The Group is committed to complying with internationally established principles and policies in relation to risk management. In particular the Group fully subscribes to the guiding principles of risk management for Islamic financial services institutions set down by the Islamic Financial Services Board and the need for a comprehensive risk management and reporting process.
ABG's Head of Credit and Risk Management is responsible for formulating and monitoring the Group's policies relating to all aspects of risk, developing the framework for risk measurement and coordinating with the Group subsidiaries all necessary steps for adhering to the requirements of Basel III and, where and when still applicable, Basel II, under the Central Bank of Bahrain (CBB) rules. He is also responsible for introducing and implementing risk measurement software, monitoring the Group's compliance with risk measurement standards and providing the Risk Committee of the Board of Directors and Group management with reports on the various risks.
Risk management is an integral part of the Group's decision making process. The Board of Directors, acting on recommendations made by the Board Risk Committee defines and sets the Group's overall risk appetite, risk diversification and asset allocation strategies. This includes the policies regarding related party transactions, their reporting and approval. The Management Risk Committee and other executive committees guide and assist with management of the Group's balance sheet risks. The Group manages exposure by setting limits approved by the Board of Directors or under delegated authorities by committees of the management. Risk policies and processes to mitigate the risks are regularly reviewed.
The Group's risk management has the following objectives:
- unified Group-wide risk management with the ultimate aim of enabling the Group to calculate risk-adjusted return on capital;
- inculcation of a professional risk management culture throughout the Group with a prudent, disciplined approach to risk-taking based on comprehensive Group-wide policies, processes and limits;
- professionally qualified staff and ongoing credit training;
- investing in technology and systems enabling best practice risk management;
- throughout the Group, strict segregation of duties and reporting lines between personnel transacting business and personnel processing that business;
- strict compliance with all Shari'a and legal requirements and regulatory directives; and
- maintaining clear, well documented policies via a "Group Credit and Risk Policies and Guidelines Manual" and credit and risk management manuals in each of the subsidiaries, which incorporate the policies and guidelines of the Group in addition to the local requirements.
Each of ABG's subsidiaries is governed by its respective Board of Directors. Group subsidiaries follow documented credit policies and procedures which, as stated above, reflect Group-wide policies and so ensure that sound risk management is in place in all ABG's subsidiaries.
A consolidating system for the calculation of capital adequacy, taking into account credit, market and operational risk, all in accordance with Basel III requirements, is in operation. This allows Head Office to retrieve data automatically. Furthermore, operational risk systems in each Subsidiary ensure a consistent approach to operational risk.
The Group has continued to maintain momentum towards achieving optimal risk management policies, practices and procedures, pursuing five key objectives:
Continuous improvement in credit and risk management practices and intensified efforts on collections, recoveries and settlement of outstanding debts to bring about resilient asset quality in face of increased challenges in some of the Group's markets.
All subsidiaries ensure that their NPA provisioning policies are in line with both Group policies and local regulatory requirements.
Subsidiaries continue to strive to ensure a high degree of cooperation between their business arms and risk management departments. Hiring and training of credit and risk management staff is an ongoing priority in each unit.
Each subsidiary has an approved Credit and Risk Management Manual, covering all relevant risks to which it is subject, which accords with Group policies and procedures.
All subsidiaries submit timely quarterly risk management reports to Head Office, which fully meet regulatory requirements. The contents of these reports are continuously expanded in order to provide Head Office with increasingly comprehensive data
A standard risk management framework has been established across the Group, reflected in operational manuals that closely adhere to Group policy regarding all the major categories of risk that the Group faces when carrying out its business. These are: Credit, Liquidity, Market (including Equity Price, Profit Rate and Foreign Exchange risk), Operational (including Fraud Risk and Information Security Risk) and Shari'a Compliance risks. Each of these major risks is discussed below.Credit RiskLiquidity RiskEquity Price RiskProfit Rate Risk or Rate of Return RiskForeign Exchange RiskOperational RiskSharia Compliance RiskCompliance Risk