Page 178 - Bank Muamalat_AR24

176 BANK MUAMALAT MALAYSIA BERHAD

STATEMENT ON RISK MANAGEMENT

CREDIT RISK MANAGEMENT LIQUIDITY RISK MANAGEMENT

Credit risk is the risk of financial loss if a customer or Liquidity risk is the risk of being unable to fund any obligation
counterparty unable/unwilling to meet its obligations. on time as it falls due, whether due to an increase in assets
The credit management policies, guidelines, and credit or a demand for funds from depositors. The Bank will incur
underwriting standards are outlined in the Bank’s Credit Risk liquidity risk if it is unable to maintain liquidity, thus resulting in
Policy (CRP) and Guideline to Credit Risk Policies (GCRP) serious implications for its reputation and continued existence.
documents. The policies are reviewed and updated regularly
to ensure their continued relevance and effectiveness. The Bank’s priority in managing liquidity risk is to maintain
a stable source of financial resources to meet its funding
The Bank adopts a holistic portfolio-based risk management requirements. The Bank ensures sufficient cash and liquid
approach to ensure sustainable growth while operating within assets are made available to meet short- and long-term
the established risk appetite and tolerance parameters. obligations through active balance sheet and funding position
Regular portfolio reviews and stress tests are performed management.
on identified high-risk sectors and vulnerable customer
segments, taking into consideration potential emerging risks, The primary focus of liquidity management is to proactively
to ensure remedial actions are appropriately and timely assess all cash inflows against outflows to identify any
initiated. potential net shortfall going forward, including those involving
off-balance sheet commitments. The measurements and limits
The Bank has also established clear target markets and risk used to monitor and manage liquidity risk are as prescribed
acceptance criteria for customer onboarding, including under Bank Negara Malaysia’s (BNM’s) liquidity framework,
financing parameters and risk-return expectations, to ensure i.e., Liquidity Coverage Ratio (LCR) and Net Stable Funding
that risk-returns are maintained within the risk appetite. Ratio (NSFR). The Bank has also established a liquidity
contingency plan to ensure its readiness in dealing with any
The Bank plays a pivotal role in accelerating customers’ potential liquidity crisis.
transition towards more sustainable practices in their business
operations by introducing the environmental, social, and For effective liquidity risk prediction, the Bank has put in
governance (ESG) scorecard that embeds sustainability place Liquidity Crisis Early Warning Signals (LCEWS) that are
metrics, guided by BNM’s Climate Change and Principle-based pivotal tools in identifying and mitigating liquidity risks before
Taxonomy Guidance Document. they materialise.

MARKET RISK MANAGEMENT OPERATIONAL RISK MANAGEMENT
Market risk is defined as the risk of losses in on- and off-balance Operational risk is defined as the risk of loss resulting from
sheet positions resulting from movements in market rates, inadequate or failed internal processes, people, and systems
foreign exchange rates, equity prices, and commodity prices, or from various external events. The effects of operational
which may adversely impact earnings and capital positions. risk may extend beyond financial losses and could result in
legal and reputational risk implications.
The Bank’s market risk framework contains policies and
guidelines on key risk management practices such as risk The risk management framework has been enhanced to
identification, measurement, mitigation, monitoring, and incorporate improvements to risk and control assessment
control. The market risk policies and specific limits for trading approaches and risk reporting, with the inclusion of leading risk
and non-trading book portfolios are reviewed and updated to indicators and control testing mechanisms.
be in line with the latest regulatory expectations and industry
practices. Other mitigation actions include strengthening the first line of
defence via continuous operational risk training and awareness
In view of the ongoing volatility in the financial markets, the for new recruits and risk agents, and increased engagements
Bank undertakes periodic stress tests to assess the impact of with the risk owners at branches and head office departments.
the movements in market rates on the Bank’s earnings at risk
(EaR) and economic value of equity (EVE).