• IBANK Division 6.4.A IBANK Division 6.4.A Commodities Risk

    • IBANK 6.4.1 Relation to Market Risk

      (1) In measuring its market risk, an Islamic banking business firm must include the risk of holding or taking positions in commodities and commodities options (commodities risk).
      (2) Commodities means physical or energy products that may be traded. Commodities include precious metals (other than gold and silver), base metals, agricultural products, minerals, oil, gas and electricity.

      Guidance
      1 If an Islamic banking business firm is exposed to foreign exchange or profit rate risk from funding commodities positions, the firm must include the relevant positions in the measurement of foreign exchange risk and profit rate risk in the trading book — see rules 6.2.2(5) and 6.6.2(4), respectively.
      2 Unlike Basel II, silver and gold are treated under Shari'a as foreign exchange positions (rather than as commodity positions). In Basel II, only gold is treated in that way.
      (3) If a commodity is to be received or delivered under a binding unilateral promise, the firm must report any foreign currency, equity or profit rate exposure from the other leg of the contract in accordance with Part 6.2, Part 6.5 or Part 6.6, as the case requires.
      Derived from QFCRA RM/2015-2 (as from 1st January 2016).

    • IBANK 6.4.2 Measuring Commodities Risk

      (1) An Islamic banking business firm must use the simplified approach to measure commodities risk.
      (2) To calculate open positions using this approach, the firm may report short and long positions in each commodity on a net basis. Positions are reported on a net basis by offsetting them against each other in accordance with subrule (3).
      (3) Positions in the same commodity may be offset. Positions in different commodities must not be offset unless:
      (a) the commodities are deliverable against each other; or
      (b) the commodities are close substitutes for each other and a minimum correlation between price movements of 0.9 can be clearly established over at least the preceding year.
      An Islamic banking business firm must not use the correlation-based offsetting mentioned in paragraph (b) unless the Regulatory Authority has, in writing, allowed the firm to use it.
      Derived from QFCRA RM/2015-2 (as from 1st January 2016).

    • IBANK 6.4.3 Measuring Net Positions

      An Islamic banking business firm must first state each commodity position (spot plus forward) in terms of the standard unit of measurement for the commodity (such as barrels, kilos or grams). The firm must then convert the net position in each commodity into Qatari riyals at the current spot market exchange rates.

      Derived from QFCRA RM/2015-2 (as from 1st January 2016).

    • IBANK 6.4.4 What to Include in Commodities Risk

      (1) In calculating the capital charge for commodities risk, an Islamic banking business firm must include commodity Shari'a-compliant hedging instruments and off-balance-sheet positions that are affected by changes in commodity prices (such commodity swaps). The firm must include commodities risk arising from salam contracts.
      (2) Options on commodities for which the options risk is measured using the delta-plus method must also be included (with their underlying assets). Options for which the options risk is measured using the simplified approach must be excluded.
      (3) The firm must convert commodity Shari'a-compliant hedging instruments into notional commodities positions and assign them to maturities under rule 6.4.5.
      Derived from QFCRA RM/2015-2 (as from 1st January 2016).

    • IBANK 6.4.5 Assigning Notional Positions to Maturities

      Binding unilateral promises relating to a particular commodity must be included in the measurement of commodities risk as notional amounts in terms of the standard unit of measurement multiplied by the spot price of the commodity.

      Derived from QFCRA RM/2015-2 (as from 1st January 2016).

    • IBANK 6.4.6 Capital Charges — Simplified Approach

      (1) The capital charge for commodities risk of an Islamic banking business firm is the sum of:
      (a) 15% on the firm's overall net position, long or short, in each commodity; and
      (b) 3% on the firm's gross position in each commodity.
      (2) Gross position, of a firm in a commodity, is the sum of the absolute values of all short positions and all long positions of the firm, regardless of maturity.
      (3) The firm must use the current spot price to calculate its gross position in commodity Shari'a-compliant hedging instruments.
      Derived from QFCRA RM/2015-2 (as from 1st January 2016).