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Notes to the Consolidated Financial Statements
(Thousands of US dollars)
31
Dar Al-Maal Al-Islami Trust
Annual Report 2014
C. Financial risk
management
The Group’s activities expose it to
a variety of financial risks and
those activities involve the analysis,
evaluation, acceptance and
management of some degree of risk
or combination of risks. The Group’s
aim is to achieve an appropriate
balance between risk and return
and minimise potential adverse
effects on the Group’s financial
performance.
The Group’s risk management
policies are designed to identify
and analyse these risks, to set
appropriate risk limits and controls,
and to monitor the risks and
adherence to limits by means of
reliable and up-to-date information
systems. The Group regularly
reviews its risk management policies
and systems to reflect changes in
markets, products and emerging
best practice.
Risk management is carried out by
individual entities within the Group
under policies approved by their
respective Boards of Directors. The
Boards provide written principles
for overall management, as well
as written policies covering specific
areas, such as market rate risk,
credit risk and use of non-derivative
financial instruments. In addition,
internal audit is responsible for
the independent review of risk
management and the control
environment. The most important
types of risk are credit, liquidity and
market risk. Market risk includes
currency risk, profit rate and other
price risk.
D. Credit risk
The Group takes on exposure
to credit risk, which is the risk
that a counterparty will cause a
financial loss for the Group by
failing to discharge an obligation.
Credit exposures arise principally
in lending activities that lead to
loans and advances (including
accounts receivables). There
is also credit risk in off-balance
sheet financial instruments, such
as loan commitments. Credit risk
management and control are carried
out by credit risk management
teams, which report to the Boards of
Directors through risk management
committees.
Credit risk measurement
The Group has well defined
credit structures under which
credit committees, comprising
senior officers with required credit
background, critically scrutinise and
sanction financing. The Group’s
exposure to credit is measured
on an individual counterparty
basis, as well as by groups of
counterparties that share similar
attributes. To reduce the potential
of risk concentration, credit limits
are established and monitored
in light of changing counterparty
and market conditions. Besides
financial, industry and transaction
analysis, the credit evaluation also
includes risk rating systems which
gauge risk rating of all customers.
4. Financial instruments
(continued)
The Group’s debt-to-equity ratios for the given years were as follows:
2014
2013
Total debt
1,631,975 1,585,323
Less: cash and cash equivalents
(764,670)
(985,984)
Net debt
867,305
599,339
Total equity
472,592
433,067
Debt-to-equity ratio
184% 138%