BIMB Integrated Annual Report 2017

45. FINANCIAL RISK MANAGEMENT POLICIES (CONTINUED) 45.5 Liquidity risk (continued) (a) Banking (continued) Liquidity risk governance The management of liquidity risk is principally carried out by using sets of policies and guidelines approved by the Bank’s ALCO and/or BRC, guided by the Board’s approved Risk Appetite Statement. The Bank’s ALCO is responsible under the authority delegated by the Bank’s BRC for managing liquidity and funding risk at strategic level. Management of liquidity risk All liquidity risk exposures are managed by the Bank’s Treasury, who has the necessary skills, tools, management and governance to manage such risks. Limits and triggers are set to meet the following objectives: • Maintaining sufficient liquidity surplus and reserves to sustain a sudden liquidity shock; • Ensuring that cash flows are relatively diversified across all maturities; • Ensuring that the deposit base is not overly concentrated to a relatively small number of depositors; • Maintaining sufficient borrowing capacity in the Interbank market and highly liquid financial assets to back it up; and • Not over-extending financing activities relative to the deposit base. The Bank’s MRMD is the independent risk control function and is responsible for ensuring efficient implementation of liquidity risk management. It is also responsible for developing the Bank’s liquidity risk management guidelines, monitoring tools, behavioural assumptions and limit setting methodologies. Escalation procedures are documented and approved by the Bank’s ALCO and/or BRC, with proper authorities to ratify or approve the excess. In addition, the liquidity risk exposures and limits are regularly reported to the Bank’s ALCO and the BRC. Stress testing and scenario analysis are important tools used by the Bank to manage the liquidity risk. Stress test results are produced regularly to determine the impact of a sudden liquidity shock. The stress-testing provides the Bank’s Management and the BRC with an assessment of the financial impact of identified extreme events on the liquidity and funding risk exposures of the Bank. Another key control feature of the Bank’s liquidity risk management is the approved and documented liquidity contingency management plans. These plans identify early indicators of stress conditions and describe actions to be taken in the event of difficulties arising from systemic or other crises while minimising adverse long-term implications to the Bank. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 273 Overview Value Creation Accountability Financial Statements Sustainability Performance Data Shareholders Information 21 st AGM Information Management Discussion & Analysis i S s