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Basel III offers chance for Islamic banks to ‘boost capitalisation, liquidity management’ 

August 20, 2014
Santhosh V Perumal, Gulf Times

Global credit rating agency Standard & Poor’s (S&P) has said Basel III offered an opportunity for Islamic banks to strengthen their capitalisation and liquidity management.

The new norms are likely to address some of the industry’s long-standing weaknesses, particularly the lack of high quality liquid assets (HQLA). The new capital buffers may also make the Islamic finance industry more resilient to the cyclical nature of its operations.

Basel III implementation may also encourage highly-rated sovereigns and corporates to list their sukuk on developed and liquid markets to make them eligible for HQLA inclusion, the report said, adding the implementation of Basel III will also test the treatment of profit sharing investment accounts (PSIAs) from a liquidity and funding perspective.

Highlighting that Basel III’s primary goal is to increase the level, quality, and global consistency of regulatory capital and standardise the required deductions and adjustments, S&P said “we expect the revision of the capital definitions to have a limited impact on Islamic banks’ quality of capital as most of their capital already comprises common equity.”

Read more: Gulf Times

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