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 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. 4.2 Credit Risk Governance 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. 4.3 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. 443 w w w . b a n k i s l a m. c o m 01 02 03 04 05 06 07 08 FINANCIAL STATEMENTS 09
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