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  • Types of Eligible Collateral and Credit Risk Mitigants

    • CA-4.7.14

      The types of collateral are eligible for relief in respect of the CRM techniques outlined in Paragraphs CA-4.7.7 to CA-4.7.13 include:

      (a) Cash on deposit29 with the Islamic bank licensee which is incurring the exposure;
      (b) Sukuk rated by an external rating agency which is issued by:
      (i) Sovereigns and PSEs (treated as sovereigns) with a minimum rating of BB-; or
      (ii) Issuers other than the above and other than the concerned Islamic bank licensee, with a minimum rating of BBB- or A-3/ P-3;
      (c) Unrated Sukuk but which fulfil each of the following criteria:
      (i) Issued by a bank other than the concerned Islamic bank licensee or a sovereign;
      (ii) Listed on a recognised exchange;
      (iii) All other rated issues by the issuing Islamic bank or conventional bank must be rated at least BBB — or A-3/P-3 by a recognised ECAI, as determined by the CBB;
      (iv) The Islamic bank which incurs the exposure or is holding the collateral has no information to suggest that the issue would justify a rating below BBB- or A-3/P-3; and
      (v) The Islamic bank licensee must show that these Sukuk are liquid in a two-way market;
      (d) Shari'a compliant equities and units in Islamic collective investment undertakings that are listed in a main index excluding those issued by the concerned bank (which are subject to the treatments for holdings of own instruments outlined in Paragraph CA-2.4.12);
      (e) Shari'a compliant guarantees issued by third parties that fall within the following categories:
      (i) Sovereigns and central banks;
      (ii) PSEs;
      (iii) MDBs;
      (iv) International organisations/official entities with 0% RW
      (v) Islamic banks or conventional banks; and
      (vi) Corporate entities (including Takaful and Shari'a compliant securities firms) either by the parent, subsidiary and/or affiliates, of a minimum rating of A-; and
      (f) Certain physical assets fulfilling the function of collateral, as stated in Paragraph CA-4.7.10 (See also section CA-3.5).

      29 Must be supported by an agreement or documentation that gives the bank the right of set-off against the amount of receivables due. The treatment of netting of such deposits are outlined in Paragraph CA-4.2.30.

      January 2015

    • CA-4.7.14A

      Credit default guarantee provided by Tamkeen is recognised as an eligible credit risk mitigant.

      Added: January 2023

    • CA-4.7.15

      Any portion of the exposure which is not collateralised must be assigned the RW of the counterparty.

      January 2015

    • CA-4.7.16

      Capital relief against the collateral can be granted based on either the simple or the comprehensive approach as described below in reducing the risk exposures in the banking book. Islamic bank licensees must approach the CBB for approval before using the comprehensive approach. Islamic bank licensees can use partial collateralisation in both approaches. Maturity mismatches between exposure and collateral will only be allowed under the comprehensive approach.

      January 2015