business venture, provided fraud or negligence cannot be proven.
The sharia-compliant financing structures adopted in the Middle East can differ
Musharaka noticeably from those embraced in East Asia. There are many reasons for these
differences, including the difference in the interpretation of sharia between Middle
This type of partnership is similar to mudaraba, except that under musharaka the Eastern scholars and Asian scholars. Other reasons include different local laws and,
investor or an FI takes an equity stake in the venture. Such an arrangement is similar more importantly, different tax treatments. For instance, in the Gulf Cooperation
to venture capital financing, where the investor or an FI sometimes participates in the Council countries income tax is almost absent and, therefore, sukuk structures are
management of the business or project. Profits are divided on a pre-arranged basis, typically not tax driven. This is not the case in East Asia and most other countries,
and any losses are shared in proportion to the capital owned. where taxation could have a significant impact on structures.
Wakala
A wakala is an agency contract between an investor (muwakkil), typically a financial
institution, and the agent (wakil), the entity requiring financing. It is customarily
used in interbank arrangements and between group companies. In sukuk, it is not
always possible to identify a tangible asset of sufficient value that can be used for the
purposes of sukuk issuance.
 Islamic Finance Compendium | 58

Fitch Islamic Finance Coverage List

(as of 30 September 2024)

No. Issuer Name Country No. Issuer Name Country

1 Abu Dhabi National Takaful Company P.S.C. United Arab Emirates 21 Kuveyt Turk Katilim Bankasi A.S Turkiye
2 Abu Dhabi Islamic Bank PJSC United Arab Emirates 22 Kuwait Finance House (K.S.C.P.) Kuwait
3 Ajman Bank PJSC United Arab Emirates 23 Kuwait International Bank K.S.C.P. Kuwait
4 Al Rajhi Banking and Investment Corporation Saudi Arabia 24 PT Bank Syariah Indonesia Tbk Indonesia
5 Alinma Bank Saudi Arabia 25 PT Bank BTPN Syariah Tbk Indonesia
6 Amana Bank PLC Srilanka 26 Qatar International Islamic Bank (Q.P.S.C.) Qatar
7 Arabian Centres Company Saudi Arabia 27 Qatar Islamic Bank (Q.P.S.C) Qatar
8 Bank Aljazira Saudi Arabia 28 Sharjah Islamic Bank PJSC United Arab Emirates
9 Dukhan Bank Q.P.S.C. Qatar The Company For Cooperative Insurance
29 Saudi Arabia
10 Bank of London and The Middle East plc United Kingdom (Tawuniya)
11 Boubyan Bank K.S.C.P. Kuwait 30 Turkiye Emlak Katilim Bankasi A.S. Turkiye
Dubai Islamic Bank (Public Joint Stock 31 Turkiye Finans Katilim Bankasi A.S. Turkiye
12 United Arab Emirates
Company) 32 Vakif Katilim Bankasi AS Turkiye
13 Emirates Islamic Bank PJSC United Arab Emirates 33 WARBA Bank K.S.C.P. Kuwait
14 Etiqa Family Takaful Berhad Malaysia 34 Wifak International Bank Tunisia
15 Etiqa General Takaful Berhad Malaysia 35 Ziraat Katilim Bankasi A.S. Turkiye
16 GFH Financial Group BSC Bahrain Iraqi Islamic Bank for Investment &
36 Iraq
17 Islamic Bank Of Thailand Thailand Development
Islamic Corporation for the Development of PT Bank Pembangunan Daerah Riau Kepri
18 Saudi Arabia 37 Indonesia
the Private Sector Syariah
19 Islamic Development Bank Saudi Arabia 38 Al Hilal Islamic Bank JSC Kazakhstan
20 Jaiz Bank PLC Nigeria 39 Albaraka Turk Katilim Bankasi A.S. Turkiye
 Islamic Finance Compendium | 59

Fitch Islamic Finance Coverage List

(as of 30 September 2024)

No. Issuer Name Country

40 Saudi Real Estate Refinance Company Saudi Arabia

41 PT Bank KB Bukopin Syariah Indonesia
Ameen Al Iraq Bank for Islamic Investment
42 Iraq
and Finance
43 Bank Albilad Saudi Arabia
Cihan Bank For Islamic Investment and
44 Iraq
Finance P.S.C
45 Jordan Islamic Bank Jordan
Arabian Shield Cooperative Insurance
46 Saudi Arabia
Company (A Saudi Joint Stock Company)
47 Golden Global Yatirim Bankasi A.S. Turkiye
Wataniya Insurance Company - a Saudi Joint
48 Saudi Arabia
Stock Company
49 Ahli United Bank B.S.C. © Bahrain
50 Ahli United Bank (UK) PLC United Kingdom
Gulf Union Alahlia Cooperative Insurance
51 Saudi Arabia
Company
 Islamic Finance Compendium | 60

