IBANK 8.3.1 Liquidity risk tolerance

(1) An Islamic banking business firm's liquidity risk tolerance defines the level of liquidity risk that the firm is willing to assume.

An Islamic banking business firm's risk management strategy usually refers to risk tolerance although risk appetite may also be used. The 2 terms are used interchangeably to describe both the absolute risks a firm is open to take (by some called risk appetite) and the actual limits within its risk appetite that a firm pursues (by some called risk tolerance).
(2) An Islamic banking business firm's liquidity risk tolerance must be appropriate for the firm's operations and strategy and its role in the financial systems in which it operates.
(3) The firm must review its liquidity risk tolerance at least annually to reflect the firm's financial condition and funding capacity.
(4) The firm's governing body and senior management must ensure that the firm's liquidity risk tolerance allows the firm to effectively manage its liquidity in such a way that the firm can withstand prolonged liquidity stress.
(5) The firm must document its liquidity risk tolerance in a way that clearly states the trade-off between risks and profits.
Inserted by QFCRA RM/2018-2 (as from 1st May 2018).