What are the responsibilities of the management Islamic Bank with regard to financial risk?

The Management of Islamic banks has the following responsibilities with regards to Financial Risk:

• Develop and recommend strategic plans and risk management policies for board approval;
• Implement strategic plans a and policies after approval by the board;
• Establish and institutional culture promoting high ethical and integrity standards;
• Ensure an development of manuals containing policies, procedures, and standards for the bank's key functions and risk;
• Implement an effective internal control system, including continous assessment of all materials risks that could adversely affect the achievement of the bank's objectives;
•   Ensure the implementation of controls that enforce adherence to established risk limits;
• Ensure immedate reporting of noncompliance to management;
• Ensure that the internal auditors review and assess the adequacy of controls and compliance with limits and procedures;
• Develop and implement management reporting systems that adequately reflect business risks.  

Nevertheless, the types of risks available are into two categorizes:

1. General Risks: Systematic risk that cannot be avoided by diversification. for e.g. market risks;
2. Special Risks: Risks that can be avoided or reduced by diversification as they are due to the conditions of the institution or the sector to which they belong. for e.g. operational risks or Sharia compliance risk.

Deposits and lending these are the primary functions of a bank. In Islamic bank there are deposits but there is no lending on interest, The money is lend in a business or a venture and the gains or profits are shared by the bank and the depositors.To manage the financial risk collateral and guarantees have to be in place from a lender before providing him any loan and there should be professionals who knows how to assess the past performance and the ability to repay and the type of business they are investing. Financial controls like operational risk,working capital requirements,risk management,treasury and auditors have to work round the clock to maintain the risk reward ratio with optimal performance in focus.