Fitch Islamic Finance Coverage List

(as of 30 September 2024)

No. SUKUK Country

1 Air Lease Corporation Sukuk LTD USD 600 mln 5.85% bond/note 01-Apr-2028 United States
2 Al Rajhi Sukuk Limited USD 1 bln 4.75% bond/note 05-Apr-2028 Saudi Arabia
3 Al Rajhi Sukuk Limited USD 1 bln 5.047% bond/note 12-Mar-2029 Saudi Arabia
4 Arabian Centres Sukuk II Limited USD 875 mln 5.625% bond/note 07-Oct-2026 Saudi Arabia
5 ANB Sukuk Ltd. USD 750 mln Trust Certificate/ Sukuk 28-Oct- 2030 Saudi Arabia
6 Arada Sukuk Limited USD 500 mln 8.125% bond/note 08-Jun-2027 United Arab Emirates
7 Arada Sukuk 2 Limited USD 550 mln 8% bond/note 24-Jun-2029 United Arab Emirates
8 AUB Sukuk Limited USD 600 mln 2.625% bond/note 09-Sep-2026 Bahrain
9 Boubyan Sukuk Limited USD 750 mln 2.593% bond/note 18-Feb-2025 Kuwait
10 Boubyan Sukuk Limited USD 500 mln 3.389% bond/note 29-Mar-2027 Kuwait
11 CBB International Sukuk Company 6 S.P.C. USD 850 mln 5.25% bond/note Bahrain
12 CBB International Sukuk Company 7 S.P.C. USD 1 bln 6.875% bond/note Bahrain
13 CBB International Sukuk Programme Company W.L.L. USD 1 bln 3.88% bond/note 18-May-2029 Bahrain
14 CBB International Sukuk Programme Company W.L.L. USD 1 bln 4.5% bond/note Bahrain
15 CBB International Sukuk Programme Company W.L.L. USD 1 bln 6.25% bond/note Bahrain
16 CBB International Sukuk Programme Company W.L.L. USD 1 bln 3.95% bond/note 16-Sep-2027 Bahrain
17 CBB International Sukuk Programme Company W.L.L. USD 1 bln 6.25% bond/note 18-Oct-2030 Bahrain
18 CBB International Sukuk Programme Company W.L.L. Senior unsecured Issue: USD 1 bln 6% bond/note 12-Feb-2031 Bahrain
19 PT CIMB Niaga Auto Finance IDR 300 bln 7.15% bond/note 8-Feb-2026 Indonesia
20 PT CIMB Niaga Auto Finance IDR 290 bln 7.1% bond/note 9-Jul-2027 Indonesia
21 PT CIMB Niaga Auto Finance IDR 710 bln 6.8% bond/note 19-Jul-2025 Indonesia
 Islamic Finance Compendium | 61

