MISC Integrated Annual Report 2020

38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (a) Interest rate risk (cont’d.) As at reporting date, the total notional principal amount of interest rate swaps of the Group is RM10.2 billion (2019: RM7.6 billion). The fixed interest rates relating to interest rate swaps at the reporting date ranges from 0.62% - 3.19% (2019: 1.79% - 3.19%) per annum. The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s and the Corporation’s profit before taxation and equity via floating rate borrowings and interest rate swaps respectively. Effect on Effect on profit other Increase/ before comprehensive (Decrease) taxation income in LIBOR (Decrease)/ Increase/ basis points Increase (Decrease) RM’000 RM’000 As at 31 December 2020 Group USD - 3 Months LIBOR +10 (2,308) 21,403 USD - 3 Months LIBOR -10 2,308 (21,403) Corporation USD - 3 Months LIBOR +10 (1,071) – USD - 3 Months LIBOR -10 1,071 – As at 31 December 2019 Group USD - 3 Months LIBOR +70 (33,627) 26,436 USD - 3 Months LIBOR -70 33,627 (26,436) Corporation USD - 3 Months LIBOR +70 (10,561) – USD - 3 Months LIBOR -70 10,561 – As at 31 December 2020, the Group’s and the Corporation’s exposure to the risk of changes in market interest rate relates primarily to the Group’s and the Corporation’s placement of deposits with licensed banks, cash and bank balances, loans to subsidiaries and associate, interest-bearing loans and borrowings and loans from subsidiaries. 38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (a) Interest rate risk (cont’d.) The interest-bearing financial instruments of the Group and of the Corporation based on carrying amount, as at reporting date were as follows: Group Corporation 2020 2019 2020 2019 RM’000 RM’000 RM’000 RM’000 Fixed rate instruments Financial assets Deposits with licensed banks 991,620 1,113,410 11,171 13,933 Deposits with IFSSC 4,023,265 4,355,497 1,609,734 2,803,030 Loans and advances to subsidiaries – – 644,439 988,376 Financial liabilities Fixed rate borrowings 248,396 178,871 – – Floating rate borrowings (swapped to fixed rate) 10,115,264 7,581,251 – – Loans from subsidiaries – – 167,548 113,099 Floating rate instruments Financial assets Cash and bank balances 1,840,120 1,561,907 42 86 Loans and advances to subsidiaries – – 569,553 671,527 Financial liabilities Floating rate borrowings 2,727,493 4,753,937 342,423 755,128 Loans from subsidiaries – – 684,845 737,910 (b) Foreign currency risk The currencies giving rise to this risk are primarily RM and USD. Approximately 6% (2019: 4%) and 5% (2019: 4%) of the Group and the Corporation’s revenue are denominated in currency other than the currency of the primary economic environment which the entities operate. Approximately 7% (2019: 1%) and 16% (2019: 12%) of the Group and the Corporation’s cost of sales are denominated in currency other than the currency of the primary economic environment which the entities operate. The Group maintains a natural hedge, wherever possible, by borrowing in currencies that matches the future revenue streams to be generated from its investments. During the financial year, the Group held forward currency contracts designated as hedges of expected future receipts and payments denominated in USD for a subsidiary whose functional currency is RM. The forward currency contracts are being used to hedge the currency risk of the highly probable forecasted transactions. The cash flow hedges of the expected future receipts were assessed to be highly effective and a net unrealised loss of RM14,449,000 (2019: RM1,560,000) which represents the effective portion of the hedging relationship, is included in other comprehensive income. 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 10 438 10 439 /// Leadership / Governance / Financial Statements / Additional Information / Annual General Meeting ////// /// Leadership / Governance / Financial Statements / Additional Information / Annual General Meeting ////// Section Section MISC Berhad / Integrated Annual Report 2020 MISC Berhad / Integrated Annual Report 2020