1 / 19

Islamic Liquidity Management Issues

Islamic Liquidity Management Issues. ISLAMIC BANKING AND FINANCE Lebanese American University, School of Business, Irwin Hall, Beirut, Lebanon February 23–24, 2006 Warren Edwardes, ceo , Delphi Risk Management Limited e : we@dc3.co.uk w : dc3.co.uk. Delphi’s website contains :.

marlow
Télécharger la présentation

Islamic Liquidity Management Issues

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Islamic Liquidity Management Issues • ISLAMIC BANKING AND FINANCE • Lebanese American University, School of Business, Irwin Hall, Beirut, Lebanon • February 23–24, 2006 • Warren Edwardes, ceo, Delphi Risk Management Limited • e: we@dc3.co.uk • w: dc3.co.uk Warren Edwardes

  2. Delphi’s website contains: • articles on Islamic banking on:dc3.co.uk/ibnews • The full speech will be on: • dc3.co.uk/IslamicLiquidity060218.pdf • with PowerPoint on • dc3.co.uk/IslamicLiquidity060218.ppt Warren Edwardes

  3. thoughts on liquidity • More than listing • Is there a buyer when you are a seller? • More than negotiable • At what price? Warren Edwardes

  4. thoughts on liquidity • British Gas • Falklands War • Dumping of Aaa A1-P1+CP • Don’t hold paper in the news Warren Edwardes

  5. thoughts on liquidity • Midland Bank • Crocker bank led to dumping of Midland CDs • Don’t hold paper in the news Warren Edwardes

  6. thoughts on liquidity • Continental Illinois • Plenty of “liquid” assets • No diversification of liabilities • mainly wholesale and few retail customers Warren Edwardes

  7. thoughts on liquidity • Access to determinate amount of cash • When you need it • Preservation of capital on demand • Free from price risk • Undoubted quality low credit risk and be seen to be so • Need a quality Triple-A overnight instrument with stable capital values Warren Edwardes

  8. Background to Islamic liquidity “Islamic banking is having a growth spurt. …. shortage of inter-bank liquidity,… signs that tentative moves are being made to address these shortcomings.” Middle East Economic Digest December 19, 1997 – over 8 years ago! Warren Edwardes

  9. Background to Islamic liquidity • Asset/liability gap management • Shortage of instruments • LMC /IIFM initiatives • Numerous Sukuks including Malaysia, Bahrain & IDB Sukuks • Liquidity and price transparency is required for an active secondary market • Issues oversubscribed but minimal trading • This lack of liquidity paradoxically increases the demand for liquidity Warren Edwardes

  10. liquidity management • Investments long dated – deposits are short • massive gap • Massive liquidity problem • Need flexibility with Shariah compliance • Sukuks held to maturity • Short selling? • Stock borrowing? Warren Edwardes

  11. liquidity management • LME Murabaha is main destination • Bilateral transactions • Counterparty limits • Some funds exist • But not capable of market size transactions • Segmentation inevitable • Co-operation needed with a market level solution Warren Edwardes

  12. No Inter-bank market • Balance sheet management problem • Cannot easily finance when there are withdrawals • So more liquidity than needed by a conventional bank • Bilateral Murabaha with break clauses is widespread • liquidity vehicles cannot withstand a $100million injection or withdrawal Warren Edwardes

  13. Risk Pyramid • Sound ALM requires a quality / liquidity pyramid. • Most liquid is USD bill or note • Nil earnings but price stability vs USD • Then a range of bonds from super nationals to governments and funds • Most with price risk • Some with earnings volatility but fixed price • No such highly rated Islamic instruments Warren Edwardes

  14. Risk Pyramid • Governments reserves are in gold and government Triple-A paper • Fiduciary or trust money should be both liquid and safe and price risk free • Basle II is approaching • Even before that sound risk management principles apply Warren Edwardes

  15. Risk Pyramid • Pyramid of risk • Blended portfolio from Triple-A down to Single-B • Can interpolate risk between Triple A and Single-A • Cannot extrapolate risk from lesser risks to triple-A Warren Edwardes

  16. Risk Pyramid • Risk / return trade-off in conventional markets • Add to this the Halal / Haram trade-off • Need Triple-A Halal instruments Warren Edwardes

  17. Conclusion & summary • Sukuks bought to hold • minimal secondary market for on sale • Mark to market and price determination is difficult • Shortage of paper • Is debt trading really Halal? • Novation agreements • Cancellation of original purchase and replacement with new owner in contract note Warren Edwardes

  18. Conclusion & summary • Asset / Liability problem • Long term asset fixed and short term variable deposits • No derivatives – yet! • Gharrar? • Financial Takaful? Warren Edwardes

  19. Conclusion & Summary • Lack of short term instruments • Sukuks are medium plus term • Not price stable or really liquid • Shortage of credit lines • Wanted an overnight Triple-A, market-sized, liquid, inter-bank market solution where institutions can park their reserves Warren Edwardes

More Related