1.1This Standard re risk management requirements for Islamic banks (“the Standard”) forms part of the Risk Management Regulation (Circular 153/2018) issued by the Central Bank on 27th May 2018. Licensed banks that conduct all or part of their activities in accordance with the provisions of Islamic Shari’ah (“Islamic Banks and Banks Housing an Islamic Window” both referred to hereafter as “IBs”) must comply with this Standard. This Standard is mandatory and enforceable in the same manner as the Regulation.
1.2Banks housing an Islamic Window should comply with the provisions of this Standard in relation to the Shari’ah compliant businesses and activities. Banks housing an Islamic Window must integrate the risk management requirements stated in this Standard within the existing risk management framework and apply these requirements to the existing modes and contracts within the Islamic Window.
1.3This Standard should be read in conjunction with the other risk management standards issued by the Central Bank. The Standard elaborates on risk management aspects pertaining to IBs that have not been specifically addressed in other regulations or standards issued by the Central Bank. IBs should comply with the requirements of this Standard in addition to the requirements stated in the other risk management regulations and standards.
1.4It is crucial for IBs to recognize and evaluate the overlapping nature and transformation of risks that exist between and among the categories of the above-mentioned risks. IBs may also face consequential business risks relating to developments in the external marketplace. Adverse changes in IB’ markets, counterparties, or products as well as changes in the economic and political environments in which IBs operate and the effects of different Shari’ah standards are examples of business risk. These changes may affect IBs’ business plans, supporting systems and financial position. In this regard, IBs are expected to view the management of these risks from a holistic perspective.
1.5IBs are exposed to reputational risk arising from failures in governance, business strategy and process. Negative publicity about the IBs business practices, particularly relating to Shari’ah non-compliance in their products and services, could have negative impact on their market position, profitability and liquidity.
1.7Where this Standard stipulates to provide information, undertake certain measures, or address certain terms listed as a minimum, the Central Bank may impose requirements, which are additional to those outlined in the relevant article of the Standard.
1.8This Standard elaborates on the supervisory expectations of the Central Bank with respect to risk management for Shari’ah compliant businesses and activities.