42. FINANCIAL RISK MANAGEMENT (CONTINUED) Overview (continued) (b) Credit risk Overview Credit risk is the risk of a customer or counterparty failing to perform its obligations according to the terms and conditions of the credit related contract. The Group’s exposure to credit risk is mainly from its financing activities to both retail and non-retail customers. Credit risk governance The MRCC is responsible under the authority delegated by the BRC for managing credit risk at strategic level. The 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. Management of credit risk The management of credit risk is principally carried out by using sets of credit policies and guidelines 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 as approved by the MRCC and/or BRC, guided by the Board of Directors’ approved Group Risk Appetite Statement. The credit policies and guidelines are reviewed on a regular interval to ensure their continued relevance. The Group has instituted Financing Committees to undertake the deliberation and approval of all financing and investment or credit related proposals within their specified limits. Proposals that are beyond the limit set by the Board would have to be presented to the Board Financing Review Committee (BFRC) for review. Additionally, approving authority is delegated to authorised persons under single or joint authority on consumer financing as well as program financing to SME customers, restricted changes and credit administrative matters. The Group 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. Bank Islam Malaysia Berhad ◆ Integrated Annual Report 2024 374 Notes to the Financial Statements for the financial year ended 31 December 2024
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