Page 220 - Bank-Muamalat_Annual-Report-2023

BANK MUAMALAT MALAYSIA BERHAD

NOTES TO THE
FINANCIAL STATEMENTS
31 DECEMBER 2023 (18 JAMADIL AKHIR 1445H)

2. MATERIAL ACCOUNTING POLICIES (CONT’D.)
2.2 Material accounting policy information (cont’d.)

(d) Derivative instruments and hedge accounting (cont’d.)
(ii) Hedge accounting

The Group and the Bank have elected an accounting policy choice under MFRS 9 Financial Instruments to
continue to apply the hedge accounting requirements under MFRS 139 Financial Instrument Recognition and
Measurement on the adoption of MFRS 9 Financial Instruments on 1 April 2018.

The Group and the Bank use derivative instruments to manage exposures to profit rate and foreign
currency risks. In order to manage particular risks, the Group and the Bank apply hedge accounting for
transactions which meet specified criteria.
At the inception of the hedge relationship, the Group and the Bank formally document the relationship
between the hedged item and the hedging instrument, including the nature of the risk, the objective
and strategy for undertaking the hedge, and the method that will be used to assess the effectiveness
of the hedging relationship.
(1) Fair value hedge

Where a derivative financial instrument hedges the changes in fair value of a recognised asset or
liability, any gain or loss on the hedging instrument is recognised in the statements of profit or loss.
The hedged item is also stated at fair value in respect of the risk being hedged, with any gain or
loss being recognised in the statements of profit or loss.

If the hedging instrument expires or is sold, terminated or exercised or where the hedge no longer
meets the criteria for hedge accounting, the hedge relationship is terminated. For hedged items
recorded at amortised cost, the difference between the carrying value of the hedged item on
termination and the face value is amortised over the remaining term of the original hedge using
the effective profit rate. If the hedged item is derecognised, the unamortised fair value adjustment
is recognised immediately in the statements of profit or loss.

(2) Cash flow hedge
For designated and qualifying cash flow hedges, the effective portion of the gain or loss on the
hedging instrument is initially recognised directly in other comprehensive income into cash flow
hedge reserve. The ineffective portion of the gain or loss on the hedging instrument is recognised
immediately in statements of profit or loss. When the hedged cash flow affects the statements of
profit or loss, the gain or loss on the hedging instrument previously recognised in other
comprehensive income are reclassified from equity and is recorded in the corresponding income
or expense line of the statements of profit or loss.
When a hedging instrument expires, or is sold, terminated, exercised or when a hedge no longer
meets the criteria for hedge accounting, any cumulative gain or loss exist in other comprehensive
income at that time remains in other comprehensive income and is recognised when the hedged
forecast transaction is ultimately recognised in the statements of profit or loss.
When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was
reported in other comprehensive income is immediately transferred to the statements of profit or loss.
The Group and the Bank did not apply cash flow hedge as at the financial year end.

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