News Column

Sukuk will feature in liquidity guidance

June 25, 2014

The Malaysia-based Islamic Financial Services Board (IFSB) will issue draft guidance by year-end on how Islamic banks, which face a lack of short-term funding instruments, can use sukuk as a key tool for meeting the liquidity requirements of Basel III.

Guidance from the IFSB, one of the main standard-setting bodies for Islamic finance, would help Islamic banks manage their short-term funding needs as they take a greater share of the banking sector in several Muslim-majority countries.

Banks across the Gulf have been waiting for regulatory guidance on how debt instruments such as sukuk will be treated under Basel III, a set of stricter banking rules which are being phased in around the world over the next several years.

The guidance note would address the use of an alternative mechanism to help Islamic banks meet the liquidity coverage ratio (LCR) found in Basel III, the IFSB's secretary general Jaseem Ahmed said in a speech last week.

Basel III provides an alternative liquidity arrangement for jurisdictions with limited high-quality assets, and this mechanism would be extended to markets where Islamic finance features prominently, Ahmed said.

Basel rules require high quality assets to be both low-risk and traded in deep secondary markets, a combination that is lacking in many nascent Islamic capital markets.

"The immediate issue that has featured in the IFSB's dialogue with the Basel Committee is that many if not most Islamic finance jurisdictions will be challenged to provide markets and assets that meet them," said Ahmed.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Khaleej Times (United Arab Emirates)

Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters