Notes to the Consolidated Financial Statements
32
Dar Al-Maal Al-Islami Trust
Annual Report 2013
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
exposures 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 (RMCD) before approval
by appropriate approval authorities.
The risk policies of Ithmaar set
guidelines to limit concentration
risk within the portfolio by larger
exposure, connected counterparty,
country, industry, tenor and product.
The RMCD has also developed
internal rating and scoring models
incorporating both quantitative and
qualitative risk parameters for the
grading and classification of credit
risk exposures.
Ithmaar uses a robust management
information system to monitor its
exposures and concentrations by
various dimensions.
All credit exposures are subject to at
least an annual review as per policy.
All financing exposures are reviewed
and rated annually and appropriate
provisions are maintained for
any classified account as per the
provisioning policy in line with
relevant Central Bank of Bahrain
(CBB) guidelines. All financing
exposures are classified as past due
and impaired when any exposure
instalment has not been paid over
a 90 day period. Ithmaar follows,
except the subsidiary entities which
may follow their own regulatory
guidelines, a time based criteria
of past due days to estimate the
specific provisioning requirements.
However,
each
investment
exposure is evaluated individually
for impairment assessment on its
merits, strategy and estimated cash
flows recoverability.
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
