IFSB to revise capital adequacy guidelines
Dubai, October 30, 2012
The Kuala Lumpur-based Islamic Financial Services Board (IFSB) plans to revise its capital adequacy guidelines for Islamic financial institutions, with a draft to be released in November for industry feedback.
The IFSB sets global guidelines for Islamic finance, although national financial regulators have the final say on how much capital banks must maintain and in what form.
The Islamic body released its original guidelines on capital adequacy in December 2005, based on Basel II standards which regulators were then applying around the world. Since then, global regulators have agreed on stricter Basel III standards which will be phased in over the next several years.
IFSB spokeswoman Rose Halim told Reuters that her institution's new guidelines would address the issue of which Islamic instruments could be classified as bank capital.
"The IFSB is revising its capital adequacy standard, and in this context we are elaborating the issue of component of capital," she said in an email.
"For issuing sukuk as part of bank capital we have proposed different types of sukuk," Halim said, adding that sharia advisors where still discussing details.
Because sukuk or Islamic bonds are based on real assets rather than pure debt, as conventional bonds are, some analysts and bankers believe sukuk could play a major role in helping banks around the world meet Basel III's minimum capital ratios.
It will be up to national regulators, taking into account the advice of the IFSB, to determine which sukuk structures can be classified as capital and to what extent.
Some banks in the Gulf are already issuing sukuk in the expectation that the instruments will count as capital. Abu Dhabi Islamic Bank plans to boost its capital through the sale of a sharia-compliant debt instrument, and will start investor meetings on Wednesday, a statement from the arranging banks said on Tuesday.
The sukuk sale is likely to be benchmark-sized, a source at one of the arrangers said; benchmark bonds are typically $500 million or more in size.
Last year Saudi Arabia-based Bank Al Jazira strengthened its capital base by issuing a 10-year, 1 billion riyal ($265 million) sukuk, which it said would be classified as Tier 2 capital.
A draft of the IFSB's new guidelines will be issued in the first week of November for public consultation, said Zahid ur Rehman Khokher, a member of the IFSB's technical and research secretariat, the team that worked on the project. – Reuters