axiata group berhad | annual report 2015
226
NOTES TO THE
FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015
38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
(a) Market risks (continued)
(ii) Cash flow and fair value interest rate risk
The Group and the Company have deposits, cash and bank balances including deposits placed with creditworthy licensed banks and
financial institutions. The Group and the Company manage its interest rate risk by actively monitoring the yield curve trend and interest
rate movement for the various deposits, cash and bank balances.
The Group’s borrowings comprise borrowings from financial institutions, Sukuks and Notes. The Group’s interest rate risk objective is to
manage an acceptable level of rate fluctuation on the interest expense. In order to achieve this objective, the Group targets a composition
of fixed and floating borrowings based on assessment of its existing exposure and desirable interest rate profile. To obtain this composition,
the Group uses hedging instruments such as interest rate swap contracts.
As at 31 December 2015, if interest rate on different foreign currencies denominated floating interest rates non-hedged borrowings had
been lower/higher by 5% with all other variables held constant, this will result in a lower/higher interest expense of the Group amounting
to RM22.2 million.
(iii) Price risk
The Group is exposed to equity securities price risk because of the investments held by the Group classified on the consolidated statement
of financial position as AFS and FVTPL. The Group is not exposed to commodity price risk. No financial instruments or derivatives have
been employed to hedge this risk, which is deemed as insignificant.
(b) Credit risk
Credit risk arises from trade receivables, cash and cash equivalents and financial instruments used in hedging activities.
The Group has no significant concentration of credit risk due to its diverse customer base. Credit risk is managed through the application of
credit assessment and approval, credit limit and monitoring procedures. Where appropriate, the Group obtains deposits or bank guarantees from
customers.
The Group and the Company place its cash and cash equivalents with a number of creditworthy financial institutions. The Group’s and the
Company’s policy limit the concentration of financial exposure to any single financial institution.
All hedging instruments are executed with creditworthy financial institutions with a view to limit the credit risk exposure of the Group and the
Company. The Group and the Company, however, are exposed to credit-related losses in the event of non-performance by counterparties to
financial derivative instruments, but do not expect any counterparties to fail to meet their obligations.
The maximum credit risk exposure of the financial assets of the Group and the Company are approximately their carrying amounts as at the end
of the reporting period.
The credit quality of the financial assets that are neither past due nor impaired is shown in Note 18 to the financial statements.
The carrying amount of trade receivables that are past due is shown in Note 32 to the financial statements.
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient liquid funds to meet its financial obligations.
In the management of liquidity risk, the Group and the Company monitor and maintain a level of cash and cash equivalents deemed adequate
by the management to finance the Group’s and the Company’s operations and to mitigate the effects of fluctuations in cash flows. Due to the
dynamic nature of the underlying business, the Group and the Company aims at maintaining flexibility in funding by keeping both committed and
uncommitted credit lines available.
