42. FINANCIAL RISK MANAGEMENT (CONTINUED) Overview (continued) (d) Liquidity risk (continued) Management of liquidity risk (continued) The Group’s and 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 ALCO and/or BRC. The Group and the Bank have adopted BNM’s liquidity standard on Liquidity Coverage Ratio (LCR) to ensure maintenance of adequate stock of unencumbered high-quality liquid assets (HQLA) to survive the liquidity needs for 30 calendar days under liquidity stress condition and Net Stable Funding Ratio (NSFR) that aims to strengthen the funding maturity profile to reduce funding risk over a longer time horizon. The Group and the Bank also use a range of tools to monitor and control its liquidity risk exposures such as liquidity gap, deposit concentration, early warning signals and other liquidity indicators. The day-to-day responsibility for all liquidity risk exposures are managed by Treasury. Limits and other risk controls are set to meet the following objectives: • Maintaining sufficient liquidity surplus and reserves to sustain a sudden liquidity shock; • Ensuring cash flows are relatively diversified across all maturities; • Ensuring funding base is diversified and not overly concentrated to a relatively small number of depositors; In addition, the liquidity risk exposures and limits are reported to the ALCO and the BRC. Stress Testing and Contingency Funding Planning Regular stress tests are conducted under various scenarios to assess the impact of sudden liquidity shock. The Group’s and the Bank’s Contingency Funding Plan (CFP) are in place to alert and enable the management to act effectively and efficiently during a liquidity or funding crisis and under adverse market conditions. The CFP is subjected to regular testing. 405 w w w . b a n k i s l a m. c o m 01 02 03 04 05 06 07 08 FINANCIAL STATEMENTS 09
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