Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023 45 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk (continued) (b) Intercompany balances The Company provides unsecured loans and advances to subsidiaries. The Company monitors the results of its subsidiaries regularly. As at 31 December 2023 and 31 December 2022, the maximum exposure to credit risk is represented by their carrying amounts in the statement of financial position. Management has taken reasonable steps to ensure that intercompany receivables are stated at the realisable values. As at 31 December 2023 and 31 December 2022, the amounts owing by subsidiaries were considered performing, except for certain subsidiaries. For movement of allowance for impairment of amount owing by subsidiaries, refer to Note 15(a). Advances to subsidiaries that are repayable on demand and interest-free are classified as amortised cost in the Company’s financial statements because the Company’s business model is to hold and collect the contractual cash flows and those cash flows represent solely payments of principal and interest. The Company applied the general 3-stage approach when determining ECL for these advances to subsidiaries. There is no loss allowance recognised on these advances to subsidiaries as all strategies indicate that the Company could fully recover the outstanding balance of the advances to subsidiaries. Advances to subsidiaries in the Company’s separate financial statements are assessed on individual basis for ECL measurement, as credit risk information is obtained and monitored based on each advances to subsidiary. (c) Derivative financial instruments Transactions involving derivative financial instruments are with approved financial institutions and reputable banks. As at the end of the reporting period, the maximum exposure to credit risk arising from derivatives financial assets is represented by the carrying amounts in the statement of financial position. In view of the counterparties being reputable licensed financial institutions, management does not expect any of the counterparties to fail to meet their obligations. (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 RM368,960,000 (2022: RM317,053,000) representing banking facilities utilised by the subsidiaries as at the end of the financial year. As at 31 December 2023 and 31 December 2022, 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. Integrated Annual Report 2023 280
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