KUALA LUMPUR, March 18 Islamic bond sales are likely to drop this year from 2008 although local currency issuances will help support markets hit by the credit crisis, the Asian arm of Kuwait's top sharia lender said on Wednesday.
Plummeting property prices in key Islamic financial centres such as Dubai are tightening the screws on the $1 trillion industry and putting it to its biggest test in its 30-year history.
Globally, the value of Islamic bonds, or sukuk, issued in 2008 fell more than 56 percent to $14.9 billion from 2007, according to Standard & Poor's.
Most industry experts have held out little hope for a recovery in the sukuk market this year, as the global economy struggles to avoid a prolonged recession.
"This year we don't expect major issuance," said K. Salman Younis, head of Kuwait Finance House's (KFIN.KW) Asian operations.
"But what is happening now at least in GCC (Gulf Cooperation Council) markets, like the Malaysian market, new issuance has started in local currency. That's where the market is going to be at least for the next two years: local currency issuance, very few dollar issuance."
Foreign bond issuers such as The Export-Import Bank of Korea tapped the Malaysian market in the past year as they sought markets which were then considered relatively insulated from the global financial crisis.
Younis said Kuwait Finance's Asian operations would book provisions this year.
"In the region we have a growth strategy so the parent doesn't expect us to pay big dividends to them. We are profitable and yes, we will also take provisions to strengthen the balance sheet, which everyone is doing," he said.
The bank's parent had warned this month the first quarter could be difficult and it could consider booking provisions in 2009.
Kuwait's biggest Islamic lender saw profits dive in 2008 after it had taken 210.94 million dinars in provisions to help weather the economic crisis.
Full-year profit fell 43 percent to 156.9 million dinars, down from 275.27 million dinars in 2007. Reuters calculated a net loss of 63.7 million dinars in the fourth quarter, based on previous data.
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(Reporting by Liau Y-Sing; Editing by Kim Coghill)