5. MARKET RISK 5.1 Overview All the Group’s financial instruments are subject to the risk that market prices and rates will move, resulting in profit or losses to the Group. The following are the main market risk factors that the Group is exposed to: • Profit Rate Risk: also known as the Rate of Return Risk is the potential impact on the Group’s profitability and capital caused by changes in the rate of return, due to general market movements or issuer/customer specific reasons. • Foreign Exchange Risk: the impact of exchange rate movements on the Group’s currency positions. • Equity Risk: the profitability impact on the Group’s equity positions or investments caused by changes in equity prices or values. The Group separates the market risk exposures into either trading book or banking book portfolios. Trading book portfolios include those positions arising from market making, proprietary position taking and other marked-tomarket positions as per the Board approved Trading Book Policy Statements. Banking book portfolios primarily arise from the Group’s profit rate management of the Group’s asset & liabilities and investment portfolio mainly for liquidity management. 5.2 Market Risk Governance The management of market risk is principally carried out by using sets of policies and guidelines approved by Asset & Liability Committee (ALCO) and/or BRC, guided by the Board’s approved Group Risk Appetite Statement. The ALCO is responsible under the authority delegated by the BRC for managing market risk at strategic level. 5.3 Management of Market Risk The objective is to manage market risk exposures in order to optimise return on risk while maintaining a market risk profile consistent with the Group’s approved risk appetite. In addition, the market risk exposures and limits are regularly reported to ALCO and BRC. Stress test results are produced regularly to determine the impact of changes in profit rates, foreign exchange rates and other risk factors on the Group’s profitability, capital adequacy and liquidity under various scenarios. a) Profit rate risk in the banking book portfolio Profit rate risk in the banking book also known as Rate of Return Risk in the Banking Book (RORBB) is the current and potential risk to the Group’s earnings and economic value arising from movements in profit rates. The profit rate risk in the banking book portfolio is measured and managed using measurement techniques known as Earnings-at-Risk (EaR) and Economic Value of Equity (EVE), to ensure the risk is managed within the Group’s risk appetite. Bank Islam Malaysia Berhad ◆ Integrated Annual Report 2024 478 Pillar 3 Disclosure as at 31 December 2024
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