KENANGA INVESTMENT BANK BERHAD INTEGRATED ANNUAL REPORT 2024 WE ARE KENANGA OUR SUSTAINABILITY APPROACH LEADERSHIP STATEMENT HOW WE ARE GOVERNED OUR VALUE CREATION APPROACH FINANCIAL STATEMENTS SHAREHOLDERS’ INFORMATION ADDITIONAL INFORMATION 29 28 KEY RISKS AND MITIGATION KEY RISKS AND MITIGATION Liquidity and funding risk refers to the risk of insufficient financial resources to meet payment obligations, or the inability to efficiently meet the present and future funding needs or regulatory obligations as they come due, or access to these resources only at excessive costs. Impact to Kenanga Such risk may adversely impact business operations and continuity, potentially leading to unacceptable losses, in the short- and medium-term horizon. Opportunities • Proactive assessment of liquidity and funding risk strengthens liquidity management and enhances the effectiveness of funding strategies, ensuring financial stability and resilience, even in challenging market conditions. • Effective management anticipates potential shifts in liquidity and funding risk, enabling a strategic response aligned with business objectives. • Optimise liquidity and funding costs by enhancing financial efficiency and reducing costs associated to funding liabilities. Liquidity and Funding Risk Mitigation Measures • Embedded within policies and frameworks, such as the Liquidity Risk Management and Asset & Liability Management Policy, are risk governance requirements to ensure sufficient liquidity and stable funding sources under stressed economic and financial conditions. Additionally, these measures aim to prevent over-dependence or excessive exposure to a single depositor, group of depositors, or sector. • The LCR aims to enhance the Group’s short-term liquidity resilience by ensuring sufficient High Quality Liquid Assets (“HQLA”) to withstand a significant stress scenario lasting 30 days. • The NSFR aims to reduce funding risk over a longer time horizon by requiring the Group to fund its activities with sufficiently stable sources of funding to mitigate the risk of future funding stress. • Liquidity and funding stress tests are conducted regularly to identify and address plausible vulnerabilities and areas of concern. • The Group has set its compliance ratio for both LCR and NSFR in accordance with the prescribed regulatory limits. Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. This definition includes legal risk and Shariah compliance risk but excludes strategic and reputational risks. Impact to Kenanga Ineffective operational risk management such as gaps in internal processes and disruption to business operations may impede business’ ability to operate effectively. Losses can take many forms, for example: • Financial loss due to halted operations • Damaged reputation • Fines imposed for regulatory noncompliance Opportunities • Effective operational risk management enables the Group to identify and implement resilience controls within business operations by integrating resource planning into business processes, continuously reinforcing risk mitigation measures, and managing risk in a more robust manner. Operational Risk Mitigation Measures • A robust internal control environment: Establish and maintain effective internal control processes with clear oversight of business and operational activities at all levels, ensuring well-defined reporting responsibilities for all staff. • A comprehensive risk identification and assessment regime: Implement operational risk management methodologies to systematically identify internal and external risk drivers, assess internal control effectiveness and establish robust monitoring processes. • A well-established proactive risk monitoring mechanism: Continuously track and analyse operational risk exposures to support early detection of emerging risks, enabling timely mitigation before they materialise. R3 R4 Our Approach To preserve sustainable liquidity and funding condition of the Group, two minimum standards were adopted i.e. a) Liquidity Coverage Ratio (“LCR”), and b) Net Stable Funding Ratio (“NSFR”). Additionally, there is a strong focus on diversifying funding sources. Our Approach The Group adopts a four (4)-pronged approach to operational risk management, primarily involving the following tools: • Operational Risk Management Self-Assessment • Key Risk Indicators • Operational Risk Loss Data • Operational Risk Scenario Analysis
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