118 MSC BERHAD Notes to the Financial Statements (cont’d) 36. Financial Instruments (cont’d) (c) Financial risk management objectives and policies (cont’d) (iii) Market risks (a) Interest rate risk The Group’s and the Company’s fixed rate deposits placed with licensed banks and lease liabilities are exposed to a risk of change in their fair value due to changes in interest rates. The Group’s and the Company’s variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. The Group and the Company manage the interest rate risk of its deposits with licensed banks by placing them at the most competitive interest rates obtainable, which yield better returns than cash at bank and maintaining a prudent mix of short and long-term deposits. The Group and the Company manage its interest rate risk exposure from interest bearing borrowings by obtaining financing with the most favourable interest rates in the market. The Group constantly monitors its interest rate risk by reviewing its debts portfolio to ensure favourable rates are obtained. The Group does not utilise interest swap contracts or other derivative instruments for trading or speculative purposes. The interest rate profile of the Group’s and of the Company’s significant interest-bearing financial instruments, based on carrying amount at the end of the reporting period are as follows: Group Company 2024 2023 2024 2023 RM RM RM RM Fixed rate instruments Financial assets 245,955 243,227 245,955 243,227 Financial liabilities (1,606,170) (632,211) (330,415) (632,211) (1,360,215) (388,984) (84,460) (388,984) Floating rate instruments Financial assets 11,386,885 5,223,206 8,284,799 4,311,206 Financial liabilities (6,941,175) - (6,941,175) - 4,445,710 5,223,206 1,343,624 4,311,206 Interest rate risk sensitivity analysis Fair value sensitivity analysis for fixed rate instruments The Group and the Company do not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore, a change in interest rates at the end of the reporting period would not affect profit or loss. Cash flow sensitivity analysis for floating rate instruments A change in 1% interest rate at the end of the reporting period would have increased/(decreased) the Group’s and the Company’s profit before tax by RM44,457 (2023: RM52,232) and RM13,436 (2023: RM43,112) respectively, arising mainly as a result of higher/lower interest income on floating rate instruments. This analysis assumes that all other variables remain constant. The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment.
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