5. MARKET RISK 5.1 Overview All the Group’s financial instruments are subject to the risk that market prices and rates will move, resulting in profit or losses to the Group. The following are the main market risk factors that the Group is exposed to: • Profit Rate Risk: also known as the Rate of Return Risk is the potential impact on the Group’s profitability and capital caused by changes in the rate of return, due to general market movements or issuer/customer specific reasons. • Foreign Exchange Risk: the impact of exchange rate movements on the Group’s currency positions. • Equity Investment Risk: the profitability impact on the Group’s equity positions or investments caused by changes in equity prices or values. The Group separates the market risk exposures into either trading book or banking book portfolios. Trading book portfolios include those positions arising from market making, proprietary position taking and other marked-tomarket positions as per the Board approved Trading Book Policy Statements. Banking book portfolios primarily arise from the Group’s profit rate management of the Group’s asset & liabilities and investment portfolio mainly for liquidity management. 5.2 Market Risk Governance The management of market risk is principally carried out by using sets of policies and guidelines approved by Asset & Liability Committee (“ALCO”) and/or BRC, guided by the Board’s approved Group Risk Appetite Statement Policy. ALCO is responsible under the authority delegated by BRC for managing market risk at strategic level. 5.3 Management of Market Risk The objective is to manage market risk exposures in order to optimise return on risk while maintaining a market risk profile consistent with the Group’s approved risk appetite. All market risk exposures are managed by Treasury, who has the necessary skills, tools, management and governance to manage such risks. The management of market risk is guided by comprehensive limits, policies and guidelines which are periodically reviewed. Market Risk Management Department (“MRMD”) is an independent risk control function and is responsible for ensuring effective implementation of market risk management framework. MRMD is also responsible for developing and reviewing the Group’s market risk management guidelines and policies, monitoring tools, behavioural assumptions and limit setting methodologies. Strict escalation procedures are documented and approved by ALCO and/or BRC. In addition, the market risk exposures and limits are regularly reported to ALCO and BRC. 455 www.bankislam.com 1 2 3 4 5 6 7 8 9 FINANCIAL STATEMENTS
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