Page 149 - Bank-Muamalat-AR2020

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Our Performance Sustainability Statement Our Governance Our Numbers Other Information
Governance

Liquidity Risk Bank has also established a comprehensive liquidity crisis contingency framework
with set triggers and management action plan.
Liquidity risk is best described as the
inability to fund any obligation on To ensure its readiness in dealing with liquidity crisis, the Bank has set up a
time as they fall due, whether due to pre-crisis management framework with a built-in and structured crisis response
increase in asset or demand for funds mechanism, which allows for quick identification of potential liquidity crisis before
from the depositors. The Bank will it occurs. The process involves continuous monitoring of various indicators which
incur liquidity risk if it is unable to act as early-warning signals of impending crisis situation in different severity levels
create liquidity and this has serious and assessing the effectiveness of the liquidity crisis management through annual
implications on its reputation and mock run and tests.
continued existence.
Operational Risk Management
The Bank’s priority is to therefore
manage and maintain a stable source Operational risk is defined as the risk of loss resulting from inadequate or failed
of financial resources toward fulfilling internal processes, people and system or from various external events. It may occur
the above expectation. Through active anywhere within the organisation, including in third-party business processes, and
balance sheet management, the Bank is not limited to operation functions. The effects of operational risk may extend
ensures sufficient cash and liquid beyond financial losses and may result in legal and reputational risk impacts.
assets are made available to meet short In view of growing challenges in the Bank’s operating environment, management of
and long-term obligations.
operational risk has been focused on strengthening the first line of defence, which
The primary focus of liquidity comprises the risk taking entities and process owners at the business and operation
management is to assess all cash units. The operational risk management function within RMD provides support by
inflows against outflows to identify developing risk management tools and mechanism and facilitating the first liners
the potential for any net shortfall in risk identification, assessment, mitigation and monitoring as outlined under the
going forward. This includes funding Bank’s operational risk management framework.
requirements for off-balance sheet The operational risk function also conducts operational risk training and awareness
commitments.
programs for new recruits and risk agents and continuously engages the risk
The Bank pays particular attention owners in deliberation and execution of risk management practices.
to its ability to cover any shortfall in Business Continuity Management (“BCM”)
liquidity for up to a one-month period
followed by a medium-term assessment The COVID-19 pandemic has demonstrated the importance of effective business
of liquidity of up to one year. The continuity management to ensure uninterrupted business operations. The Bank’s
measurement and limits used to BCM, which entails enterprise-wide planning, coordination and mobilisation of key
monitor and manage liquidity risk are resources and processes under a broad spectrum of business disruptions arising
as prescribed under the BNM’s liquidity from both internal and external events, has enabled the Bank to respond and
framework, Liquidity Coverage Ratio continue to operate critical business functions under various and prolonged adverse
and Net Stable Funding Ratio. To conditions. The Bank’s Business Continuity Plan (“BCP”) has proven to be effective
mitigate the risk, the Bank employs a in managing all levels of business and support functions during the movement
funding diversification strategy and control order phases.
establishes a liquidity contingency plan.
The BCP was prepared based on risk assessments and business impact analyses
For ongoing management and performed on identified potential threats to business functions. Business impact
monitoring of liquidity and funding analyses are also used to identify critical business functions’ recovery time
positions, the Bank establishes objective and maximum tolerable downtime given the Bank’s current resources
risk tolerance and limits within the and infrastructure. With the increasing use of technology to improve customer
applicable risk appetite metrics and experience, the associated risks that come with it has to be carefully managed.
provides monthly reporting of its asset,
liability and liquidity positioning. The Shariah Risk Management