Wah Seong Corporation Berhad Annual Report 2021 197 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021 45 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued) (b) Cash flow and fair value interest rate risks Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates. The Group’s and the Company’s exposure to interest rate risks relates primarily to the Group’s and the Company’s time deposits and interest bearing borrowings. Surplus funds are placed with licensed financial institutions to earn interest income based on prevailing market rates. The Group and the Company manage its interest rate risks by placing such funds on short tenures of 12 months or less. The Group and the Company generally borrow principally on a floating rate basis and ensure that interest rates obtained are competitive. The interest rate profile of the Group’s and the Company’s significant interest-bearing financial instrument have been presented in Note 17, 19, 21 and 27. Fair value sensitivity for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives as a fair value hedge. Therefore, a change in interest rates for these financial instruments at the end of the reporting period would not affect profit or loss. Sensitivity analysis for variable rate instruments At the reporting date, if interest rates had been 50 basis points lower/higher, with all other variables held constant, the Group’s and the Company’s profit or loss after tax and equity would have been approximately RM3,673,000 and RM511,000 (2020: RM4,295,000 and RM634,000) higher/lower, arising mainly as a result of lower/higher interest expense on floating rate borrowings. The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment. Liquidity risk Liquidity risk is the risk that the Group or the Company will not be able to meet its financial obligations as they fall due. The Group’s and the Company’s exposure to liquidity risk arises principally from its trade and other payables and loans and borrowings. The Group and the Company maintain a level of cash and cash equivalents and bank facilities deemed adequate by the management to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they fall due. As at 31 December 2021, there are sufficient facilities available that can be used to refinance borrowings, capital expenditure and general working capital requirements of the Group and the Company. Details of liquidity risk are disclosed in Note 27 to the financial statements.
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