any amount that is past due by more than 90 days. The portions that are collateralised and past due are subject to the relevant RW as set out in paragraphs 38 and 43 respectively.
ii Preferential RW
100. Subject to meeting the minimum requirements as set out in paragraph 42, the RW of
collateralised Mur ābahah may be given preferential RW as set out below for the following
types of collateralised asset: • 75 for retail customers or working capital financing;
• 35 for a Murābahah contract secured by a residential real estate unless otherwise determined by the supervisory authorities; or
• 100 for
a Mur
ābahah contract secured by a commercial real estate or 50 in ‘exceptional circumstances’
The supervisory authority has discretion to apply these preferential RW under appropriate circumstances.
3. Market Risk
Mur ābahah and Non-binding MPO
101. In the case of an asset in possession in a Mur
ābahah transaction and an asset acquired specifically for resale to a customer in a non-binding MPO transaction, the asset
would be treated as inventory of the IIFS and using the simplified approach the capital charge for such a market risk exposure would be 15 of the amount of the position carrying value,
which equates to a RW of 187.5. The 15 capital charge is also applicable to assets held by an IIFS in respect of incomplete non-binding MPO transactions at the end of a financial
period. 102.
Assets in possession on a ‘sale or return’ basis with such an option included in the contract are treated as accounts receivable from the vendor and as such would be offset
against the related accounts payable to the vendor. If these accounts payable have been settled, the assets shall attract a capital charge of 8 i.e. a RW of 100, subject to a the
availability of documentation evidencing such an arrangement with the vendor, and b the period for returning the assets to the vendor not having been exceeded.
Binding MPO 103.
In a binding MPO the orderer has the obligation to purchase the asset at the agreed price, and the IIFS as the seller is only exposed to credit risk as indicated in paragraph 94
above. Foreign Exchange Risk
104.
The funding of an asset purchase or the selling of an asset may well open an IIFS to foreign exchange exposures; therefore, the relevant positions should be included in the
measures of foreign exchange risk described in paragraphs 47 to 54.
23
4. Summary of Capital Requirement at Various Stages of the Contract
105. The following tables set out the applicable period of the contract that attracts capital
charges: a Mur
ābahah and Non-binding MPO
Applicable Stage of the Contract
Credit RW Market Risk Capital Charge
Asset available for sale asset on balance sheet
Not applicable 15 capital charge 187.5
RW Asset is sold and delivered to
a customer, and the selling price accounts receivable is
due from the customer Based on customer’s rating or
100 RW for unrated customer see paragraphs 92
to 93 Not applicable
Maturity of contract term or upon full settlement of the
purchase price, whichever is earlier
Not applicable Not applicable
Also includes an asset which is in possession due to cancellation of PP by a non-binding MPO customer. Any HJ taken, if any, is not considered as eligible collateral and shall not be
offset against the value of the asset. b Binding MPO
Applicable Stage of the Contract
Credit RW Market Risk Capital Charge
Asset available for sale asset on balance sheet
Asset acquisition cost less market value of asset as
collateral net of any haircut less any HJ x 100 RW see
paragraphs 94 to 97 Not applicable
Asset is sold and delivered to a customer accounts
receivable is due from a customer
Based on customer’s rating or 100 RW for unrated
customer see paragraph 98 Not applicable
Maturity of contract term or upon full settlement of the
selling price, whichever is earlier
Not applicable Not applicable
Also includes an asset which is in possession due to cancellation of PP by a customer. This Credit RW is applicable only when IIFS will have recourse to any HJ paid by the
customer, and depending on the legal situation may have a right to recoup from the customer any loss on disposing of the asset, after taking account of the HJ.
If the IIFS has no such right, the cost of the asset to the IIFS constitutes a market risk as in the case on a non-binding MPO, but this market risk exposure is reduced by the amount of
any HJ that the IIFS has the right to retain.
24
C.2 SALAM
1. Introduction 106.
