Consultation to be published in the first quarter of 2018, final set of rules in H2, says central bank official

07/12/2017 11:10 AST

Bahrain’s central bank is drawing up tight new requirements for Islamic banks to measure and report their exposure to financial risk, as part of the kingdom's efforts to standardise the industry and position the country as the Islamic banking capital of the Middle East.

The Central Bank of Bahrain (CBB) will publish a consultation on a proposed risk assessment framework for Islamic banks in the first quarter of 2018, and the final set of regulations in the second half of the year, Khalid Hamad Abdul-Rahman Hamad, executive director of banking supervision at CBB and chairman of the International Islamic Financial Market (IIFM), told The National in an interview.

“We would like to enhance the risk management aspect of Islamic finance,” Mr Hamad said. “We are planning to issue a very detailed risk management toolkit to improve risk management practices taken by Islamic banks – be it credit risk management, market risk management, operational risk management and profit rate risk in the banking book, which is equivalent to interest rate risk in conventional banking."

The regulations will require “banks to have proper reserves – be it profit equalisation reserves or investment risk reserves, and we would like these new rules to set proper standards [across] the banks in managing unrestricted investment accounts,” he added.

In Islamic banking, the holder of an unrestricted investment account authorises their bank to invest their funds in any manner the bank wishes. The mechanism works as an alternative to the deposit-led system in conventional banking.

Bahrain is seeking to grow its Islamic finance sector in the years ahead based on forecast 5 per cent annual growth rate in terms of Islamic banking assets over the next two years, CBB governor Rasheed Al Maraj told a conference in Bahrain on Tuesday.

A report published the same day by Thomson Reuters and the Islamic Corporation for the Development of the Private Sector (ICD) found that total Islamic finance assets are projected to reach US$3.8 trillion by 2022 on the back of enhanced regulations to strengthen the industry.

Bahrain is ahead of other countries regionally and internationally when it comes to the having the regulatory framework in place, said Mr Hamad. That includes being ahead of Indonesia, the most populous Muslim country, that has a sizable Islamic banking industry. The government-imposed standardisation is needed to increase transparency and grow the sector further, he added.

“We have given the market a lot of time to develop in this area and I think it’s the right time now to require the banks to have a proper methodology of allocating the funds,” Mr Hamad said.

“[Under the proposed new rules], whenever the bank is investing, they must have a pre-plan regarding how much of bank assets will be funded by unrestricted investment accounts, and how much will be invested from funds.”

Banks will be given time to adjust to the changes and implementation the new risk regulatory framework will be decided based on feedback from the consultation on banks’ readiness, Mr Hamad said.

In the conventional banking sector, Abu Dhabi’s financial free zone, Abu Dhabi Global Market (ADGM), published a consultation in October on proposed revisions to its banking risk rulebook, to bring the industry in line with global regulations such as Basel III.

Mr Hamad said the new Islamic risk requirements are part of Bahrain’s drive for overall compliance with Basel III, an international regulatory framework that sets capital standards for banks. The kingdom has already imposed capital adequacy and sharia governance rules in an effort to match Basel III.

The National

Ticker Price Volume
QNBK 159.00 144,076
SABIC 129.60 5,192,197
SRMG 106.00 898,130
EEC 19.96 1,817,656
SARCO 44.20 333,418
APPC 56.30 191,440
HB 54.20 5,047
Affordable housing stimulates Riyadh’s real estate market


Although market conditions in Riyadh remain relatively unchanged this quarter, the governments’ continued focus on providing more affordable housing to drive home ownership amongst Saudi nationals wi

Saudi Gazette

UAE clarifies rules on payment of VAT on commercial real estate


The 5 per cent VAT on commercial real estate must be paid prior to the completion of an asset sale, not afterwards, the UAE’s Federal Tax Authority (FTA) said on Wednesday.

In a statement

The National

PEIE highlights investment opportunities


A delegation of Indian businessmen visited the Public Establishment for Industrial Estates (PEIE) on Wednesday in a bid to familiarise themselves with the investment climate in the Sultanate.

Times of Oman

Bahrain bond rally fizzles out as Gulf bailout remains elusive


Bondholders’ relief over a Gulf pledge to prop up Bahrain’s struggling economy has given way to anxiety now that three weeks have passed without any sign aid is on the way.

Saudi Arabia, Ku

Gulf News

Dubai banks continue to deliver strong results


Leading Dubai based banks, Emirates NBD, Emirates Islamic, Dubai Islamic Bank (DIB) and Mashreq reported strong growth in first half net profits supported by gains in core banking revenues.

Gulf News