BIMB Integrated Annual Report 2017

45. FINANCIAL RISK MANAGEMENT POLICIES (CONTINUED) 45.4 Market risk Overview All the Group’s businesses are subject to the risk that market prices and rates will move, resulting in profit or losses to the Group. The following are the main market risk factors that the Group is exposed to: • Profit Rate Risk: also known as the Rate of Return Risk is the potential impact on the Group’s profitability caused by changes in the market rate of return, either due to general market movements or due to issuer/borrower specific reasons; • Foreign Exchange Risk: the impact of exchange rate movements on the Group’s currency positions; • Equity Investment Risk: the profitability impact on the Group’s equity positions or investments caused by changes in equity prices or values; • Commodity Inventory Risk: the risk of loss due to movements in commodity prices; • Liquidity Risk: the potential inability of the Group to meet its funding requirements at a reasonable cost (funding liquidity risk) or its inability to liquidate positions quickly at a reasonable price (market liquidity risk). The key features of the Group’s market risk management practices and policies are represented by the Banking and Takaful segments. (a) Banking Bank Islam separates the market risk exposures into either trading or non-trading portfolios. Trading portfolios include those positions arising from market making, proprietary position taking and other marked-to-market positions so designated as per the Bank’s Board approved Trading Book Policy Statements. Non-trading portfolios primarily arise from the Bank’s profit rate management of the Bank’s assets and liabilities and investment portfolio mainly for liquidity management. Market risk governance The management of market risk is principally carried out by using sets of policies and guidelines approved by the Bank’s ALCO and/or BRC, guided by the Bank’s Board’s approved Risk Appetite Statement. The Asset and Liability Management Committee (“ALCO”) is responsible under the authority delegated by the Bank’s BRC for managing market risk at strategic level. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 261 Overview Value Creation Accountability Financial Statements Sustainability Performance Data Shareholders Information 21 st AGM Information Management Discussion & Analysis e