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UAE’s debt capital markets grow 13.1 percent YoY to $294.4 billion by Q3 2024: Fitch

This growth highlights the country's evolving financial landscape and its strategic role within the sukuk market
UAE’s debt capital markets grow 13.1 percent YoY to $294.4 billion by Q3 2024: Fitch
The UAE's debt capital markets are set for continued expansion, with forecasts suggesting a potential rise beyond $300 billion by the end of 2024.

UAE’s debt capital markets (DCMs) have shown impressive growth. Bashar Al Natoor, managing director and global head of Islamic Finance, Fitch Ratings, remarked that there was a year-on-year (YoY) increase of 13.1 percent in outstanding debt, which reached $294.4 billion by the close of the third quarter of 2024. He noted that this growth highlights the country’s evolving financial landscape and its strategic role within the sukuk market, where sukuk represented 20 percent of the total DCM in the UAE at the end of Q3 2024, with the remainder consisting of bonds.

Global sukuk market position

In comments to the Emirates News Agency (WAM), Al Natoor emphasized that the UAE is a key player in the global sukuk arena, holding a 6.6 percent share of the worldwide outstanding sukuk, which positions the UAE fourth globally across all currencies, following Malaysia, Saudi Arabia, and Indonesia. He added that the UAE is among the largest issuers of $ debt in emerging markets (excluding China), capturing 8.9 percent of the total in the first half of 2024, trailing only Saudi Arabia and Brazil. Furthermore, he mentioned that during the first nine months of 2024, the UAE was the second-largest issuer of ESG bonds and sukuk in emerging markets (outside of China), after Brazil.

Read more: S&P predict robust growth in UAE Islamic finance driven by non-oil economy, $6.1 billion sukuk surge 

Regional sukuk distribution

Al Natoor also pointed out that regionally, the UAE accounts for the second-largest proportion of total outstanding sukuk in the GCC, with 16.2 percent, behind Saudi Arabia’s commanding 71 percent share.

Sukuk issuance trends

Regarding issuance trends, Al Natoor noted that in the first nine months of 2024, sukuk issuance in the UAE totaled $9.9 billion, reflecting a 13 percent decline YoY. However, he remarked that this decrease is less pronounced than the 25 percent drop observed in bond issuance during the same timeframe.

UAE's debt capital markets

Dirham Monetary Framework impact

Following the government’s introduction of the Dirham Monetary Framework, he indicated that the share of Dirham-denominated instruments in the DCM outstanding rose significantly to 21.1 percent by the end of the first half of 2024, up from just 0.5 percent at the end of 2020. He highlighted that the government remains committed to promoting sustainability initiatives and noted that in April 2024, the regulatory body extended the fee exemption for listing ESG bonds and sukuk, which is expected to bolster ESG issuance.

Investment-grade sukuk overview

Also, Al Natoor pointed out that Fitch currently rates $26.7 billion of UAE sukuk, with 92.5 percent classified as investment-grade. He explained that financial institutions dominate this market segment, holding a 51 percent share, followed by corporates at 21 percent, as of the end of Q3 2024. He added that investment-grade ratings typically indicate that these instruments carry relatively low to moderate credit risk, whereas speculative ratings suggest either a higher credit risk level or that a default has already occurred.

Role of Islamic banks

Al Natoor further stated that Islamic banks are integral to the UAE’s financial ecosystem, with Islamic financing constituting 29 percent of total sector financing by the end of the first half of 2024. He noted that this marks a growth rate of 5.7 percent, which slightly outpaces the 5.4 percent growth seen in conventional banks, and he anticipates that Islamic banks will continue to experience faster growth than their conventional counterparts in the medium term.

Increasing investment in Islamic CDs

Moreover, Al Natoor observed that throughout 2024, investment by Islamic banks in Islamic certificates of deposit (CDs) has risen, reaching AED44 billion by the end of the first half of 2024, according to the Central Bank of the UAE. He explained that Islamic banks prefer investing in Islamic CDs instead of M-Bills, as the latter have yet to be introduced, and although similar in nature, Islamic CDs cannot be traded since they are based on commodity murabaha principles.

Future growth projections

Furthermore, Al Natoor concluded that the UAE’s debt capital markets are set for continued expansion, with forecasts suggesting a potential rise beyond $300 billion by the end of 2024, driven by the UAE’s strategic commitment to enhancing its DCM, which is successfully attracting both regional and international investors. Al Natoor expressed optimism that looking ahead, the UAE’s debt capital markets are undergoing substantial growth, propelled by a balanced combination of sukuk and bond issuances, high investment-grade ratings, and a strategic market position in the sukuk sector, both globally and regionally.

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