No. SUKUK Country

22 DAE Sukuk (DIFC) Ltd USD 750 mln 3.75% bond/note 15-Feb-2026 United Arab Emirates
23 DIB Sukuk Limited USD 1 bln 1.959% bond/note 22-Jun-2026 United Arab Emirates
24 DIB Sukuk Limited USD 750 mln 2.95% bond/note 20-Feb-2025 United Arab Emirates
25 DIB Sukuk Limited USD 1.3 bln 2.95% bond/note 16-Jan-2026 United Arab Emirates
26 DIB Sukuk Limited USD 750 mln 2.74% bond/note 16-Feb-2027 United Arab Emirates
27 DIB Sukuk Limited USD 750 mln 5.493% bond/note 30-Nov-2027 United Arab Emirates
28 DIB Sukuk Limited USD 1 bln 4.8% bond/note 16-Aug-2028 United Arab Emirates
29 DIB Sukuk Limited USD 1 bln 5.243% bond/note 04-Mar-2029 United Arab Emirates
30 DP World Crescent Limited USD 1 bln 3.875% bond/note 18-Jul-2029 United Arab Emirates
31 DP World Crescent Limited USD 1 bln 4.848% bond/note United Arab Emirates
32 DP World Crescent Limited USD 500 mln 3.749% bond/note United Arab Emirates
33 DP World Crescent Limited USD 1.5 bln 5.5% bond/note 13-Sep-2033 United Arab Emirates
Perpetual USD 1.5 bln Floating hybrid capital instruments
34 DP World Salaam United Arab Emirates
(Maturity year demonstrative)
35 EI Sukuk Company Limited USD 500 mln 2.082% bond/note 2-Nov-2026 United Arab Emirates
36 EI Sukuk Company Limited USD 500 mln 1.827% bond/note 23-Sep-2025 United Arab Emirates
37 EI Sukuk Company Limited AED 1 bln 5.05% bond/note 15-Feb-2026 United Arab Emirates
38 EI Sukuk Company Limited Senior unsecured Issue: USD 750 mln 5.431% bond/note 28-May-2029 United Arab Emirates
39 FAB Sukuk Company Limited USD 660 mln 1.411% bond/note 14-Jan-2026 United Arab Emirates
40 FAB Sukuk Company Limited USD 500 mln 2.5% bond/note 21-Jan-2025 United Arab Emirates
41 FAB Sukuk Company Limited USD 500 mln 2.591% bond/note 02-Mar-2027 United Arab Emirates
42 FAB Sukuk Company Limited USD 500 mln 4.581% bond/note 17-Jan-2028 United Arab Emirates
43 FAB Sukuk Company Limited AED 1.3 bln 4.93% bond/note 27-Jul-2026 United Arab Emirates
 Islamic Finance Compendium | 62

No. SUKUK Country

44 FAB Sukuk Company Limited USD 800 mln 4.779% bond/note 23-Jan-2029 United Arab Emirates
45 FAB Sukuk Company Limited USD 490 mln Floating bond/note 27-Aug-2029 United Arab Emirates
46 GFH Sukuk Company Limited USD 500 mln 7.5% bond/note 28-Jan-2025 Bahrain
47 Hazine Mustesarligi Varlik Kiralama Anonim Sirketi USD 2.5 bln 5.125% Lease Certificates 22-Jun- 2026 Turkiye
48 Hazine Mustesarligi Varlik Kiralama Anonim Sirketi USD 1 bln 4.489% Lease Certificates 25-Nov-2024 Turkiye
49 Hazine Mustesarligi Varlik Kiralama Anonim Sirketi USD 3 bln 7.250% Lease Certificates 24-Feb-2027 Turkiye
50 Hazine Mustesarligi Varlik Kiralama Anonim Sirketi USD 2.5 bln 9.758% Lease Certificates 13-Nov- 2025 Turkiye
51 Hazine Mustesarligi Varlik Kiralama Anonim Sirketi USD 2.5 bln 8.5091% Lease Certificates 14-Jan- 2029 Turkiye
52 Hong Kong Sukuk 2017 Limited USD 1 bln 3.132% bond/note Hong Kong
53 ICDPS Sukuk Limited USD 600 mln 1.81% bond/note 15-Oct-2025 Saudi Arabia
54 ICDPS Sukuk Limited Senior unsecured Issue: USD 500 mln 4.95% bond/note 14-Feb-2029 Saudi Arabia
55 ICD Eagle Limited Senior unsecured Issue: KZT 2 bln 14.95% bond/note 21-Jun-2028 Saudi Arabia
56 IsDB Trust Services No. 2 SARL USD 1.8 bln 1.435% bond/note 21-Oct-2026 Saudi Arabia
57 IsDB Trust Services No. 2 SARL USD 2.5 bln 1.262% bond/note 31-Mar-2026 Saudi Arabia
58 IsDB Trust Services No. 2 SARL USD 1.6 bln 3.213% bond/note 28-Apr-2027 Saudi Arabia
59 IsDB Trust Services No. 2 SARL USD 1 bln 4.747% bond/note 27-Oct-2027 Saudi Arabia
60 IsDB Trust Services No. 2 SARL USD 2 bln 4.598% bond/note 14-Mar-2028 Saudi Arabia
61 IsDB Trust Services No. 2 SARL USD 1.75 bln 4.906% bond/note 03-Oct-2028 Saudi Arabia
62 IsDB Trust Services No. 2 SARL Senior unsecured Issue: USD 1.9 bln 4.906% bond/note 03-Oct-2028 Saudi Arabia
63 IsDB Trust Services No. 2 SARL EUR 700 mln 3.456% bond/note 14-Nov-2028 Saudi Arabia
64 IsDB Trust Services No. 2 SARL USD 2 bln 4.754% bond/note 15-May-2029 Saudi Arabia
65 IsDB Trust Services No. 2 SARL EUR 150 mln 3.508% bond/note 12-Jun-2026 Saudi Arabia
 Islamic Finance Compendium | 63

