NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022 45 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk (continued) (d) Financial guarantees The Company provides unsecured financial guarantees to banks in respect of banking facilities granted to certain subsidiaries. The Company monitors on an ongoing basis the results of the subsidiaries and repayment made by the subsidiaries. The maximum exposure to credit risk amounts to RM317,053,000 (2021: RM293,885,000) representing banking facilities utilised by the subsidiaries as at the end of the financial year. As at 31 December 2022 and 31 December 2021, there was no indication that any subsidiary would default on repayment. Financial guarantees have not been recognised since the fair value on initial recognition was not material as the probability of the subsidiaries defaulting on its banking facilities is remote. (e) Time deposits and cash and bank balances Time deposits and cash and bank balances are placed with approved financial institutions and reputable banks. The likelihood of non-performance by these financial institutions is remote based on their high credit ratings. Market risk Market risk refers to the risk that changes in market prices, such as foreign exchange rates, interest rates and prices will affect the Group’s and the Company’s financial position and cash flows. (a) Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group has transactional currency exposures arising from sales and purchases that are denominated in a currency other than the functional currencies of the Group entities. The foreign currency in relation to these transactions is mainly denominated in United States Dollar. The Group maintains a natural hedge, whenever possible, by maintaining receivables and payables in matching foreign currencies. Foreign exchange exposures in transactional currencies other than the functional currencies of the operating entities are kept to an acceptable level. The Group also uses forward currency contracts to minimise exposure on currency fluctuations for which receipts or payments are anticipated more than one month after the Group has entered into a firm commitment for a sale or purchase. The forward currency contracts entered are in the same currency as the hedged item. It is the Group’s policy to negotiate the terms of the forward currency contracts to match the terms of the hedged item to maximise its effectiveness. At the reporting date, the Group is mainly exposed to fluctuation in the United States Dollar exchange rate against the respective functional currencies of the Group entities. The Group considers a 5% strengthening or weakening of the United States Dollar as a possible change. A 5% strengthening or weakening of the United States Dollar would result in profit or loss after tax and equity being approximately RM9,466,000 and RM195,000 (2021: RM169,000 and RM1,979,000) higher or lower for the Group and the Company accordingly. The Group and the Company consider that the foreign currency risk attributable to currencies other than the United States Dollar to be insignificant. Wah Seong Corporation Berhad Annual Report 2022 200
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