NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2023 301 OUR SUSTAINABILITY APPROACH HOW WE ARE GOVERNED FINANCIAL STATEMENTS SHAREHOLDERS’ INFORMATION ADDITIONAL INFORMATION 51. FINANCIAL RISK MANAGEMENT (CONT’D.) (b) Market risk Market risk is the risk of loss arising from changes in prices of equity instruments and other financial instruments in the markets in which the Group and the Bank operate. The Group and the Bank also engage in bond proprietary trading to generate revenue in anticipation of changes in prices that may occur in the debt capital market. The Group and the Bank manage the risk of unfavourable price changes by cautious reviews of investments and collaterals held with continuous monitoring of their performance and risk profiles by qualified personnel. (i) Interest rate risk In macro terms, interest rate risk refers to the overall sensitivity of the Group’s and of the Bank’s earnings and/ or economic values of the Group’s and of the Bank’s portfolio to changes in interest rates. Interest rate risk is managed through various risk management techniques including re-pricing gap, net interest income simulation and stress testing. The Group and the Bank are exposed to various risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The effect of changes in the levels of interest rates on the market value of securities is monitored regularly and the outcome of mark-to-market valuations is escalated to management regularly. The table below summarises the effective interest rates at the reporting date and the periods in which the financial instruments will reprice or mature, whichever is the earlier. Interest rate sensitivity analysis The Board has established limits on the trading and non-trading interest rate gaps activities. In accordance with the Group’s and the Bank’s policy, positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within the established limits. The sensitivity of interest rate to the statements of profit and loss and other comprehensive income and equity is the effect of the assumed changes in interest rates level on the profit and loss for the financial year, based on the financial assets and financial liabilities held as at the reporting date.
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