Published March 19, 2009

Islamic bond sales seen falling this year

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(KUALA LUMPUR) Islamic bond sales are likely to drop this year from 2008 although local currency issuances will help support markets hit by the credit crisis, the Asian arm of Kuwait's top syariah lender said yesterday.

Plummeting property prices in key Islamic financial centres such as Dubai are tightening the screws on the US$1 trillion industry and putting it to its biggest test in its 30-year history.

Globally, the value of Islamic bonds, or sukuk, issued last year fell more than 56 per cent to US$14.9 billion from 2007, according to Standard & Poor's.

Most industry observers have held out little hope for a recovery in the sukuk market this year, as the global economy struggles to avoid a prolonged recession.

'This year, we don't expect major issuance,' said K Salman Younis, head of Kuwait Finance House's Asian operations. 'But what is happening now, at least in GCC (Gulf Cooperation Council) markets, like the Malaysian market, new issuance has started in local currency. That's where the market is going to be at least for the next two years: local currency issuance, very few dollar issuance.'

Foreign bond issuers such as The Export-Import Bank of Korea tapped the Malaysian market in the past year as they sought markets which were then considered relatively insulated from the global financial crisis.

Mr Younis said that Kuwait Finance's Asian operations would book provisions this year.

'In the region we have a growth strategy so the parent doesn't expect us to pay big dividends to them. We are profitable and yes, we will also take provisions to strengthen the balance sheet, which everyone is doing,' he said.

The bank's parent had warned this month that the first quarter could be difficult and it could consider booking provisions this year.

Kuwait's biggest Islamic lender saw profits dive last year after it had taken 210.94 million dinars (S$1.1 billion) in provisions to weather the economic crisis. Full-year profit fell 43 per cent to 156.9 million dinars. -- Reuters