CM-2.3.19
To be eligible to be assigned an exposure value of less than 100 percent, a covered Sukuk must satisfy all the following conditions:
(a) It must meet the general definition set out in CM-2.3.17.
(b) The pool of underlying assets must exclusively consist of one or more of the following:
(i) Claims on, or guaranteed by, sovereigns, their central banks, public sector entities or multilateral development banks;
(ii) Claims secured by mortgages on residential real estate that would qualify for a 35 percent or lower risk-weight under Section CA-4.2 and have a financing -to-value ratio of 80 percent or lower;
(iii) Claims secured by commercial real estate that would qualify for the 100 percent or lower risk-weight under Section CA-4.2 and with a financing-to-value ratio of 60 percent or lower; and/or
(iv) Claims on, or guaranteed by banks that qualify for a 30 percent or lower risk weight. However, such assets cannot exceed 15 percent of covered Sukuk issuances; and
(c) The nominal value of the pool of assets assigned to the covered Sukuk instrument(s) by its issuer must exceed its nominal outstanding value by at least 10 percent. The value of the pool of assets for this purpose does not need to be that outlined by the legislative framework. However, if the legislative framework does not stipulate a requirement of at least 10 percent, the issuing bank needs to publicly disclose on a regular basis that their cover pool meets the 10 percent requirement in practice. In addition to the primary assets listed under this Sub-paragraph, the additional collateral may include substitution assets (cash or short-term liquid and secure assets held in substitution of the primary assets to top up the cover pool for management purposes) and Shari’a compliant hedging instruments entered into for the purposes of hedging the risks arising in the covered Sukuk program.
Added: June 2022