Page 50 - Bank-Muamalat-Annual-Report-2021

48 BANK MUAMALAT MALAYSIA BERHAD
ABOUT US OUR LEADERSHIP OUR STRATEGY OUR PERFORMANCE

PRINCIPAL RISKS AND

UNCERTAINTIES

We strive to enhance our risk analysis and
response by understanding issues that are
At Bank Muamalat, risk identification, analysis material to the business and our stakeholders.
and mitigation have been continuously Here, we outline the principal risks within our
operating environment and define the ways in
practiced as key components in building and
which they could affect Bank Muamalat and
executing our business and sustainability how we manage these risks.
strategy.

Description and Impact of the risk How We Manage or Mitigate Link to Material Matter
Type of Risk
on the Bank the Risk and/or Strategy
Credit Risk The risk of financial loss if a customer • Enhance key risk indicators to monitor emerging credit risk and • Ethics and Integrity
or counterparty fails to meet its provide early warning signals • Economic Performance
obligations. It is the primary source of • Ongoing review, enhancements and monitoring of risk appetite • Entrepreneur
risk to the Bank. • Enhance and tighten risk acceptance criteria Development and
• Ongoing monitoring on collaterals, guarantees and risk limits Responsible Financing
This risk may impact the Bank’s • Conduct periodic stress testing and scenario analysis • Customer Experience
profitability, asset quality, liquidity and • Diversify into new market segments • Financial Inclusion
reputation. • Streamline and enhance credit risk policies • Digital Banking

Market Risk The risk of losses in on- and • Develop hedging strategies against adverse price movements • Ethics and Integrity
off-balance sheet positions resulting • Enhance monitoring in market risk limits • Economic Performance
from movements in market rates, • Enhance monitoring of key risk indicators to better track risk • Financial Inclusion
foreign exchange rates, equity exposures and provide early warning signals • Digital Banking
and commodity prices, which may • Ongoing review, enhancements and monitoring of risk appetite
adversely impact earnings and capital • Diversification in pricing strategy
positions. • Conduct periodic stress testing and scenario analysis
• Streamline and enhance market risk policies
The risk may present an impact on the
Bank’s profitability, liquidity and capital.
Rate of The risk of variability of assets and • Develop hedging strategies against adverse price movements • Ethics and Integrity
Return Risk liabilities arising from volatility of • Enhance monitoring in market risk limits • Economic Performance
market benchmark rates, impacting • Enhance monitoring of key risk indicators to better track risk • Financial Inclusion
portfolios both in the trading and exposures and provide early warning signals
banking books. Such changes may • Ongoing review, enhancements and monitoring of risk appetite
adversely affect both earnings and • Diversification in pricing strategy
economic value. • Conduct periodic stress testing and scenario analysis
• Enhance risk strategies and monitoring in Asset and Liabilities
The Bank’s capital, liquidity and Management
profitability may be impacted by the • Streamline and enhance Rate of Return Risk policies
risk.
Liquidity Risk The risk of inability to fund any • Enhance liquidity limits and strategy to manage and optimise • Ethics and Integrity
obligation on time as they fall due, liquidity position • Economic Performance
whether due to increase in asset or • Enhance monitoring of key risk indicators to better track risk • Financial Inclusion
demand for funds from depositors. exposures and provide early warning signals • Digital Banking
This ability has a serious implication on • Enhance Liquidity Contingency Funding Plan to manage liquidity
reputation and continued existence. crisis
• Ongoing monitoring of liquidity crisis early warning signals
The risk could impact the Bank’s • Ongoing review, enhancements and monitoring of risk appetite
capital, liquidity, profitability and • Diversification in pricing strategy
reputation. • Conduct periodic stress testing and scenario analysis
• Streamline and enhance liquidity risk policies