Credit Risk Management and Measurement for Islamic Banks

Course Background

Excessive and imprudent credit growth, and resulting speculative bubbles, are at the heart of all financial crises. When the economic cycle turns a corner and obligors become distressed, banks cut their losses and make credit far harder to obtain. However, by then, the damage is already done and the wheels are set in motion for contraction in the real economy. This scenario is exactly what regulators and banks seek to avoid. For Islamic banks, the exposure to credit risk is even more intense because Islamic banks are prohibited from pursuing many other business lines available to conventional banks which diversify income streams (for example, speculative trading positions, asset management and fund investments).

This course offers a valuable timely opportunity for Islamic banking practitioners to gain knowledge and skills which can be directly applied to firm-up internal credit risk measurement and management. The course delivers a full array of contemporary credit risk management practices relevant to Islamic banks, detailing how credit risk arises at the product level, and how it can be measured and managed within both retail and corporate banking. The course provides essential instruction in the details of internal credit risk-based models, as well as credit ratings models applied by S&P, Moody’s and Fitch to rate issuers and issued liabilities (e.g. Sukuk).

The course will also include a high level of interactive discussion, analysis of case studies, and thorough instruction in techniques which can be applied in everyday use to measure and manage credit risk in Islamic banks.

KEY LEARNING OUTCOMES

Understand how credit risk arises at product level in both retail and corporate Islamic banking practices.
Learn how to measure credit risk using an array of techniques ranging from simple traditional single obligor credit assessment to more advanced portfolio credit risk models.
Appreciate the methods and models which ratings agencies use to establish a rating, and learn what to expect from, and how to manage, the ratings process.

Where & When

Date: 12^th & 13^th April 2020
Venue: Kuala Lumpur

Fee

Early bird : RM2,835
Early Bird: Registrations received on or before 12^th March 2020, will receive a 10% discount. No discount shall be given to registrations received after this cut-off date.
Standard : RM3,150 per delegate
2 delegates (5% Discount) : RM2,995 per delegate
3 delegates (15% Discount) : RM2,680 per delegate
4 delegates (25% Discount) : RM2,365 per delegate
5 delegates (30% Discount) : RM2,205 per delegate

In-house/group training

If you are looking for an in-house training program or wish to send a group to an existing public program, kindly please contact Andrew Tebbutt at [email protected] or +603 2162 7802.
In-House Training Brochure

Manual Registration

Kindly complete the registration form and email to [email protected] or fax +603 2162 7810

For enquiries please contact:

Mathias Sosovele
Account Manager, REDmoney Seminars
[email protected]
Direct Line: +603 2162 7800 ext 25

Normariya Sariman
Account Manager, REDmoney Seminars
[email protected]
Direct Line: +603 2162 7800 ext 44

Ramesh Kalimuthu
Events Sales Director
[email protected]
Direct Line: +603 2162 7800 ext 65
Fax: +603 2162 7810

For sponsorship & speaking opportunities:

Andrew Tebbutt
Managing Director
[email protected]
Direct Line: +603 2162 7802

For marketing and media enquiries

Tiviaa James
Marketing Executive
[email protected]
Direct Line: +603 2162 7800 ext 62

Seminar Agenda

Day 1: Credit Risks arising in Islamic Banks
Day 2: Measuring Credit Risk

Day 1: Credit Risks arising in Islamic Banks

Overview of Credit Risk

The business models of Islamic banks
- Islamic retail/consumer financing products
- Islamic corporate banking products - working capital financing, asset financing, and project financing
- Financial institution exposures – interbank positions and Sukuk investments
- Contingent liabilities and other off-balance sheet exposures
How is credit risk in Islamic banks different?
- Asset-based financing as opposed to lending
- Sukuk and implicit performance guarantees
- The status and uses of collateral and other security measures
- Delinquency resolution and Shariah constraints
Credit growth cycles and counter-cyclical risk management
Regulatory guidelines and requirements
- Credit risk management guidelines
- Credit risk charges and the standard approach

Credit Risk Governance

Responsibilities of the Board of Directors
Establishing and reviewing the bank’s credit risk appetite
Senior management and delegated authorities/limits
Credit administration process
- Approval and the role of automation for retail credits
- Origination and disbursement
- Monitoring
  - Single obligor and portfolio-level monitoring
  - Early detection
  - Identifying settlement patterns
  - Periodic review requirements
- Collection practices for Islamic banks and the resolution of problem credits
- Legal documentation for Islamic banks and the separation of contracts
Credit loss provisioning and impairment policies

Credit Risk Limits

Single obligor limits – e.g. gross limits versus net limits, loan to value, financial ratios etc.
Concentration risk limits – large exposures, industries, and sectors
Country limits, emerging markets, and data sources for country ratings
Transaction/settlement limits
Counterparty credit risk limits
Related parties for the determination of overall credit risk exposure

Credit Risk Mitigants

Collateral available to Islamic banks
- Can marketable securities be used as collateral?
- What is the importance of haircuts?
Positive and negative covenants – technical default, cross-default and other clauses
Guarantors and the matter of risk substitution
Can Islamic banks offset assets and liabilities with the same counterparty?
Takaful impairment insurance

Group Discussion: Is retail credit risk in Islamic banks higher than in conventional banks?

