BBA: Banks scramble to respond to BBA ruling

By HABHAJAN SINGH Local Islamic bankers are trying to get their act together in order to respond to the recent High Court rulling that the application of popular home financing Al-Bai' Bithaman Ajil (BBA) is contrary to the Islamic Banking Act 1983.
Since the written judgement by Datuk Justice Abdul Wahab Patail reached them towards end-August, Islamic bankers have begun contacting their legal advisors and lawyers on their panel for consultation.
It is understood that industry players are trying to act in unison to argue against the judgement for fear that it could take take root if it is approved by the higher courts. Lawyers familiar with Islamic finance say one possible option would be to to argue on grounds of public policy.
"Banks will appeal on the basis of a public policy argument. Whatever the law may be, if the repercussion is so great, the courts will look at the impact on the economy and on the various parties.
"Otherwise, the whole thing may collapse. Can you imagine if all customers refuse to pay the profit [element in the BBA contract] simply because of the faulty structuring of the contract?," said one lawyer.
One Islamic banker suggested that Bank Negara Malaysia (BNM), which regulates the industry, may introduce a new set of rules to clear the air with regards to the application of the BBA ruling.
At the heart of the written judgement by Datuk Justice Abdul Wahab Patail is the fact that since some BBA contracts were structurally faulty, defaulters need not pay more than the original financing amount that they received, depriving banks of the profit that they would have otherwise booked from the transaction.
In his ruling, Abdul Wahab said that the sale element in the BBA is "not a bona fide sale" and he also brought into question the profit portion of the facility.
(The Malaysian Reserve, Sept 8, 2008, p4)