MKH Annual Report 2019

225 M K H B e r h a d 40. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D) (i) Credit risk (Cont’d) Financial guarantee (Cont’d) The maximum exposure to credit risk amounts to RM638,519,708 (30.9.2018: RM646,246,556; 1.10.2017: RM781,034,663) representing the outstanding credit facilities of the subsidiaries guaranteed by the Company at the reporting date. At the reporting date, there was no indication that the subsidiaries would default on their repayment. The financial guarantees have not been recognised since the fair value on initial recognition was immaterial as the financial guarantees provided by the Company did not contribute towards credit enhancement of the subsidiaries’ borrowings in view of the securities pledged by the subsidiaries and it was not probable that the counterparties to financial guarantee contracts will claim under the contracts. (ii) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations when they fall due. The Group’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s objective is to maintain a balance between continuity of funding and flexibility through use of stand-by credit facilities. The Group actively manages its operating cash flows and the availability of funding so as to ensure that all repayment and funding needs are met. As part of its overall prudent liquidity management, the Group maintains sufficient levels of cash or cash convertible investments to meet its working capital requirements. In addition, the Group strives to maintain available banking facilities of a reasonable level to its overall debt position. As far as possible, the Group raises committed funding from both capital markets and financial institutions so as to achieve overall cost effectiveness. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2019