Shariah-compliant Basel III: structural issues explained

Author: Gemma Varriale | Published: 11 Nov 2013
  • As the date for implementation of Basel III approaches, central banks across the Gulf Cooperation Council are now looking for compliance with the regulatory requirements on new deals;
  • At the end of 2012, Abu Dhabi Islamic Bank made headlines as the inaugural issuer of additional tier 1 capital certificates in shariah-compliant form;
  • Write-down at the point of non-viability presents a key challenge, although many believe this feature is inherently shariah-compliant given that holders will be expected to share in the losses of the relevant financial institution;

Shariah-compliant regulatory capital issuances from banks in the Gulf Cooperation Council (GCC) are becoming more prevalent. But several challenges lie in wait in the drive to create shariah-compliant bank capital structures.

The deals seek to comply with regulatory requirements under the latest incarnation of the Basel reform package – Basel III. Drawn up by regulators in response to the global financial crisis, these measures...