MISC Annual Report 2018

NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS HIGHLIGHTS OF THE YEAR OUR BUSINESS OUR LEADERSHIP OUR PERFORMANCE OUR COMMITMENT TO SUSTAINABILITY OUR GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 50 TH ANNUAL GENERAL MEETING 341 MISC BERHAD ANNUAL REPORT 2018 340 38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT'D.) (d) Credit risk (cont'd.) Receivables and contract assets (cont'd.) The following table provides information about the exposure to credit risk and ECLs for receivables and contract assets as at 31 December 2018 which are grouped together as they are expected to have similar risk nature. Group Gross carrying amount RM'000 Loss allowance RM'000 Net balance RM'000 Credit risk rating Low risk rating 2,707,654 (500) 2,707,154 Medium risk rating 17,841,853 (453,423) 17,388,430 High risk rating 566,442 (335,436) 231,006 21,115,949 (789,359) 20,326,590 Representing: Trade and other receivables 4,659,161 (709,961) 3,949,200 Finance lease receivables (Note 19(d)) 16,456,788 (79,398) 16,377,390 21,115,949 (789,359) 20,326,590 Corporation Gross carrying amount RM'000 Loss allowance RM'000 Net balance RM'000 Credit risk rating Low risk rating 2,813,100 - 2,813,100 Medium risk rating 1,255,100 (112,939) 1,142,161 High risk rating 461,967 (331,507) 130,460 4,530,167 (444,446) 4,085,721 Representing: Trade and other receivables 3,439,704 (436,574) 3,003,130 Finance lease receivables (Note 19(d)) 1,090,463 (7,872) 1,082,591 4,530,167 (444,446) 4,085,721 Effective 1 July 2013, cash and bank balances were held in the In-House Account ("IHA") managed by PETRONAS Integrated Financial Shared Services Centre (“IFSSC”). The centralisation of fund management allows more effective cash visibility and fund management of the Group, as well as minimise exposure to counterparty credit risk. The beneficiary of these financial assets remains with the Corporation. PETRONAS IFSSC, which functions as a treasury management platform, in turn, places all funds under management in licensed financial institutions with strong credit ratings globally and in Malaysia. In addition, a majority of the Group's deposits are placed with licensed banks with strong credit ratings in Malaysia. 38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT'D.) (d) Credit risk (cont'd.) Credit risk from balances with banks and financial institutions is managed by Group Treasury in accordance with the Group's policy. The Group Treasury Investment Guideline defines the parameters within which the investment activities shall operate to achieve the Group's investment objective of preserving capital and generating optimal returns. In accordance with the guideline, investment of surplus funds are made only with highly credit rated counterparties. The past due receivables balances are either secured by collaterals or relate mainly to customers who have never defaulted on payments but are slow paymasters and hence, are periodically monitored. (e) Equity price risk Equity price risk arises from the Group’s investment in quoted equity shares listed on Bursa Malaysia. At the reporting date, the exposure security at fair value was RM47,786,000 (2017: RM63,714,000). The following table demonstrates the indicative effects on the Group and the Corporation's investment in quoted equity shares applying reasonably foreseeable market movements in the following index rates: Group and Corporation Carrying value RM'000 Weighted average change in index rate % Effect on equity Increase / (Decrease) RM'000 2018 Malaysian quoted equity shares 47,786 +15 7,168 Malaysian quoted equity shares 47,786 -15 (7,168) 2017 Malaysian quoted equity shares 63,714   +15   9,557  Malaysian quoted equity shares 63,714   -15  (9,557) This analysis assumes all other variables remain constant and that the price of the Group's quoted equity investment is perfectly correlated to the market index.