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Notes to the Consolidated Financial Statements
32
Dar Al-Maal Al-Islami Trust
Annual Report 2014
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 (RMD) 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 products.
The RMD 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 commercial 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 and past due
accounts are reviewed periodically.
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.
4. Financial instruments
(continued)