Be more risk-sensitive, global Islamic banking players urged

MANAMA (Bahrain): Global Islamic banking players should be more risk-sensitive in the uncertain economic conditions, said Central Bank of Bahrain Governor Rasheed Mohammed Al Maraj.

Al Maraj said Islamic banks’ risk management practices must be up-to-date, with high risk awareness levels and risk mitigation in place.

“The banks should increase stress-testing frequency in order to fully understand the weak links and be prepared for the worst-case scenario in the current uncertain economic environment. 

“Please note that being risk-sensitive does not necessarily mean being  risk-averse. It only means that we need to be more vigilant with what type of risk we should and should not take,” he said at the 23rd Annual World Islamic Banking Conference (WICB 2016) in Manama on Tuesday.

Al Maraj said another factor that could hurt Islamic banks more than their conventional counterparts is their relatively small size, pointing out that a challenging business environment requires an increased focus on mergers and acquisitions in order to attain the optimal scale of operations. 

Given the faith-based nature of Islamic banking, it is also critical for Islamic banks to adopt a robust syariah governance framework, he said, adding  the central bank recently released for consultation new rules to enhance syariah practices, which would bring additional safeguards and reinforce  syariah compliance. 

The responsibility falls on the board of directors and senior management of Islamic banks to comply with the letter and spirit of syariah and build a reputation for ethical banking, he noted.

On financial technology (fintech), he said as it would be the major force  driving the global Islamic banking industry in the future, banks should invest more in such technology.

He said fintech was a game-changer in the banking business as technology has made it possible to access more customers in a more comprehensive way at a lower cost than in the past.

“Islamic banks must make full use of these technological enhancements and invest more in this space. Fintech is leading the way,” he added.

In sync with the importance of fintech, Al Maraj said the central bank would soon be issuing regulations to facilitate Fintech solutions in the country.

WICB 2016, the largest gathering of Islamic finance and banking leaders, is aimed at enabling the global Islamic finance industry to develop itself as an ecosystem, whilst equipping leaders with the insights needed to navigate the complexity of the global financial system. - Bernama