No. SUKUK Country

66 IDB Trust Services Limited EUR 1 bln 0.037% bond/note 04-Dec-2024 Saudi Arabia
67 IDB Trust Services Limited USD 2 bln 1.809% bond/note 26-Feb-2025 Saudi Arabia
68 IDB Trust Services Limited USD 1.5 bln 0.908% bond/note 25-Jun-2025 Saudi Arabia
69 IDB Trust Services Limited USD 1.5 bln 1.957% bond/note 02-Oct-2024 Saudi Arabia
70 International Islamic Liquidity Management 2 SA Class: 230030 Malaysia
71 International Islamic Liquidity Management 2 SA Class: 240018 Malaysia
72 International Islamic Liquidity Management 2 SA Class: 240015 Malaysia
73 International Islamic Liquidity Management 2 SA Class: 240012 Malaysia
74 International Islamic Liquidity Management 2 SA Class: 240011 Malaysia
75 International Islamic Liquidity Management 2 SA Class: 240028 Malaysia
76 International Islamic Liquidity Management 2 SA Class: 240029 Malaysia
77 International Islamic Liquidity Management 2 SA Class: 240030 Malaysia
78 International Islamic Liquidity Management 2 SA Class: 240026 Malaysia
79 International Islamic Liquidity Management 2 SA Class: 240025 Malaysia
80 International Islamic Liquidity Management 2 SA Class: 240027 Malaysia
81 International Islamic Liquidity Management 2 SA Class: 240024 Malaysia
82 International Islamic Liquidity Management 2 SA Class: 240023 Malaysia
83 International Islamic Liquidity Management 2 SA Class: 240021 Malaysia
84 International Islamic Liquidity Management 2 SA Class: 240020 Malaysia
85 International Islamic Liquidity Management 2 SA Class: 240018 Malaysia
86 International Islamic Liquidity Management 2 SA Class: 240015 Malaysia
87 International Islamic Liquidity Management 2 SA Class: 240012 Malaysia
 Islamic Finance Compendium | 64

No. SUKUK Country

88 KIB Sukuk Limited USD 300 mln 2.375% bond/note 30-Nov-2030 Kuwait
89 KT21 T2 Company Limited USD 350 mln Variable bond/note 16-Dec-2031 Turkiye
90 KSA Sukuk Limited USD 2 bln 2.25% bond/note 17-May-2031 Saudi Arabia
91 KSA Sukuk Limited USD 2.5 bln 2.969% bond/note 22-Oct-2029 Saudi Arabia
92 KSA Sukuk Limited USD 2 bln 4.303% bond/note 1 Saudi Arabia
93 KSA Sukuk Limited USD 4.5 bln 3.628% bond/note Saudi Arabia
94 KSA Sukuk Limited USD 2.5 bln 5.268% bond/note 25-Oct-2028 Saudi Arabia
95 KSA Sukuk Limited Senior unsecured Issue: USD 3 bln 4.274% bond/note 22-May-2029 Saudi Arabia
96 KSA Sukuk Limited Senior unsecured Issue: USD 3 bln 4.511% bond/note 22-May-2033 Saudi Arabia
97 KSA Sukuk Limited Senior unsecured Issue: USD 2.25 bln 5.25% bond/note 4-Jun-2034 Saudi Arabia
98 KSA Sukuk Limited Senior unsecured Issue: USD 1.25 bln 5.25% bond/note 4-Jun-2027 Saudi Arabia
99 KSA Sukuk Limited USD 1.5 bln 5.25% bond/note 4-Jun-2030 Saudi Arabia
100 MAF Sukuk Ltd. USD 500 mln 4.5% Sukuk Notes United Arab Emirates
101 MAF Sukuk Ltd. USD 600 4.638% notes United Arab Emirates
102 MAF Sukuk Ltd. USD 600 mln 3.933% bond/note 28-Feb-2030 United Arab Emirates
103 MAF Sukuk Ltd. USD 500 mln 5% bond/note 01-Jun-2033 United Arab Emirates
MYR 1.5 bln 4.245% Sukuk Gov Bonds 30 Sep 2030 -
104 Malaysia Malaysia
MYBGT1500037 (Public)
MYR 2 bln 4.943% Sukuk bond/note 06-Dec-2028 -
105 Malaysia Malaysia
MYBGS1300729 (Public)
MYR 2.5 bln 4.582% Sukuk bond/note 30-Aug- 2033 - ISIN:
106 Malaysia Malaysia
MYBGX1300687
MYR 3 bln 3.871% Sukuk Local Currency Gov Bonds 8 Aug 2028 -
107 Malaysia Malaysia
MYBGT1300016 (Public)
 Islamic Finance Compendium | 65

