CA-8.4 CA-8.4 Capital Requirements Where the Bank is the Originator, Issuer or Credit Enhancement Provider
Retained Securitisation Exposures
CA-8.4.1
An
Islamic bank licensee taking the role of an originator is required to hold regulatory capital against all of its retained securitisation exposures. Repurchased securitisation exposures must be treated as retained securitisation exposures.January 2015CA-8.4.2
The risk-weighted asset amount of a retained securitisation exposure is computed by multiplying the amount of the exposure by the appropriate risk weight in accordance with the table in CA-8.4.3.
January 2015CA-8.4.3
The following
credit risk weights are applied for retained securitisation exposures where theIslamic bank licensee is the originator.Long term rating45 Securitisation Exposure Re-securitisation Exposure AAA to AA- 20% 40% A+ to A- 50% 100% BBB+ to BBB- 100% 225% BB+ to BB- 350% 650% B+ and below or unrated 1,250% 1,250%
Short term rating Securitisation Exposure Re-securitisation Exposure A-1/P-1 20% 40% A-2/P-2 50% 100% A-3/P-3 100% 225% All other ratings or unrated 1,250% 1,250%
45 The rating designations used in the following tables are for illustrative purposes only and do not indicate any preference for, or endorsement of, any particular external assessment system.
January 2015Treatment of Off-Balance Sheet Exposures Where the Bank is the Credit Enhancer
CA-8.4.3A
When the
Islamic bank licensee provides credit protection to a securitisation exposure, it must calculate a capital requirement on the covered exposure as if it were an investor in that securitisation. If theIslamic bank licensee provides protection to a Sukuk issuance, it must treat the credit protection provided based on the risk of the underlying assets of the Sukuk as shown in Paragraph CA-8.4.3. If theIslamic bank licensee provides protection to a Sukuk issuance that has no legal transfer of assets, it must treat the credit protection provided based on the ECAI rating of the originator (as shown in the table in Paragraph CA-8.4.3).January 2015Treatment of Off-Balance Sheet Exposures — Liquidity Facilities and Credit Risk Mitigants Provided to Securitisations
CA-8.4.4
For off-balance sheet exposures arising from the provision of a liquidity facility,
Islamic bank licensees must apply a 100% credit conversion factor (CCF) and then risk-weight the resultant credit-equivalent amount as shown in table CA-8.4.3. For risk-based capital purposes,Islamic bank licensees must determine whether, subject to the criteria in Paragraph CA-8.4.4A, an off-balance sheet securitisation exposure qualifies as an 'eligible liquidity facility' or an 'eligible servicer cash advance facility', in which case a lower CCF may apply (see CA-8.4.4B and CA-8.4.5).January 2015CA-8.4.4A
Islamic bank licensees are permitted to treat off-balance sheet securitisation exposures as 'eligible liquidity facilities' if the following minimum requirements are satisfied:(a) The facility documentation must clearly identify and limit the circumstances under which it may be drawn. Draws under the facility must be limited to the amount that is likely to be repaid fully from the liquidation of the underlying exposures and any seller-provided credit enhancements. In addition, the facility must not cover any losses incurred in the underlying pool of exposures prior to a draw, or be structured such that draw-down is certain (as indicated by regular or continuous draws);(b) The facility must be subject to an asset quality test that precludes it from being drawn to covercredit risk exposures that are past due by more than 90 days. In addition, if the exposures that a liquidity facility is required to fund are externally rated securities, the facility can only be used to fund securities that are externally rated investment grade at the time of funding; and(c) The facility cannot be drawn after all applicable (e.g. transaction-specific and programme-wide) credit enhancements from which the liquidity facility would benefit have been exhausted.January 2015CA-8.4.4B
Where the conditions in Paragraph CA8.4.4A are met, the
Islamic bank licensee may apply a 50% CCF to the eligible facility regardless of the maturity of the facility. However, if an external rating of the facility itself is used for risk-weighting the facility, a 100% CCF must be applied.January 2015CA-8.4.4C
Liquidity facilities in certain types of Sukuk structures are commitments from the facility provider to provide liquid funds if these are needed to meet contractual payments to Sukuk holders and there is a delay between the date of their collection and the date on which the payment to the Sukuk holders is due. The need for such facilities may result from a timing mismatch between cash collections from the underlying Sukuk assets (such as Ijara rentals) and the scheduled payments due under the programme to the Sukuk holders.
January 2015Treatment of Eligible Servicer Cash Advance Facility Provided to Securitisations
CA-8.4.5
An eligible servicer cash advance facility, based on Qard, is an advance granted by the servicer to the SPV to ensure timely payment to the investors46 — for instance, in cases of timing differences between collection and payments. However, it is a Shari'a requirement that such facilities remain essentially separate from the Sukuk undertaking and that this separation be properly documented. In the case of servicer cash advances, a risk weight of 50% is applied to such facilities.
46 It is, however, not permissible for the manager of Sukuk, whether the manager acts as Mudarib (investment manager), or Shank (partner) or Wakil (agent) for investment, to undertake to offer loans to Sukuk holders when actual earnings fall short of expected earnings. It is permissible, however, to establish a reserve account for the purpose of covering such shortfalls to the extent possible, provided the same is mentioned in the prospectus. It is not objectionable to distribute expected earnings, on account, or to obtain project financing on account of the Sukuk holders.
January 2015
