Malaysia's Islamic finance assets surpass US$800b, says Fitch

KUALA LUMPUR: Malaysia's Islamic finance industry is estimated to have exceeded US$800 billion by the end of the third quarter of 2026 (Q3 2026), supported by a mature domestic ecosystem and government policy measures, said Fitch Ratings.

The rating agency said sukuk accounted for 47 per cent of Malaysia's Islamic finance industry assets in Q3, followed by Islamic banking assets at 42 per cent, Islamic funds at eight per cent and takaful at three per cent.

"We estimate Malaysia's Islamic finance industry to have exceeded USD800 billion at end-Q3, representing more than 150 per cent of gross domestic product," it said in a statement.

"The industry's strength is rooted in domestic market depth, supported by one of the most developed local Islamic finance systems," it said.

Fitch said Malaysia retained its position as the world's largest sukuk market at the end of Q3, accounting for 33 per cent of global sukuk outstanding.

Sukuk also made up about 64 per cent of the country's domestic debt capital market.

The government also re-entered the US dollar sukuk market with a US$1.5 billion issuance, its first in five years.

"We expect government debt, including sukuk, to decline gradually, supported by nominal GDP growth and planned fiscal consolidation.

"Debt is likely to fall to around 74 per cent of GDP in 2027, although this would remain above the current 'BBB' median of 57.4 per cent," it said.

Fitch expects Malaysia's Islamic finance industry to sustain its growth, underpinned by a well-established domestic market, a mature ecosystem and policy support under the 2027 Budget.

It said Malaysia would likely retain its position as a global sukuk leader and a key market for Islamic banking, funds and takaful.

However, the sector's growth could be affected by external market volatility, reduced sovereign sukuk issuance and fluctuations in currencies, interest rates and commodity prices.