DUBAI Oct 30 The Kuala Lumpur-based Islamic
Financial Services Board (IFSB) plans to revise its capital
adequacy guidelines for Islamic financial institutions, with a
draft to be released in November for industry feedback.
The IFSB sets global guidelines for Islamic finance,
although national financial regulators have the final say on how
much capital banks must maintain and in what form.
The Islamic body released its original guidelines on capital
adequacy in December 2005, based on Basel II standards which
regulators were then applying around the world. Since then,
global regulators have agreed on stricter Basel III standards
which will be phased in over the next several years.
IFSB spokeswoman Rose Halim told Reuters that her
institution's new guidelines would address the issue of which
Islamic instruments could be classified as bank capital.
"The IFSB is revising its capital adequacy standard, and in
this context we are elaborating the issue of component of
capital," she said in an email.
"For issuing sukuk as part of bank capital we have proposed
different types of sukuk," Halim said, adding that sharia
advisors where still discussing details.
Because sukuk or Islamic bonds are based on real assets
rather than pure debt, as conventional bonds are, some analysts
and bankers believe sukuk could play a major role in helping
banks around the world meet Basel III's minimum capital ratios.
It will be up to national regulators, taking into account
the advice of the IFSB, to determine which sukuk structures can
be classified as capital and to what extent.
Some banks in the Gulf are already issuing sukuk in the
expectation that the instruments will count as capital. Abu
Dhabi Islamic Bank plans to boost its capital through
the sale of a sharia-compliant debt instrument, and will start
investor meetings on Wednesday, a statement from the arranging
banks said on Tuesday.
The sukuk sale is likely to be benchmark-sized, a source at
one of the arrangers said; benchmark bonds are typically $500
million or more in size.
Last year Saudi Arabia-based Bank Al Jazira
strengthened its capital base by issuing a 10-year, 1 billion
riyal ($265 million) sukuk, which it said would be classified as
Tier 2 capital.
A draft of the IFSB's new guidelines will be issued in the
first week of November for public consultation, said Zahid ur
Rehman Khokher, a member of the IFSB's technical and research
secretariat, the team that worked on the project.
(Editing by Andrew Torchia)