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Basel III requirements to strengthen Islamic banks’ liquidity 

April 8, 2015

Babu Das Augustine, Gulf News 

The implementation of Basel III and its new liquidity coverage ratio (LCR) could increase offerings of liquidity management instruments and could help address some of the industry’s long-standing weaknesses, particularly the lack of high quality liquid assets (HQLA), said Mohammad Damak, a credit analyst with Standard & Poor’s.

In October 2014, the Islamic Finance Services Board (IFSB), an international standard-setting body of regulatory and supervisory agencies published guidance on measures for liquidity management in institutions offering Islamic financial services. This note (IFSB-GN-6) set three main characteristics of high quality liquid assets (HQLA): low correlation with risky assets, an active and sizeable market, and low volatility.

This guidance for Islamic financial institutions also specifies how Islamic banks should implement the LCR and the net stable funding ratio related to Basel III, as well as the timeline for implementation.

“The introduction of a liquidity coverage ratio might help to address some of the industry’s long-standing weaknesses, particularly the lack of HQLA,” said Damak.

Read more: Gulf News

 
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