IBANK 6.7.4 Treatment of Salam and Related Contracts

Under a salam contract, an Islamic banking business firm is exposed to market risk after the firm has paid the purchase price to the seller and before the purchased commodity is sold and delivered to a buyer.

Table 6.7.4A Market risk capital charge for salam without parallel salam

stage of contract capital charge
firm has paid purchase price to salam customer (seller) 15% on the long position of salam exposures
firm has received purchased commodity but has not sold and delivered the commodity to a buyer

Table 6.7.4B Market risk capital charge for salam with parallel salam

stage of contract capital charge
firm has paid purchase price to salam customer (seller) 15% on the net position (that is, after netting of salam exposures against parallel salam exposures)

plus

3% on the gross position (that is, the sum of the salam exposures and parallel salam exposures)
firm has received purchased commodity but has not sold and delivered the commodity to a buyer
Note The parallel salam does not extinguish the requirement for capital from the first salam contract.

Derived from QFCRA RM/2015-2 (as from 1st January 2016).