Risk management 'is posing big challenge'
MANAMA, Dec 04, 2012 (Menafn - Gulf Daily News - McClatchy-Tribune Information Services via COMTEX) --Risk management is the top challenge for all financial institutions today.
That was the message from Central Bank of Bahrain Governor Rasheed Al Maraj at the opening of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) World Bank Annual Conference in Bahrain yesterday.
More than 300 delegates from 30 countries were taking part in the event at the Diplomat Radisson Blu Hotel Residence and Spa yesterday, which is supported by the World Bank.
Mr Al Maraj praised amendments approved by AAOIFI to strengthen financial institutions and empower them to better adapt to the economic fluctuations and operational risks.
He stressed the importance for financial institutions to cope in the coming period with stricter auditing systems with more constraints on activities and practices.
"These developments and trends reflect the dire need to consolidate confidence and create a safe and secure environment," he said.
He pointed out other challenges relating to the Islamic aspects of finance and management of investment accounts, adding that these practices are not found in traditional banking practices.
He stressed the necessity to review all constraints in the light of local and global banking developments to ensure more transparency and reduce operational risks.
He underscored the importance of sound management of capital and liquidity for any firm to continue surviving in the financial sector.
He urged Islamic banks and institutions to abide by these criteria to preserve their achievements over the past decades.
He pointed out the importance for Islamic financial institutions to ensure a solid capital base to be able to withstand fluctuations and gain lucrative dividends.
He highlighted the importance of promoting innovative tools for managing liquidity, taking into account the new auditing constraints and stressed the need to launch products compliant with Sharia precepts and changing trends.
AAOIFI secretary general and chief executive Dr Khaled Al Fakih said over the past few months, the organisation had issued seven new Sharia standards covering a range of issues including liquidity management and capital and investment protection.
"Liquidity management is a critical area for both conventional and Islamic financial institutions," he said.
"The importance of liquidity management has been further highlighted through lessons from the recent global financial crisis, including that all financial institutions must not over-rely on leveraging."
He added that a new standard had been issued covering capital and investment protection which gives guidance on Sharia permissibility on tools and measures that may be applied in protecting investment capital.
It also outlined tools and measures to mitigate investment risk including those relating to rate of returns, inflation and foreign currency risks.
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