As banks prepare for the impact of Basel III regulations, many Islamic financial institutions are finding they already exceed the requirements.
With above-average Tier 1 capital, strong customer deposits and much lower levels of leverage and trading book risks, well-managed Islamic banks will not be looking for additional capital. So, does this mean that Basel III regulations will not affect Islamic banks in the same way they will conventional banks? Bankers are not so sure.
For a start there is the issue of liquidity. Despite apparent progress towards improving Islamic liquidity through increased sukuk issuance, for instance, there remains a lack of eligible liquidity instruments and adequate central bank facilities. This gap in the market would have to be filled to make Basel III compliance possible.
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