BIMB Integrated Annual Report 2017

45. FINANCIAL RISK MANAGEMENT POLICIES (CONTINUED) 45.3 Credit risk (continued) (a) Banking (continued) Management of Credit Risk (continued) The Bank monitors its credit exposures either on a portfolio basis or individual basis through annual reviews. Credit risk is proactively monitored through a set of early warning signals that could trigger immediate reviews of (certain part of) the portfolio. The affected portfolio or financing is placed on a watchlist to enforce close monitoring and prevent financing from turning impaired and to increase chances of full recovery. A detailed limit structure is in place to ensure that risks taken are within the risk appetite as set by the Bank’s Board and to avoid credit risk concentration to a single customer, sector, product, Shariah contract, etc. Credit risk arising from dealing and investing activities are managed by the establishment of limits which include counterparties limits and permissible acquisition of private debt securities, subject to specified minimum rating threshold. Furthermore, the dealing and investing activities are monitored by an independent middle office unit. (b) Takaful Credit risk is the potential financial loss resulting from the failure of a customer, an intermediary or counterparty to settle its financial and contractual obligations to the Takaful Malaysia Group as and when they fall due. The Takaful Malaysia Group’s portfolio of Islamic debt securities, and to a lesser extent short-term and other investments, are subject to credit risk. This risk is defined as the potential loss resulting from adverse changes in a borrower’s ability to repay the debt. The Takaful Malaysia Group’s objective is to earn competitive relative returns by investing in a diversified portfolio of securities. Management has an investment credit risk policy in place. Limits are established to manage credit quality and concentration risk. Takaful Malaysia has takaful and other receivables balances that are subject to credit risk. To mitigate the risk of the counterparties not paying the amount due, Takaful Malaysia has established certain business and financial guidelines for brokers/retakaful approval, incorporating ratings by major agencies where applicable and considering currently available market information. Takaful Malaysia also periodically review the financial stability of brokers/retakaful companies from public and other sources and the settlement trend of amounts due from these parties. Cash and deposits are generally placed with banks and financial institutions licensed under the Financial Services Act 2013 and Islamic Financial Services Act 2013 which are regulated by Bank Negara Malaysia. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 255 Overview Value Creation Accountability Financial Statements Sustainability Performance Data Shareholders Information 21 st AGM Information Management Discussion & Analysis i S s