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RIYADH: The Islamic finance industry in the Association of Southeast Asian Nations is set to exceed $1 trillion in assets by the end of 2026, driven by Malaysia, Indonesia and Brunei and supported by closer Gulf ties, Fitch Ratings said. 

The bloc’s Islamic finance sector reached nearly $950 billion at the end of the first half of 2025, accounting for about a quarter of the global total, the agency said in a report. Demand remains uneven within ASEAN, with limited presence in Singapore, the Philippines and Thailand, and underdeveloped markets in Vietnam, Laos, Cambodia and Myanmar.  

ASEAN’s Islamic finance industry is expanding in line with global trends, with worldwide assets projected to reach $7.5 trillion by 2028, up from $5.5 trillion in 2024, according to Standard Chartered. 

In its latest report, Fitch stated: “Growth will continue to be led by Malaysia, Indonesia and Brunei due to their large Muslim populations, enabling regulations, access to sukuk, and potentially improving ties with Gulf Cooperation Council countries.” 

GCC investors already hold stakes in some Malaysian banks, while Gulf Islamic banks are key arrangers and investors in dollar sukuk issued in Malaysia, Indonesia and the Philippines — a pattern seen in markets such as the UK, Turkiye and Kazakhstan.   

Sukuk dominate 

ASEAN’s sukuk outstanding reached $475 billion by mid-2025, making up 16 percent of the region’s debt capital market.   

Malaysia and Indonesia lead the way, contributing nearly half, 47 percent, of the global sukuk market. “Sukuk outstanding represents 59 percent of Malaysia’s debt capital market and 18 percent in Indonesia,” Fitch highlighted.    

Environmental, social, and governance-linked sukuk are also concentrated in these two nations, while Singapore serves as a key listing hub for dollar-denominated sukuk.   

Banking and funds  

Malaysia remained ASEAN’s largest Islamic banking market, with assets totaling about $300 billion, representing 42 percent of total system financing.  

Indonesia followed with $56 billion in Islamic banking assets, though its market share remains modest at 7 percent. Brunei’s Islamic banks hold a dominant 63 percent of the country’s total banking assets.   

In the takaful sector, Malaysia’s family takaful accounts for 39 percent of the insurance market, while Brunei’s takaful penetration stands at 47.8 percent.  

The Philippines has taken steps to develop its Islamic finance ecosystem, issuing its first takaful operator licenses in 2024 and introducing guidelines for micro-takaful products.     

Regulatory gaps  

Recent high-level meetings have reinforced Islamic finance’s role in ASEAN’s economic strategy. The 12th ASEAN Finance Ministers and Central Bank Governors’ Meeting in April emphasized its importance in sustainable and infrastructure financing.  

Meanwhile, the second ASEAN-GCC summit in May strengthened cross-border ties, with Fitch noting that “GCC Islamic banks are key investors and arrangers of dollar sukuk issued in Malaysia, Indonesia, and the Philippines.” 

Despite progress, regulatory frameworks remain absent in Vietnam, Myanmar, Laos, and Cambodia, limiting growth. However, with deepening GCC connections and strong fundamentals, Fitch expected ASEAN’s Islamic finance industry to maintain its upward trajectory.   

Fitch’s report aligns with S&P Global Ratings’ April assessment, which highlighted the Islamic finance industry’s rapid expansion in 2024, driven by robust growth in banking assets and sukuk issuances — particularly in foreign currencies.    

S&P projected that this momentum will continue in 2025, barring major macroeconomic disruptions, supported by stable oil prices and sustained financing needs from economic transformation programs.   

However, risks loom, including potential oil price declines and the possible adoption of Shariah Standard 62, which could reshape sukuk structures from debt-like to equity-like, potentially fragmenting the market and deterring fixed-income investors.     

The industry’s 10.6 percent asset growth in 2024 was heavily concentrated, with GCC countries — led by ������Ƶ — contributing 81 percent of Islamic banking expansion, fueled by Vision 2030 projects and deep market penetration.    

Meanwhile, Malaysia and Indonesia remained key sukuk hubs, though currency volatility in emerging markets like Turkiye and Egypt poses challenges. Global sukuk issuance is expected to reach $190–200 billion in 2025, with foreign currency issuances playing a pivotal role.   

Looking ahead, S&P emphasized that simplifying Islamic finance structures and leveraging fintech could enhance competitiveness, while sustainable sukuk, led by the Kingdom and Indonesia, presents a growing niche.   

Yet, the industry’s trajectory hinges on regulatory clarity, particularly around Standard 62, which could trigger a pre-emptive issuance surge before implementation. 

TOKYO/SINGAPORE: Oil prices climbed on Thursday as investors weighed what impact the US-Russia summit on Ukraine on Friday might have on Russian crude flows, with secondary sanctions looming over Moscow’s customers, while a rising supply outlook capped gains.

Brent crude futures rose 45 cents, or 0.7 percent, to $66.08 a barrel at 8:31 a.m. Saudi time, while US West Texas Intermediate crude futures gained 44 cents, also up 0.7 percent, to $63.09.

Both contracts hit their lowest in two months on Wednesday after bearish supply guidance from the US government and the International Energy Agency.

Trump on Wednesday threatened “severe consequences” if Putin does not agree to peace in Ukraine. Trump did not specify what the consequences could be, but he has warned of economic sanctions if the meeting in Alaska on Friday proves fruitless.

“The uncertainty of US-Russia peace talks continues to add a bullish risk premium given Russian oil buyers could face more economic pressure,” Rystad Energy said in a client note.

“How Ukraine-Russia crisis resolves and Russia flows change could bring some unexpected surprises.”

Trump has threatened to enact secondary tariffs on buyers of Russian crude, primarily China and India, if Russia continues with its war in Ukraine.

“Clearly there’s upside risk for the market if little progress is made” on a ceasefire, said Warren Patterson, head of commodities strategy at ING, in a note.

The expected oil surplus through the latter part of this year and 2026, combined with spare capacity from the Organization of the Petroleum Exporting Countries, means that the market should be able to manage the impact of secondary tariffs on India, Patterson said.

But things become more difficult if we see secondary tariffs on other key buyers of Russian crude oil, including China and Turkiye, he said.

Expectations the US Federal Reserve will cut rates in September are also supportive for oil. Traders are almost 100 percent agreed a cut will happen after US inflation increased at a moderate pace in July.

Treasury Secretary Scott Bessent said he thought an aggressive half-point cut was possible given recent weak employment numbers.

The market is putting the odds of a quarter-percentage point cut at the Fed’s September 16-17 meeting at 99.9 percent, according to the CME FedWatch tool.

Lower borrowing rates would drive demand for oil.

Oil prices were kept in check as crude inventories in the US unexpectedly rose by 3 million barrels in the week ended on Aug. 8, according to the US Energy Information Administration on Wednesday.

Also holding oil prices back was an IEA forecast that 2025 and 2026 global supply would rise more rapidly than expected, as OPEC and its allies increase output and production from outside the group grows.