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  • Liquidity Risk Mitigation

    • RM-5.3.10

      Islamic bank licensees may only assume liquidity risk commensurate with their ability to have sufficient recourse to Shari'a-compliant funds to mitigate such risk.

      January 2013

    • RM-5.3.11

      Islamic bank licensees must assess the necessity and extent of their access to available funding sources. In managing their liquidity, Islamic bank licensees have the following possible funding sources — natural cash flows arising from their usual banking activities, the realization of tradable invested assets, asset securitization, and their capacity to access shareholders' and/or head office funds.

      January 2013

    • RM-5.3.12

      Islamic bank licensees' liquidity management policies must include some form of orderly liquidation procedures, to avoid having to liquidate assets at unfavorable prices, resulting in the erosion of the IAH capital and damage to the Islamic bank licensees' reputation and viability.

      January 2013

    • RM-5.3.13

      Islamic bank licensees must have a liquidity contingency plan addressing various stages of a liquidity crisis. Islamic bank licensees must define the classification of the various stages of a liquidity crisis.

      January 2013

    • RM-5.3.14

      For purposes of Paragraph RM-5.3.13, Islamic bank licensees may consider differentiating the stages of a liquidity crisis as follows:

      (a) Identification of a liquidity gap or a situation which acts as a triggering event where withdrawals do not follow predictable patterns when, for example, the Islamic bank licensees suffers an institutional rating downgrade;
      (b) A need to liquidate assets or investments in an orderly manner to meet such a liquidity gap or situation; and
      (c) Emergency measures to be taken in the event that the previous steps fail to meet the liquidity gap adequately.
      January 2013

    • RM-5.3.15

      Where appropriate, Islamic bank licensees should include in their contingency plans the following factors and define appropriate action points at each stage:

      (a) Holdings of tradable high quality liquid assets, which may be readily disposed of in sizeable amounts in deep markets taking into account the likelihood that it will not be possible to realize full book value;
      (b) Profile of other assets and the degree of liquidity of these assets;
      (c) Assessment of Shari'a-compliant and available funding products in the market including possible cooperation agreements with either other Islamic bank licensees or conventional institutions on an interest-free basis for accessing temporary funding, or sale and leaseback arrangements for longer term funding;
      (d) Establishment of a crisis management team or personnel responsible for taking actions at different stages of the liquidity crisis; and
      (e) Notification procedures for communication with Islamic bank licensees' head office and/or supervisory authorities.
      January 2013

    • RM-5.3.16

      However, to the extent that Islamic bank licensees intend to rely on the types of cooperation agreements mentioned above, they need to ensure that willing and committed counterparties will exist for such arrangements.

      January 2013