Market risk management D 1) Sensitivity analysis for foreign exchange risk

Foreign currency risk

Foreign exchange risk arises from the movements in exchange rates that adversely affect the revaluation of the Group and the foreign currency positions. Considering that other risk variables remain constant, the foreign currency revaluation sensitivity for the Group and the Bank on their unhedged position. 1% appreciation (-) n 1% depreciation (+)

Interpretation of Impact

The Group and the Bank measure the foreign exchange sensitivity based on the foreign exchange net open positions (including foreign exchange structural position) under an adverse movement in all foreign currencies against reporting currency (MYR). The result implies that the Group and the Bank may be subject to additional translation (loss)/gain if MYR appreciated/depreciated against other currencies and vice versa.

E) Liquidity risk management
1. Liquidity risk management overview
-Liquidity management
Liquidity is the ability of the Group to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses.
Generally, there are two types of liquidity risk which are funding liquidity risk and market liquidity risk. Funding liquidity risk is the risk that the firm will not be able to meet efficiently both expected and unexpected current and future cash flow needs without affecting either daily operations or the financial condition of the firm. Market liquidity risk is the risk that a firm cannot easily offset or eliminate a position at the market price because of inadequate market depth or market disruption
-Liquidity risk management framework
The Group employs BNM’s Liquidity Framework and leading practices as a foundation to manage and measure its liquidity risk exposure. The Group also uses a range of tools to monitor and limit liquidity risk exposure such as liquidity gap, early warning signals, liquidity indicators and stress testing. The liquidity positions of the Group are monitored regularly against the established policies, procedures and limits. Diversification of liquidity sources
Sources of liquidity are regularly reviewed to maintain a wide diversification by currency, provider, product and term. The Group has a diversified liability structure to meet its funding requirements. The primary source of funding include customer deposits, interbank deposits, debt securities, swap market, bank loan syndication and medium term funds. The Group also reviews, initiates and implements strategic fund raising programmes as well as institutes standby lines with external parties on a need basis. Liquidity Buffers
Maybank Group maintains a portfolio of highly liquid instruments on its statement of financial position that can be drawn upon when needed.
Stress Testing and Contingency Funding Plan
The Group uses stress testing and scenario analysis to evaluate the impact of sudden stress events on liquidity position. Scenarios are based on hypothetical events that include bank specific crisis and general market crisis scenarios. The stress test result provides an insight of the
Group’s funding requirements during different level of stress environment and is closely linked to the Group’s
Contingency Funding Plan (CFP), which provides a systemic approach in handling any unexpected liquidity disruptions

2. Contractual maturity of total assets and liabilities
The table below analyses assets and liabilities (inclusive of non-financial instruments) of the Group and the Bank in the relevant maturity tenures based on remaning contractual maturities.
3. Contractual maturity of financial liabilities on an undiscounted basic
The tables below present the cash flows payable by the Group and the Bank under non-derivative financial liabilities by remaining contractual maturities at the end of the reporting period. The amounts disclosed in the table are the contractual undiscounted cash flow

(f) Operational risk management

Under the Group’s three lines of defence concept, risk taking units (Business/Support Sectors) constitute an integral part of the operational risk management framework and are primarily responsible for the management of day-to-day operational risks inherent in their respective business and functional areas. They are responsible for putting in place and maintaining their respective operational manuals and ensuring that activities undertaken by them comply with Maybank Group’s operational risk management framework.

FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Financial instruments comprise financial assets, financial liabilities and also derivatives. The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction, other than in a forced or liquidation sale. The information presented herein represents best estimates of fair values of financial instruments at the reporting date
The on-balance sheet financial assets and financial liabilities of the Group and the Bank whose fair values are required to be disclosed in accordance with FRS132 comprise all its assets and liabilities with the exception of investments in subsidiaries, investments in associates, property, plant and equipment, provision for current and deferred taxation, life, general takaful and family takaful fund assets, and life, general takaful and family takaful fund liabilities. The information on the fair values of financial assets and financial liabilities of the life, general takaful and family takaful fund

CAPITAL AND OTHER COMMITMENTS
Capital expenditure approved by directors but not provided for in the financial statements: which is
Approved and contracted for and Approved but not contracted for
2011 713,964 2010 334,997

CAPITAL MANAGEMENT
A strong capital position is essential to the Group’s business strategy and competitive position. The Group’s capital strategy focuses on long-term stability, which enables it to build and invest in market leading businesses. The Group considers the implications on the capital strength prior to making any decision on future business activities. In addition to considering the earnings outlook, the Group evaluates all sources and uses of capital and makes decisions to vary any source or use to preserve the Group’s capital strength.

CAPITAL ADEQUACY
On 29 June 2010, the Bank and its subsidiary, Maybank Islamic Berhad (“MIB”) have received approval from Bank Negara Malaysia (“BNM”) to migrate to Internal Ratings-Based (IRB) approach for credit risk under Basel II Risk Weighted Capital Adequacy Framework (RWCAF) from 1 July 2010 onwards.
LIFE, GENERAL TAKAFUL AND FAMILY TAKAFUL FUNDS’ STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2011
The operating revenue generated from the life insurance, general takaful and family takaful businesses of the Group for the financial year.

Asset n liabilities total = 19,196,413 amounted to approximately RM5,156,058,000 (2010: RM5,407,765,000).
CHANGES IN ACCOUNTING POLICIES AND COMPARATIVES (a) Changes in Accounting Policies
(i) FRS 139 Financial Instruments: Recognition and Measurement
(ii) IC Interpretation 9 Reassessment of Embedded Derivatives
(iii) Amendments to FRS 139 Financial Instruments: Recognition and Measurement, FRS 7 Financial Instruments: Disclosures and IC Interpretation 9 Reassessment of Embedded Derivatives
(iv) Amendments to FRS 139 Financial Instruments: Recognition and Measurement
(v) FRS 4 Insurance Contracts

THE OPERATIONS OF ISLAMIC BANKING SCHEME (“IBS”)
Asset n liabilities = 18,643,612
Financing and advances
Group
2011
RM’000
2010
RM’000
Bai’ Bithaman Ajil 17,932,184 13,712,133
Ijarah 15,179,894 12,399,343
Murabahah 11,859,082 6,938,773
Al-Ijarah Muntahiyah Bi
Tamleek 235,581 177,389
Musharakah Mutanaqisah 1,625,386 1,255,688
Other concepts 347,410 199,793
Gross financing and advances 47,179,537 34,683,119