While economic conditions remain difficult, securitizations in the Gulf Cooperation Council (GCC) still maintain a strong growth potential this region, according to a Moody's Investors Service report.
The rating agency said that one of the key drivers behind the future growth of a securitization in the GCC is that home finance is still relatively new in the region. Even with the current events in mind, the long term demand for housing is predicted to grow steeply given predicted demographic and immigration patterns. Real estate is still key to the future growth for many of the governments in the region.
"Both the public and private sectors in the GCC have been heavily focused on the supply side of the real estate equation but the demand side too needs major funding especially in the current environment," said Khalid Howladar, a Moody's vice president and senior credit officer. "Funds are needed for the construction of these homes, but many local banks are over-exposed to the sector. As a result, the market, including securitization, is likely to cover an increasing portion of the financing going forward."
Moody's also notes that the loan and equity market has been so far the dominant form of financing in the GCC.
"Currently the local debt/sukuk capital market is small at around $70 billion, of which only around $4 billion are securitization transactions," Howladar said. "This compares with the $12 trillion of outstanding asset-backed financing globally. The local bond market, in all its various forms including Sukuk and securitization, is essential to the region's future development."
Securitization also offers banks a means in meeting their financial/balance sheet objectives such as risk transfer and reducing asset/liability mismatches.
Despite the currently difficult environment, the first half of 2008 has still seen approximately $1.5 trillion of global securitization issuance from (mainly) banks as they restructure their balance sheets and take advantage of central bank liquidity facilities available for rated ABS bonds.