Interview: Abdellatif Jouahri
What regulatory challenges do you see arising from the implementation of Islamic banking, and what is being done to address these?
ABDELLATIF JOUAHRI: The introduction of Islamic finance, having its own standards, necessitates the implementation of prerequisites across the industry in terms of legal, regulatory and operational aspects. In this regard, BAM has adopted a careful and gradual approach. After an experimental phase, a decisive step was taken in 2015 with a new banking law that has established the founding principles of the sector’s activities, its authorised products as well as the governance framework in compliance with sharia.
Among the main regulatory challenges facing the industry, we have identified four key elements. In terms of sharia compliancy, the choice of a central committee, the Sharia Committee for Participation Finance, aligns with the constitutional provisions of Morocco that grant the High Council of Ulemas the exclusive right to publicly issue sharia-compliant legal notices. This approach has the advantage of dodging interpretation discrepancies for this industry. Thus, every product and contract from the Islamic industry will be subject to the council’s approval.
Our efforts to regulate Islamic financial products and services have occasioned some degree of friction with civil law. The latter will have to evolve in order to integrate the specifics of Islamic finance and hence participate in a robust development of this industry. On prudential grounds, given the liquidity standards that banks and Islamic windows will face at the beginning, the deficiency of sharia-compliant, high-quality liquid assets could lead these actors to invest in foreign assets. In terms of market equilibrium, rules are planned governing the actions of both Islamic banks and Islamic finance windows at conventional banks. These rules limit the number of agencies and the exposure of Islamic banks in a bid to avoid competition distortions between those two categories.
How can further financial stability be ensured?
JOUAHRI: I would like to first underline that since the international financial crisis, BAM has striven to put in place a solid macro-prudential policy. Based on a legal and operational framework, it aims at identifying, preventing and regulating systemic risks that could emerge in the Moroccan financial system in general and in the banking sector in particular. Legally, the new banking law adopted in 2014 has established a macroprudential committee composed of BAM, the Ministry of Economy and Finance, and other regulatory authorities. In terms of risk management, our institution has an analytical framework based on mapping systemic risks that allows us to understand and evaluate the vulnerabilities of the Moroccan financial system. It is also based on stress tests that aim to quantify those risks if they were to happen.
In parallel, BAM has transposed the last Basel III norms in terms of capital requirements and short-term liquidity ratio in order to reinforce the banks’ solidity. As part of an improvement process, other actions have been undertaken to better manage systemic risks. The first action is the reinforcement of an analytical framework of contagion risks that can be caused by the connections between parts of the financial system that are separate, either by the interactions between the financial sector and the real economy, or by cross-border contagion induced by the commitments of Moroccan banks through their overseas subsidiaries. The second action is the development of models to ensure the optimal standardisation of macro-prudential instruments that favour risk prevention while allowing banks to adequately finance the economy. Those instruments include countercyclical capital requirements aimed at easing procyclical financial trends, and overloads of capital that apply to systemically important banks in order to reinforce their capacity for loss absorption, as well as mitigating instruments for real estate risks.
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