KUALA LUMPUR: Fitch Ratings expects Islamic finance to grow rapidly with more sukuk issuance.
Issuance for new sovereigns may be seen from Jordan, Tunisia and even Egypt this year.
"Liquidity will become more important due to declining oil reserves and also because GCC governments are keen to continue to spend and expand. This could translate to more sukuk issuance, rather than the usual easy bank financing.
"Islamic banks are also trying to strengthen their balance sheets in preparation for Basel III, which means tapping the sukuk market," it said
Fitch Ratings said in a new report that the total new sukuk from GCC+7 issuers rose 13 per cent year-on-year in the first quarter.
Total sukuk and bond issuance in the first quarter were up 47 per cent from the fourth quarter when volumes were exceptionally weak, due to falling oil prices and rising geopolitical tension.
"In the first quarter however, stability in oil prices enabled some new deals."
Sukuk accounted for 26 per cent of total new issuance, marginally down from 31 per cent in the fourth quarter.
Loans (Islamic and conventional syndicated loans) in the GCC and Malaysia were down 25 per cent in the first quarter.
"However, the quarter to quarter share of Islamic finance deals was up by 198 per cent and accounted for 20 per cent of total new loans, which came mainly from GCC's two largest economies - Saudi Arabia and the UAE."
Two notable large Sukuk issues were by IDB Trust Services Ltd and RAK Capital at US$ 1 billion each.
In the first quarter, the total sukuk issuance volume rated by Fitch grew 3.5 per cent to US$45.1 billion.