41. FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Market risk (continued) Profit rate risk (continued) 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. The Group and the Bank monitor the sensitivity of EaR and EVE under varying profit rate scenarios and also incorporates internal behavioural assumptions. These scenarios assume no management action and hence, it does not incorporate actions that would be taken by Treasury to mitigate the impact of the profit rate risk. In reality, depending on the view on future market movements, Treasury would proactively manage and strategise to change the profit rate exposure profile to minimise losses and to optimise net revenues. The Bank’s hedging and risk mitigation strategies range from the use of derivative financial instruments, such as profit rate swaps, to more intricate hedging strategies to address inordinate profit rate risk exposures. The table below shows the Group’s and the Bank’s profit rate sensitivity to a 150 basis points parallel shift as at reporting date. Group Bank –150bps RM million +150bps RM million –150bps RM million +150bps RM million 2023 Impact on EaR before tax (224.3) 224.3 (223.4) 223.4 Impact on EaR after tax @24% (170.5) 170.5 (169.8) (169.8) 2022 Impact on EaR before tax (194.6) 194.6 (192,3) 192.0 Impact on EaR after tax @24% (147.9) 194.6 (146.1) 146.1 2023 Impact on EVE 419.4 (419.4) 418.9 (418.9) 2022 Impact on EVE 381.7 (381.7) 380.0 (380.0) Control to manage the profit rate risk in the banking book portfolio includes present value of 1 basis point change (“PV01”) which measures the banking book fair value to comprehensive income securities (“FVOCI”) portfolio’s sensitivity to market rates movement. 379 1 2 3 4 5 6 7 8 9 www.bankislam.com FINANCIAL STATEMENTS
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