Page 128 - Exim iar24_Ebook

EXIM BANK MALAYSIA
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NOTES TO THE FINANCIAL STATEMENTS

2. MATERIAL ACCOUNTING POLICY INFORMATION (cont’d)

2.4 Summary of material accounting policy information (cont’d)
(f) Financial assets (cont’d)

(v) Financing and receivables (cont’d)
Definition of Shariah concept: (cont’d)

(e) Bai’ Al Dayn: Sale of debt in which the customer sells his payable right to the Bank at discount price or at
cost price on the spot payment basis.
(f) Kafalah: Conjoining the guarantor’s liability to the guaranteed party’s liability such that the obligation of
the guaranteed party is established as a joint liability of the guarantor and the guaranteed party.
(vi) Derivative instruments and hedge accounting

(a) Derivative instruments
The Group and the Bank enters into derivative contracts such as interest/profit rate swaps, cross currency
interest/profit rate swaps and forward contracts. Such derivative financial instruments are initially
recognised at fair value on the date on which a derivative contract is entered into and subsequently
re-measured at fair value. Fair values are obtained from quoted market prices in active markets,
including recent market transactions and valuation techniques, as appropriate. All derivatives are carried
as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value
of any derivatives that do not qualify for hedge accounting are recognised immediately in the statement
of profit or loss.

The Group and the Bank use derivative instruments to manage their exposures to interest/profit rate and
foreign currency risks. In order to manage particular risk, the Group and the Bank apply hedge accounting
for transactions which meet specified criteria.

(b) Hedge accounting
At the inception of each hedge relationship, the Group and the Bank formally designate and document
the relationship between the hedged item and the hedging instruments, including the nature of the risk,
the risk management objective and strategy for undertaking the hedge and the method that will be used to
assess the effectiveness of the hedging relationship at inception and ongoing basis.

At each hedge effectiveness assessment date, a hedge relationship must demonstrate that it is highly
effective on prospective and retrospective basis for the designated period in order to qualify for hedge
accounting. Hedge ineffectiveness is recognised in the statement of profit or loss.

The Group and the Bank only account for hedge that meets the strict criteria for hedge accounting,
as described below:

Fair value hedge
For designating and qualifying fair value hedges, the cumulative changes in the fair value of a hedge
derivative is recognised in the statement of profit or loss. Meanwhile the cumulative changes in the fair
value of the hedge item attributable to the risk hedged are recorded as part of the carrying value of the
hedge item in the statements of financial position and the statement of profit or loss.