14.2IBs must take necessary steps to ensure that the management processes relating to the identification, measurement, monitoring, reporting and control of the rate of return risk (including appropriate structure) are in place.
14.3IBs must be aware of the factors that give rise to rate of return risk. The primary form of rate of return risk to which IBs are exposed comprises increasing long-term fixed rates in the market. IBs must have in place appropriate systems for identifying and measuring the factors, which give rise to rate of return risk.
14.4IBs must employ a gapping method for allocating positions into time bands with remaining maturities or repricing dates, whichever is earlier.
14.5IBs’ rate of risk return measurement must highlight the importance of cash flow forecasting for instruments and contracts where IBs are required to simulate and assess their behavioral maturity, underlying assumptions and parameters, which must be reviewed periodically for reliability. The materiality of potential threats to future earnings and the usefulness of the resulting information must be considered in determining the type and extent of forecasted behavior for IBs.
14.6IBs are encouraged to employ balance sheet techniques to minimize their exposures using the following strategies, among others:
a.determining and varying future profit ratios according to expectations of market conditions;
b.developing new Shari’ah-compliant instruments; and
c.issuing securitization tranches of Shari’ah permissible assets.