Standard and Poor's: Gulf Banks to maintain high debt issuance levels this year

In an article published today, titled 'Low Interest Rates Should Keep Gulf Banks' Debt Issuance Levels Strong In 2013', Standard & Poor's Ratings Services gives reasons why it expects Gulf banks' issuance levels to remain high this year.

"We noted a sharp rebound in Gulf banks' activity in debt capital markets in 2012 as they took the opportunity to issue long-term debt at healthy prices under the favorable market conditions," said Standard & Poor's credit analyst Timucin Engin.

"Given the interest from institutional investors, the banks' rapid growth, and the supportive environment for issuing long-term debt instruments at low cost, we think Gulf banks will have another busy issuance year," he added.

We expect most of the impetus to come from banks in the United Arab Emirates, the largest issuers in 2012, and Qatar, where issuance has been steadily increasing.

As Gulf banks look to diversify their funding base, sukuk is becoming more important in the GCC's fixed-income market, representing almost half of Gulf banks' issuance in 2011 and 2012.

"Sukuk is becoming a key component of Gulf banks' funding bases," said Mr. Engin. "About 50% of banks' debt issued in 2011 and 45% in 2012 was in the form of sukuk. Last year, banks issued $6.7bn of sukuk, representing year-over-year growth of 136%. More important, conventional banks are now increasingly participating in the sukuk market as a means of diversifying their funding bases with longer-term instruments. The demand for sharia-compliant products is rising, both regionally and internationally," he added.