1.A Bank providing Islamic financial services must be aware of the factors that give rise to rate of return risk (RoRR), primarily increasing long-term fixed profit rates. (RoRR) is generally associated with overall balance sheet exposures of Banks offering Islamic financial services where mismatches arise between assets and balances from fund providers.
2.Cash flow forecasting is central to the measurement and management of RoRR. Banks offering Islamic financial services must consider behavioural maturity in addition to contractual maturity and re-pricing dates for instruments and contracts, and other relevant parameters. Depending on the size and complexity of the Bank, measurement techniques may include simple gap analysis, more advanced simulations or dynamic approaches to assess future cash flow variability and the impact on economic value and income.
3.A Bank offering Islamic financial services must assess, monitor and manage its dependency on current account holders funds, as a sudden withdrawal of these funds can have an adverse impact on the overall potential rate of return for the holders of the Bank.
4.A consequence of RoRR may be displaced commercial risk. As part of an appropriate framework for the management of displaced commercial risk, a Bank offering Islamic financial services must have in place a policy and framework for managing the expectations of its shareholders and investment account holders and monitoring the market rates of returns of competitors.