Day 2: Measuring Credit Risk

Retail Credit Risk Assessment

Credit assessment criteria used in retail credit financing
- Qualitative versus quantitative factors
- Income and financing cost coverage
- Importance of measuring total indebtedness
The role of credit bureaus and credit histories
How is credit risk different by Islamic financing product?
- Murabahah for consumable items
- Diminishing Musharakah, e.g. home purchase plans
- Shariah compliant credit cards
- Shariah compliant overdrafts
- Ijarah for vehicle leasing
Retail credit risk measured at the portfolio level

Corporate and Project Financing Credit Risk Assessment

Quantitative factors using financial statement analysis, e.g. profitability, liquidity, asset turnover and indebtedness ratios
Qualitative factors, e.g. sector/industry risks, management quality
Business risk versus financial risk?
Credit conversion factors and off-balance sheet commitments
Scorecards – balancing qualitative and quantitative credit risk measures
Special considerations for Islamic banking exposures
- Application of the supervisory slotting method to Istisnah
- Counterparty credit risk in Salam contracts
- Credit risk exposures in binding and non-binding promises to lease

Internal Ratings-based Models for Credit Risk Measurement

Understanding probability of default, exposure at default, loss given default, and the loan loss distribution
Foundation and advanced models – what’s the difference?
The role of credit migration rates within the model
How are internal models used to approve credit risk, and allocate risk capital?
Point-in-time versus through-the-cycle – what’s the difference and why does it matter?
Monte-Carlo simulation and correlated rating migrations

External Credit Ratings and their Uses

What does an external credit rating tell us?
What is the difference between a rating and an outlook, and what is a ‘notch’?
When to use an external credit rating agency
What’s involved in the credit rating process and how can a bank prepare itself?
What information does a rating analyst require?
How can a bank achieve a target credit rating?
How much trust should we put in a rating for investment or financing purposes?

External Credit Ratings Models

What is accounting based versus market-based default prediction modeling?
We all suffer from a lack of data - bankruptcy is rare, but market data is forever!
How do the different approaches in each of the rating agency models compare?

Fitch Ratings
Moody’s Investor Services
S&P’s Global Ratings

How important are qualitative aspects of credit quality to the external rating?

Group Discussion: What controversies surrounded the ratings agencies in the last decade?

Final Discussion and Course Wrap-Up

Where & When

Date: 12^th & 13^th April 2020
Venue: Kuala Lumpur

Fee

In-house/group training

If you are looking for an in-house training program or wish to send a group to an existing public program, kindly please contact Andrew Tebbutt at [email protected] or +603 2162 7802./p>

Manual Registration

Kindly complete the registration form and email to [email protected] or fax +603 2162 7810

Course Background

KEY LEARNING OUTCOMES

Understand how credit risk arises at product level in both retail and corporate Islamic banking practices.
Learn how to measure credit risk using an array of techniques ranging from simple traditional single obligor credit assessment to more advanced portfolio credit risk models.
Appreciate the methods and models which ratings agencies use to establish a rating, and learn what to expect from, and how to manage, the ratings process.

Seminar Agenda

Day 1: Credit Risks arising in Islamic Banks
Day 2: Measuring Credit Risk

Day 1: Credit Risks arising in Islamic Banks

Overview of Credit Risk

The business models of Islamic banks
- Islamic retail/consumer financing products
- Islamic corporate banking products - working capital financing, asset financing, and project financing
- Financial institution exposures – interbank positions and Sukuk investments
- Contingent liabilities and other off-balance sheet exposures
How is credit risk in Islamic banks different?
- Asset-based financing as opposed to lending
- Sukuk and implicit performance guarantees
- The status and uses of collateral and other security measures
- Delinquency resolution and Shariah constraints
Credit growth cycles and counter-cyclical risk management
Regulatory guidelines and requirements
- Credit risk management guidelines
- Credit risk charges and the standard approach

