BIMB Integrated Annual Report 2017

45. FINANCIAL RISK MANAGEMENT POLICIES (CONTINUED) 45.4 Market risk (continued) (b) Takaful (continued) (iii) Foreign exchange risk (continued) As Takaful Malaysia’s main foreign exchange risk from recognised assets and liabilities arises from retakaful transactions for which the balances are expected to be settled and realised in less than a year, the impact arising from sensitivity in foreign exchange rates is deemed minimal as Takaful Malaysia has no significant concentration of foreign currency risk. Takaful Malaysia’s exposure to currency risk is immaterial in the context of the financial statements and hence, sensitivity analysis is not presented. 45.5 Liquidity risk Overview Liquidity risk is the potential inability of the Group to meet its funding needs and regulatory obligation when they fall due, or will have to do it at excessive cost. This risk can arise from mismatches in the timing of cash flows. The management reviews both Banking and Takaful business’ liquidity risk separately due to the different nature of both businesses. (a) Banking In respect of Bank Islam, the Bank maintains a diversified and stable funding base comprising core retail, commercial, corporate customer deposits and institutional balances. This is augmented by wholesale funding and portfolios of highly liquid assets. The objective of the Bank’s liquidity and funding management is to ensure that all foreseeable funding commitments and deposit withdrawals can be met when due and that wholesale market access remains accessible and cost effective. Current accounts and savings deposits payable on demand form a critical part of the Bank’s funding profile, and the Bank places considerable importance on maintaining their stability. For deposits, stability depends upon preserving depositor confidence in the Bank and the Bank’s capital strength and liquidity, and on competitive and transparent pricing. The Bank’s liquidity management is primarily carried out in accordance with Bank Negara Malaysia’s requirements and limits approved by the Bank’s ALCO and/or BRC.These limits and triggers vary to take account of the depth and liquidity of the local market in which the Bank operates. The Bank maintains a strong liquidity position and manages the liquidity profile of its assets, liabilities and commitments to ensure that cash flows are appropriately balanced and all obligations are met when due. The Bank’s liquidity and funding management process includes: • Daily projection of cash flows and ensuring that the Bank has sufficient liquidity surplus and reserves to sustain a sudden liquidity shock; • Projecting cash flows and considering the level of liquid assets necessary in relation thereto; • Maintaining liabilities of appropriate term relative to the asset base; • Maintaining a diverse range of funding sources with adequate back-up facilities; • Monitoring depositor concentration in order to avoid undue reliance on large individual depositors and ensure a satisfactory overall funding mix; and • Managing the maturities and diversifying funding liabilities across products and counterparties. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 272 BIMB HOLDINGS BERHAD Integrated Annual Report 2017