CIMB Islamic Bank recently entered into a RM1 billion (US$224.74 million) sustainable collateralized commodity Murabahah (CCM) transaction with Standard Chartered Saadiq Malaysia. On the back of this landmark deal, ISFI spoke to Ahmad Shahriman Mohd Shariff, CEO of CIMB Islamic, to understand its structure and significance.
“[The CCM] is a very innovative and relevant solution for Islamic banks because it addresses a big problem that a number of Islamic banks have, ie the ability to tap into the liquidity of the interbank market in a credit-efficient manner,” Ahmad shared. Tapping the interbank market aside, it can also be substituted by securities for the purpose of credit exposure and counterparty exposure.
In the works over the last three to four years, the CCM solution is an industry effort through the Association of Islamic Banking and Financial Institutions Malaysia, according to Ahmad. The proceeds from the transaction will be earmarked to eligible Shariah compliant assets and projects in line with CIMB Group’s Sustainable Development Goals Bond and Sukuk Framework.
“Basically, the party that is tapping into the liquidity of the market will also provide collateral to substitute its own credit risk. So, for a counterparty financial institution where their credit standing is poorer or inferior, the provision of the collateral allows them to mitigate that implication and tap the market efficiently,” Ahmad explained.
“There is a possibility for us to use Sukuk which are sustainability-linked but at the moment, the primary criterion for us is to use Sukuk assets which are highly rated. The main driver is the credit rating of the underlying Sukuk being used as collateral. But I think as we see more issuances in the market, especially by government entities, of Sukuk linked to sustainability targets, I think we should have more of that coming forward,” Ahmad said when asked about the possibility of using sustainable Sukuk as collateral.
Ahmad further opined that similar structures may be adopted by other banks. “There is already a strong commitment by Bank Negara Malaysia (BNM) in the area of sustainability. BNM has already imposed expectations that transition financing should be half of our activities by a certain period. So naturally, the whole industry will reshape their portfolio. And as we reshape our portfolio to fund more sustainable causes, then the need to tap into the interbank market in this manner will also increase,” he shared.
This is an excerpt from an interview with Ahmad Shahriman Mohd Shariff, CEO of CIMB Islamic. Listen to the full discussion on the sustainable CCM transaction on IFN OnAir.