BWRR5043

Islamic Risk Management

(BIMB Report)

Prepared by:
Naim bin Abdul Rahaman

Matric Number:
821928

1. To assess the risks exposure of Islamic Banks.

Impaired Financing
Total Financing , advancesothers

381270
=0.0109=1.09
34 960 226

Liquid Asset
Total Asset

49 76371941 292210 8 471 000

=
49 763 719
49763 719

2. Credit Risk

3. Liquidity
Risk

0.17=17
Total asset

1 year below
Total asset

29 674 791+986 168+1 624 273

49 763719

0.648=64.8

4. Market Risk
Security gap:
= Total Asset (<12 months) Liability (12
months)
= 12 093 193 + (4 075 394) + (3 473 722)
= RM 4 544 077
5. Operational
Risk

Operational risk group

Total asset

2851 129
=0.057=5.7
49 763719

2. To analyze the Risk Management adopted by Bank Islam.

Credit Risk
There are some objectives by Bank Islam on the credit risk
management. One of the objective is to ensure that the bank is
compensated for the risk taken, balancing/optimizing the risk/return
relationship. Since the percentage of the credit risk is 1.09%, then
there are no need to be worries on the problems because the lower
the percentage, the better the credit risk management. The credit
risk problem can be arise from dealing and investing activities, but it
can be managed by the establishment of limits which include
counter parties limits and permissible acquisition of private debt
securities. Because of the credit risk in Bank Islam performed by
Credit Management Division (CMD) and Risk Management Division
(RMD), and other two units, therefore it is being proactively
monitored through a set of early warning signals that could trigger
immediate reviews of the portfolio.
One of the way to manage credit risk easily is establishing the use
of Credit Risk Rating System. It can promote bank safety and
soundness by facilitating informed decision-making. The system will
measure the credit risk and then differentiate the individual credits
and group credit by the risk they show/faced. This will allows bank
management and examiners to monitor changes and trends in risk
level.
Liquidity Risk

The result shows that liquidity risk is only around 17%. As long as it
did not reach 40%, then there are not so many financing ratio used
for the short term used. So, in order to manage any issues regarding
the liquidity risk, Bank Islam Malaysia Berhad has introduced some
processes includes maintaining liabilities of appropriate term
relative to the asset base. In order to avoid undue reliance on large
individual depositors and ensure satisfactory overall funding mix,
they monitor their depositor concentration.
Apart from that, the bank should have a sound process for
identifying, measuring, monitoring and controlling liquidity risk. The
process should include a robust framework so that they can
comprehensively projecting cash flow that are arise from the assets,
liabilities and off-balance sheet items over an appropriate set of
time horizons.
Market Risk
Market risk is about anything that is short-term. In Bank Islam,
Treasury manages the market risk. They targeted to ensure that all
market

risk

are

consolidated

at

Treasury.

The

Market

Risk

Management Department (MRMD) is the independent risk control

function. It is responsible for ensuring efficient implementation of
market risk management policies. They also responsible for
developing

Banks

market

risk

management

guidelines,

measurement techniques, behavioral assumptions and limit setting

methodologies.
Other way to ensure that market risk exposures remain within
tolerable levels is stress-testing. It is to assess the event and

consequences

of

risks

that

may

appear

under

extreme

circumstances. In general, there are two different types of stresstesting that financial institutions and supervisory regulators accept,
which are scenario-based and sensitivity-based. The scenario-based
assumption may be reflects the consensus of risk professionals that
the stated spectrum of events will happen instantaneously in the
near future. While sensitivity-based test is to evaluate the impact of
price changes on the value of a portfolio.
Operational Risk
This type of risk is managed by a control-based environment where
processes

are

documented,

authorization

is

independent,

transactions are reconciled and monitored and business activities

are carried out within the established operational risk guidelines,
procedures and limits. The operational risk for Bank Islam is 5.7%,
which are shown that only 5.7% of the total financing in this bank
covers the operational finance. The lower the percentage, the better
it get for the company.
For Bank Islam, they used Three Lines of Defence Approach to
manage operational risk. 1st line of defence is the risk owner are
responsible for the day to day management of the risk. A Risk
Controller for each risk taking unit is appointed to assis in riving the
risk and control programme for the bank. 2 nd line of defence is the
work for the Operational Risk Management Department (ORMD) to
establishing

and

maintaining

operational

risk

management

framework, developing, monitoring and assessing operational risk

issues from the risk owner. 3rd line of defence in the work of Internal

Audit to provide independent assurance to the Board and senior

management

on

the

management process.

effectiveness

of

the

operational

risk