THE ARAB MONETARY FUND ISSUES A BROCHURE ON "CREDIT CONCENTRATION RISKS IN FINANCIAL AND BANKING INSTITUTIONS"

by **claud39** Thu Apr 15, 2021 10:04 pm

THE ARAB MONETARY FUND ISSUES A BROCHURE ON "CREDIT CONCENTRATION RISKS IN FINANCIAL AND BANKING INSTITUTIONS"
2021-04-15

The application of Basel Committee standards has become necessary for prudent management of risks related
to banking operations in order to enhance the soundness of banking performance

The necessity for banks to have appropriate policies and procedures to identify, measure and monitor concentration risks,

and to report and control or limit them in a timely manner.

Effective risk management enables the financial and banking sectors to play their effective role during crises and recovery periods as a financial intermediary that contributes to mobilizing funds and directing them to promising investment

opportunities.

The importance of integrating the roles played by the authorities concerned with monetary and economic policies and the regional and international financial bodies concerned with setting financial and accounting standards, with the aim of enhancing capacity to face the repercussions of crises, and reducing the negative effects resulting from the concentration of

risks.

Within the framework of the efforts made by the Arab Monetary Fund to strengthen the bonds of cooperation and communication with all concerned authorities in the member states, with the aim of achieving the goals for which the fund was established, including the dissemination of economic and financial experience and knowledge. The Fund issued a booklet on “ Credit Concentration Risks in Financial and Banking Institutions ”, with the aim of shedding light on the different concepts of risk, its types and focus, and its reflection on troubled institutions, some indications of bank default cases, and how to manage the concentration of risk in banks.

In this context, the handbook clarified some of what was dealt with by the Basel Principles of Banking Supervision, as the application of the Basel Committee standards has become necessary to manage risks related to banking operations in a manner that ensures enhancing the safety and efficiency of banking performance. The booklet also stressed the importance of having appropriate policies and procedures for banks to enable them to identify, measure and monitor concentration risks, and to report and control or reduce them in a timely manner, as well as the importance of the availability of data used in preparing credit concentration indicators at the individual and sectoral levels, and what needs to be done. Institutions should undertake a comprehensive analysis of risks and exposures that deserve periodic monitoring.

The international accounting standards, especially the International Financial Reporting Standard No. (7), and their requirements for the obligation to disclose any concentrations of assets, liabilities, and items outside the financial center, were also dealt with, and the disclosure of credit risks, liquidity risks and market risks in order to clarify the facts and provide information to the decisions. This avoids the risk of concentration.

The reference was made to IFRS 9 and its requirements to provide information from multiple sources on past events and current circumstances, in addition to reasonable expectations for the occurrence of default supported by the purpose of calculating expected losses and provisions for debts and hedging them in advance, and building a new model requiring the formation of provisions. Loan losses on the basis of expected credit losses, which is an important step in forecasting what may happen in the future and then hedging any potential risks, which enhances disclosure requirements related to financial instruments.

In light of the foregoing, we find the complementarity of the roles played by the authorities concerned with monetary and economic policies and the regional and international financial bodies concerned with setting financial and accounting standards in order to enhance the ability to face the repercussions of crises, and to reduce the negative effects resulting from the concentration of risks that would have been multiplied without the presence of regulations and rules. Policies and governing frameworks.

The full version of the brochure is available at the link

https://www.amf.org.ae/ar/content/%D8%B5%D9%86%D8%AF%D9%88%D9%82-%D8%A7%D9%84%D9%86%D9%82%D8%AF-%D8%A7%D9%84%D8%B9%D8%B1%D8%A8%D9%8A-%D9%8A%D9%8F%D8%B5%D8%AF%D8%B1-%D9%83%D8%AA%D9%8A%D8%A8-%D8%AD%D9%88%D9%84-%D9%85%D8%AE%D8%A7%D8%B7%D8%B1-%D8%A7%D9%84%D8%AA%D8%B1%D9%83%D8%B2-%D8%A7%D9%84%D8%A7%D8%A6%D8%AA%D9%85%D8%A7%D9%86%D9%8A-%D9%81%D9%8A-%D8%A7%D9%84%D9%85%D8%A4%D8%B3%D8%B3%D8%A7%D8%AA-%D8%A7%D9%84%D9%85%D8%A7%D9%84%D9%8A%D8%A9-%D9%88%D8%A7%D9%84%D9%85%D8%B5%D8%B1%D9%81%D9%8A%D8%A9