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ANNUAL REPORT 2021 175

Notes to the fiNaNcial statemeNts

42. financial risk management POlicies (cOnt’D.)

The main areas of financial risks faced by the Group and the Bank and the policies are set out as follows (cont’d.):
d. Credit risk
Credit risk is defined as risk due to uncertainty in the customers or the counterparties ability to meet its obligations or
failure to perform according to the terms and conditions of the credit-related contract.
Oversight and organisation

A stable enterprise-level organisational structure for risk management is necessary to ensure a uniform view of risk across
the Group and the Bank. It is also important to have clear roles and responsibilities defined for each functions.
The Board has the overall responsibility for understanding the risks undertaken by the Group and the Bank and ensuring that
the risks are properly managed.
While the Board is ultimately responsible for risk management of the Group and the Bank, it has entrusted the Board Risk
Committee (“BRC”) to carry out its functions. Although the responsibilities have been delegated, the Board still remains
accountable. BRC, which is chaired by an independent Director of the Board, oversees the overall management of all risks
covering credit risk management, country risk management, market risk management, asset liability management and
operational risk management.
Executions of the Board’s risk strategies and policies are the responsibilities of the Group’s and the Bank’s management
and the conduct of these functions are being exercised under a committee structure, namely Management Risk Committee
(“MRC”). The President/Chief Executive Officer chairs MRC. The Committee focuses on the overall business strategies and daily
business operations of the Group and the Bank in respect of risk management.

To carry out the day-to-day risk management function, a dedicated RMD that is independent of profit and volume targets
supports the Committee. RMD reports functionally to the BRC and administratively to the President/Chief Executive Officer.
Capital management

Capital policy

The overall objective of capital management is to maintain a strong capital position in order to provide opportunities for
business growth and able to provide cushion for any potential losses. In line with this objective, the Group and the Bank view
capital position as an important key barometer of financial health.

In order to support its mandated roles, the Group and the Bank must have strong and adequate capital to support its business
activities on an on-going basis. BNM has imposed several regulatory capital requirements whereby, the Bank must have an
absolute minimum capital funds of RM300,000,000 and a minimum Risk Weighted Capital Ratio (“RWCR”) of 8% at all times.
The minimum capital funds refers to paid-up capital and reserves as defined in Section 3 of Development Financial Institution
Act 2002.

In order to further strengthen the capital position of the Group and the Bank through a progressive and systematic building up
of the reserve fund, the Group and the Bank are required to maintain a reserve fund and transfer a certain percentage of its net
profits to the reserve fund once the RWCR falls below the threshold of 16%. As at the reporting date, the reserve fund is not yet
required as at the reporting date as the Group’s and the Bank’s capital is currently above the threshold of 16%.
The Bank has adopted BNM’s transitional arrangements to add back a portion of the Stage 1 and Stage 2 allowance for ECL to
Tier 1 Capital over a four-year period from financial year beginning 2020. The transitional arrangements are consistent with the
guidance issued by the Basel Committee of Banking Supervision on “Regulatory treatment of accounting provisions – interim
approach and transitional arrangement” (March 2017) and “Measures to reflect the impact of Covid-19” dated April 2020.