2. CAPITAL ADEQUACY (CONTINUED) 2.2 Internal Capital Adequacy Assessment Process (“ICAAP”) The Group has adopted a 4M’s Approach for its Material Risk Assessment under ICAAP. The 4M’s approach includes assessing the materiality of the risks, how the risks are being managed, measured and mitigated. The materiality of the identified risks is analysed using a quantitative and/or qualitative approach. The Group ensures that there is appropriate management and mitigation practices set in place for all its material risks. Overall ICAAP framework for the Group summarised as below: Under ICAAP, the following risk types are identified and measured: • Risks captured under Pillar 1 (i.e., Credit Risk, Market Risk, and Operational Risk); • Risk not fully captured under Pillar 1 (e.g., Migration and Residual Risk); and • Risk not covered under Pillar 1 (e.g., Credit Concentration Risk, Rate of Return in the Banking Book, Shariah Non-Compliance Risk, Regulatory/Compliance Risk, Contagion Risk, and IT Risk (including Cybersecurity Risk) amongst others). 2.3 Stress Testing Regular stress testing (including reverse stress testing) is performed to assess the Group’s ability to maintain adequate capital under both normal business cycle and unfavourable economic conditions. The stress testing is embedded within the risk and capital management process of the Group and is a key function of capital planning and business planning processes. Stress Testing also plays an important role in: • Identifying the possible events or future changes in the financial and economic conditions of the country and globally that could potentially have unfavourable effects on the Group’s exposures; • Identifying the different portfolios response to changes in key economic variables (profit rate, foreign exchange rate, GDP, etc); • Evaluating the Group’s ability to withstand such changes, i.e., its capacity in terms of its capital and earnings, to absorb potentially significant losses; and • Analysing the Group’s ability to meet the minimum regulatory capital requirement at all times throughout a reasonably severe economic crisis. Supervisory Review Process Internal Capital Adequacy Assessment Process Monitoring and Reporting of Risk and Capital Independent Review Comprehensive Risk Assessment Sound Capital Management Board and Management Oversight Material Risk Assessment & Risk Appetite Risk Quantifications & Stress Testing Capital Adequacy Assessment & Planning • Risk captured under Pillar 1 • Risk not fully captured under Pillar 1 • Risk types not covered by Pillar 1 Approaches and methodologies Capital Definition & Availability • Risk Appetite Material Risk Aggregation Capital Planning Stress Testing Embedding Capital Plan in the business 1 2 3 4 412 Pillar 3 Disclosure as at 31 December 2023 Bank Islam Malaysia Berhad ◆ Integrated Annual Report 2023
RkJQdWJsaXNoZXIy NDgzMzc=