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Taiwan regulator allows banks and insurers to invest in Islamic bonds

November 29, 2019

Taiwan’s Financial Supervisory Commission (FSC) has given approval to domestic banks and insurance companies to invest in Islamic bonds or sukuk, five months after opening up the market to foreign issuers of the debt.

Taiwanese lenders will be allowed to allocate up to 10% of their net asset values to sukuk, the FSC says in a statement on November 27.

The regulator did not set a cap for insurance companies, saying only that Islamic bonds are categorised as foreign fixed income in their portfolios. Insurers are allowed to invest a maximum 65.25% of their investable assets in foreign bonds so in theory, the entire share can be allocated to sukuk.

Meanwhile, the FSC is also permitting insurers to allocate up to 3% of investable assets to private debt, which is in the same category as hedge funds and private equity investments.

The FSC in June allowed foreign institutions to offer sukuk denominated in foreign currency in Taiwan. None have been issued yet.

Ye Kangting, a research analyst at US investment consultancy Cerulli Associates, describes the move to permit banks and insurers to invest in sukuk as “definitely good news”, saying that it will broaden their investment choices.

“Some Taiwanese institutions might be familiar with Islamic products. However, given the small Muslim population in Taiwan, their choice of such products will not be driven much by religion, but more by product suitability to fit their investment portfolios,” Ms. Ye tells Asia Asset Management.

“Insurers in Taiwan would be willing to invest in sukuk if they find that such assets are of high quality by providing duration match, low default rate and low volatility,” she says.

According to the International Islamic Financial Market, a Bahrain-based investment standard-setting body, global sukuk issuance rose 5.5% to US$123.2 billion in 2018 from $116.7 billion in 2017.

The FSC’s figures show that Taiwan’s insurance industry had NT$28.6 trillion ($4.05 trillion) of total assets as of May 2019.