No. SUKUK Country

MYR 4 bln 4.258% Sukuk bond/note 26-Jul-2027 -
108 Malaysia Malaysia
MYBGO1700018 (Public)
MYR 2.5 bln 4.895% Sukuk bond/note 08-May- 2047 -
109 Malaysia Malaysia
MYBGZ1700048 (Public)
MYR 2.5 bln 4.755% Sukuk bond/note 04-Aug- 2037 -
110 Malaysia Malaysia
MYBGX1700050 (Public)
MYR 2.5 bln 4.724% Sukuk bond/note 15-Jun- 2033-
111 Malaysia Malaysia
MYBGT1700066 (Public)
MYR 4 bln 4.128% Sukuk bond/note 15-Aug-2025
112 Malaysia Malaysia
-MYBGL1800012 (Public)
MYR 4 bln 4.369% Sukuk bond/note 31-Oct-2028 -
113 Malaysia Malaysia
MYBGO1800024 (Public)
MYR 4 bln 3.99% Sukuk bond/note 15-Oct-2025 -
114 Malaysia Malaysia
MYBGO1500046
MYR 4 bln 4.07% Sukuk bond/note 30-Sep-2026 - ISIN
115 Malaysia Malaysia
MYBGO1600036 (Public)
YR 1.5 bln 4.786% Sukuk bond/note 31-Oct-2035 -
116 Malaysia Malaysia
MYBGX1500062
MYR 5 bln 4.13% Sukuk bond/note 09-Jul-2029 - MYBGO1900014
117 Malaysia Malaysia
(Public)
MYR 4.5 bln 4.467% Sukuk bond/note 15-Sep- 2039 -
118 Malaysia Malaysia
MYBGY1900021 (Public)
MYR 4 bln 3.726% Sukuk bond/note 31-Mar- 2026 -
119 Malaysia Malaysia
MYBGK1900038 (Public
MYR 3.5 bln 3.655% Sukuk bond/note 15-Oct- 2024 -
120 Malaysia Malaysia
MYBGJ1900048 (Public)
MYR 4 bln 4.638% Sukuk bond/note 15-Nov-2049 -
121 Malaysia Malaysia
MYBGZ1900051 (Public)
 Islamic Finance Compendium | 66

