39. FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Market risk (continued) (ii) Market risk in the trading book portfolio Market risk in the trading book portfolio is monitored and controlled using Value-at-Risk (“VaR”). It is a technique that estimates the potential losses that could occur on risk positions as a result of movements in market rates over a specified time horizon and to a given level of confidence. The VaR model used by the Group and the Bank are based on historical simulation which derives plausible future scenarios from past series of recorded market rates and prices. The historical simulation model used by the Group and the Bank incorporates the following features: • • Potential market movements are calculated with reference to data from the past two years; • • Historical market rates and prices are calculated with reference to foreign exchange rates and profit rates; and • • VaR is calculated using a 99 per cent confidence level and for a one-day holding period. A summary of the VaR position of the Bank’s trading book portfolios at the reporting date is as follows: Bank As at 31.12.2021 RM million 1.1.2021 to 31.12.2021 Average RM million Maximum RM million Minimum RM million Profit rate risk 0.14 1.05 2.39 0.14 Foreign exchange risk 0.36 0.66 1.19 0.34 Overall 0.50 1.71 2.78 0.50 Bank As at 31.12.2020 RM million 1.1.2020 to 31.12.2020 Average RM million Maximum RM million Minimum RM million Profit rate risk 2.76 1.88 3.32 0.01 Foreign exchange risk 0.42 0.47 1.02 0.23 Overall 3.18 2.36 3.89 0.36 In addition to VaR, the Group and the Bank has put in place the maximum loss limits, position limits, tenor limits and PV01 limits in monitoring the trading book portfolio. BANK I SLAM MALAYS IA BERHAD NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 December 2021 342
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