Page 178 - Bank-Muamalat_Annual-Report-2023

BANK MUAMALAT MALAYSIA BERHAD

STATEMENT ON
RISK MANAGEMENT

CREDIT RISK MANAGEMENT In view of the ongoing volatility in the financial markets,
the Bank undertakes periodic stress tests to assess the
Credit risk is the risk of financial loss if a customer or impact of the movements in market rates to the Bank’s
counterparty fails to meet its obligations. The credit earning at risk (EaR) and economic value of equity (EVE).
management policies, guidelines, and credit underwriting
standards are outlined in the Bank’s Credit Risk Policy (CRP)
and Guideline to Credit Risk Policies (GCRP) documents. LIQUIDITY RISK MANAGEMENT
The policies are reviewed and updated regularly to ensure
Liquidity risk is the risk of inability to fund any obligation
its continued relevance and effectiveness.
on time as they fall due, whether due to increase in asset
The Bank adopts a holistic portfolio-based risk management or demand for funds from the depositors. The Bank will
approach to ensure sustainable growth and market share incur liquidity risk if it is unable to maintain liquidity,
retention while operating within the established risk appetite thus resulting in serious implications on its reputation and
and tolerance parameters. Regular portfolio reviews and continued existence.
stress tests are performed on identified high risk sectors and
vulnerable customer segments, taking into consideration The Bank’s priority in managing liquidity risk is to maintain
potential emerging risks, to ensure remedial actions are a stable source of financial resources to meet its funding
appropriately and timely initiated. requirements. The Bank ensures sufficient cash and liquid
assets are made available to meet short and long-term
Several initiatives have been implemented to improve the obligations through active balance sheet and funding
management of credit risk. These include enhancements position management.
of credit risk reports to facilitate informed decision-making
The primary focus of liquidity management is to proactively
process, development and calibration of application and
assess all cash inflows against outflows to identify any
behavioural scorecards, and strengthening of risk monitoring
potential net shortfall going forward, including for those
through dedicated risk and asset quality management
involving off-balance sheet commitments. The measurements
committees.
and limits used to monitor and manage liquidity risk are
The Bank has also established clear target markets and risk as prescribed under the Bank Negara Malaysia’s (BNM’s)
acceptance criteria for customer onboarding, including liquidity framework, i.e., Liquidity Coverage Ratio (LCR)
financing parameters and risk-return expectations, to ensure and Net Stable Funding Ratio (NSFR). The Bank has also
that risk-returns are maintained within the risk appetite and established a liquidity contingency plan to ensure its
parameters. readiness in dealing with any potential liquidity crisis.
The Bank plays a pivotal role in accelerating customers’ For effective liquidity risk prediction, the Bank has put
transition towards more sustainable practices in their in placed Liquidity Crisis Early Warning Signals (LCEWS)
business operations by introducing the environmental, that are pivotal tools in identifying and mitigating liquidity risks
social and governance (ESG) scorecard that embed sustainability before they materialise.
metrics, guided by BNM’s Climate Change and Principle-based
Taxonomy Guidance Document.
OPERATIONAL RISK MANAGEMENT
Operational risk is defined as the risk of loss resulting
MARKET RISK MANAGEMENT
from inadequate or failed internal processes, people and
Market risk is defined as risk of losses in on- and off-balance system or from various external events. The effects of
sheet positions resulting from movements in market rates, operational risk may extend beyond financial losses and
foreign exchange rates, equity, and commodity prices which could result in legal and reputational risk implications.
may adversely impact earnings and capital positions.
The risk management framework has been enhanced to
The Bank’s market risk framework contains policies and incorporate improvements to risk and control assessment
guidelines on key risk management practices such as risk approaches and risk reporting with the inclusion of leading risk
identification, measurement, mitigation, monitoring and indicators and control testing mechanism.
control. The market risk policies and specific limits for
Other mitigation actions include strengthening the first line
trading and non-trading book portfolios are reviewed and
of defence via continuous operational risk training and
updated to be in line with the latest regulatory expectation
awareness for new recruits and risk agents and increased
and industry practices.
engagements with the risk owners at branches and head
office departments.
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