IBANK 10.2.19 Credit enhancement — excess spread

(1) Excess spread is the difference between:
(a) the expected periodic net income from the securitised assets; and
(b) the periodic amounts payable to the sukuk holders.
(2) Excess spread may be built into a sukuk structure by the issuer retaining a percentage of the periodic net income if the net income is in excess of the target level of the periodic payments to the sukuk holders. The issuer must keep any amount retained in an excess spread reserve.
(3) If the net income for a period falls below the level required to meet the target level of the payments to the sukuk holders, the issuer may release an amount from the excess spread reserve to make good, in whole or in part, the shortfall.
(4) The issuer must not establish an excess spread reserve unless:
(a) the reserve is disclosed in the transaction documents;
(b) a summary of the policies for transferring funds to and from the reserve is included in the transaction documents; and
(c) the firm's governing body has approved the basis for computing the amounts to be transferred to and from the reserve.
Inserted by QFCRA RM/2017-1 (as from 1st April 2017).