SBP to ensure Islamic banks meet Basel III regulations
The State Bank of Pakistan (SBP) said it was expediting its efforts to implement revised capital standards for the Islamic banks to ensure that Shariah-compliant lenders are well-placed to meet tough Basel III regulations.
“The assessment/feasibility of adaption of revised capital adequacy standard (IFSB-15) is in final stage; however, the decision of its implementation depends on the results/findings of its qualitative and quantitative analysis and after considering relevant legal and regulatory concerns in consultation with stakeholders,” the central bank said.
The IFSB-15 provides global capital adequacy standards set by the Malaysia-based Islamic Financial Services Board for the institutions offering Islamic financial services. Islamic banking institutions in Pakistan need strengthening their capital adequacy position in view of evolving regulatory requirement till 2019.
The SBP had implemented Basel III reforms to further enhance the capital related rules in 2013 in a phased manner with full implementation intended by December 31, 2019.
Bankers said the implementation of IFSB-15 guidelines on Islamic financial institutions would help align the industry to global practices. It could make the capital framework more robust and improve confidence in the Islamic banking industry. “Based on the unique nature of Islamic banking institutions and participatory nature of Islamic banking deposit, the adoption of IFSB standard on capital will be very helpful to promote this sector,” said Ahmed Siddiqui, head of product development and Shariah compliance at Meezan Bank.
Siddiqui added that it would also be in line with the nature of Islamic banks and help strengthen the SBP’s resolve to make Islamic banking as a preferred choice of banking. The assets and deposits of Islamic banking industry are growing at a decent pace of 11.9 percent and 13.7 percent, respectively. However, their capital adequacy ratio [CAR] fell to 12.94 percent at the end of 2016 from 13.75 percent in 2015. Though their CAR was above the required level of 10.65 percent, but CAR of Islamic banks remained below the conventional banking industry’s level of 16.45 percent in 2016.