Page 425 - Bank-Muamalat_Annual-Report-2023

ANNUAL REPORT 2023
OUR NUMBERS

8.0 MARKET RISK AND ASSETS-LIABILITY MANAGEMENT (“ALM”) (CONT’D)
Market Risk Measurement

1. Value at Risk
Value at Risk which includes the historical simulation is widely used by the Bank as a tool to measure the risk of loss
on a specific portfolio of financial assets, limit setting activities and market forecasting.

2. Sensitivity Analysis
The Bank uses various methodologies in assessing the sensitivity of the Bank’s portfolio against changes in the
market variables.
3. Stress Testing and Scenario Analyses

Stress testing and scenario analyses are used as market risk and ALM tools for evaluation of potential impact on
the Bank’s performance under plausible extreme adverse conditions. The stress testing include the assessment on
the funding and market liquidity, rate of return risk, displaced commercial risk and currency volatility.

Valuation Policy
The Group and the Bank adhere to the minimum prudent valuation practices as stipulated in the CAFIB and
MFRS 9 guidelines. Based on these prudential requirements, broad internal guidelines have been drawn out as
summarised below:
• Systems and Controls

The Group and the Bank have established and maintained adequate systems and controls to give the
management and supervisors the confidence that the valuation estimates are prudent and reliable.

• Valuation Methodologies
There are three levels of fair value hierarchy applied to reflect the level of judgment involved in estimating
fair values. The hierarchy is as follows:

Level 1 - Quoted (unadjusted) market prices in active markets for identical instruments;
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement
that is directly (i.e. prices) or indirectly (i.e. derived from prices), observable; and
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement
is unobservable.

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