Sukuk, deposit insurance schemes in the offing in KL

The Kuala Lumpur-based Islamic Financial Services Board (IFSB) has released final guidance on liquidity risk management for Islamic banks, which may spur national authorities to issue more sukuk and establish sharia-compliant deposit insurance schemes.

The guidance note, known as GN-6, clarifies the tools that Islamic banks can use to meet Basel III regulatory requirements, now being phased in for both conventional and sharia-compliant banks around the world.

It defines the types of high-quality liquid assets (HQLA) that Islamic banks can hold and the weights that should be assigned to Islamic deposits, which can be more volatile than conventional ones for various reasons, including the fact that they have relatively short maturities.

The guidance note also details three arrangements that regulators can use to meet Basel III requirements in more undeveloped banking markets: central bank liquidity facilities, foreign currency HQLA that could be used to cover domestic currency liquidity needs, and expanded use of lower-level HQLA.