Bank Islam Integrated Annual Report 2020

39. FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (continued) Maximum exposure to credit risk (continued) (a) Derivative financial assets In mitigating the counterparty credit risks from foreign exchange and derivatives transactions, the Group and the Bank enter into master agreements that provide for closeout netting with counterparties, whenever possible. A master agreement that governs all transactions between two parties, creates the greater legal certainty that the netting of outstanding obligations can be enforced upon termination of outstanding transactions if an event of default occurs. (b) Financing, advances and others Business and retail Financing, advances and others will have levels of collateralisation depending on the nature of the product. The general creditworthiness of a corporate and commercial customer tends to be the most relevant indicator of credit quality of a financing extended to it. The Group and the Bank manage its exposures to these customers by completing a credit evaluation to assess the customer’s character, industry, business model and capacity to meet their commitments in a timely manner. The Group and the Bank may take collateral in the form of a first charge over real estate, floating charges over all corporate assets and other liens and guarantees. The Group and the Bank routinely update the valuation of collateral held against all financing as it adopts an annual internal valuation policy and a 2 years external valuation policy. At 31 December 2020, the gross exposure of credit-impaired financing and advances to corporate and commercial customers amounted to RM182,271,000 (2019: RM198,655,000) and the forced sales value of collateral held against those financing and advances amounted to RM298,895,000 (2019: RM310,524,000). House financing The following table presents credit exposures from financing and advances that are credit impaired by ranges of financing-to-value (“FTV”) ratio. FTV is calculated as the ratio of the gross amount of the financing, or the amount committed for financing commitments - to the value of the collateral. Group and Bank FTV ratio 2020 RM’000 2019 RM’000 Credit-impaired financing Less than 51% 35,725 31,815 51-70% 6,842 10,628 More than 70% 91,517 119,718 Total 134,084 162,161 Notes to the financial statements for the financial year ended 31 December 2020 270 Financ ial Statement s Accountabi l i t y Addi t ional Informat ion