No. SUKUK Country

MYR 4 bln 4.119% bond/note 30-Nov-2034 - MYBGT1900062
122 Malaysia Malaysia
(Public)
123 Malaysia Sukuk Global Berhad USD 1 bln 3.179% Global Sukuk Trust Certificates Malaysia
124 Malaysia Sukuk Global Berhad USD 500 mln 4.08% Global Sukuk Trust Certificates ser 1 Malaysia
125 Otel Sukuk Limited Senior unsecured Issue: USD 500 mln 5.375% bond/note 24-Jan-2031 Oman
126 Mumtalakat Sukuk Holding Company USD 500 mln 4.1% bond/note 21-Jan-2027 Bahrain
127 nogaholding Sukuk Limited USD 600 mln 5.25% bond/note 08-Apr-2029 Bahrain
128 nogaholding Sukuk Limited USD 750 mln 6.625% bond/note 25-May-2033 Bahrain
129 Mazoon Assets Company SAOC USD 500 mln 5.2% bond/note Oman
130 Mazoon Assets Company SAOC Senior unsecured Issue: USD 500 mln 5.5% bond/note 14-Feb-2029 Oman
131 Oman Sovereign Sukuk S.A.O.C. USD 1.5 bln 5.932% bond/note Oman
132 The Pakistan Global Sukuk Programme Company Limited USD 1 bln 7.95% bond/note 31-Jan-2029 Pakistan
133 Perusahaan Penerbit SBSN Indonesia III USD 1.75 bln 4.55% Global Certificates (Sukuk) Indonesia
134 Perusahaan Penerbit SBSN Indonesia III USD 1.25 bln 1.5% bond/note 09-Jun-2026 Indonesia
135 Perusahaan Penerbit SBSN Indonesia III USD 750 mln 3.55% bond/note 9-Jun-2051 Indonesia
136 Perusahaan Penerbit SBSN Indonesia III USD 1 bln 2.55% bond/note 9-Jun-2031 Indonesia
137 Perusahaan Penerbit SBSN Indonesia III USD 2 bln 4.325% Sukuk bond/note 28-May-2025 Indonesia
138 Perusahaan Penerbit SBSN Indonesia III USD 750 mln 3.8% bond/note 23-Jun-2050 Indonesia
139 Perusahaan Penerbit SBSN Indonesia III USD 1 bln 2.8% bond/note 23-Jun-2030 Indonesia
140 Perusahaan Penerbit SBSN Indonesia III USD 750 mln 2.3% bond/note 23-Jun-2025 Indonesia
141 Perusahaan Penerbit SBSN Indonesia III USD 1.75 bln 4.4% bond/note Indonesia
142 Perusahaan Penerbit SBSN Indonesia III USD 1.25 bln 4.45% Indonesia
143 Perusahaan Penerbit SBSN Indonesia III USD 2 bln 4.15% Sukuk bond/note Indonesia
 Islamic Finance Compendium | 67

No. SUKUK Country

144 Perusahaan Penerbit SBSN Indonesia III USD 1.5 bln 4.7% bond/note 6-Jun-2032 Indonesia
145 Perusahaan Penerbit SBSN Indonesia III USD 1.75 bln 4.4% bond/note 06-Jun-2027 Indonesia
146 Perusahaan Penerbit SBSN Indonesia III Senior unsecured Issue: USD 1 bln 5.6% bond/note 15-Nov-2033 Indonesia
147 Perusahaan Penerbit SBSN Indonesia III Senior unsecured Issue: USD 1 bln 5.4% bond/note 15-Nov-2028 Indonesia
148 Perusahaan Penerbit SBSN Indonesia III USD 1 bln 5.2% bond/note 2-Jul-2034 Indonesia
149 Perusahaan Penerbit SBSN Indonesia III USD 600 mln 5.5% bond/note 2-Jul-2054 Indonesia
150 Perusahaan Penerbit SBSN Indonesia III USD 750 mln 5.1% bond/note 02-Jul-2029 Indonesia
151 PT Samator Indo Gas Tbk IDR 133 bln 8.1% bond/note 17-Dec-2024 Indonesia
152 PT Samator Indo Gas Tbk IDR 17 bln 9.15% bond/note 17-Dec-2026 Indonesia
153 PT Samator Indo Gas Tbk IDR 5 bln 10.55% Sukuk bond/note 14-Aug-2025 Indonesia
154 PT Samator Indo Gas Tbk IDR 124 bln 10.75% Sukuk bond/note 06-Jul-2028 Indonesia
155 PT Samator Indo Gas Tbk IDR 118.8 bln 7.75% bond/note 01-Apr-2025 Indonesia
156 PT Samator Indo Gas Tbk IDR 123.7 bln 8.9% bond/note 1-Apr-2027 Indonesia
157 PT Samator Indo Gas Tbk IDR 153.5 bln 9.75% bond/note 1-Apr-2029 Indonesia
158 PT Bali Towerindo Sentra Tbk IDR 21 bln 9.75% bond/note 16-Dec-2025 Indonesia
159 PT Bali Towerindo Sentra Tbk IDR 425 bln 7.65% bond/note 21-Oct-2024 Indonesia
160 PT Bank Pembangunan Daerah Kalimantan Selatan IDR 150 bln Floating bond/note 04-Oct-2025 Indonesia
161 PT Bank Pembangunan Daerah Kalimantan Selatan IDR 343 bln 8% bond/note 04-Oct-2025 Indonesia
162 PT Indosat Tbk IDR 54 bln 9.15% Sukuk bond/note Indonesia
163 PT Indosat Tbk IDR 63 bln 9.25% Sukuk Ijarah bond/note Indonesia
164 PT Indosat Tbk IDR193 billion sukuk ijarah issues Indonesia
165 PT Indosat Tbk IDR 41 bln 11.2% Sukuk Ijarah Notes 8 Dec 2025 Indonesia
 Islamic Finance Compendium | 68

