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  • Summary of Capital Requirement at Various Stages of the Contract

    • CA-3.2.24

      The following table sets out the applicable stages of the contract that attracts capital charges:

      (a) Murabahah and Non-binding MPO

      Applicable Stage of the Contract Credit RW Market Risk Capital Charge
      Asset available for sale (asset on balance sheet)* Not applicable Price risk (15% Capital Charge)
      Asset is sold and title is transferred to a customer and the selling price (accounts receivable) is due from the customer. Based on customer's rating or 100% RW for unrated customer (see Paragraphs CA-3.2.11 and CA-3.2.12) NA
      Upon full settlement of the purchase price. NA NA


      * Also includes an asset which is in possession due to cancellation of PP by a non-binding MPO customer. Any HJ taken, if any, is not considered as eligible collateral and must not be offset against the value of the asset.
      (b) Binding MPO

      Applicable Stage of the Contract Credit RW*** Market Risk Capital Charge
      Asset available for sale (asset on balance sheet)* — If the bank has legal right to recoup from the customer any loss on disposing of the asset Asset acquisition cost less [market value of asset if eligible as collateral (net of any haircut**) less any HJ] x applicable RW (see chapter CA-4) NA
      Asset is sold and delivered to a customer (accounts receivable is due from the customer). Based on customer's rating or 100% RW for unrated customer (see section CA-4.2) NA
      Upon full settlement of the purchase price. NA NA


      * Also includes an asset which is in possession due to cancellation of PP by a customer.

      ** Please refer to CRM Section CA-4.7 for eligibility of collateral and application of haircuts.

      ***This credit RW is applicable only when the bank will have recourse to any HJ or Urbun paid by the customer, and (depending on the legal situation) in the case of HJ may have a right to recoup from the customer any loss on disposing of the asset, after taking account of the HJ. (This right does not exist in the case of Urbun.)
      If the bank has no such right, the cost of the asset to the bank constitutes a market risk (as in the case of a non-binding MPO), but this market risk exposure is reduced by the amount of any HJ that the bank has the right to retain.
      January 2015