BIMB Integrated Annual Report 2019

48 FINANCIAL RISK MANAGEMENT POLICIES (CONTINUED) 48.3 Credit risk Credit risk is the risk of a financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group’s exposure to credit risk arises principally from its financing, advances and others and investment securities. The Company’s exposure to credit risk arises principally from investment securities. (a) Banking Bank Islam’s credit risk is the risk of a customer or counterparty failing to perform its obligations. It arises from all transactions that could lead to actual, contingent or potential claims against any party, customer or obligor. The types of credit risks that the Bank considers to be material includes: Default Risk, Counterparty Risk, Credit Concentration Risk, Residual/Credit Mitigation Risk and Migration Risk. Credit risk governance The management of credit risk is principally carried out by using sets of policies and guidelines approved by Bank Islam’s Management Risk Control Committee (“MRCC”) and/or Board Risk Committee (“BRC”), guided by the Bank Islam’s Board of Directors’ approved Risk Appetite Statement. The Bank has instituted two (2) levels of Financing Committees, which assess and approve credits at their specified authority levels. The Bank’s MRCC is responsible under the authority delegated by the Bank’s BRC for managing credit risk at strategic level. The Bank’s MRCC reviews 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 Bank’s credit risk management governance includes the establishment of detailed credit risk policies, guidelines and procedures which documents 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 Themanagement of credit risk is being performed by Credit Management Division (“CMD”) and RiskManagement 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 Bank’s overall strategy and risk appetite; • To ensure that 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 Bank monitors its credit exposures either on a portfolio basis 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 part 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 Bank’s Board and to avoid credit risk concentration to 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 counterparties limits and permissible acquisition of private debt securities, subject to 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 2019 (CONTINUED) 271 BIMB HOLDINGS BERHAD 199701008362 (423858-X) Shareholders’ Information Financial Statements Additional Information Disclosure Summary