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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 ����ֱ�� — 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. 

RIYADH: ����ֱ��’s annual inflation rate slowed in July to 2.1 percent, down from 2.3 percent in June, as softer price gains in some categories offset persistent housing pressures, official data showed. 

The figures, published in the latest report from the General Authority for Statistics, revealed that housing, water, electricity, gas and fuel posted the steepest annual increase among major categories, climbing 5.6 percent. 

That was driven by a 6.6 percent rise in rents, including a 6.4 percent increase in villa rentals. The housing component accounts for 25.5 percent of the consumer price index basket, making it a key driver of the headline figure.

The inflation trend aligns with the Kingdom’s goal of balancing economic growth with price stability as part of its Vision 2030 strategy to diversify the economy beyond oil. The government’s November 2024 budget projected inflation to remain steady at 1.9 percent in 2025, up slightly from 1.7 percent in 2024. 

“The annual inflation rate in the Kingdom witnessed a relative slowdown in the pace of growth during July 2025, reaching 2.1 percent, compared to 2.3 percent in the previous June,” GASTAT said. 

This comes as a July report from Kuwait-based non-banking firm Kamco Invest said inflation across Gulf Cooperation Council countries remained stable in the second quarter, despite heightened geopolitical instability. It added that the conflict’s limited impact on GCC inflation was largely due to gradual, rather than sudden, increases in commodity and shipping costs. 

Sectoral breakdown 

Food and beverage prices increased by 1.6 percent year on year in July, driven by a 2.6 percent increase in the costs for meat and poultry. 

The authority said expenses for personal goods and services rose by 4.3 percent compared to the same period in the previous year. This was due to a 24.7 percent rise in the prices of jewelry, watches, and precious antiques. 

Restaurant and hotel costs edged up 1.4 percent year on year, while education prices advanced by 1.1 percent during the same period. 

Furnishing and home equipment prices declined by 2 percent, expenses for clothing and footwear decreased by 0.4 percent, and transportation prices dropped by 0.3 percent during the same period. 

Month on month, ����ֱ��’s Consumer Price Index was stable in July, reflecting unchanged prices across multiple sectors. Transportation, restaurants, and hotels recorded no change, while clothing and footwear, health, telecommunications, and tobacco also held steady. 

Prices of housing, water, electricity, gas, and fuel rose 0.2 percent. 

Entertainment costs also increased 0.2 percent from June, while education expenses edged down 0.1 percent. 

The report added that food and beverage prices fell 0.2 percent, followed by a 0.1 percent decline in personal goods and services. 

Wholesale Price Index  

In a separate report, GASTAT said ����ֱ��’s Wholesale Price Index rose 2.1 percent in July from a year earlier, driven by a 4.1 percent increase in prices of transportable goods. 

“The prices of other transportable goods, except metal products, machinery, and equipment, increased by 4.1 percent, driven by an 8.3 percent rise in the prices of refined petroleum products, and an 8.6 percent increase in the prices of furniture and other transportable goods,” said GASTAT. 

Prices of agricultural and fishery products rose 4.4 percent, while metal products edged up 0.1 percent. 

Food products, beverages, tobacco, and textiles also increased 0.3 percent. 

Prices of ores and minerals fell 0.8 percent, driven by an equivalent drop in stone and sand prices. 

Average prices 

In a separate analysis, GASTAT said green beans and local eggs saw the largest month-on-month increases in July, both rising 3.2 percent. 

Imported chilled sheep meat and hay also recorded notable gains, up 2.2 percent and 2 percent, respectively. 

The steepest declines were in Pakistani mangoes and medium African lemons, with prices falling 12.7 percent and 11.5 percent, respectively.