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CA-9.1.6

Past version: Effective from 01 Jan 2015 to 30 Jun 2019
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If an Islamic bank licensee accepts real estate as collateral, whether residential or commercial, from customers against its financing activities, the eligibility of such real estate as a credit risk mitigant will be subject to the provisions of Section CA-4.7 and subject to the risk-weighting of the concerned contract (see CA-3 for differing contract types). Moreover, an Islamic bank licensee is required to take the following steps when the collateral is in the form of real estate:

(a) Any claim on collateral must be properly filed on a timely basis. Collateral interests must reflect a perfected lien; that is, appropriate steps are taken in relation to the real estate so that security interest of the Islamic bank licensee is effective against customer's default and/or third parties;
(b) The collateral agreement and the underlying legal process must enable the Islamic bank licensee to have access to and to dispose of the collateral within a reasonable time frame;
(c) The realisable value of the collateral (after deducting any haircuts) must be able adequately to cover the amount of financing;
(d) The valuation must be performed at a minimum once every year, or more frequently if needed;
(e) The real estate must be insured under a Takaful scheme against damage and deterioration;
(f) Ongoing claims on property (such as tax) must be regularly monitored; and
(g) Any risk of environmental liability arising from the property such as contamination in the soil, or of ground water, etc., must be taken into account.
January 2015