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  • Investments in Equities and Funds (not including Real Estate)

    • CA-4.2.24

      Investments in listed equities below the thresholds mentioned in Chapter CA-2 must be risk weighted at 100% while unlisted equities must be risk weighted at 150% provided they are not subject to other treatments described in this paragraph and in CA-4.2.25–26 below. The amount of any significant investments in commercial entities above the 15% and 60% Total Capital materiality thresholds (see Paragraph CA-2.4.25) must be weighted at 800%. Significant investments in the common shares of unconsolidated financial institutions and Mortgage Servicing Rights and Deferred Tax Assets arising from temporary differences must be risk weighted at 250% if they have not already been deducted from CET1 as required by Paragraphs CA-2.4.15 to CA-2.4.24. For risk-weighting of Sukuk, refer to Chapter CA-8.

      January 2015

    • CA-4.2.25

      Investments in funds (e.g. mutual funds, Collective Investment Undertakings etc.) must be risk weighted as follows:

      (a) If the instrument (e.g. units) is rated, it should be risk-weighted according to its external rating (for risk-weighting, it must be treated as a "claim on corporate");
      (b) If not rated, such investment should be treated as an equity investment and risk weighted accordingly (i.e. 100% for listed and 150% for unlisted);
      (c) The Islamic bank licensee can apply to CBB for using the look-through approach for such investments if it can demonstrate that the look-through approach is more appropriate to the circumstances of the Islamic bank licensee;
      (d) If there are no voting rights attached to investment in funds, the investment will not be subjected to consolidation, deduction or additional risk-weighting requirements (in respect of large exposure and significant investment limits);
      (e) For the purpose of determining "large exposure limit" for investment in funds, the look-through approach should be used (even if the look-through approach is not used to risk weight the investment).
      January 2015

    • CA-4.2.26

      CBB may require an Islamic bank licensee to adopt the 'Simple Risk Weight Method' for equities (Section CA-4.4) if the CBB considers that Islamic bank licensee's equity portfolio is significant.

      January 2015