BIMB Integrated Annual Report 2019

48 FINANCIAL RISK MANAGEMENT POLICIES (CONTINUED) 48.4 Market risk (continued) (b) Takaful (continued) (iii) Foreign exchange risk Takaful Malaysia’s primary transactions are carried out in Ringgit Malaysia (“RM”) and its exposure to foreign exchange risk arises principally with respect to Indonesia Rupiah (“Rp”) and US Dollar (“USD”). As Takaful Malaysia’s business is conducted primarily in Malaysia, the Takaful Malaysia Group and its subsidiaries’ financial assets are also primarily maintained in Malaysia as required under the Islamic Financial Services Act 2013, and hence, primarily denominated in the same currency (the local RM) as its takaful and investment contract liabilities. Accordingly, the main foreign exchange risk from recognised assets and liabilities arises from transactions other than those in which takaful and investment contract liabilities are expected to be settled. As Takaful Malaysia’s main foreign exchange risk from recognised assets and liabilities arises from retakaful transactions for which the balances are expected to be settled and realised in less than a year, the impact arising from sensitivity in foreign exchange rates is deemed minimal as Takaful Malaysia has no significant concentration of foreign currency risk. Takaful Malaysia’s exposure to currency risk is immaterial in the context of the financial statements and hence, sensitivity analysis is not presented. 48.5 Liquidity risk Overview Liquidity risk is the potential inability of the Group to meet its funding needs and regulatory obligation when they fall due, or will have to do it at excessive cost. This risk can arise from mismatches in the timing of cash flows. The management reviews both Banking and Takaful business’ liquidity risk separately due to the different nature of both businesses. (a) Banking In respect of Bank Islam, the Bank maintains a diversified and stable funding base comprising of retail and corporate customer deposits. This is augmented by wholesale funding and portfolios of highly liquid assets. The objective of the Bank’s liquidity management is to ensure that all foreseeable funding commitments and deposit withdrawals can be met when due and that wholesale market remains accessible and cost effective. Savings account, current account, invesment accounts (IA) and term deposits form a critical part of the Bank’s funding profile, and the Bank places considerable importance on maintaining their stability. The stability depends upon preserving depositor confidence in the Bank and the Bank’s capital strength and liquidity, and on competitive and transparent pricing. The Bank’s liquidity management is primarily carried out in accordance with Bank Negara Malaysia’s requirements and the internal limits are approved by the Bank’s ALCO and/or BRC. The limits vary to take account of the depth and liquidity of the local market in which the Bank operates. The Bank maintains a strong liquidity position and manages the liquidity profile of its assets, liabilities and commitments to ensure that cash flows are appropriately balanced and all obligations are met when due. The management of liquidity risk is principally carried out by using sets of policies and guidelines approved by the Bank’s ALCO and/or BRC, guided by the Board’s approved Risk Appetite Statement. The Bank’s ALCO is responsible under the authority delegated by the Bank’s BRC for managing liquidity and funding risk at strategic level. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 (CONTINUED) 293 BIMB HOLDINGS BERHAD 199701008362 (423858-X) Shareholders’ Information Financial Statements Additional Information Disclosure Summary