Credit Risk
CA-3.9.5
Islamic bank licensees are exposed tocredit risk in the event that the borrower fails to repay the principal amount in accordance with the agreed terms of the contract. In a fixed-period Qard contract,credit risk exposure commences upon the execution of the contract until the full repayment by the borrower.January 2015CA-3.9.6
The credit exposure is measured based on account receivable in Qard — that is, the amount due from the
customer at the end of the financial period less any provision for doubtful debts.January 2015CA-3.9.7
The account receivable amount (net of specific provisions) arising from the Qard contract must be assigned a RW based on the credit standing of the borrower, as rated by an ECAI that is approved by the CBB (see Section CA-4.6). In cases where the borrower is unrated, a RW of 100% applies. The RW of a financial guarantor can be substituted for the RW of the borrower provided that the guarantor has a better credit rating than the borrower and that the guarantee is legally enforceable. If an exposure is covered by multiple CRM techniques, the exposure must be segregated into segments covered by each type of CRM technique as specified in Section CA-4.7. For any uncovered exposure, the RW of the underlying counterparty applies.
January 2015
