Fitch: Effective Shariah-Compliant Repo Market Important in Times of Liquidity Stress

Fitch Ratings (Fitch) suggests that a more effective Islamic repurchase agreements (Repo market) would assist in improving funding and liquidity profiles of Islamic banks, by providing an additional source of secure, low-risk, short-term financing.

Fitch states that this would be particularly beneficial under the current economic conditions, leading to increased liquidity stress, and believes this would also support earnings generation for Islamic banks as the collateral held would support a lower cost of funding.

The on-going COVID-19 pandemic, together with the slump in oil prices have been affecting the liquidity positions of Islamic banks in core markets such as Malaysia and th...