Risk on i.banking
Transcript of Risk on i.banking
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INS 657
RISK MANAGEMENT
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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
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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.
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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
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Financial institution should make sure rating
agency that rate companies perform their
work correctively by disseminate true and
exact informations on the company itself
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A Halal product may later be deemed Haram.
Zero coupon bonds were once Halal. Other
than Malaysia no Central Shariah authority.
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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.
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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
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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.
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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
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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.
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Islamic Banking institutions in Malaysia have
introduced new products to attract the
investors from Middle East.
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BBA MUSYARAKAHMUTANAQISAH
BAI ALINAH
TAWARRUQ
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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.