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Tuesday 28 September 2021
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Shariah compliant loans slump in Europe, MENA

Shariah-compliant loans slumped to a five-year low in Europe, the Middle East and Africa in the first half on credit-ratings downgrades and falling property prices.

Islamic syndicated loans declined 40 percent to $2.2 billion, compared with a 5 percent drop in total lending to $304 billion, according to data compiled by Bloomberg.

Real-estate prices have dropped 50 percent in the UAE from their peak in August 2008, according to estimates from Colliers International.

“Banks have plenty of liquidity but they have been very selective when it comes to where they would like to deploy it,” Faisal Hijazi, the business development manager of rating services and Islamic finance in Dubai at Moody’s Investors Service, said in a July 1 interview in Kuala Lumpur.

“Real- estate and investment companies seem to be the most seriously challenged when it comes to refinancing.”

Middle East property developers have been forced to renegotiate loans and bonds after they struggled to meet their obligations, prompting ratings companies to downgrade credit rankings and making borrowing more expensive. The last time banks made fewer Islamic loans was in 2005, when the total was $75 million.

The UAE’s state-owned Dubai World, Saudi Arabia-based Saad Group and Investment Dar Co in Kuwait announced plans in the past year to restructure debt. Dubai Holding Commercial Operations Group, a real-estate and hospitality company, had its rating cut to B2 on June 30 by Moody’s, five levels below investment grade.

Islamic finance transactions are based on the exchange of assets rather than interest to comply with the religion’s Shariah principles.

Created in the 1970s, the industry’s assets may quadruple to $2.8 trillion by 2015 from about $700 billion in 2005, according to the Kuala Lumpur-based Islamic Financial Services Board, a standards-setting body.

Dubai Department of Finance’s sukuk bonds have dropped since the debt was sold in October. The 6.396 percent note maturing in November 2014 yielded 7.82 percent, 145 basis points more than 6.37 percent at the time of issue, according to Bloomberg bond trader composite prices.

The rate reached a record high of 10.29 percent on Feb. 15. The securities’ spread over similar-maturity US Treasuries narrowed 187 to 624 in the same period


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