Annual Report - Bina Puri

Notes to and Forming Part of the Financial Statements (Cont’d)2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Cont’d)(i)Credit risk (Cont’d)The Group does not require collateral in respect of financial assets and considers the risk of material loss fromthe non-performance on the part of a financial counter-party to be negligible.(ii) Interest rate riskInterest rate risk is the risk that a financial instrument’s value will fluctuate as a result of changes in market interestrates.The Group is exposed to interest rate risk in respect of its deposits placed with licensed financial institutions, bankborrowings and hire purchase liabilities.Interest rate risk arising from deposits placements with financial institutions is managed by sourcing for the highestinterest rate in the market from amongst licensed financial institutions after taking into account the duration andavailability of surplus funds from the Group’s operations.Interest rate risk arising from bank borrowings is subject to floating interest rate with the interest rate spreadabove the bank’s base lending rate agreed before the facility is accepted.The Group considers interest rate risk on hire purchase financing to be insignificant as the interest rates andrepayment terms are fixed at inception.(iii) Market riskThe Group is exposed to market risk, which is the risk that a financial instrument’s value will fluctuate as a resultof changes in market prices.The Group’s exposure to market risk is in respect of its quoted investments. The investments are monitoredregularly and subject to periodic review.The investments are assessed for any diminution in the carrying values andallowances are made for such diminution in value which is other than temporary.The Group does not use derivative instruments to manage the risk as the investments are held for long termstrategic purposes.(iv) Foreign currency exchange riskThe Group is exposed to foreign currency exchange risk as a result of transactions denominated in foreigncurrencies other than its functional currency entered into by the Group.The Group’s exposure to foreign currencyexchange risk is monitored on an ongoing basis.The Group has not hedged against the translation exposure as it does not form a significant proportion of theGroup’s gross assets.(v) Liquidity and cash flow riskPrudent liquidity risk management implies maintaining sufficient cash, deposits and the availability of fundingthrough an adequate amount of committed credit facilities.The Group’s exposure to liquidity and cash flow risk ismonitored on an ongoing basis. Due to the nature of the business, the Group aims at maintaining flexibility infunding by keeping committed credit lines available.The concentration of liquidity and cash flow risk with respectto hire purchase liabilities and bank borrowings are minimal as the amounts recoverable from the financial assetsof the Group are sufficient to meet the committed credit facilities.BINA PURI HOLDINGS BHDAnnual Report 200761