Malaysia's Islamic finance market is credit positive, says Moody's
KUALA LUMPUR: Global ratings agency Moody’s has rated 'credit positive' ranking to the Malaysian government's efforts in deepening the local Islamic finance market.
In a report today, the agency said Malaysia's A3 stable government is increasingly using domestic Islamic sukuk bonds to fund its budget deficit.
This move, in turn, supports the sovereign's credit quality, by adding stability and diversity to its borrowing profile, and thereby lowering its liquidity risk.
“Government increasingly using longer-term Islamic instruments to fund deficit. As a result, the share of Malaysian Government Islamic Issues (MGII) has grown to 40 per cent of outstanding government debt at the end of the first quarter of 2018, up from 13.9 per cent at the end of 2008,” said the report.
“The authorities' various initiatives to support the market are likely to drive this share higher still.”
Moody's said the shift toward Islamic financial instruments to be credit positive for the sovereign, because of the stable nature of these holdings compared to conventional bonds, and the diversification that they impart to Malaysia’s debt profile.
Regulatory measures, according to Moody’s have supported more active trading in Islamic instruments.
“The authorities have taken a variety of steps to further increase liquidity in the Islamic finance market and narrow the pricing gap between conventional bonds and MGII,” said the report.
“For example, in 2017, the central bank announced initiatives including liberalising short-selling for all residents and making MGII securities with an outstanding nominal amount of at least RM2 billion eligible for short-selling in addition to conventional government bonds.”