Restricted write-off defines Malaysia’s Basel III AT1 sukuk

Author: Brian Yap | Published: 6 Apr 2017

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...


 

 

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