Emirates: The UAE’s debt capital markets experienced a 13.1 percent year-on-year growth in the third quarter of 2024, reaching a total of $294.4 billion, according to the managing director at Fitch Ratings.

Bashar Al-Natoor, the firm’s global head of Islamic finance, emphasized the UAE’s growing financial landscape and its significant role in the international sukuk market. By the end of third quarter, sukuk accounted for 20 percent of the UAE’s debt capital market, with the remaining portion in bonds.

“The UAE is a pivotal player in the global sukuk market, holding a 6.6 percent share of the global outstanding sukuk,” Al-Natoor noted in an interview with the Emirates News Agency.

This positions the UAE as the fourth-largest sukuk issuer worldwide, behind Malaysia, Saudi Arabia, and Indonesia. Additionally, the UAE has become a major US dollar debt issuer in emerging markets, excluding China, with an 8.9 percent share in the first half of 2024, trailing only Saudi Arabia and Brazil.

The UAE also ranked as the second-largest issuer of environmental, social, and governance bonds and sukuk in emerging markets outside China during the first nine months of the year, second only to Brazil.

Despite the overall market growth, Al-Natoor acknowledged a decline in issuance levels. Sukuk issuance in the UAE totaled $9.9 billion in the first nine months of 2024, reflecting a 13 percent year-on-year decrease. However, this drop was relatively modest compared to the 25 percent decline in bond issuance during the same period.

Al-Natoor highlighted that the government’s recent extension of fee exemptions for ESG bond and sukuk listings could further support sustainable finance initiatives in the country. 

Fitch Ratings currently assesses $26.7 billion of UAE sukuk, with 92.5 percent of these instruments rated as investment grade, Al-Natoor disclosed.  

This rating distribution indicates a low to moderate credit risk for most UAE sukuk, with financial institutions dominating at a 51 percent share, followed by corporate issuers at 21 percent.  

“Investment-grade is usually an indication that the majority of these instruments have relatively low to moderate credit risk,” he explained. 

Al-Natoor also emphasized the role of Islamic banks within the UAE’s financial ecosystem, with Islamic financing accounting for 29 percent of the total sector financing as of mid-year.  

Islamic financing grew by 5.7 percent in the first half of the year, slightly outpacing the 5.4 percent growth seen in conventional banking. Fitch anticipates that Islamic banks will continue to expand faster than their conventional counterparts in the medium term. 

Further illustrating the influence of Islamic finance, Islamic bank investments in Islamic certificates of deposit reached 44 billion dirhams ($11.9 million) by the end of the first half of the year, Al-Natoor said, citing data from the Central Bank of the UAE.  

“Islamic banks invest in Islamic CDs as opposed to M-Bills, as Islamic M-Bills have not yet been introduced,” Al-Natoor explained, adding that while Islamic CDs are based on commodity murabaha, they cannot be traded. 

Looking ahead, Al-Natoor projects continued expansion in the UAE’s debt capital markets, potentially surpassing $300 billion by the end of the year.