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4. Financial instruments
(continued)
The significant concentration of
the Group’s credit risk is in
Ithmaar Bank B.S.C. Ithmaar
manages its credit risk arising
from its banking book activities
by implementing robust policies
and procedures with respect
to identification, measurement,
mitigation, monitoring and controlling
the risks. A centralised credit risk
management system is in place
where all significant exposures are
independently reviewed by the Risk
Management Department before
approval.
The risk policies of Ithmaar set
guidelines to limit concentration risk
within the portfolio by country,
industry, tenor and products. The
risk policies also set the criteria
for risk rating and credit exposures.
The policies also outline the scoring
techniques used in grading and
classifying exposures. Ithmaar uses
a robust management information
system to monitor its exposures
and concentrations by various
dimensions. All credit exposures are
monitored on a continuous basis.
Strategic investments including
investment in real estate, are subject
to at least an annual review.
Investment securities are reviewed
at shorter frequencies. Each
investment exposure is evaluated
individually
for
impairment
assessed on its merits, strategy,
and estimated cash flows
considered recoverable.
Risk limit control and
mitigation policies
The Group manages limits and
controls concentrations of credit
risk wherever they are identified – in
particular, to individual counterparties
and groups, and to industries and
countries.
The Group structures the levels of
credit risk it undertakes by placing
limits on the amount of risk
accepted in relation to one borrower,
or groups of borrowers, and
to geographical and industry
segments. Such risks are monitored
on a revolving basis and are subject
to an annual or more frequent
review, when considered necessary.
Limits on the level of credit risk by
industry sector and by country are
approved by the boards of directors
of Group entities.
The exposure to any one borrower
including banks and brokers is
further restricted by sub-limits
covering on- and off-balance sheet
exposures, and daily delivery risk
limits in relation to trading items
such as forward foreign exchange
contracts. Actual exposures in
relation to daily delivery risk limits
are monitored on a daily basis,
whereas other limits are monitored
on a quarterly, semi annual or
annual basis.
Exposure to credit risk is also
managed through regular analysis
of the ability of borrowers and
potential borrowers to meet payment
obligations and by changing these
lending limits where appropriate.
Some other specific control and
mitigation measures are outlined
below.
(a) Collateral
The Group employs a range of
policies and practices to mitigate
credit risk. The most traditional of
these is the taking of security for
funds advances, which is common
practice. The principal collateral
types for loans and advances are:
i) Mortgages over residential
and commercial properties;
ii) Charges over business
assets such as premises,
inventory and accounts
receivable;
iii) Charges and pledges over
financial instruments such as
debt securities and equities.
In order to minimise the credit loss
the Group will seek immediate
recovery or additional collateral
from the counterparty as soon as
impairment indicators are noticed
for the relevant individual loans and
advances.
Collateral held as security for
financial assets other than loans
and advances is determined by
the nature of the instrument.
(b) Derivatives
The Group maintains control limits
on net open derivative positions (i.e.
the difference between purchase and
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
33
Dar Al-Maal Al-Islami Trust
Annual Report 2011