Page 215 - Exim iar24_Ebook

EXIM BANK MALAYSIA ANNUAL REPORT 2024

7 FINANCIAL STATEMENTS 213
NOTES TO THE FINANCIAL STATEMENTS

42. FINANCIAL RISK MANAGEMENT POLICIES (cont’d)
Fair values (cont’d)
(iii) Financial assets and liabilities not carried at fair value

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:
Financial investments at amortised cost

The fair value of unquoted financial investemnts at amortised cost approximates their carring value due to lack
of observable market data, and because there has been no significant change in market interest rates since initial
recognition.

Loans, advances and financing
Loans, advances and financing to borrowers/customers, where such market prices are not available, various
methodologies have been used to estimate the approximate fair values of such instruments. These methodologies
are significantly affected by the assumptions used and judgements made regarding risk characteristics of various
financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors.
Changes in the assumptions could significantly affect these estimates and the resulting fair value estimates. Therefore,
for a significant portion of the Group’s and the Bank’s financial instruments, including loans, advances and financing
to customers, their respective fair value estimates do not purport to represent, nor should they be construed to represent,
the amount that the Group and the Bank could realise in a sale transaction at the reporting date.

The fair values of variable rate loans/financing are estimated to approximate their carrying values. For fixed rate loans
and Islamic financing, the fair values are estimated based on expected future cash flows of contractual instalment
payments, discounted at applicable and prevailing rates at reporting date offered for similar facilities to new
borrowers/customers with similar credit profiles. In respect to impaired loans/financing, the fair values are deemed to
approximate the carrying values which are net of allowances for stage 3 ECL.

Investment properties
The fair values of investment properties are estimated based on comparison with indicative market value determined
by an accredited independent valuer.

Borrowings (Non-hedged items)
The fair value of variable rate borrowings is estimated to approximate the carrying amount.

Deposit from a corporate customer
The fair value of deposit from a corporate customer is estimated to approximate the carrying amount due to its short
maturity.

43. INSURANCE RISKS
The principal underwriting risk to which the Group and the Bank is exposed is credit risk in connection with credit,
guarantee and political risk insurance underwriting activities. Management has established underwriting processes and limits
to manage this risk by performing credit review on its policy holders and buyers.
The underwriting function undertakes qualitative and quantitative risk assessments on all buyers and clients before
deciding on an approved insured amount. Policies in riskier markets may be rejected or charged at a higher premium rate
accompanied by stringent terms and conditions to commensurate the risks.
Concentration limits are set to avoid heavy concentration within a specific region or country. Maximum limits are set for buyer
credit limits and client facility limits for prudent risk mitigation.