5. MARKET RISK (CONTINUED) 5.3 Management of Market Risk (continued) Other controls to ensure that market risk exposures remain within tolerable levels include regular stress testing, adhoc simulations, and rigorous new product approval procedures. 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. The stress test provides the Management and BRC with an assessment of the financial impact of identified extreme events on the market risk exposures of the Group. 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. The Group monitors 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 profit rate sensitivity to a 150 basis points parallel shift as at reporting date. Group Impact on EaR Currency 31 December 2023 Increase/(Decline) 31 December 2022 Increase/(Decline) +150bps RM million –150bps RM million +150bps RM million –150bps RM million MYR 225.6 (225.6) 197.6 (197.6) USD (0.8) 0.8 (2.5) 2.5 OTHERS* (0.5) 0.5 (0.5) 0.5 TOTAL 224.3 (224.3) 194.6 (194.6) Note: 1. *Inclusive of all other currencies except MYR and USD 456 Pillar 3 Disclosure as at 31 December 2023 Bank Islam Malaysia Berhad ◆ Integrated Annual Report 2023
RkJQdWJsaXNoZXIy NDgzMzc=