IBANK 10.3.12 Treatment of Istisna Sukuk with Parallel Istisna

(1) In the case of istisna sukuk with parallel istisna, the relevant asset may be constructed on behalf of an ultimate counterparty or off-taker with whom the Islamic banking business firm enters into the parallel istisna contract. In this case, there is a credit risk exposure to the ultimate counterparty for the payment due under the parallel contract.
(2) The credit risk starts at the commencement of the construction work until the whole amount or all the instalments are paid by the ultimate counterparty.
(3) The risk-weight for the credit exposure must be based on the ultimate counterparty.
(4) If a third party provides a guarantee, the risk-weight must be based on the guarantor, but only if the guarantor's risk-weight is lower than that of the ultimate counterparty. The risk-weight for an unrated customer or an unrated guarantor is 100%.
(5) A risk-weight of 400% applies if the returns to the sukuk holder come from the cash flow of the underlying asset (for example, a toll road or other infrastructure project).
Derived from QFCRA RM/2015-2 (as from 1st January 2016).