Page 191 - S P Setia Annual Report 2016

 

 

 

 

 

Page 191 - S P Setia Annual Report 2016
P. 191

S P Setia Berhad Group                                                                                189
          Annual Report 2016




                                                                               Notes To The Financial Statements

                                                                                  For The Financial Year Ended 31 December 2016

          40.  FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

              The Group’s and the Company’s activities are exposed to a variety of financial risks, including interest rate risk, credit risk, foreign
              currency exchange risk, liquidity and cash flow risks. The Group’s and the Company’s overall financial risk management objective is to
              minimise potential adverse effects on the financial performance of the Group and the Company.

              Financial risk management is carried out through risk review, internal control systems and adherence to the Group’s and the Company’s
              financial risk management policies. The Board regularly reviews these risks and approves the policies covering the management of
              these risks. The Group and the Company do not trade in derivative instruments.
              (a)   Interest rate risk


                   The Group and the Company are exposed to interest rate risk which is the risk that a financial instrument’s value will fluctuate as
                   a result of changes in market interest rates.

                   Surplus funds are placed with licensed financial institutions to earn interest income based on prevailing market rates. The Group
                   and the Company manage its interest rate risks by placing such funds on short tenures of 12 months or less.

                   The Group’s and the Company’s policy is to borrow principally on a floating rate basis but to retain a proportion of fixed rate
                   borrowings. The objective of a mix of fixed and floating rate borrowings is to reduce the impact of a rise in interest rates and to
                   enable savings to be enjoyed if interest rates fall. The Group and the Company do not generally hedge interest rate risks. The
                   Group and the Company have a policy to ensure that interest rates obtained are competitive.

                   Sensitivity analysis for interest rate risk

                   The weighted average interest rate for bank borrowings of the Group and the Company are as follows:

                                                                        Group                      Company
                                                                      2016          2015          2016          2015
                                                                        %             %              %             %

                   Weighted average interest rate                     4.40           4.21         3.89           4.49

                   A sensitivity analysis has been performed based on the outstanding floating rate bank borrowings of the Group and the Company
                   as at 31 December 2016. If interest rates were to increase or decrease by 50 basis points with all other variables held constant, the
                   Group’s and the Company’s profit before tax would decrease or increase by RM14,189,000 and RM9,829,000 (2015: RM8,114,000
                   and RM3,580,000) respectively.

                   For those interest expense incurred and capitalised as part of the expenditure on investment property under construction, land
                   held for property development and property development costs during the financial year, if the interest rates were to increase
                   or decrease by 50 basis points with all other variables held constant, those assets of the Group would increase or decrease by
                   RM14,426,000 (2015: RM15,870,000).
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