No. SUKUK Country

166 PT Indosat Tbk IDR 13 bln 7.95% Sukuk Ijarah bond/note 09-Nov- 2024 Indonesia
167 PT Indosat Tbk IDR 175 bln 10.4% Sukuk Bonds 4 Jun 2025 Indonesia
168 PT XL Axiata Tbk IDR 336 bln Sukuk 9.4% bond/note Indonesia
169 PT XL Axiata Tbk IDR 34 bln Sukuk 10.1% bond/note Indonesia
170 PT XL Axiata Tbk IDR 60 bln Sukuk 10.3% bond/note Indonesia
171 PT XL Axiata Tbk IDR 262.65 bln 8.25% Sukuk Ijarah bond/note 01- Sep-2032 Indonesia
172 PT XL Axiata Tbk IDR 135.13 bln 7.9% Sukuk Ijarah bond/note 1- Sep-2029 Indonesia
173 PT XL Axiata Tbk DR 421.3 bln 7.4% Sukuk Ijarah bond/note 1-Sep- 2027 Indonesia
174 PT XL Axiata Tbk IDR 680.91 bln 6.75% Sukuk Ijarah bond/note 1- Sep-2025 Indonesia
175 QIB Sukuk Ltd USD 900 mln 1.95% bond/note 27-Oct-2025 Qatar
176 QIB Sukuk Ltd USD 800 mln Floating bond/note 07-Feb-2025 Qatar
177 QIB Sukuk Ltd USD 250 mln 2.525% bond/note 03-Mar-2025 Qatar
178 QIB Sukuk Ltd USD 500 mln 5.581% bond/note 22-Nov-2028 Qatar
179 QIB Sukuk Ltd USD 750 mln 4.485% bond/note 17-Sept-2029 Qatar
180 RAK Capital USD 1 bln 3.094% Sukuk Notes United Arab Emirates
181 Riyad Sukuk Limited USD 1.5 bln 3.174% bond/note 25-Feb-2030 Saudi Arabia
182 SA Global Sukuk Limited USD 2 bln 1.602% bond/note 17-Jun-2026 Saudi Arabia
183 SA Global Sukuk Limited USD 3 bln 2.694% bond/note 17-Jun-2031 Saudi Arabia
184 SA Global Sukuk Limited USD 1.5 bln 4.25% bond/note 02-Oct-2029 Saudi Arabia
185 SA Global Sukuk Limited SD 1.5 bln 4.75% bond/note 02-Oct-2034 Saudi Arabia
186 Saudi Electricity Global Sukuk Company 2 USD 1 bln 5.06% Notes ser 144A Saudi Arabia
187 Saudi Electricity Global Sukuk Company 3 USD 1 bln 5.5% Notes ser 144A Saudi Arabia
 Islamic Finance Compendium | 69

No. SUKUK Country

188 Saudi Electricity Global Sukuk Company 4 USD 1.2 bln 4.723% bond/note 27-Sep-2028 Saudi Arabia
189 Saudi Electricity Global Sukuk Company 5 USD 650 mln 1.74% bond/note 17-Sep-2025 Saudi Arabia
190 Saudi Electricity Global Sukuk Company 5 USD 650 mln 2.413% bond/note 17-Sep-2030 Saudi Arabia
191 Saudi Electricity Sukuk Programme Company Senior unsecured Issue: USD 1.2 bln 4.632% bond/note 11-Apr-2033 Saudi Arabia
192 Saudi Electricity Sukuk Programme Company USD 1.5 bln 5.684% bond/note 11-Apr-2053 Saudi Arabia
193 SENAAT Sukuk Limited USD 300 mln 4.76% bond/note United Arab Emirates
194 SNB Sukuk Limited USD 750 mln 2.342% bond/note 19-Jan-2027 Saudi Arabia
195 SNB Sukuk Limited USD 850 mln 5.129% bond/note 27-Feb-2029 Saudi Arabia
196 Tabreed Sukuk SPC Limited USD 500 mln 5.5% bond/note United Arab Emirates
197 TMS Issuer S.a.r.l. USD 1.5 bln 5.78% bond/note 23-Aug-2032 Saudi Arabia
198 Unity 1 Sukuk Limited USD 600 mln 2.394% bond/note 3-Nov-2025 United Arab Emirates
199 BSF Sukuk Company Limited Senior unsecured Issue: USD 900 mln 4.75% bond/note 31-May-2028 Saudi Arabia
200 BSF Sukuk Company Limited Senior unsecured Issue: USD 700 mln 5% bond/note 25-Jan-2029 Saudi Arabia
201 Oman Sovereign Sukuk S.A.O.C. USD 1.75 bln 4.88% bond/note 15-Jun-2030 Oman
202 ADIB Sukuk Company II Ltd USD 500 mln 5.695% bond/note 15-Nov-2028 United Arab Emirates
203 SUCI Second Investment Company USD 1.25 bln 6.25% bond/note 25-Oct-2033 Saudi Arabia
204 SUCI Second Investment Company USD 2.25 bln 6% bond/note 25-Oct-2028 Saudi Arabia
205 SUCI Second Investment Company USD 2 bln 5.171% bond/note 05-Mar-2031 Saudi Arabia
206 SUCI Second Investment Company USD 1.5 bln 4.375% bond/note 10-Sept-2027 Saudi Arabia
Senior unsecured Issue: USD 450 mln 9.75% bond/note 09-Nov-
207 Ittihad International Ltd United Arab Emirates
2028
Senior unsecured Issue: USD 1 bln 5.045% trust certificates
208 ROP Sukuk Trust Philippines
06-Jun-2029
 Islamic Finance Compendium | 70

