5. MARKET RISK (CONTINUED) 5.4 Capital Treatment for Market Risk The Group adopts the Standardised Approach to compute the market risk capital requirement under BNM’s CAFIB. 6. LIQUIDITY RISK 6.1 Overview Liquidity risk is the potential inability (or perceived inability) of the Group and the Bank to meet its funding needs and/or unexpected higher cost to meet its obligation. 6.2 Liquidity Risk Governance The management of liquidity risk is principally carried out by using sets of policies and guidelines approved by ALCO and/or BRC, guided by the Board’s approved Group Risk Appetite Statement Policy. ALCO is responsible under the authority delegated by BRC for managing liquidity risk at strategic level. 6.3 Management of Liquidity Risk The Group maintains a diversified and stable funding base comprising retail and corporate customer deposits. The primary source of fundings includes customer deposits, investment account, interbank deposits, debt securities and sukuk issuance. The Group and the Bank also maintain some buffers of liquidity throughout the year to ensure safe and sound operations from a strategic, structural and tactical perspective. The Group’s liquidity management is primarily carried out in accordance with Bank Negara Malaysia’s requirements and the internal limit approved by ALCO and/or BRC. The Group has adopted BNM’s liquidity standards on Liquidity Coverage Ratio (LCR) to ensure maintenance of adequate stock of 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 also use a range of tool to monitor and control liquidity risk exposure such as liquidity gap, deposit concentration, and other early warning signals. The day-to-day responsibility for all liquidity risk exposures are managed by Treasury, who has the necessary skills, tools, management and governance to manage such risks. 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 that cash flows are relatively diversified across all maturities; • Ensuring that the deposit base is not overly concentrated on a relatively small number of depositors In addition, the liquidity risk exposures and limits are reported to ALCO and BRC. Regular stress test is conducted under various scenarios to assess the impact of sudden liquidity shocks. 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. Bank Islam Malaysia Berhad ◆ Integrated Annual Report 2024 482 Pillar 3 Disclosure as at 31 December 2024
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