Instructions for Classification and Treatment of Ijarah Muntahia Bittamleek at Licensed Islamic Banks

Number: 10 / 1 / 16712 Date: 13 / 4 / 1447 AH Corresponding to: 6 / 10 / 2025 AD Instructions for Classification and Treatment of Ijarah Muntahia Bittamleek at Licensed Islamic Banks No. (13 /2025)

Further to the Instructions for Classification of Credit Exposures and Calculation of Impairment Provisions No. (8/2024) dated 30/6/2024, and taking into account the requirements of the standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the following provisions shall apply to Ijarah Muntahia Bittamleek:

Lease installment receivables that are due and unpaid in Ijarah Muntahia Bittamleek shall be classified and impairment provisions calculated against them - as a minimum - as follows:

Classification Category	Period of Payment Stoppage	Impairment Provision
Acceptable Risk	Less than (30) days	According to the requirements of the Instructions for Applying Financial Accounting Standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) No. (6/2020) dated 5/7/2020
Under Monitoring	Equal to or more than (30) days and not exceeding (89) days	50%
Non-Performing	Equal to or more than (90) days	100%

The Risk Management Department in the bank must monitor the volume of due lease installments (including those classified as non-performing) and submit periodic reports thereon to the Risk Management Committee emanating from the bank's Board of Directors, including the necessary recommendations regarding them.

If due lease installment receivables are classified as non-performing, and a modification is subsequently made to the contractual terms agreed upon with the client, the following must be adhered to:

It is not permissible to modify the classification category of these credit exposures or reverse the provision made against them except after a probation period of not less than (6) months. The period starts from the due date of the first installment owed by the client according to the new contractual terms, provided that the necessary assessment is conducted to verify the improvement of the client's credit standing after their commitment to paying the lease installments due during the above probation period.

Revenues and commissions on due lease installment receivables must be suspended immediately upon their classification as non-performing debts, and they shall not be reversed to revenues until the client commits to paying the installments due during the probation period.

Ijarah receivables may be reclassified under the 'Under Monitoring' and/or 'Acceptable Risk' categories in accordance with the bank's approved risk management policy, provided that the client commits to paying the installments on their due dates according to the new contractual terms.

The classification of due lease installment receivables that were classified as non-performing and for which no modification was made to the contractual terms may be adjusted to 'Under Monitoring' or 'Acceptable Risk' category, as the case may be, when the client pays their outstanding dues, provided that this is consistent with the bank's approved risk management policy.

If a modification is made to the contractual terms specified in Ijarah Muntahia Bittamleek contracts, where the related lease receivables were classified as 'Under Monitoring', it is at the bank's discretion to determine whether the client should be subjected to a probation period before modifying the classification, in accordance with the bank's approved risk management policy.

It is not permissible to increase existing exposures (of any type) with any client whose due lease receivables have been classified as non-performing until the classification is improved to a better category.

If the definition of non-performing applies to lease installment receivables, all other client accounts shall be classified as non-performing, and impairment provisions shall be calculated for the remaining accounts in accordance with the provisions of the effective instructions.

It is not permissible to settle credit exposures, or any part thereof, that have been classified as non-performing by arranging an Ijarah Muntahia Bittamleek facility from the bank to any clients related to the client, or who have a significant interest with them, or their relatives up to the third degree.

Should the Central Bank identify deficiencies in the bank's procedures for identifying risks associated with Ijarah Muntahia Bittamleek assets, the Central Bank will consider issuing special orders that include corrective measures for any aspects of the deficiencies, including setting impairment provisions at rates determined by the Central Bank.

The bank must prepare policies and work procedures governing Ijarah Muntahia Bittamleek to meet the minimum requirements of these instructions, starting from the establishment of the relationship with the client until the ownership of the leased assets, and including cases of contract termination, whether by mutual consent or forcibly.

These instructions are effective from 1/12/2025, and the bank must take the necessary measures to prepare the systems required to implement these instructions on their effective date.

The bank must provide the Central Bank with data related to these instructions according to the attached forms, on a quarterly basis, and no later than the end of the month following the data date.

Instructions for Classification and Treatment of Ijarah Muntahia Bittamleek at Licensed Islamic Banks No. (60/2014) dated 17/11/2014 are hereby repealed.

Governor Dr. Adel Al-Sharkas