Due to the partnership model inherent in Shariah-compliant business models, Islamic banks traditionally enjoy a slightly more secure risk position than the majority of conventional banks regionally and worldwide.
However, as investment in physical expansion and growth in the Middle East region continues its upward climb, and Islamic banking attracts more customers, the banks will find themselves susceptible to increased risk. As a result, this puts Islamic banks on the same playing field, facing a number of the same needs as conventional banks with regard to risk management and regulatory concerns.
What this means for Islamic banks is that they, too, can realise significant benefits from having a single, unified view of their risk and performance measurements as do conventional banks.
Recently, Kuwait Finance House (KFH) implemented SunGard’s Ambit Risk & Performance Management solution to handle all forms of risk management across the KFH Group. Abdul Aziz, head of risk and compliance for KFH, sat down with SunGard to discuss the bank’s needs, the Ambit solution and the implementation of the region’s first enterprise risk management system in an Islamic bank.
The following questions were answered by Abdul Aziz:
Why did you decide to invest in SunGard’s Ambit Risk & Performance Management solution? Did you consider other options, such as developing a system in-house or regional solution vendors?
We conducted an intense and rigorous 18-month period of research and due diligence around available risk management solutions, and, as time passed, we determined that our needs required a solution that could:
• Handle all the key sources of risks across the KFH Group, including market, credit, operational and liquidity risks
• Meet the requirements of the Central Bank of Kuwait, international accounting standards and Islamic banking standards
• Support and assist decision-makers by providing the various reports necessary to tackle the risk exposures of the bank
• Be easy to use and quick to implement, fully integrated and utilise best practices
• Manage multiple countries and entities using different IT resources.
We considered a wide range of options and reviewed the possibilities surrounding in-house development, the differences between local and international vendors, and the benefits of partnering with a specialised risk management vendor, as opposed to universal vendors offering risk management functionalities as part of a wider offering.
For us, commitment to the Middle East and to Islamic banking was critical. We wanted a sophisticated and well-recognised solution with a flexible team of experts able to understand our business and adapt to our specific needs across the global presence of the bank.
What functionality is SunGard’s Ambit Risk & Performance Management providing and what are the key benefits that KFH is looking to realise? Were there any general concerns about the implementation or potentially interrupting the workflow at the bank?
The SunGard solution provides KFH with a complete enterprise risk management solution, and covers everything from credit and market risk at the origination of the exposure through balance sheet management, asset liability and liquidity management, operational, economic capital and regulatory capital risk management solutions. Back in 2006, we decided not to pursue an academic approach that would have saddled us with overly complex models to the point where we would not be able to explain how we measure risk to our board or to the regulators. We feel the market has validated the approach we ultimately decided on, which was gradual and very pragmatic with considerable hands-on involvement.
The solution provides KFH with a number of benefits. For example, now we have the ability to calculate the capital requirements for any single transaction on the fly, and, with a few clicks, explain each input, formula and the reason it has been calculated in such way.
This is quite important to our risk operations and our business as a whole, as it provides us with complete transparency and visibility regarding the bank’s exposures for every transaction completed. To take it even further, SunGard is helping KFH realise its goal of developing a world-class enterprise risk management system. KFH is the first Islamic and universal bank in the Middle East to successfully deploy an integrated enterprise risk management platform.
Before we began our implementation we heard a lot about how difficult and risky the deployment of an enterprise risk management programme can be. We were warned about data issues and the inevitable culture change the bank would have to weather.
Contrary to these warnings, we are very pleased and impressed by the achievements we’ve seen since implementing the solution. Actually, we’ve seen that with the right set-up and organisation exceptional results are indeed possible.
We’ve seen banks with comparable profiles to KFH deploying certain risk modules in two years’ time, on average. With the help of SunGard and KFH staff, we realised that we could implement an enterprise risk management solution in three months. All I can say is that I’m proud of my people!
This article was provided for Cash & Trade by Reem Rabia, marketing manager, SunGard Financial Systems Middle East.