Malaysian financial institutions are preparing themselves
for the new Basel III regime in two years, but they have been
told no write-off can be adopted in Basel III-compliant
additional tier 1 (AT1) sukuk.
Under the new financial holding companies (FHC) capital
adequacy requirements introduced by Bank Negara Malaysia (BNM)
in October 2015, which will take effect from January 1 2019,
major financial institutions have been boosting their capital
adequacy ratios through Basel III capital sukuk issuances.
But while both the write-off and the conversion features are
allowed under Basel III principles, the adoption of the former
loss absorption feature is restricted under
Malaysia’s central bank’s guidelines,
for wakalah-compliant sukuk, which is
widely-recognised in the Middle East.
"If a Malaysian Islamic Bank would like to issue Basel
III-compliant AT 1 under the CAFIB, the Islamic Bank will not
be able to adopt the write-off feature as the loss...