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40. Financial risk management policies (cont’d.)
(a) Market risk (cont’d.)
(ii) Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes
in market interest rates. Fair value interest rate risk is that risk that the fair value of a financial instrument will fluctuate
due to changes in market interest rates.
Interest rate exposure arises from the Group’s and Company’s floating rate borrowings and is managed by entering into
derivative financial instruments. Derivative financial instruments are used, as far as possible and where appropriate, to
generate the desired fixed interest rate profile. Surplus funds are placed with reputable financial institutions.
The Group and Company manages its cash flow interest rate risk by entering into a number of immediate interest rate
swap contracts and cross currency swap contracts that effectively converts its existing long-term floating rate debt
facilities into fixed rate debt (Note 21).
If interest rate on USD denominated borrowings at 31 December 2017 and 31 December 2016 had been 60 basis points
higher/lower with all other variables held constant, the impact on the post-tax profit for the year and equity arising from
the cash flow interest rate risk would be minimal when considered with the hedging of the floating rate loans (Note 21).
If interest rate on USD denominated borrowings at 31 December 2017 and 31 December 2016 had been 60 basis points
higher/lower with all other variables held constant, the impact on the post-tax profit for the financial year and equity, as a
result of an increase/decrease in the fair value of the interest rate derivative financial instruments under cash flow hedges
are tabulated below. The impact on post-tax profits arises only from derivative held for trading, and the impact to other
comprehensive income arises from derivative designated as hedging instruments:
Group and Company
2017
2016
+60bps
RM’mil
-60bps
RM’mil
+60bps
RM’mil
-60bps
RM’mil
Impact on post tax profits
17.95
(18.55)
27.90
(28.80)
Impact on other comprehensive income
33.73
(36.44)
51.30
(55.20)
The remaining terms of the outstanding interest rate derivative contracts of the Group and Company at balance sheet
date, which are all denominated in USD, are as follows:
2017
RM’mil
2016
RM’mil
Later than 1 year but less than 5 years:
Interest rate caps
233
319
Interest rate swaps
1,445
1,256
Cross currency interest rate swaps
86
89
Later than 5 years:
Interest rate swaps
1,495
2,486
Cross currency interest rate swaps
275
296
3,534
4,446
[ ]
351
AirAsia Berhad
REPORTS AND FINANCIAL STATEMENTS