Q: What are the long-term implications for profit-sharing investment accounts [PSIAs] under Basel III?
Mohamed Damak: In terms of implications, I think the most important aspect of this question is the treatment of the PSIAs under Basel III in relation to the liquidity coverage ratio, which needs to be clarified. The Islamic Financial Services Board [IFSB] is working on the guidance now, which is expected to be published in early 2015. I think one of the main issues there is the run-off rate that would be applied to the PSIAs, factoring in their possible loss-sharing characteristics and the impact this might have on their stability. The higher the run-off rate, the higher the liquidity needs and the lower the net stable funding eligibility of the PSIAs.
