BIMB Integrated Annual Report 2017

45. FINANCIAL RISK MANAGEMENT POLICIES (CONTINUED) 45.2 Financial risk management The Group has exposure to the following risks from its use of financial instruments: • Credit risk • Market risk • Liquidity risk • Operational risk The Group’s exposures to the above risks are mainly attributed to its main operating subsidiaries, Bank Islam and Takaful Malaysia. The Company’s exposure to these risks is not presented separately as it is not material to the Group. 45.3 Credit risk Credit risk is the risk of a financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group’s exposure to credit risk arises principally from its financing, advances and others and investment securities. The Company’s exposure to credit risk arises principally from investment securities. (a) Banking Bank Islam’s credit risk is the risk of a customer or counterparty failing to perform its obligations. It arises from all transactions that could lead to actual, contingent or potential claims against any party, customer or obligor. The types of credit risks that the Bank considers to be material includes: Default Risk, Counterparty Risk, Pre-Settlement Risk, Credit Concentration Risk, Residual/Credit Mitigation Risk and Migration Risk. Credit risk governance The management of credit risk is principally carried out by using sets of policies and guidelines approved by Bank Islam’s MRCC and/or Board Risk Committee (“BRC”), guided by the Bank Islam’s Board of Directors’ approved Risk Appetite Statement. The Bank has instituted several levels of Financing Committees, which assess and approves credits at their specified authority levels. The Bank’s Management Risk Control Committee (“MRCC”) is responsible under the authority delegated by the Bank’s BRC for managing credit risk at strategic level. The Bank’s MRCC reviews the Bank’s credit risk policies and guidelines, aligns credit risk management with business strategies and planning, reviews credit profile of the credit portfolios and recommends necessary actions to ensure that the credit risk remains within established risk tolerance levels. The Bank’s credit risk management governance includes the establishment of detailed credit risk policies, guidelines and procedures which documents the Bank’s financing standards, discretionary powers for financing approval, credit risk ratings methodologies and models, acceptable collaterals and valuation, and the review, rehabilitation and restructuring of problematic and delinquent financing. Management of Credit Risk The management of credit risk is being performed by Credit Management Division (“CMD”) and Risk Management Division (“RMD”), and two other units outside of the CMD and RMD domain, namely, Credit Administration Department and Credit Recovery. The combined objectives are, amongst others: • To build a high quality credit portfolio in line with the Bank’s overall strategy and risk appetite; • To ensure that the Bank is compensated for the risk taken, balancing/optimising the risk/return relationship; • To develop an increasing ability to recognise, measure and avoid or mitigate potential credit risk problem areas; and • To conform with statutory, regulatory and internal credit requirements. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 254 BIMB HOLDINGS BERHAD Integrated Annual Report 2017