Risk Management Guidelines for IBIs

Adverse changes in ibis markets counterparties or

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developments in the external marketplace. Adverse changes in IBIs’ markets, counterparties, or products as well as changes in the economic and political environments in which IBI operate and the effects of different Shariah rulings are examples of business risk. These changes may affect IBI’s business plans, supporting systems and financial position. In this regard, IBIs are expected to view the management of these risks from a holistic perspective. v) IBIs are also exposed to reputational risk arising from failures in governance, business strategy and process. Negative publicity about the IBIs’ business practices, particularly relating to Shariah non-compliance in their products and services, could have an impact upon their market position, profitability and liquidity. Risk Management Guidelines for IBIs Page 1 of 19
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STATE BANK OF PAKISTAN ISLAMIC BANKING DEPARTMENT 1. General Requirement: Principle 1.0: IBIs shall have in place a comprehensive risk management and reporting process, including appropriate board and senior management oversight, to identify, measure, monitor, report and control relevant categories of risks. The process shall take into account appropriate steps to comply with Shariah rules and principles and to ensure the adequacy of relevant risk reporting to the supervisory authority. Board of directors (BOD) and senior management oversight: 1. As with any financial institution, the risk management activities of IBIs require active oversight by the BOD and senior management. The BOD shall approve the risk management objectives, strategies, policies and procedures that are consistent with the IBIs’ financial condition, risk profile and risk tolerance. Such approvals shall be communicated to all levels in the IBI involved in the implementation of risk management guidelines. 2. The BOD shall ensure the existence of an effective risk management structure for conducting IBI’s activities, including adequate systems for measuring, monitoring, reporting and controlling risk exposures. 3. IBIs shall have in place a Shariah Advisor, in accordance with sound principles of corporate governance and SBP’s Fit and Proper Criteria for Shariah Advisors, to oversee that IBIs’ products and activities comply with Shariah rules and principles as advised by SBP and Shariah Advisor. 4. The BOD shall approve limits on aggregate financing and investment exposures to avoid concentration of risk and ensure that IBIs hold adequate capital against these exposures. The BOD shall review the effectiveness of the risk management activities periodically and make appropriate changes as and when necessary. 5. Senior management shall execute the strategic direction set by the BOD on an ongoing basis and set clear lines of authority and responsibility for managing, monitoring and reporting risks. The senior management shall ensure that the financing and investment activities are within the approved limits.
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  • Fall '11
  • Finance, .........

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