"As a result of rapid asset growth, Islamic Banks are expected to become an increasing contributor to Sukuk volumes" adds Howladar.
"Islamic banking assets in
"In addition, the 20 per cent compound annual growth in Islamic financings since 2009 has steadily outpaced the 16 per cent growth in Islamic deposits, creating a funding gap," adds Chen.
"And, when combined with the fact that over 95 per cent of the banks' funding mix is composed of short-term deposit funding, the banks are in need of increasing amounts of stable long-term funding - Sukuk issuances can provide such funding."
Moody's analysis is contained in its just-released report titled Malaysian Islamic Banks: Asset Growth, Funding and Basel III Capital Needs Drive Increasing Sukuk Volumes, and is co-authored by Chen and
Moody's report says Sukuk issuances are expected to rise because if Islamic banks maintain their current risk-adjusted profitability to support their internal capital growth of eight per cent per annum, and risk-weighted assets grow at 11 per cent per annum, Moody's estimates that the banks will need an additional
According to the report, the
Moody's report concludes by saying that Moody's expects the Islamic banks will continue to raise new capital -- such as from Sukuk issuance -- ahead of future business growth, balance their capital structure with a mix of equity and capital securities, and at the same time, build loss-absorbing buffers above the regulatory minimum capital requirements.
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