No. SUKUK Country

209 Ziraat Katilim Varlik Kiralama A.S. Senior unsecured Issue: USD 500 mln 9.375% bond/note 12-Nov-2026 Turkiye
210 EDO Sukuk Limited Senior unsecured USD 1 bln 5.875% bond/note 21-Sep-2033 Oman
211 EDO Sukuk Limited Senior unsecured Issue: USD 750 mln 5.662% bond/note 03-Jul-2031 Oman
The RSA Domestic Sukuk Trustee (RF) Proprietary
212 ZAR 7.49 bln 9.87% bond/note 31-Mar-2029 South Africa
Limited
The RSA Domestic Sukuk Trustee (RF) Proprietary
213 ZAR 8.87 bln 10.64% bond/note 31-Mar-2031 South Africa
Limited
The RSA Domestic Sukuk Trustee (RF) Proprietary
214 ZAR 2.48 bln 11.58% bond/note 31-Mar-2034 South Africa
Limited
The RSA Domestic Sukuk Trustee (RF) Proprietary
215 ZAR 1.55 bln 11.9% bond/note 31-Mar-2036 South Africa
Limited
216 KFH Sukuk Company USD 1 bln 5.011% bond/note 17-Jan-2029 Kuwait
217 Binghatti Sukuk SPC Limited Senior unsecured Issue: USD 500 mln 9.62% bond/note 28-Feb-2027 United Arab Emirates
218 Arabian Centres Sukuk III Limited USD 600 mln 9.5% bond/note 06-Mar-2029 Saudi Arabia
219 QIIB Senior Oryx Ltd USD 750 mln 5.247% bond/note 24-Jan-2029 Qatar
220 MDGH Sukuk Limited Senior unsecured Issue: USD 1 bln 4.959% bond/note 04-Apr-2034 United Arab Emirates
221 Warba Sukuk Limited USD 500 mln 5.351% bond/note 10-Jul-2029 Kuwait
222 Aercap Sukuk Limited USD 500 mln 4.5% bond/note 03-Oct-2029 Ireland
 Islamic Finance Compendium | 71

Summary
Fitch Ratings has been providing independent and objective credit ratings to the Islamic
finance market for over a decade. With a strong record in Islamic finance, we currently
rate over 220 outstanding sukuk worldwide and over 50 Islamic finance-based issuers.
Fitch has a dedicated Islamic Finance Group, which, rates Islamic-finance instruments
(sukuk), and monitors and reports on this rapidly growing sector through specialised
research and commentary, as well as through criteria development. Fitch has been
recognised as the Best Rating Agency for Islamic Finance for the eighth consecutive
year by The Asset in 2024, and has received multiple accolades from GIFA and the
Global Takaful Awards.
In this Compendium, we share some of our views on the global sukuk market, Islamic
banks, Islamic funds and takaful (Islamic insurance) in key markets. We also share our
perspectives on key industry developments, including compliance with sharia, sukuk
default resolution and the rise of ESG sukuk, among others.
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