PETALING JAYA: Standard & Poor's Rating Services (S&P) expects sukuk issuance to remain at below-peak levels in 2016 mainly because Bank Negara Malaysia (BNM), the largest issuers of sukuk worldwide, has stopped issuing Islamic notes. In absence of its biggest issuer, the rating agency expects sukuk issuance to reach US$50 billion-US$55 billion (RM219.5 billion-RM241.45 billion) in 2016, compared with US$63.5 billion in 2015 and US$116.4 billion in 2014. Excluding the BNM effect, S&P said sukuk issuance dropped by around 5% in 2015 from 2014. "In our view, three main factors will shape the performance of the sukuk market in 2016: monetary policy developments in the US and Europe, the drop in oil prices, and the possible lifting of sanctions on Iran," said S&P's global head of Islamic finance, Mohamed Damak, said in a statement yesterday. He said the first two factors are likely to drain liquidity from global and local markets. "We think that if oil prices remain weak, some governments of oil-exporting countries in the Gulf Cooperation Council and Malaysia may have no other choice than to reduce investment spending, resulting in lower financing needs and potentially lower issuances (conventional and Islamic). "In addition, we think that several issuing countries might decide to go the conventional route, rather than the Islamic route, because it is less complex," Mohamed said. However, he said that the market could benefit from the European Central Bank's programme of quantitative easing in a yield-hunting environment pushing some European investors to the sukuk market. Mohamed added that if sanctions against Iran are lifted, and the country starts spending more on infrastructure projects, there could be some new growth opportunities for the sukuk market. "Over the next few years, we believe the market will benefit from the greater involvement of traditional stakeholders – such as the Islamic Development Bank Group, the Islamic Financial Services Board, the Accounting and Auditing Organisation for Islamic Financial Institutions, and the International Islamic Financial Market – as well as new ones like the International Monetary Fund," he said. Despite the recent developments, Mohamed said no rating action is currently warranted.