risk on i.banking

8/9/2019 Risk on i.banking

1/18

INS 657

RISK MANAGEMENT


2/18


3/18


4/18


5/18

Banks need to be clear with themselves and

their external stakeholders about the precise

nature of their risks.

Better reporting and disclosure would help

foster more confidence in the sector


6/18

An organization that

assesses and issues opinions

regarding the relative credit

quality of bond issues

A downgrading or even

credit watch can impact on

liquidity and the entirebusiness. Investment grade

bonds do not default. They

become junk and then

default.


7/18

Public rating agencies create a positiveclimate for Shariah compliance.

However, private mechanism for theexternal governance of Shariah

compliance are limited.

Private rating agencies not yet

developed the necessary skills or found

enough incentives to monitor Islamic

bank compliance with the Shariah


8/18

Financial institution should make sure rating

agency that rate companies perform their

work correctively by disseminate true and

exact informations on the company itself


9/18

A Halal product may later be deemed Haram.

Zero coupon bonds were once Halal. Other

than Malaysia no Central Shariah authority.


10/18

Nonstandard

practices in

respect ofdifferent contracts

in different

jurisdiction

Can cause results in

differences infinancial reporting,

auditing and

accountingtreatment

Different school of

thought considerdifferent practise to

be acceptable, thebank risk is higher in

nonbinding cases

and may lead tolitigation in the case

of unsettled transactions

Failure to comply

with Syariah

Can cause results

in differences in

financialreporting,

auditing and

accounting

treatment.


11/18


12/18

Creation of international

standard of aninternational standard-

setting self-regulatory

association would help toharmonize standards and

practices

Review of transactions

would be entrusted

mainly to internal review

units which in

collaboration withexternal auditors would

be responsible for issuingan annual opinion on the

Syariah compliance

transaction

Creation of a system wide

board of knowledgeable

religious scholar who

specialize in Islamic

economic and financial

principles would be moreefficient and lead tooptimal governance


13/18

The risk associated with the potential for laws related

to a given industry, country, or type of security to

change and impact relevant investments.

A firm operating globally will face different rules.


14/18

Malaysia is a notable exception, where Shariah scholars come

from the Shafii school of Sunni Islam and allow some moneymarket transactions

Malaysian scholars view a repo contract as a promise to buy backsold Shariah-compliant securities, making such transactions

permissible.

Other countries have attempted to launch their own repo

markets, while still meeting the requirements of their ownShariah scholars

Bahrain has been trying for a number of years to get a localIslamic repo market off the ground, as has Saudi Arabia


15/18

The products that have been introduced by

Islamic Banking in Malaysia such as Bai Al Inah

and BBA can cause foreign investor especially

from Middle East are less interested to invest

in Malaysia banking.


16/18

Islamic Banking institutions in Malaysia have

introduced new products to attract the

investors from Middle East.


17/18

BBA MUSYARAKAHMUTANAQISAH

BAI ALINAH

TAWARRUQ


18/18

If Islamic banks aspire to a more significant

role in the financial system they will need to

demonstrate to customers and conventional

bank counterparties alike that they appreciate

their risks and know how to manage them.

But it cant be done by cutting and pasting risk

management concepts and practices from

conventional banks.

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