DAR AL HARB/ISLAM: THE FINANCIAL JIHAD CONTINUES

Islamic financial institutions' risks differ from conventional banks' - Moody's


BANGALORE (Thomson Financial) - Moody's Investors Service said Islamic financial institutions' (IFI) risk profiles differ from those of conventional banks, but like their peers, they face many challenges in adequately defining and mitigating risks across business lines and asset classes.

Risk management has assumed utmost importance at a time when complexity and volatility in financial markets have become both differentiating factors building competitive advantages and sources of risk entanglement, the ratings agency said in a report titled "Risk Issues at Islamic Financial Institutions".

Moody's noted that, in IFIs' financing and investment contracts, risk categories of different natures are often entangled, a constraint mitigated by the naturally strong asset collateralisation of their portfolios.

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"Given the importance of risk management in our rating analysis, especially for emerging market institutions whose systems may be less well developed than those of conventional banking peers, the ability of IFIs to build and develop their risk management capabilities will not be without rating implications," the report said.



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1) Islamic financial institutions' risks differ from conventional banks' - Moody's