UAE’s Debt Capital Market Sees 10% Growth

UAE’s Outstanding Debt Capital Market Grows Amid Diverse Financial Developments

Significant Increase in UAE’s Debt Market

In a noteworthy financial development, the UAE’s outstanding debt capital market (DCM) saw a 10% increase last year, according to a recent report by Fitch Ratings. The total value rose to $270 billion across all currencies by the end of 2023.

Diversification and Growth

A major shift in the market composition was observed, with the US dollar share dropping to 71.4% from 87.5% in 2020, and the dirham proportion rising significantly to 20.5%. This diversification indicates a strengthening and broadening of the UAE’s financial landscape.

The Rise of Sukuk

Sukuk issuance, a form of Islamic financing, made considerable strides, accounting for 35% of US dollar DCM issuances, up from 24% in 2022. Across all currencies, sukuk’s share stood at 8.7%, underscoring its growing importance in the region’s financial markets.

Government Initiatives

The UAE federal government’s issuance of dirham T-bonds and T-sukuk since 2022 has played a critical role in this growth. These measures are part of a broader strategy to build a robust yield curve and seed the Emirates Investment Authority.

Banking Sector’s Role

UAE banks have been pivotal in this expansion, with their investment portfolios growing by 21.7% in the first nine months of 2023. This growth is supported by solid funding and liquidity profiles, with deposit growth outpacing loan growth.

Regional Standing

In the Gulf Cooperation Council (GCC), the UAE holds the largest US dollar DCM and is second only to Saudi Arabia across all currencies. It is also a key player in the global sukuk market, both as an issuer and an investor.

Looking Ahead

Fitch expects the UAE’s DCM to reach $300 billion by 2024-2025. The future of the market looks promising, with sukuk expected to be a major component of the UAE’s funding mix, driven by governmental policies, diverse funding needs, and strong investor demand.