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ENRICHING tHE FUtURE ENRICHING NAtIoNAL PRoGRESS ENRICHING StAKEHoLDER VALUE ENRICHING SUStAINABLE IMPACt

StAtEMENt ON RISK MANAGEMENt

AND INtERNAL CONtROL (CONtINuED)

CREDIt RISK MANAGEMENt
Modified to manage the sensitivity or change
Duration in value of a security or portfolio in KWAP employs stringent credit risk assessment
response to a change in interest rates. procedures to ensure the stability of its investment
It also follows the notion that interest portfolio. By closely monitoring the creditworthiness of
rates and bond prices move in opposite counterparties and diversifying across various sectors,
directions. It is a sensitivity analysis
used to determine the effects of a 1% KWAP mitigates the potential impact of credit risk on its
change in interest rates will have on the financial assets. Proactive risk management strategies
price of a bond. enable KWAP to safeguard its capital whilst pursuing
opportunities for sustainable returns.
Stress to assess the investment portfolio’s
testing vulnerabilities to historical stressed The purpose of credit risk management is to keep
Exercise market events as well as ‘what-if’ credit risk exposures within an acceptable level and to
scenarios. ensure the returns commensurate with the risk taken.
Hedging to hedge market risk exposures on The RMCD is responsible for developing, enhancing,
and KWAP’s investments, especially on and communicating effective and consistent credit risk
Derivative currency and interest rate movements. management policies, guidelines, and methodologies
Products Derivative instruments used to manage across KWAP to ensure that appropriate standards are
those exposures are Cross Currency in place to identify, measure, control, monitor and report
Swaps (CCS), Interest Rate Swaps such risks. These are carried out mainly through the Credit
(IRS) and Foreign Exchange Forward
contracts (FX Forward). KWAP mainly Risk Management Policies and Credit Risk Management
uses FX Forwards to hedge and guidelines. Industry best practices are instilled via
mitigate currency volatility on KWAP’s continuous updates of credit risk policies, guidelines and
overseas investments. processes to minimise credit defaults and losses.

KWAP has established, amongst others, limits and related guidelines, for:

Credit Risk Controls Credit Analysis
Leverage Risk Concentration Risk Rating Monitoring
KWAP’s leverage activities are maintained Risk of loss arising from having a Review internal and external credit
within a pre-determined acceptable risk significant position in a single asset, rating scoring model for corporate bond,
levels based on Total KWAP level, asset product or market exposure loan and unrated counterparty
class level and portfolio level

Counterparty Risk Credit Evaluation
The risk to each party of contract that Conduct a detailed evaluation to measure
the counterparty is not able to meet the the issuer’s ability to meet its debt
contractual obligations obligation by maintaining credit risk
exposure within acceptable parameters

Issuer Risk Credit Review
The probability of loss resulting from the Evaluate credit proposals before tabling to
default or downgraded credit rating of the the management and committee
issuer of a security

122 KUMPULAN WANG PERSARAAN (DIPERBADANKAN) i INtEGRAtED REPoRt 2023