Legal Liquidity Instructions for Islamic Banks (15/2025)

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Ref: 1910/8/5/10
Date: 1/11/2025 AD
Corresponding: 10/5/1447 AH

Legal Liquidity Instructions for Islamic Banks No. (15/2025)

In the context of the Central Bank's review and updating of instructions issued to banks in a manner consistent with best banking practices, and with the aim of enhancing liquidity risk management at Islamic banks, it has been decided to issue these instructions, which shall be applied as of 2025/12/1.

Please accept our highest regards,

The Governor
Dr. Adel Al-Sharkas

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First: Legal Basis and Scope of Application

1. These instructions are issued in accordance with the provisions of Article (45/a) of the Central Bank of Jordan Law and Articles (42/a), (42/b), and (99/b) of the Banks Law No. (28) of 2000 and its amendments.
2. These instructions apply to all Islamic banks operating in the Kingdom, including branches of foreign banks, and are calculated and applied at the level of Jordan branches.

Second: Definition and Minimum Ratio Requirements:

1. Banks must maintain a sufficient stock of unencumbered liquid assets that can be easily and quickly converted into cash to meet the bank's daily liquidity needs within the scenarios specified in these instructions.
2. The Legal Liquidity Ratio is defined as the ratio of total liquid assets to total weighted liabilities, according to the requirements specified in these instructions.
3. The bank must maintain a Legal Liquidity Ratio such that the ratio does not fall below (100%) in total currencies, and (70%) in Jordanian Dinars under all circumstances. The limits stated in these instructions are the minimum limits for applying the ratio.
4. The bank must monitor and evaluate its total foreign currency liquidity needs and manage liquidity risks, including those related to currency mismatches, and determine the acceptable gap on a currency-by-currency basis, taking into account potential constraints and risks of sudden changes in foreign exchange rates, market liquidity, and the bank's ability to convert surplus from one currency to another.

Third: Definition and Components of Liquid Assets according to the requirements of these instructions (Liquid Assets):

1. Assets are generally considered liquid assets if they can be easily and immediately converted into cash without losses, or with minimal losses, and the bank must ensure that there are no operational restrictions preventing the liquidation of these assets when needed. Liquid assets are classified according to the provisions of these instructions based on their book value.
2. Liquid assets are recorded net after excluding any pledged and/or reserved balances/securities, as follows:

a. The following assets are recorded with a weighting factor of 100%:

• Cash in the vault.
• Net balances with the Central Bank, including mandatory cash reserves.
• Net balances, investment accounts, and investment agency accounts with local banks and specialized lending institutions.
• Net balances, investment accounts, and investment agency accounts with external banks and banking institutions.
• Net balances, investment accounts, and investment agency accounts with the center and external branches, after excluding balances allocated to cover the capital of external branches (if any).
• Marketable sukuk issued or guaranteed by governments, central banks, public sector institutions, the International Monetary Fund, the Bank for International Settlements, the European Central Bank, the European Commission, or development banks, provided they are given a risk weight of (0%) according to the Capital Adequacy Instructions in accordance with Amended Standard No. (15) issued by the Financial Services Authority No. (2018/72) dated 2018/2/4, and are traded in financial markets or repurchase markets. Sukuk issued by the Jordanian Government with its guarantee are included in this item.

b. International/Musharaka/Mudaraba Murabahas (after weighting them with the factors shown next to each), recorded net after excluding deferred future revenues:

Item	Weighting Factor
Remaining maturity of one month or less and the debtor or guarantor rating is at least investment grade.	100%
Remaining maturity of more than one month up to six months and the debtor or guarantor rating is at least investment grade.	75%
Remaining maturity of more than six months up to one year and the debtor or guarantor rating is at least investment grade.	50%
Remaining maturity of one month or less and the debtor or guarantor rating is below investment grade or unrated.	50%
Remaining maturity of more than one month up to one year and the debtor or guarantor rating is below investment grade or unrated.	25%

c. Liquid assets are recorded with the weighting factors shown next to each:

