CA-7.1.5
The bank can take precautionary steps by setting up prudential reserve accounts to minimise the adverse impact of income smoothing for PSIA on its shareholders' returns and to meet unexpected losses (UL) that would be borne by the IAH on investments financed by PSIA, namely:
• Profit equalisation reserve (PER)
PER comprises of allocations from the gross income21 of the Mudarabah to be available for smoothing returns paid to the investment account holders and the shareholders, and consists of a PSIA portion and a shareholder's portion; and/or
PER comprises of allocations from the gross income21 of the Mudarabah to be available for smoothing returns paid to the investment account holders and the shareholders, and consists of a PSIA portion and a shareholder's portion; and/or
• Investment risk reserve (IRR)
IRR comprises amounts appropriated out of the income of investment account holders after deduction of the Mudarib share of income, to meet any potential future losses on the investments financed by the PSIA.
IRR comprises amounts appropriated out of the income of investment account holders after deduction of the Mudarib share of income, to meet any potential future losses on the investments financed by the PSIA.
21 In some countries, the appropriation of income is to be made out of after tax income.
Apr 08