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CHAPTER 6
RISK MANAGEMENT - Coggle Diagram
CHAPTER 6
RISK MANAGEMENT
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Financial Risk
Market Risk
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Possibility of an investor experiencing losses due to
factors that affect the overall performance of the financial markets.
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Equity Risk
In case of profit and loss sharing investment done by the bank where IFI may loss their capital invested.
Features
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Give difficulties to the bank in forecasting and managing the cash flow as the
return is not guaranteed.
Credit Risk
Risk of the counter-party failing to meet its obligation on time and in
accordance with the agreed terms.
Volatility in default rates and credit qualities dictates credit risk and
therefore there is uncertainty on net income
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Business Risk
Rate of Return Risk
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May caused divergence from the expectation of
investment account holders have on the liabilities side.
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Withdrawal Risk
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May due to:
- Lower rate of return
- Higher cost of financing
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Treasury Risk
Liquidity Risk
Islamic financial institution have limited opportunities to access external fund to meet their obligations.
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Governance Risk
Operational Risk
Risk of loss resulting form inadequacy of failure of internal process, as related to people and systems or from external risk
Fiduciary Risk
The risk that arises from the institution’s failure to perform in accordance with explicit and implicit standards
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Reputation Risk
The trust of the clients of Islamic bank is damaged
due to irresponsible action or behaviour of management
Due to irresponsible by a single institution that taint and tarnish the reputation of other Islamic bank in the industry.