Soft credit in the Middle East boosts Sukuk sales (By IFN)

GLOBAL: A soft credit environment in the Middle East may have led to the unprecedented levels of Sukuk issuance from the region in the year-to-date, as banks continue to clean up their balance sheets and stricter regulations dampen bank financing.

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Lending by the top seven banks in the UAE, including Abu Dhabi Commercial Bank, First Gulf Bank and Mashreqbank, rose just 0.6% in the first quarter of this year, while HSBC’s Middle East financing portfolio shrank 0.8% to US$27.3 billion during the period.

However, slower credit growth, seen in part as a result of the UAE central bank’s new restrictions on financing to government-related entities and also due to a more cautious stance from banks following the Eurozone debt crisis, appears to have led to stronger demand for debt market fundraising.

Yaser Abushaban, the director of asset management at Emirates Investment Bank, is quoted as saying that the restrictions on banks’ ability to finance the government and its entities will cause firms to seek alternatives; including tapping the bond market.

A number of UAE financial institutions have announced plans to launch Sukuk sales this year; including Dubai Islamic Bank, Emirates Islamic Bank and Tamweel.
In addition, HSBC’s cutback in lending in the Middle East belies its active participation in managing Islamic bond sales in the region. As at the 9th May, the bank has helped manage four Sukuk sales each from the UAE and Saudi since the beginning of the year; amounting to US$8.67 billion, Dealogic data show.

In April, issuers from the MENA region dominated internationally marketed Sukuk sales; while Saudi accounted for 59%, or US$4.7 billion-worth, of domestic Sukuk volume; significantly higher than the 7% share the kingdom recorded in 2011.