Annual Report Laporan Tahunan - Baiduri Bank

Notes to Financial Statements
December 31, 2008
25 RISK MANAGEMENT OBJECTIVES AND POLICIES
Accepting and managing risk is central to the business of the Group and is an important source of
competitive advantage.
The Board of Directors are accountable for establishing and maintaining an environment that manages risk
in an effective and efficient manner. This includes a robust system of limits, controls and reporting
processes. Management and senior executives track key performance indicators, investigates and reports
on effectiveness of risk management systems to the Board of Directors. The Group’s internal audit department
also provide an independent assessment of this process.
The following discussion on risk management concentrates on the Group’s main areas of risk:
(i)
Credit risk
Credit risk is the risk of financial loss that results from customers failing to meet their obligations.
Credit risk arises primarily from lending-related activities and represents Group’s major risk type.
The Board of Directors approves major prudential policies and limits that govern large customer
exposures and industry concentration. The Board of Directors also appoints independent credit
officers in each business areas. These credit officers would work with the line managers to ensure that
approved policies are applied appropriately and achieve optimal returns on the Group’s risk
exposure.
In respect of its lending-related activities, management regularly review the amount of risk accepted
in related to one borrower or groups of borrowers, industry segments, level of non-performing loans
and adequacy of provisioning requirements.
Exposure to credit risk is also managed in part by obtaining collateral. Some of the assets typically
included as collateral are property, assignment of rental income, salary and deposit placement.
(ii)
Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its cashflow obligations as and when they fall
due.
To manage the risk, the Group monitors and maintains sufficient liquid assets to ensure that the liquidity
risk exposure is managed and minimised.
Additionally, the Group has to comply with the regulations and guidelines of Ministry of Finance in
maintaining minimum cash balances with the Ministry of Finance.
(iii)
Interest/Financing rate risk
Interest/financing rate risk is the risk of earnings and value of financial instruments caused by
fluctuations in interest/financing rates.
Sensitivity to interest/financing rates arises from the differences in the maturities and re-pricing dates
of assets and liabilities. These differences are monitored and managed by management to ensure that
the risk exposure is minimised. These includes actively reviewing its interest/financing rate to ensure
that the Group receives an optimal and yet competitive interest/financing spread.
42 Baiduri Bank Annual Report 2008