Item	Weighting Factor
Marketable sukuk issued or guaranteed by governments, central banks, public sector institutions, or multilateral development banks, provided they are given a risk weight of (20%) according to the Capital Adequacy Instructions in accordance with Amended Standard No. (15) issued by the Financial Services Authority No. (2018/72) dated 2018/2/4, and are traded in financial markets or repurchase markets.	85%
Marketable sukuk issued by companies that have a long-term credit rating of (AA-) or equivalent as a minimum issued by a qualified external credit rating agency according to the Capital Adequacy Instructions in accordance with Amended Standard No. (15) issued by the Financial Services Authority No. (2018/72) dated 2018/2/4, and in the absence of a long-term credit rating, have a short-term rating equivalent in quality to the long-term credit rating, and are traded in financial markets or repurchase markets.	85%
Sukuk issued by companies with a long-term credit rating between +A and -BBB or equivalent, and in the absence of a long-term credit rating, have a short-term credit rating equivalent in quality to the long-term credit rating, and are traded in financial markets or repurchase markets.	50%
Shareholdings in company capital, provided that the shares are traded in official financial markets.	50%

Fourth: Components of Weighted Liabilities according to the requirements of these instructions (Weighted Liabilities): Liabilities are recorded according to their book value and weighted according to the factors shown below:

Item	Weighting Factor
Customer Deposits
Current and Demand Accounts	30%
Joint Investment Accounts (notice, savings, term, certificates of deposit)	20%
Deposits of Banks and Other Banking Institutions:
Remaining maturity of one year or less	100%
Remaining maturity of more than one year	30%
Deposits of the Center and External Branches
Remaining maturity of less than one month	75%
Remaining maturity of one month to six months	65%
More than six months to one year	50%
Total Borrowed Amounts
Remaining maturity of less than one month	75%
Remaining maturity of one month to six months	65%
Remaining maturity of more than six months to one year	50%
Cheques and Payment Draws	30%
Unused Limits of Direct Credit Facilities	25%
Issued Letters of Credit, Acceptances, and Payment Guarantees	30%
Other Guarantees	3%

Fifth: Other Provisions:

1. In the event that the Islamic bank uses liquidity saving instruments issued to Islamic banks by the Central Bank pursuant to Memorandum No. (2024/3) dated 2024/2/20, the balance of sukuk pledged against the Qard Hasan/absolute investment agency account in favor of the Central Bank of Jordan is included in the numerator of the ratio under the item (Government securities/Jordanian Hashemite Kingdom Government) with a weighting factor of (100%). In the denominator of the ratio, the amounts corresponding to Qard Hasan agreements are included under the item Total Borrowed Amounts with a weighting factor of (75%). As for the amounts corresponding to absolute investment agency agreements in favor of the Central Bank of Jordan, they are included in the denominator of the ratio under the item (Deposits of banks and other banking institutions with a remaining maturity of one year or less) with a weighting factor of (100%).
2. Loans granted under the Central Bank's internal program aimed at supporting sectors (renewable energy, industry, agriculture, information technology, engineering consulting, and other sectors specified by the Central Bank) are excluded from the numerator of the Legal Liquidity Ratio.
3. Proceeds from share subscriptions are excluded from the numerator and denominator of the Legal Liquidity Ratio.
4. The limits stated in these instructions are minimum limits that banks must maintain continuously, and banks must provide the necessary systems and resources to monitor compliance with them continuously.
5. Banks are required to upload the components of the Legal Liquidity Ratio prescribed by these instructions to the supervisory system daily, on the day following the relevant day. The Legal Liquidity Report uploaded to the supervisory system is considered part of these instructions and is read together with them.
6. In the event that the Legal Liquidity Ratio in total or in Dinars falls below the minimum mentioned in Item [Second] of these instructions, the provisions of Article (42/b) of the Banks Law No. (28) of 2000 and its amendments shall apply, and the margin mentioned in the aforementioned article is determined at a rate of (3%) annually.
7. All exemptions previously granted to Islamic banks (if any) regarding the application of the Legal Liquidity Ratio are repealed, effective from the date of entry into force of these instructions.
8. The application of Legal Liquidity Instructions for Islamic Banks No. (2008/40) dated 2008/4/30 is repealed, effective from the date of entry into force of these instructions, for banks licensed to operate in accordance with Sharia provisions.

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