JEDDAH, 26 November 2004 — Islamic investment is taking a high-tech turn as a Bahrain firm announces plans to develop a new risk-management system.
The Bahrain-based Gulf Finance House B.S.C. (GFH), one of the leading providers of Islamic investment services, on Tuesday announced it has initiated the development of a cutting-edge Islamic risk-management system, which will help the bank regularly monitor and assess the risk sensitivity of its investment portfolio and meet regulatory compliance requirements effectively.
Announcing the pioneering initiative during the Middle East Financial Technology & Conference (MEFTEC), senior GFH officials said that the risk-management solution will be developed jointly with the bank’s technology partner, Path Solutions, a Kuwait-based vendor of integrated Islamic software. GFH’s core banking system runs on iMal, which is the industry-leading integrated Islamic banking software from Path Solutions.
“By developing a risk-management system that caters to a Shariah-compliant banking regime, we believe we are taking a pioneering step,” said GFH’S Chief Executive Officer Esam Janahi. “It is becoming increasingly imperative that Islamic financial institutions put in place risk-management systems that address the unique characteristics of the industry.” He said increasing market and regulatory complexity mandated the need for better resolutions.
“What we are looking at in the new risk-management system is a whole host of advanced and integrated features. We expect the system to have the capability not only to address compliance and regulatory requirements but also to help us in creating value for our shareholders and investors by efficient management of our on- and off-balance sheet risks,” he said.
He added that innovation was an integral part of the business philosophy of GFH and the move to develop a customized risk-management system was proof of this. “The risk characteristics of Islamic banks are unique,” said Silvan Varghese, risk manager of GFH. “Apart from exposure to the risks that are faced by conventional banks, Islamic banks face additional risks as a result of the Shariah-compliant nature of their business. What we intend to do is to use current techniques available and customize them to meet requirements of Islamic Banks in general and GFH in particular.” He said GFH will be developing the risk management system on iMal platform which currently has a data warehouse and Business Intelligence (BI) module which meet some of GFH’s reporting and monitoring requirements.
“We plan to work with regulatory agencies and other monitoring bodies to develop the new risk management system as a standard-bearer for the industry as a whole,” Varghese said.
Among a host of features, the new system will have a facility management and monitoring system, collateral and document management systems, internal rating methodologies for investments and credit, measurement and monitoring systems for balance-sheet risks, modules for economic capital allocation, Value at Risk (VAR) and Earning at Risk (EAR) and stress analysis. The system will also meet reporting requirements under Basel II. “We are extremely proud to be asked to develop a pioneering, industry-leading risk management system that serves the special nature of the Islamic finance and banking industry,” said Naji Moukadam, an executive vice president of Path Solutions.
“Islamic finance and banking in general is waking up to risk management, and we are confident that the new tool we will develop jointly with GFH will be a first-of-its-kind in the industry.”
Established five years ago, GFH has rapidly earned a reputation as a trendsetter for Islamic banking.