• IBANK Part 8.2 IBANK Part 8.2 Guidance on liquidity risks arising from Islamic financial contracts

    Note for Part 8.2 This Part applies to all Islamic banking business firms — see rule 8.1.4.

    Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.2.1 Introduction

      This Part gives guidance on the liquidity risks that may arise from various Islamic financial contracts. An Islamic banking business firm should look into risk transformation in these contracts during their various stages, because such transformations may directly or indirectly affect the liquidity of the contracts.

      Note Under FSR, article 17 (4), guidance is indicative of the view of the Regulatory Authority at the time and in the circumstances in which it was given.

      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.2.2 Liquidity risks — murabahah

      In a murabahah contract, an Islamic banking business firm's liquidity may be affected by late payment or non-payment by the customer.

      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.2.3 Liquidity risks — commodity murabahah

      (1) An Islamic banking business firm may offer commodity murabahah accounts as a means of raising funds. Because raising funds in this way requires the firm to pay back the principal and agreed share of profit to the customer on maturity, the firm may be exposed to liquidity risk.
      (2) If commodity-murabahah-based funds (which are usually short-term in nature) are used by the firm to finance longer-term assets, a maturity mismatch will result. Such a mismatch may become acute if the firm has a high reliance on such deposits to fund its assets.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.2.4 Liquidity risks — salam

      In a salam contract, the illiquidity of commodity markets and the nonpermissibility of exiting the contract before delivery can give rise to liquidity risk for an Islamic banking business firm.

      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.2.5 Liquidity risks — ijarah

      In an ijarah contract, an Islamic banking business firm may be exposed to liquidity risk because of:

      (a) late payment or non-payment of instalments by the customer;
      (b) the inability to sell or lease the asset to a new customer at the end of an earlier contract; or
      (c) default by the customer.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.2.6 Liquidity risks — mudarabah and musharakah

      In a mudarabah or musharakah contract, an Islamic banking business firm may be exposed to liquidity risk because of:

      (a) late payment or non-payment of profit payments during the contract; or
      (b) non-payment by the customer of the remaining principal at the end of the contract.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.2.7 Liquidity risks — PSIAs

      An Islamic banking business firm may be affected by panic withdrawals of funds by IAHs. Such withdrawals may result from rate of return risk, Shari'a non-compliance risk or reputational risk.

      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.2.8 Liquidity risks — qard

      An Islamic banking business firm may offer unremunerated current accounts on the basis of qard, under which the firm guarantees the nominal amount of the accounts. The firm should pay back the full amount on demand and should therefore ensure that sufficient funds are available to do so as and when the demand arises.

      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).