Guidelines on the Application of Banking Regulations to Isla

Top 20 FREQUENT WORDS

asset 115 customer 88 price 65 mas 62 banking 59 islamic 57 purchase 53 singapore 51 business 44 regulation 40 assets 36 authority 36 agent 35 risk 34 murabaha 31 banks 30 monetary 29 amount 28 financing 27 risks 27

DOCUMENT KEY POINTS

these guidelines only cover the application of the banking act cap banking regulations and written directions issued pursuant to the banking act and do not cover the application of other legislation such as the directives to the merchant banks the securities and futures act and financial advisers act

for example while the need to comply with shariah laws introduces an additional dimension to an islamic bank s reputational risk exposure the nature of the risk is not different from a conventional bank s need to protect its reputation by ensuring that its performance matches up to its representations to its customers

these rules will include the need to maintain eligible assets mas notice maintain sufficient liquidity buffers mas notice keep ample provisions mas notice observe large exposure limits banking act section limit property related exposures banking act section put in place strict anti money laundering controls mas notice and comply with minimum regulatory capital requirements mas notice

the decision tree below figure a provides a stylised illustration of the analysis that may be carried out to determine which of the rules in mas notice should apply to an islamic financial product
this assessment should be made in accordance with the definitions of the banking book and trading book in mas notice see part ii and subdivision of division of part viii

figure a stylised decision tree for determining capital requirements financial product banking book trading book credit exposures equity exposures sa cr sa eq sa mr determine appropriate asset class on balance sheet off balance sheet eligible determine determine determine crm appropriate appropriate exposure appropriate exposure e e by first determining exposure e the credit conversion calculate calculate calculate sa cr rwa sa eq rwa sa mr rwa

for off balance sheet exposures the bank should determine the appropriate exposure e by multiplying the notional amount of each exposure with the appropriate credit conversion factor or ccf
of part vii a bank incorporated in singapore should apply the sa eq under division of part vii of mas notice

in such transactions as a result of the mark up sale the customer has a contractual claim on the bank for the amount of money he earlier paid to the bank plus the mark up
in recognition of the similarity in economic substance and risks between a murabaha deposit and a conventional deposit banks are allowed to collect all diagrams in these guidelines are for illustrative purposes only

for regulation and regulation a to apply the bank has to ensure that the customer undertakes to sell the assets which the bank has purchased on his behalf and the bank then on sells the assets both parties do not derive gains or suffer losses from fluctuations in the price of the assets the mark up charged by the customer does not depend on the market value of the asset and the payment by the bank to the customer is on a deferred basis

the bank shall notify the authority of its a a intention to commence the business referred to in paragraph or b commencement of such business within days after the commencement of such business

we also expect the bank to ensure that it takes on little additional risk from its ownership of the asset such as by minimising the time between the purchase and sale of the asset and ensuring that the customer is under a legal obligation to take delivery of the asset
for a murabaha financing transaction to fall within regulation the mark up must represent the profit to the bank for providing financing and the bank s profit should not be dependent on the market value of the asset

the bank shall notify the authority of its a a intention to commence the business referred to in paragraph or b commencement of such business within days after the commencement of such business

the qualifying conditions for regulation a are both banks are obliged to complete their respective purchase or sale transactions both banks do not derive any gains or suffer any losses from changes in price of the assets and the mark up charged by bank a is set independently from the price of the asset and represents its only gain in the transaction

for the purposes of section d of the act and subject to paragraph the arrangement set out in paragraph in circumstances where the roles of a and b are reversed is prescribed as a business that any bank in singapore may carry on or enter into any partnership joint venture or other arrangement with any person to carry on

the lease will generally end either by the bank transferring the ownership of the asset to the customer at the end of the lease term or by the customer terminating the lease early and purchasing the asset from the bank at a price agreed upfront
a for the purposes of section d of the act and subject to paragraph the business of leasing assets whether in the form of movable or immovable property is prescribed as a business that any bank in singapore may carry on or enter into any partnership joint venture or other arrangement with any person to carry on if such business is carried on under the following arrangement monetary authority of singapore

figure e structure of a typical ijara wa igtina contract lease of asset title passes at the end of the lease term or during the lease transfer of title term if the lessee pays off the remaining lease payments bank customer vendor lessor lessee mujir mustajir payment of purchase price rental payments monetary authority of singapore
the bank shall notify the authority of its a a intention to commence the business referred to in paragraph or b commencement of such business within days after the commencement of such business

in such a case the bank may structure the loan as a non recourse mortgage and suffer a loss if in the sale of the asset as collateral the proceeds are insufficient to cover the amount due from the customer
where a structure falls within the definition of a diminishing musharaka financing structure as stipulated above the bank should apply the sa cr under division of part vii of mas notice

regulation c prescribed joint purchase and periodic sale business c

figure f structure of a typical diminishing musharaka contract payment to increase ownership partner bank customer rental payment for usage of asset if applicable x ownership x ownership diminishes musharaka increases over time over time property or pool of assets monetary authority of singapore

a for the purposes of section d of the act and subject to paragraph the business of purchasing and selling assets at spot price is prescribed as a business that any bank in singapore may carry on or enter into any partnership joint venture or other arrangement with any person to carry on if such business is carried on under the following arrangement a for the purpose of effecting payment resulting from the carrying on of any business by the bank under section a b or c of the act a monetary authority of singapore

the bank shall notify the authority of its a a intention to commence the business referred to in paragraph or b commencement of such business within days after the commencement of such business

sukuk are arranged using a range of structures but they generally fall into two broad categories a asset based sukuk where there is a purchase undertaking by the originator to repurchase the underlying assets and asset backed sukuk where the holders would bear any losses in case of the impairment of the assets
a bank s investments in sukuk and equity based investments are subject to the general exposure and investment limits set out in the banking act banking regulations and written directions issued pursuant to the banking act

if the tenor and full principal repayment to the sukuk holder are fixed at the time of the sukuk issuance and the purchase undertaking is irrevocable and enforceable the holder of the sukuk is primarily exposed to the risk that the counterparty issuing the purchase undertaking will not be able to honour its obligation to repay on the agreed future date

Please note, This is an auto generated summary based on sentances position in the document and other factors

DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\islamic banking

KeyWords

islamic risk murabaha minimum iifs NA customers financing customer banking profit credit maximum shariah underlying limit service corporate required mode

DOCUMENT REFERENCES

Number of Pages

28

Published Date

2009-05-08 05:10:06

Full Document

Read the Full Document

Guidelines on the Application of Banking Regulations to Isla

Contents

Top 20 FREQUENT WORDS

DOCUMENT KEY POINTS

DOCUMENT WORD ANALYSIS

Main Category

KeyWords

RELATED DOCUMENTS

DOCUMENT REFERENCES

Number of Pages

Published Date

Full Document

Navigation menu

Personal tools

Namespaces

Variants

Views

More

Search

Navigation

Tools

Categories