Sukuk market to remain strong in 2025, may reach $200 billion: Report

S&P Global Ratings released a report today stating that global Islamic bond (Sukuk) issuance is projected to reach approximately $190 billion to $200 billion in 2025, with foreign currency-denominated issuances contributing $70 billion to $80 billion. The report is titled "Islamic Finance: Strong Momentum to Continue in Sukuk Market in 2025."

The report noted that total Islamic bond issuance reached $193.4 billion by the end of 2024, slightly lower than the $197.8 billion in the previous year, but foreign currency-denominated issuance increased significantly. Mohamed Damak, Global Head of Islamic Finance at S&P Global Ratings, stated, "Our forecasts assume no disruption from new standards, no major changes in global liquidity compared with our base case, and no significant increase in geopolitical risks in the Gulf Cooperation Council (GCC) region, which could undermine the economic performance of key issuing jurisdictions."

The report added that many issuers are looking to benefit from improved global liquidity conditions in 2024, when major central banks began to ease monetary policy, and to avoid any potential disruptions from local or geopolitical developments. The report also anticipates that monetary easing will continue in 2025, albeit at a slower pace. The report stated, "This, combined with high financing needs in core Islamic finance countries due to ongoing economic diversification plans, will prompt issuers to seize any market issuance opportunities."

Local currency-denominated Islamic bond issuance fell by 14.6% year-on-year, due to reduced issuance in Malaysia, Pakistan, Turkey, and Indonesia. Malaysia saw the largest drop in local currency issuance, as government issuance declined due to a reduced fiscal deficit caused by subsidy reductions. Similarly, issuance by Malaysia's central bank also decreased due to tightening liquidity conditions as Islamic banks' financing growth continued to outpace deposit growth. Pakistan also saw a decline in local currency issuance as the government’s fiscal position remained under pressure and monetary conditions remained tight. The situation was similar in Turkey, where tight monetary conditions led to a reduction in local currency-denominated issuance. However, local currency issuance in Saudi Arabia resumed its growth trend as the government accessed the market through large issuances and began issuing retail Sukuk.

The significant financing needs of core Islamic finance countries and improved liquidity conditions due to major central banks beginning to ease monetary policy led to a surge in international Islamic bond market issuance in 2024. Many issuers also sought to avoid any potential disruptions from local or geopolitical developments. Overall, total foreign currency-denominated issuance increased from $56.5 billion in 2023 to $72.7 billion in 2024. This growth was primarily driven by the Gulf Cooperation Council, Malaysia, and Indonesia. Within the GCC, Saudi Arabia and Kuwait led the way, with increased foreign currency issuance from Saudi banks, corporates, and the government, while banks and corporates in Qatar and Oman were also more active. Foreign currency Sukuk issuance in the UAE was slightly lower than last year. In Malaysia, performance was primarily driven by increased issuance from the International Islamic Liquidity Management Corporation (IILM) and several issuances by the central bank and sovereign wealth funds. The increase in Indonesian Sukuk issuance was due to higher sovereign issuance.

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