Notes to the Financial Statements for the Financial Year Ended 30 September 2024 MKH BERHAD ANNUAL REPORT 2024 Laying The Foundation of Excellence Where People Matter Guided by Leadership, Inspired by People Delivering Value That Matters to People PG. 300 43. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D) (iv) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market interest rates. The Group’s exposure to interest rate risk relates to interest bearing financial assets and financial liabilities. Interest bearing financial assets include loan receivables, short-term placements and deposits with licensed banks. Deposits are placed for better yield returns than cash at banks and to satisfy conditions for bank guarantee. The Group’s interest bearing financial liabilities comprise hire-purchases, bank overdrafts, revolving credits and term loans. The fixed deposits placed with licensed banks and loan receivables at fixed rate exposes the Group to fair value interest rate risk. The short-term placements, bank overdrafts, bridging loan, revolving credits and term loans totalling RM277,673,409 (2023: RM293,171,678) at floating rate expose the Group to cash flow interest rate risk whilst hire-purchases of RM2,438,691 (2023: RM2,767,542) at fixed rate expose the Group to fair value interest rate risk. The Group manages its interest rate exposure by maintaining a prudent mix of fixed and floating rate borrowings. The Group also actively reviews its debts portfolio to ensure favourable rates are obtained, taking into account the investment holding period and nature of assets. As at the reporting date, a change of 50 basis points in interest rates, with all other variables held constant, would decrease/increase the total equity and profit after tax by approximately RM1,055,200 (2023: RM1,114,100), arising mainly as a result of higher/lower interest rates. 44. FAIR VALUE Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group and the Company take into account the characteristics of the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of MFRS 2 Sharebased Payments, leasing transactions that are within the scope of MFRS 16 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in MFRS 102 Inventories or value in use in MFRS 136 Impairment of Assets.
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