---
title: "What is Rate of return risk? | IslamicOpenFinance™"
description: "The risk that changes in market rates affect an Islamic bank's net income; the analogue of interest rate risk in the banking book."
url: https://islamicopenfinance.com/glossary/rate-of-return-risk/
lang: en-GB
source: "IslamicOpenFinance"
---

[Glossary](https://islamicopenfinance.com/glossary/) / [Prudential regulation](https://islamicopenfinance.com/glossary/#prudential)

Prudential regulation

# Rate of return risk

The risk that changes in market rates affect an Islamic bank's net income; the analogue of interest rate risk in the banking book.

Rate of return risk is the possible impact on an Islamic bank's net income of changes in market benchmark rates, since many of its assets earn fixed returns while investment account holders expect returns in line with the market. IFSB-22 describes it as the analogue of interest rate risk in the banking book and calls for qualitative and quantitative disclosures on how it is defined and managed. It is closely linked to displaced commercial risk.

## Sources

- [IFSB-22 Revised Standard on Disclosures to Promote Transparency and Market Discipline (Banking Segment), 2018: Rate of Return Risk](https://www.ifsb.org/wp-content/uploads/2023/10/IFSB-22-December-2018_En.pdf)

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

## Related terms

[**Displaced commercial risk** Pressure on an Islamic bank to give up part of its own profit so investment account holders earn a competitive return.](https://islamicopenfinance.com/glossary/displaced-commercial-risk/) [**Islamic profit rate swap** An alternative to an interest rate swap that exchanges fixed and floating profit flows through commodity murabaha trades.](https://islamicopenfinance.com/glossary/profit-rate-swap/) [**Murabaha** A sale at cost plus an agreed, disclosed profit; the seller must own the asset first. Payment is often deferred in instalments.](https://islamicopenfinance.com/glossary/murabaha/) [**Investment account holder** A customer who places funds in an investment account and shares in its returns and risks, rather than holding a deposit claim.](https://islamicopenfinance.com/glossary/investment-account-holder/)

**Prudential regulation**

1. [Capital adequacy (Islamic banks)](https://islamicopenfinance.com/glossary/capital-adequacy/)
2. [Displaced commercial risk](https://islamicopenfinance.com/glossary/displaced-commercial-risk/)
3. [Profit equalisation reserve](https://islamicopenfinance.com/glossary/profit-equalisation-reserve/)
4. [Investment risk reserve](https://islamicopenfinance.com/glossary/investment-risk-reserve/)
5. [Alpha factor](https://islamicopenfinance.com/glossary/alpha-factor/)
6. [Islamic deposit insurance](https://islamicopenfinance.com/glossary/islamic-deposit-insurance/)
7. [Fiduciary risk](https://islamicopenfinance.com/glossary/fiduciary-risk/)
8. [Institutions offering Islamic financial services (IIFS)](https://islamicopenfinance.com/glossary/institutions-offering-islamic-financial-services/)

[All 221 terms](https://islamicopenfinance.com/glossary/)