Credit Risk Governance

Responsibilities of the Board of Directors
Establishing and reviewing the bank’s credit risk appetite
Senior management and delegated authorities/limits
Credit administration process
- Approval and the role of automation for retail credits
- Origination and disbursement
- Monitoring
  - Single obligor and portfolio-level monitoring
  - Early detection
  - Identifying settlement patterns
  - Periodic review requirements
- Collection practices for Islamic banks and the resolution of problem credits
- Legal documentation for Islamic banks and the separation of contracts
Credit loss provisioning and impairment policies

Credit Risk Limits

Single obligor limits – e.g. gross limits versus net limits, loan to value, financial ratios etc.
Concentration risk limits – large exposures, industries, and sectors
Country limits, emerging markets, and data sources for country ratings
Transaction/settlement limits
Counterparty credit risk limits
Related parties for the determination of overall credit risk exposure

Credit Risk Mitigants

Collateral available to Islamic banks
- Can marketable securities be used as collateral?
- What is the importance of haircuts?
Positive and negative covenants – technical default, cross-default and other clauses
Guarantors and the matter of risk substitution
Can Islamic banks offset assets and liabilities with the same counterparty?
Takaful impairment insurance

Group Discussion: Is retail credit risk in Islamic banks higher than in conventional banks?

Day 2: Measuring Credit Risk

Retail Credit Risk Assessment

Credit assessment criteria used in retail credit financing
- Qualitative versus quantitative factors
- Income and financing cost coverage
- Importance of measuring total indebtedness
The role of credit bureaus and credit histories
How is credit risk different by Islamic financing product?
- Murabahah for consumable items
- Diminishing Musharakah, e.g. home purchase plans
- Shariah compliant credit cards
- Shariah compliant overdrafts
- Ijarah for vehicle leasing
Retail credit risk measured at the portfolio level

Corporate and Project Financing Credit Risk Assessment

Quantitative factors using financial statement analysis, e.g. profitability, liquidity, asset turnover and indebtedness ratios
Qualitative factors, e.g. sector/industry risks, management quality
Business risk versus financial risk?
Credit conversion factors and off-balance sheet commitments
Scorecards – balancing qualitative and quantitative credit risk measures
Special considerations for Islamic banking exposures
- Application of the supervisory slotting method to Istisnah
- Counterparty credit risk in Salam contracts
- Credit risk exposures in binding and non-binding promises to lease

Internal Ratings-based Models for Credit Risk Measurement

Understanding probability of default, exposure at default, loss given default, and the loan loss distribution
Foundation and advanced models – what’s the difference?
The role of credit migration rates within the model
How are internal models used to approve credit risk, and allocate risk capital?
Point-in-time versus through-the-cycle – what’s the difference and why does it matter?
Monte-Carlo simulation and correlated rating migrations

External Credit Ratings and their Uses

What does an external credit rating tell us?
What is the difference between a rating and an outlook, and what is a ‘notch’?
When to use an external credit rating agency
What’s involved in the credit rating process and how can a bank prepare itself?
What information does a rating analyst require?
How can a bank achieve a target credit rating?
How much trust should we put in a rating for investment or financing purposes?

External Credit Ratings Models

What is accounting based versus market-based default prediction modeling?
We all suffer from a lack of data - bankruptcy is rare, but market data is forever!
How do the different approaches in each of the rating agency models compare?

Fitch Ratings
Moody’s Investor Services
S&P’s Global Ratings

How important are qualitative aspects of credit quality to the external rating?

Group Discussion: What controversies surrounded the ratings agencies in the last decade?

Final Discussion and Course Wrap-Up

Seminar Speaker

Dr Ken Baldwin
Former Director Financial Policies & Planning, Islamic Development Bank

Dr. Ken Baldwin has worked as a practitioner in banking and finance for over 25 years in senior positions spanning the front and middle offices. Having graduated from Oxford University with a first-class honors degree in Physics in 1989, he qualified as a Chartered Accountant with PWC, before joining UBS, and then later Credit Suisse, in derivatives risk and control functions based in London.

