Page 147 - Bank-Muamalat-AR2020

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Our Performance Sustainability Statement Our Governance Our Numbers Other Information
Governance

RAS is formulated and reviewed in above measurement approaches are also assessed to determine whether additional
conjunction with the strategic, capital capital is required.
and business planning and is aimed at
aligning risk appetite with the Bank’s The capital position is closely monitored against the capital plan and internal
strategies and financial resources. targets to ensure that it is maintained within set targets or to trigger preemptive or
It incorporates key performance remedial actions, if required. The Bank also conducts periodic stress tests to assess
indicators, such as earnings volatility, potential impact of internal and external factors on its capital position, review its
liquidity and capital ratios, and capital management strategies, and ascertain adequacy of its capital buffer. These
strategic tolerance levels to facilitate stress tests are performed at least twice in a year.
ongoing monitoring and oversight.
Capital management and planning is used to ensure that adequate capital buffer
During the year, the RAS had been is held under normal and projected adverse conditions. The annual capital plan
enhanced in response to changes in the therefore addresses any capital issuance requirement, capital composition and
economic and operating environment, maturity profile, and capital crisis contingency planning.
with focus on management of economic Credit Risk Management
sector concentration and liquidity
position. Credit risk is the risk of a counterparty failing to perform its obligations. It is one
of the major source of risk for the Bank as retail and wholesale financing portfolios
Capital Management
as well as investment securities constitute the bulk of its financial assets.
The Bank’s capital management The Bank’s framework for managing credit risk comprises the policies, processes,
framework outlines the governance and measurement tools/methodologies, and an established reporting and monitoring
approach for managing capital. The structure. Credit underwriting standards and credit management policies and
Framework was developed according guidelines are documented and outlined in the Credit Risk Policy and Guideline to
to the capital standards outlined in Credit Risk Policies. These documents also cover policies on approving authorities,
BNM’s policies and guidelines and pricing, credit risk rating, prudential limits, credit risk mitigations, credit review
adopts forward-looking and risk-based process, rehabilitation and restructuring, credit impairment, and financing loss
approaches and principles derived provisioning. The policies are reviewed and updated regularly to ensure its
from industry’s best practices.
continued relevance and effectiveness.
The objective of capital management Credit risk management involves measurement, mitigation and management of
is to ensure capital resources are credit risk exposures at every stage of the credit life cycle. At origination and
effectively and efficiently utilised while onboarding, business units are guided by the credit underwriting standards, rating
in pursuit of business and strategic models, mitigation strategies, and pricing policy. Credit proposals are also subject
targets. Capital requirements are to independent evaluation and risk assessment prior to approval. Credit limits are
assessed with strategic business plans sanctioned under a well-defined approving authority structure to ensure credit
and pursuant to this, an annual capital decision making are undertaken under prudent and proper governance. These
plan is formulated to ensure sufficient authority limits are approved by the Board and are subject to periodic review to
capital level is maintained to meet ensure its effectiveness and compliance.
business needs and support the risks
associated with these activities. The Bank also continuously monitors the credit exposures from concentration
risk perspective and ongoing compliance risk appetite and risk tolerance. Reports
The Bank applies the Standardised on trends and movements, limit exposures, and risk profiling are produced and
Approach for credit and market risks deliberated at risk management committees on a monthly basis.
and the Basic Indicator Approach
for operational risk to calculate and Exposures to delinquent and problematic financing assets are monitored and managed
determine its capital position. Further by an independent support unit that focuses and specialises on restructuring and
to this, as prescribed under the recovery activities. Early warning triggers are used to identify potentially distressed
BNM’s Pillar 2 and capital adequacy accounts to initiate timely remedial actions. Such exposures are actively monitored
assessment guidelines, other possible to ensure delinquencies and defaults are kept within tolerable levels and that the
major risks not covered under the level of provision are adequate.