Bank Islam Integrated Annual Report 2020

39. FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (continued) Credit risk governance The management of credit risk is principally carried out by using sets of policies and guidelines approved by the MRCC and/or BRC, guided by the Board of Directors’ approved Risk Appetite Statement. The Group and the Bank have instituted two (2) levels of Financing Committees, which assess and approve credits at their specified authority levels. The MRCC is responsible under the authority delegated by the BRC for managing credit risk at strategic level. The MRCC reviews the Group’s and the Bank’s credit risk policies and guidelines, aligns credit risk management with business strategies and planning, reviews credit profile of the credit portfolios and recommends necessary actions to ensure that the credit risk remains within established risk tolerance levels. The Group’s and the Bank’s credit risk management governance includes the establishment of detailed credit risk policies, guidelines and procedures which document the Group’s and the Bank’s financing standards, discretionary powers for financing approval, credit risk ratings methodologies and models, acceptable collaterals and valuation, and the review, rehabilitation and restructuring of problematic and delinquent financing. Management of credit risk The management of credit risk is being performed by Credit Management Division (“CMD”) and Risk Management Division (“RMD”), and two other units outside of the CMD and RMD domain, namely, Credit Administration Department and Recovery & Rehabilitation Division. The combined objectives are, amongst others: • • To build a high quality credit portfolio in line with the Group’s and the Bank’s overall strategy and risk appetite; • • To ensure that the Group and the Bank is compensated for the risk taken, balancing/optimising the risk/return relationship; • • To develop an increasing ability to recognise, measure and avoid or mitigate potential credit risk problem areas; and • • To conform with statutory, regulatory and internal credit requirements. The Group and the Bank monitors its credit exposures either on a portfolio or individual basis through annual reviews. Credit risk is proactively monitored through a set of early warning signals that could trigger immediate reviews of (certain parts of) the portfolio. The affected portfolio or financing is placed on a watchlist to enforce close monitoring and prevent financing from turning impaired and to increase chances of full recovery. A detailed limit structure is in place to ensure that risks taken are within the risk appetite as set by the Board and to avoid credit risk concentration on a single customer, sector, product, Shariah contract, etc. Credit risk arising from dealing and investing activities are managed by the establishment of limits which include counterparty limits and permissible acquisition of private debt securities, subject to a specified minimum rating threshold. Furthermore, the dealing and investing activities are monitored by an independent middle office unit. Notes to the financial statements for the financial year ended 31 December 2020 268 Financ ial Statement s Accountabi l i t y Addi t ional Informat ion