Page 321 - Bank-Muamalat-Annual-Report-2021

ANNUAL REPORT 2021 319
SUSTAINABILITY STATEMENT OUR GOVERNANCE OUR NUMBERS OTHER INFORMATION

46. fINANcIAL RIsk MANAGeMeNT OBJecTIves AND POLIcIes (cONT’D.)

(b) Market risk (cont’d.)
Types of market risk (cont’d.)
(ii) Non-traded market risk (cont’d.)

foreign currency risk
Foreign exchange risk arises from the movements in exchange rates that adversely affect the revaluation of the
Group and the Bank foreign currency positions.
Group and Bank
2021 2020
rM’000 rM’000 rM’000 rM’000
1% 1% 1% 1%
appreciation depreciation appreciation depreciation

Impact to profit after tax and reserves (1,277) 1,277 1,064 (1,064)

Interpretation of impact

The Group and the Bank measure the foreign exchange sensitivity based on the foreign exchange net open
positions (including foreign exchange structural position) under an adverse movement in all foreign currencies
against reporting currency (MYR). The result implies that the Group and the Bank may be subjected to additional
translation (loss)/ gain if MYR appreciated/ depreciated against other currencies or vice versa.
(iii) Profit rate risk

Inter-bank Offered Rate (“IBOR”) Reformed
London Inter-bank Offered Rate (“LIBOR”) which has been widely used in the global financial markets, would be
discontinued by end-2021 and be replaced by Risk Free Rates (“RFRs”) as part of the global reform of benchmark
interest rate. The transition from LIBOR to RFRs will have significant impact on a bank arising from legal implications
for existing derivatives and loan contract referenced to LIBOR.

While the Bank only has exposure referenced to the Kuala Lumpur Inter-bank Offered Rate (“KLIBOR”) as at 31
December 2021, which is not subject to the reform of transition to RFRs, IBOR reform could expose the Group and
the Bank to various risks as follows:
• Conduct risk arising from discussions with clients and market counterparties due to the amendments required
to existing contracts necessary to affect IBOR reform;

• Financial risk to the Bank and its clients that markets are disrupted due to IBOR reform giving rise to financial
losses;

• Operational risk arising from changes to the Bank’s IT systems and processes, also the risk of payments being
disrupted if an IBOR ceases to be available;