KUALA LUMPUR: Sukuk volumes in 2022 are expected to grow and remain a key financing source in core Islamic finance markets following a robust 2021, according Fitch Ratings.
Total sukuk issued in 2021 surged 36.1 per cent year-on-year to reach US$252.3 billion, the rating agency said today.
Central banks, governments and multilateral institutions dominated issuance, despite Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards implementation challenges, Covid-19 disruptions, and higher oil prices.
Local-currency sukuk amounted to 80 per cent of issuance, Fitch noted.
Growth for 2022 would be anchored by robust Islamic investor appetite, funding diversification goals, and Islamic-finance development agendas in a number of countries, said Bashar Al-Natoor, global head of Islamic Finance at Fitch.
"Downside risk stems from higher oil prices reducing a number of sovereigns' funding needs, AAOIFI-compliance complexities, traditional risks such as interest-rate rise, lower global investor appetite for emerging-market debt, and political risk," he added.
Fitch said the key jurisdictions of the GCC, Malaysia, Indonesia, Turkey and Pakistan had issued US$230.2 billion of sukuk in 2021.
Non-core market sovereigns such as the UK, Maldives and Nigeria also issued sukuk.
Fitch-rated sukuk reached US$132.4 billion in 2021, 80.1 per cent of which were investment-grade.
"Outlooks improved with the share of sukuk issuers with Negative Outlooks falling to 8.8 per cent in the fourth quarter of 2021 (4Q21) from 23.4 per cent in 4Q20," the firm said.
Global outstanding sukuk reached US$711.3 billion in 2021, 12.7 per cent higher than a year ago.
Green and sustainable sukuk volumes expanded 17.2 per cent yoy in 2021 to US$15 billion, with the theme likely to remain prominent in 2022.
Fitch said a number of sukuk issuers defaulted in 2021, including Serba Dinamik Holdings Bhd and PT Garuda Indonesia.
"Legal precedent for effective enforcement is lacking in many sukuk-issuing jurisdictions. In 2021, revised terms and clauses were added to new and existing sukuk documents to comply with AAOIFI standards. AAOIFI-linked changes broadly stabilised since 3Q21 but it is uncertain if there will be changes in 2022," it added.