• IBANK Division 6.6.B IBANK Division 6.6.B Specific Risk

    • IBANK 6.6.4 Calculating specific Risk Capital Charge

      (1) The capital charge for specific risk arising from an on-balance-sheet or off-balance-sheet profit-rate position held in an Islamic banking business firm's trading book is calculated by multiplying the market value of the debt security by the applicable charge set out in column 5 of table 6.6.4 for the category and residual maturity of the instrument.
      (2) The firm can only offset matched long and short positions (including positions in Shari'a-compliant hedging instruments) in identical instruments with exactly the same issuer, profit rate, currency and maturity.

      Table 6.6.4 Specific risk capital charges

      column 1
      item
      column 2
      category
      column 3
      external credit rating
      column 4
      residual maturity
      column 5
      specific risk capital charge %
      1 government AAA to AA-   0.00
      A+ to BBB- 6 months or less

      more than 6 months and up to and including 24 months

      more than 24 months
      0.25

      1.00

      1.60
      BB+ to B- or unrated   8.00
      Below B-   12.00
      2 qualifying   6 months or less

      more than 6 months and up to and including 24 months

      more than 24 months
      0.25

      1.00

      1.60
      3 other BB+ to BB- or unrated

      Below BB-
        8.00

      12.00
      (3) In column 2 of table 6.6.4:

      government, as a category, includes all forms of government paper such as bonds, treasury bills and other short-term instruments.

      Note Financial instruments issued by the State of Qatar (whether denominated in Qatari riyals or not), or by other member states of the GCC, are risk-weighted at zero per cent.

      qualifying, as a category, includes:
      (a) securities issued by public sector enterprises and multilateral development banks;

      Note For a list of multilateral development banks that qualify for 0% risk weight, and examples of other multilateral development banks that do not, see the note following table 4.4.7A.
      (b) instruments rated investment grade by at least 2 ECRAs;
      (c) instruments rated investment grade by 1 ECRA and 1 other credit rating agency that is not an ECRA; and
      (d) unrated instruments, but only if:
      (i) the firm has no reason to suspect that the particular instrument would have a rating less than investment grade if it were rated; and
      (ii) the issuer of the instrument is rated investment grade and is regulated in its home jurisdiction in a way comparable to deposit-takers in the QFC.

      Guidance

      In deciding whether an issuer is regulated in a comparable way, the firm must look, in particular, at the home jurisdiction's risk-based capital requirements and consolidated supervision.

      other, as a category, includes:
      (a) instruments issued or fully guaranteed by the central government or central bank of a state that is a member of the OECD;
      (b) instruments fully collateralised by instruments described in paragraph (a); and
      (c) instruments issued or fully guaranteed by the central government or central bank of a state that is not a member of the OECD, but only if:
      (i) the instruments have a residual maturity of 1 year or less;
      (ii) the instruments are denominated in the local currency of the issuer; and
      (iii) the firm's holdings in such instruments are funded by liabilities in the same currency.
      (4) In column 3 of table 6.6.4, external credit rating means a long-term rating issued by an ECRA for the purpose of risk-weighting claims on rated counterparties and exposures.
      Amended from QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 6.6.5 Instruments that have no Specific Risk Capital Charge

      (1) Profit rate swaps, cross-currency swaps and binding unilateral promises in foreign exchange transactions are exempt from specific risk capital charges. However, a specific risk capital charge must be calculated if the underlying is a debt security or an index representing a basket of debt securities.
      (2) Forward contracts and binding unilateral promises (other than those in foreign exchange transactions) are exempt from specific risk capital charges if:
      (a) the Islamic banking business firm has a right to substitute cash settlement for physical delivery under the contract; and
      (b) the price on settlement is calculated with reference to a general market price indicator.
      (3) A contract or promise that is exempt under subrule (2) must not be offset against specific securities (including those securities that make up the market index).
      Derived from QFCRA RM/2015-2 (as from 1st January 2016).