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Emirates NBD wins first UAE green bond fee waiver

green bond fee waiver Emirates NBD Reuters/Satish Kumar
While Emirates NBD has benefitted from a green bond fee waiver, the scheme is unlikely to have a big impact on the growth of the region’s green debt capital market, one observer says
  • More applications in pipeline
  • But scheme ‘won’t have big impact’
  • ‘Other steps needed’

Emirates NBD has become the first financial institution to benefit from a fee waiver intended to boost sustainability-related debt security issuances in the UAE.

The Dubai Financial Services Authority, which announced the green bond fee waiver during the Cop28 summit last year, said more financial institutions were submitting applications to benefit from the scheme.

However, Bashar Al-Natoor, global head of Islamic finance at Fitch, said the scheme was unlikely to have a big impact on the growth of the region’s green debt capital market.

“The DFSA fee waiver is another step in supporting the ESG [environmental, social and governance] debt capital market development. But the fee waiver alone is not a game changer, as other steps are still to be seen to address key limitations in this growing segment,” he told AGBI.

Al-Natoor said more work on sustainability regulations, frameworks and awareness in the UAE was required to make capital markets more efficient, and a more attractive alternative for investment and funding. 

Global issuance of ESG sukuks totalled $10.5 billion last year, down nearly 5 percent on 2022. The UAE contributed more than 40 percent of the total issuance, followed by Malaysia (28 percent), Saudi Arabia (21 percent) and Indonesia (10 percent). 

Sukuk were developed as an alternative to conventional bonds, which are not considered permissible by many Muslims as they pay interest and may finance businesses involved in activities not allowed under sharia.

Figures from S&P Global Ratings showed that the Middle East was the fastest-growing region in the world last year for conventional green bond issuance, up 150 percent on 2022. 

Global issuance of so-called green, social, sustainability, and sustainability-linked bonds is likely to top $1 trillion this year, with sustainability bonds making up 14 percent of total bond issuance in 2024.

S&P said that it expects sovereign issuance of green bonds to increase in 2024, with the UAE and Saudi Arabia likely to increase the region’s representation in the sustainability bond market.

Fitch Ratings said the total global ESG sukuk market grew in 2023 to reach $36 billion by the end of the year, and is likely to top 7.5 percent of global outstanding sukuk by 2028, up from 4.3 percent last year.

Al-Natoor said: “In the medium term, we expect ESG sukuk growth to continue. However this could be slowed by volatile debt capital markets, governments becoming less willing to pursue sustainable targets, and poor availability of qualified assets.”

Lower oil prices, which Fitch has predicted could be $80 per barrel this year, dropping to $70 in 2025, and falling interest rates could also drive debt issuance, including ESG sukuk, he said.

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