3. RISK MANAGEMENT (CONTINUED) 3.2 Risk Management Functional and Governance Structure (continued) The Group recognises the fact that the essence of banking and financial services is centred on risk taking activities. The Group therefore: • Recognises that it has to manage risks effectively to achieve its business targets; • Reaches an optimum level of risk-return in order to maximise stakeholders’ value; and • Ensures effective and integrated risk management processes that are commensurate with the size and complexity of the current and future operations of the Group within its risk appetite and tolerance. The Group has established the Group Risk Appetite Statement Policy that forms an integral part of the Group’s strategy and business plans. Risk appetite is an expression of the maximum level of risk that the Group is prepared to accept in support of a stated strategy, impacting all businesses from a credit, market and operational risk viewpoint. 4. CREDIT RISK 4.1 Overview Credit risk is the risk of potential losses to the Group arising from inability of our customers to fulfil or repay their obligations under facilities granted by the Bank. It arises from all transactions that could lead to actual, contingent or potential claims against any party, customer or obligor (collectively referred to as counterparties). The types of credit risks that the Group considers to be material include: Default Risk, Counterparty Risk, Credit Concentration Risk, Residual/Credit Mitigation Risk and Migration Risk. 4.2 Credit Risk Governance The management of credit risk is principally carried out by using sets of policies and guidelines approved by the Management Risk Control Committee (“MRCC”) and/or BRC, guided by the Boards’ approved Group Risk Appetite Statement Policy. The Group has several levels of Financing Committees, which assess and approve credits at their specified authority levels. MRCC is responsible under the authority delegated by BRC for managing credit risk at strategic level. MRCC reviews the Group’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 credit risk management governance includes the establishment of detailed credit risk policies, guidelines and procedures which document the Group’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. 421 www.bankislam.com 1 2 3 4 5 6 7 8 9 FINANCIAL STATEMENTS
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