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
sale contracts), by both amount and
Notes to the Consolidated Financial Statements
32
Dar Al-Maal Al-Islami Trust
Annual Report 2012
4. Financial instruments
(continued)