He gained a PhD in the microeconomic theory of risk sharing in Islamic contracts, and worked in the GCC for 15 years in Islamic retail and Islamic investment banks. Whilst at Abu Dhabi Islamic Bank, Dr. Ken built an ALM analytic technology platform capable of capturing liquidity and interest rate risks inherent in the many varied Islamic financing products used at retail and corporate levels. He then moved to take up the position of MENA Regional Head of Quantitative Analysis for Citigroup. At Citicorp, Dr. Ken worked on structuring complex products used by Gulf-regional corporations to hedge FX and interest risks. Still residing in Bahrain, Dr. Ken then joined Investcorp, where he worked on the risk due diligence of corporate private equity and real estate private equity transactions and portfolio management. After leaving Investcorp, he set up the risk management department for venture capital bank, providing Basel III compliance and deal analysis for the bank. He then operationalized a new Islamic investment bank as its Chief Operating Officer for 3 years, before his most recent industry role at the Islamic Development Bank, where he set up and ran a new department tasked with developing Financial Policies and Planning underpinned by robust financial analytic tools and methodologies designed specifically for the IDB. Dr. Ken is currently a senior university lecturer in finance in the UK. He has published quantitative finance articles in peer-reviewed academic journals including the Journal of Risk, and during his earlier career, taught CFA and FRM professional certifications as a pastime for the Bahrain Institute of Banking and Finance.

Ken is a British Muslim.

This course has been specifically designed to benefit:

This course has been specifically designed to benefit:

Chief Risk Officers
Chief Financial Officers
Financial Risk Managers
Treasury managers
Risk Analysts
Financial Analysts

This course has been specifically designed to benefit:

Credit origination teams
Credit Managers
Credit Portfolio Managers
Corporate bankers
Retail bankers
Supervisors, regulators and risk standard setters

Seminar Registration

*Please note there is a fee for attending this program. Please contact us for more details.

Who are you registering?*

Myself

Colleagues or team members

Full Name*

Job Title*

Company*

Email address*

Phone*

Delegate Name*

Job Title*

Email address*

Phone*

First Delegate Name*

Job Title*

Email address*

Phone*

Second Delegate Name*

Job Title*

Email address*

Phone*

First Delegate Name*

Job Title*

Email address*

Phone*

Second Delegate Name*

Job Title*

Email address*

Phone*

Third Delegate Name*

Job Title*

Email address*

Phone*

First Delegate Name*

Job Title*

Email address*

Phone*

Second Delegate Name*

Job Title*

Email address*

Phone*

Third Delegate Name*

Job Title*

Email address*

Phone*

Fourth Delegate Name*

Job Title*

Email address*

Phone*

First Delegate Name*

Job Title*

Email address*

Phone*

Second Delegate Name*

Job Title*

Email address*

Phone*

Third Delegate Name*

Job Title*

Email address*

Phone*

Fourth Delegate Name*

Job Title*

Email address*

Phone*

Fifth Delegate Name*

Job Title*

Email address*

Phone*

Approving Manager

Full Name*

Company*

Phone*

Job Title*

Email address*

Verification

Before completing this registration form please read and understand our booking and cancellation policy. Thank you.

Booking, Payment and Cancellation Policy

By completing, signing and sending us this registration form you are confirming delegate places on the seminar. You are also confi rming your understanding of our Booking, Payment and Cancellation Policy.

Cancellation: If delegates cannot attend the seminar replacement participants are always welcome. Otherwise delegates must request in writing (letter, fax or email) to cancel registration/s or transfer to a diff erent seminar at least 21 days before the seminar start date to be eligible for a refund, less a 5% administration fee. Delegates who cancel within 21 days of the seminar start date, or who do not attend, are liable to pay the full seminar fee and no refunds will be given. Instead fees will be converted to a IFN Seminars voucher equivalent to the original fee, less a 15% administration charge. This voucher is transferable within your organization and must be redeemed within one year of issue or become void. If a seminar is postponed for whatever reason delegate bookings will be automatically transferred to the new seminar date. Delegates who wish to transfer to a diff erent seminar will be subject to the same terms as above and charged the diff erence in seminar fees. No refunds or seminar vouchers will be issued for a no-show. Payment Terms: All seminars fees are to be received within 14 days of invoice date. REDmoney shall receive the full seminar fee with no deductions of any description. All telegraphic transfer fees, taxes and levies (domestic or otherwise) shall be borne by the sponsoring organization.

Please tick if you have read and understood our terms and conditions

Please type the characters*

This helps us prevent spam, thank you.

This field should be left blank

For enquiries please contact:

Mathias Sosovele
Account Manager, REDmoney Seminars
[email protected]
Direct Line: +603 2162 7800 ext 25

Normariya Sariman
Account Manager, REDmoney Seminars
[email protected]
Direct Line: +603 2162 7800 ext 44

Ramesh Kalimuthu
Events Sales Director
[email protected]
Direct Line: +603 2162 7800 ext 65
Fax: +603 2162 7810

For sponsorship & speaking opportunities:

Andrew Tebbutt
Managing Director
[email protected]
Direct Line: +603 2162 7802

For marketing and media enquiries

Tiviaa James
Marketing Executive
[email protected]
Direct Line: +603 2162 7800 ext 62