IBANK 8.4.23 Treatment of retail deposits generally

(1) The runoff rates for retail deposits generally are as set out in table 8.4.23.
(2) However, this rule does not apply to:
(a) a PSIA (whether restricted or unrestricted) (see rule 8.4.24);
(b) a deposit or PSIA that falls within rule 8.4.26; or
(c) unsecured wholesale funding that falls within rule 8.4.27.

Note Rule 8.4.25 allows the Regulatory Authority to direct that a higher runoff rate must be applied to deposits or PSIAs that would otherwise fall within rule 8.4.23 or 8.4.24 but have unusual features.
(3) In the case of a deposit or PSIA that is pledged as security for a financing facility, this rule is subject to rule 8.4.28.

Table 8.4.23 Retail deposits — runoff rates

Kind of deposit Runoff rate (%)
Retail demand deposits (other than CMT-based deposits), and term deposits with maturity of 30 calendar days or less:  
•    stable deposits (see subrule (4)) covered by a Shari'a-compliant deposit insurance scheme that meets all of the additional criteria in subrule (7)
3
•    other stable deposits
5
•    less stable deposits (see subrules (8), (9))
10
CMT-based deposits from retail and small business customers 20

Note 1 CMT-based deposits from non-financial corporates, sovereigns, central banks, MDBs and public sector entities are treated as unsecured wholesale funding — see rule 8.4.27 (16).

Note 2 CMT-based deposits create particular liquidity risks:

"In such transactions, the customer first buys a commodity and sells it to [an Islamic banking business firm] on a deferred payment basis at an agreed price with a profit margin. As the funds raised by [the firm] on the basis of CMT effectively require it to pay back the principal and agreed profit to the customer on maturity, the [firm] may be exposed to liquidity risk....If CMT-based funds, which are usually short-term in nature, are used by the [firm] to finance longer-term assets, a maturitymismatch will result. Such a mismatch may become acute if [the firm] has a high reliance on such deposits to fund its assets." (IFSB–12, paragraph 51).

For the meaning of IFSB–12, see the note at the beginning of Part 8.4.

(4) Stable deposits are deposits that are fully insured (see subrule (5)) (or are covered by a public guarantee that provides equivalent protection), and for which either of the following is true:
(a) the depositor has other established relationships with the firm that make withdrawal highly unlikely;
(b) the deposit is in a transactional account (for example, an account into which the depositor's salary is automatically deposited).
(5) A deposit is fully insured if 100% of the deposit amount, up to the applicable deposit insurance limit, is covered by an effective (see subrule (6)) Shari'a-compliant deposit insurance scheme. Deposit balances up to the limit are treated as fully insured even if the depositor's balance is over the limit. However, any amount over the limit is to be treated as a less stable deposit.

Guidance
For example, if a depositor has a deposit of 150 that is covered by a deposit insurance scheme that has a limit of 100, so that the depositor would receive at least 100 from the scheme if the firm were unable to pay, then 100 would be considered fully insured and treated as a stable deposit, and 50 would be treated as a less stable deposit. However, if the scheme covered only a percentage of the deposit amount (for example, 90% of the deposit amount up to a limit of 100), the entire 150 deposit would be treated as a less stable deposit.
(6) A Shari'a-compliant deposit insurance scheme is effective if all of the following are true:
(a) the scheme guarantees that it can make payouts promptly;
(b) its coverage is clearly defined;
(c) the provider has formal legal powers to fulfil the scheme's mandate, and is operationally independent, transparent and accountable;
(d) public awareness of the scheme is high.

Guidance
For Shari'a-compliant deposit insurance, see IFSB–12 paragraph 162, and IFSB GN 6, section 2.3.1.2, para 57.
(7) The additional criteria (for a Shari'a-compliant deposit insurance scheme) mentioned in table 8.4.23 are the following:
(a) the scheme is pre-funded by periodic levies on entities with insured deposits;
(b) the scheme has ready access to additional funding in the event of a large call on its reserves (for example, an explicit and legally binding guarantee from its government, or a standing authority to borrow from its government);
(c) depositors have access to insured deposits quickly if the scheme is called on.
(8) A deposit that does not fall within subrule (4) is a less stable deposit.
(9) If the firm cannot readily identify a term deposit as stable, it must treat the full amount of the deposit as less stable.
(10) The firm may exclude, from total expected cash outflows, the cash outflow related to a term deposit with residual maturity, or a notice period for withdrawal, longer than 30 calendar days only if:
(a) the depositor has no legal right to withdraw the deposit within the 30-calendar-day period; or
(b) early withdrawal would result in a significant reduction of profit that is materially greater than the loss of profit for the period.
(11) However, if the practice of the firm is to allow depositors to withdraw such deposits within the 30-calendar-day period without imposing the corresponding reduction of profit, each such deposit must be treated in full as a demand deposit unless the Regulatory Authority approves otherwise.
Inserted by QFCRA RM/2018-2 (as from 1st May 2018).