IBANK 7.4.2 Basic indicator approach—calculation

(1) An Islamic banking business firm must use the basic indicator approach to operational risk. Operational risk capital requirement is the amount of capital that the firm must have to cover its operational risk.
(2) The firm's operational risk capital requirement is calculated in accordance with the following formula:

GI is the firm's average annual gross income (as defined in subrule (3) or (4)) for those years (out of the previous 3 years) for which the firm's annual gross income is more than zero.
α is 15% or a higher percentage set by the Regulatory Authority.
n is the number of years out of the previous 3 years for which the firm's gross income is more than zero.
Because of the definitions of GI and n, figures for any year in which the annual gross income of a firm is negative or zero must be excluded from both the numerator and denominator when calculating the average.
(3) Gross income, for a year, means the total of the following income for the year:
(a) net income from financing activities, which is gross of provisions, operating expenses and depreciation of ijarah assets;
(b) net income from investment activities, which includes the firm's share of profit from mudarabah and musharakah;
(c) fee income, which includes commissions and agency fees;
less the firm's share in income attributable to IAHs and other account holders.
(4) Gross income excludes:
(a) realised profits from the sale of securities in the banking book;
(b) realised profits from securities in the 'Held to Maturity' category in the banking book;
(c) extraordinary or irregular items of income;
(d) income derived from takaful;
(e) any collection from previously written-off loans; and
(f) income obtained from the disposal of real estate and other assets during the year.
Derived from QFCRA RM/2015-2 (as from 1st January 2016)
Amended by QFCRA RM/2020-3 (as from 1st January 2021)