• IBANK Part 3.4 IBANK Part 3.4 Leverage Ratio

    Amended by QFCRA RM/2019-7 (as from 1st January 2020).

    • IBANK 3.4.1 Introduction

      The leverage ratio is a simple, transparent, non-risk-based measure to help restrict the build-up of leverage in the Islamic banking system. Excessive leverage can expose Islamic banking businesses to higher financial risk, with potential damage to the overall financial system, and to the economy if a de-leveraging process takes place.

      Inserted by QFCRA RM/2019-7 (as from 1st January 2020).

    • IBANK 3.4.2 Objectives of leverage ratio requirements

      The leverage ratio supplements the risk-based capital requirements of the rest of this Chapter. The objectives of limiting Islamic banking business firms' leverage ratios are as follows:

      (a) to constrain the build-up of leverage in the Islamic banking sector, to help avoid destabilising deleveraging that can damage the broader financial system and the economy;
      (b) to reinforce the risk-based requirements in Parts 3.1 to 3.3 with a simple, non-risk-based backstop measure;
      (c) to serve as a broad measure of the sources of leverage, both on and off the balance-sheet.
      Inserted by QFCRA RM/2019-7 (as from 1st January 2020).

    • IBANK 3.4.3 How to calculate leverage ratio

      An Islamic banking business firm's leverage ratio LR is calculated by means of the following formula:

      where:

      tier 1 capital has the meaning given by rule 3.2.7 (2).

      total exposure measure is the total amount of all the firm's exposures, calculated in accordance with rules 3.4.5 to 3.4.8.

      Inserted by QFCRA RM/2019-7 (as from 1st January 2020).

    • IBANK 3.4.4 Minimum leverage ratio

      (1) An Islamic banking business firm must maintain a leverage ratio of not less than 3%.
      (2) The Regulatory Authority may direct an Islamic banking business firm to maintain a leverage ratio higher than 3% if the Authority considers it necessary to do so because of the firm's risk profile or other particular circumstances.
      Inserted by QFCRA RM/2019-7 (as from 1st January 2020).

    • IBANK 3.4.5 How to calculate total exposure measure — general

      (1) When an Islamic banking business firm calculates its total exposure measure, it must treat each exposure in accordance with the normal accounting treatment of the exposure.
      (2) It must include all on-balance-sheet non-derivative exposures, net of specific provisions and valuation adjustments.
      (3) It must not take into account the effect of credit risk mitigation.
      (4) It must not weight on-balance-sheet exposures.
      (5) It must not net financing exposures against PSIAs or deposits.
      Inserted by QFCRA RM/2019-7 (as from 1st January 2020).

    • IBANK 3.4.6 Modification of calculation

      (1) The Regulatory Authority may, by written notice, modify the calculation of an Islamic banking business firm's total exposure measure by, for example:
      (a) allowing the firm not to take account of a particular exposure or class of exposures;
      (b) directing the firm to apply a different risk-weight to an exposure or class of exposures;
      (c) directing the firm to take account of an exposure or class of exposures that would not otherwise be taken account of.
      (2) The Authority may give a notice under subrule (1) on the application of the firm or on the Authority's own initiative.
      Inserted by QFCRA RM/2019-7 (as from 1st January 2020).

    • IBANK 3.4.9 How to calculate total exposure measure— assets financed by unrestricted PSIAs

      (1) When an Islamic banking business firm calculates its total exposure measure, it must include a proportion of assets (whether on or off the firm's balance-sheet) financed by unrestricted PSIAs.
      (2) The proportion is to be calculated by multiplying the carrying value of the assets by the alpha parameter (100%) for capital adequacy purposes.
      (3) Assets financed by restricted PSIAs are not to be included.
      Inserted by QFCRA RM/2019-7 (as from 1st January 2020).

    • IBANK 3.4.8 How to calculate total exposure measure — off-balance-sheet assets

      (1) When an Islamic banking business firm calculates its total exposure measure, it must include all off-balance-sheet items (for example, letters of credit, guarantees, unconditionally cancellable commitments, liquidity facilities, and Shara'a-compliant repo and securities financing transactions).
      (2) A 100% credit conversion factor applies to all off-balance-sheet items, except that a credit conversion factor of 10% applies to a commitment that can be unconditionally cancelled at any time without notice.
      (3) Securitised assets that are de-recognised from the balance-sheet of the sponsor or originator are not to be taken into account.
      Inserted by QFCRA RM/2019-7 (as from 1st January 2020).