notes to the financial statements
for the financial year ended 31 December 2014 (Continued)
51 FINANCIAL RISKMANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Market risk (continued)
(b)
Interest rate risks
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value
interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates.
The Group’s and the Company‘s exposure to interest rate risks relates primarily to the Group’s and the Company’s time deposits and interest bearing borrowings.
Surplus funds are placed with licensed financial institutions to earn interest income based on prevailing market rates. The Group and the Company manages
its interest rate risks by placing such funds on short tenures of 12 months or less.
The Group and the Company generally borrow principally on a floating rate basis and ensure that interest rates obtained are competitive. The Group has entered
into interest cap and interest rate swap contracts (Note 12) to limit the Group’s exposure to adverse interest rate fluctuations.
The interest rate profile of the Group’s and the Company’s significant interest-bearing financial instrument have been presented in Notes 20, 23 and 32.
Fair value sensitivity for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives as
a fair value hedge. Therefore, a change in interest rates for these financial instruments at the end of the reporting period would not affect profit or loss.
Cash flow sensitivity analysis for variable rate instruments
At the reporting date, if interest rates had been 50 basis points lower/higher, with all other variables held constant, the Group’s pre-tax cash flows would have
been approximately RM1,148,508 (2013: RM1,502,000) higher/lower, arising mainly as a result of lower/higher interest expense on floating rate borrowings. The
assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment.
Liquidity risk
Liquidity risk is the risk that the Group or the Company will not be able to meet its financial obligations as they fall due. The Group’s and the Company’s exposure to
liquidity risk arises principally from its payables and borrowings. The Group and the Company maintain a level of cash and cash equivalents and bank facilities deemed
adequate by the management to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they fall due.
As at 31 December 2014, there are facilities available together with new facility which the Group and the Company is pursuing, that can be used to part refinance
borrowings, capital expenditure and general working capital requirements of the Group and the Company.
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Wah Seong Corporation Berhad • Annual Report 2014
