By Bernardo Vizcaino Reuters
Regulators overseeing Islamic banking must revise guidance on real estate exposures to align with the post-financial crisis capital rules of Basel III, a global industry body has said.
The Bahrain-based General Council for Islamic Banks and Financial Institutions (CIBAFI) said treatment of real estate across Islamic finance jurisdictions still reflected Basel II or pre-reform Basel III rules.
But a revised version of Basel III, finalised in December 2017, introduced additional requirements including concentration limits and independent asset valuations.
Such requirements are important for Islamic banks as many have high exposure to real estate in both their investment and financing activities, coupled with the illiquid and cyclical nature of the asset class, CIBAFI said.
“As a result, Islamic banks may be hit particularly hard by any downturn in the real estate sector.”
Islamic commercial banks are estimated to hold more than $1.3tn in assets globally, a sector considered systemically important in countries including Saudi Arabia, Qatar and Malaysia.
Around half of large Islamic banks and two-thirds of small Islamic banks have a high to very high exposure to real estate and mortgages, according to a CIBAFI industry survey.
Islamic banks in Bahrain, Jordan and Kuwait recorded roughly a 25% exposure to real estate in their activities, CIBAFI data showed.
CIBAFI said national regulators must incorporate the Basel III revisions, while the Malaysia-based Islamic Financial Services Board (IFSB) should also revise its own capital adequacy standard for Islamic banks.
That standard, known as IFSB-15, had initially proposed concentration limits on real estate but these were not adopted in a final version, CIBAFI said.
This would have placed a cap on aggregate real estate investment exposures of 60% of regulatory capital, with a 15% limit on single real estate investments.
LEAVE A COMMENT Your email address will not be published. Required fields are marked*
MEEZA unveils business cloud platform in expansion strategy
QFC showcases its strong business proposition at London meetings
QBIC announces 10 new startups
Turkish bank seen holding rates steady
Iran sanctions in focus as Iraq hurt by curbs on gas imports
Apple accused by Egypt of violating competition laws
Japan is watching EU politics and doesn’t like what it sees
Uber’s dominant size may rob smaller Lyft of its IPO oxygen
Alignment of fiscal and monetary policy action is the key