- What is PER?
The PER is a mechanism act to mitigate the fluctuation of Rates of Return arising from the flux of income, provisioning and total deposits.
- Why do we need PER?
The creation of PER is to ensure that Islamic Banking Institutions (IBIs) Rates of Return remained competitive and stable. During times of low returns to depositors and investors, IBIs can choose to utilize the PER to improve and stabalize the Rate of Return to its depositors and investors. The main purpose is to protect depositors and investors interest as far as possible.
- Where is PER maintained?
PER can be seen at the profit distribution framework. In Malaysia, it can be seen at the Rate of Return Framework which is maintained by all IBI. PER is appropriated out of the total gross income and it is a provision shared by both the depositors and the bank.
- How much PER is allocated monthly from the total gross income?
PER can be allocated up to a maximum 15% of the total gross income every month. The formula for how much PER can be allocated is as follows:
PER (maximum monthly provision) = (15% x gross income) + net trading income + other income + irregular income such as recovery of non-performing financing (NPF) and write back of provisions.
- Is there any limit on the amount allocated to PER?
Yes and in Malaysia as per BNM Guidelines, IBIs are only allowed to maintain a maximum accumulated PER of 30% of Islamic Banking Shareholders’ Fund.
- What happen if IBIs met the limit?
IBIs are not allowed to allocate anymore hence have to revise its Rates of Return to distribute the actual profits.
- What the most confusion is with regards to PER?
Although IBIs are given the right to allocate some of its income into PER, it is not right for IBIs to treat PER as another source of income as most bankers assume. PER is a way on how an IBI can manage or control its Rates of Returns. By right, any income generated from the utilization of funds i.e. depositors funds, must be returned back in full to customers accordingly.
Contributed by : Mohd Kamil Hadsrim Ibrahim
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