2011 Annual Report - Khaleeji Commercial Bank BSC

KHALEEJI COMMERCIAL BANK BSC
RISK MANAGEMENT DISCLOSURES
5. Market Risk (continued)
5.2 Regulatory capital allocation against market rate risk
The table below shows the market risk position for each category of the market risk as at year ended 31 December 2011
along with the maximum and minimum values during the period (BD 000’s):
as at 31 December Max Min
2011
Equity position risk - - -
Market risk on trading positions in sukuk - - -
Foreign exchange risk 1,213 1,213 771
Commodity risk - - -
Total (A) 1,213 1,213 771
Risk Weighted Assets (A x 12.5) 15,163 15,163 9,638
Capital requirement @ 12% 1,820 1,820 1,157
6. Operational Risk
6.1 Operational risk management
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, systems and/
or from external events which includes but is not limited to, legal risk and Shari’a compliance risk. Operational risk is an
inherent part of normal business operations. Whilst operational risk cannot be eliminated entirely, the Bank endeavors
to minimise it by ensuring that a strong control infrastructure is in place throughout the organisation. Various procedures
and processes used to manage operational risk including effective staff training, appropriate controls to safeguard assets
and records, regular reconciliation of accounts and transactions, close monitoring of risk limits, segregation of duties, and
financial management and reporting.
Details on operational risk management are given as part of note 31 of the consolidated financial statements for the year
ended 31 December 2011.
The Risk Management Department monitors all operational processes to ensure that the Board directives are fully
implemented and also reports deviations if any to the Senior Management and the Board. The department has specialised
personnel engaged in this process. The Bank has implemented an Operational Risk Management system which monitors
Key Risk Indicators and controls across all major areas of operation and generates appropriate triggers as and when
predefined risk events occur (through breach of triggers set) and also generates periodical update report to the Board and
Management. In addition, the Bank’s policy dictates that the operational functions of booking, recording and monitoring of
transactions are carried out by staff that are independent of the individuals initiating the transactions.
The Bank’s operational risk management framework includes components such as Key Risk Indicators (KRI’s), operational
loss data and Risk & Control Self-Assessment across the Bank. These are monitored periodically which helps in quickly
detecting and correcting deficiencies in processes and procedures. The collected data is maintained to create a loss
database which could be the starting point for a more advanced operational risk measurement approach in future.
6.2 Litigation
As of the reporting date, the Bank has no material legal contingencies including pending legal actions except as reported
in note 4.8 above. The Bank has a dedicated legal team which provides legal advice and services to all units of the Bank.
6.3 Shari’a compliance
The Shari’a Supervisory Board (“SSB”) is entrusted with the duty of directing, reviewing and supervising the activities of
the Bank in order to ensure that they are in compliance with the rules and principles of Islamic Shari’a. The Bank also has a
dedicated internal Shari’a reviewer, who performs an ongoing review of the compliance with the fatwas and rulings of the
SSB on products and processes and also reviews compliance with the requirements of the Shari’a standards prescribed by
AAOIFI. The SSB reviews and approves all products and services before launching and offering to the customers and also
conducts periodic reviews of the transactions of the Bank. An annual audit report is issued by the SSB confirming the Bank’s
compliance with Shari’a rules and principles.
96
Annual Report 2011