17-04-2025
UAE and Saudi Arabia to drive Islamic finance expansion in 2025: S&P Global Rating
17 Apr 2025 18:44
A. SREENIVASA REDDY (ABU DHABI) Economic growth in Saudi Arabia and the UAE will continue supporting Islamic banking asset expansion in 2025, barring any significant disruptions from global trade tensions or a further decline in oil prices, the S&P Global Ratings said in a report.'In the UAE, the non-oil economy's performance, along with capital expenditure needs across various sectors, will further support financing requirements and sukuk issuances in 2025,' the report said, pointing to strong momentum across the Gulf's two largest Arabia's Vision 2030 program remains a key growth engine. The report noted that continued progress in economic transformation—coupled with the country's deep integration of Islamic banking—will result in 'significant banking system growth'. According to S&P Global Ratings, total sukuk issuance is expected to range between $190 billion and $200 billion in 2025, with foreign currency-denominated sukuk contributing $70 billion to $80 billion. As of the end of 2024, outstanding sukuk issuance had surpassed the $1 trillion mark.'We expect foreign currency-denominated issuances to remain elevated in 2025, provided there are no major disruptions due to the current volatility in global capital markets,' the report stated. It added that global liquidity conditions, supported by the anticipated easing of monetary policy by central banks, could help sustain issuance finance will also be a growing feature of the Islamic finance landscape. S&P Global projected sustainable sukuk issuance between $10 billion and $12 billion in 2025, a range in line with $11.9 billion issued in 2024. Despite a 60% decline in sustainable sukuk volume from UAE-based issuers in 2024—attributed to a post-COP28 slowdown—the country still accounted for 15% of global issuance. Saudi Arabia led the way, contributing 38% of total sustainable sukuk, primarily driven by its banking Saudi Arabia dominated Islamic banking asset growth in 2024, accounting for nearly two-thirds of the GCC's contribution, followed by strong performances from the UAE and Bahrain. The sector's total assets grew by 10.6% over the year, supported by robust expansion in both banking and the Islamic finance industry is projected to grow by 9%–10% in 2025, supported by continued demand in Southeast Asia and parts of the Middle East. S&P highlighted potential for further development in Malaysia, Indonesia, and Pakistan—although risks from local currency volatility persist.
However, risks to sukuk market dynamics loom in 2026. The anticipated adoption of Sharia Standard 62 by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) could transform sukuk classification from debt-like to equity-like instruments, potentially raising issuance costs and deterring fixed-income investors. While implementation is likely to be phased over one to three years, market participants are closely monitoring the standard's final provisions.
