Risk Management Policy

The implementation of risk management refers to the Company’s policies and procedures, which include the guidelines set by the Board of Directors. The Board of Directors establishes, maintains, and evaluates risk hence it can be contained within tolerable limits.

The Company’s Risk Management is complemented by Risk Management Policies and Procedures, which contain the following rules:

1. Guidelines of high-level and Strategic Risk Management.
2. Risk Management principles and processes, risk classification, and risk mitigation.

The Risk Management Policy is explained in more detail in the Procedure Standards and Directors’ Decrees.

Risk Identification

The main function of risk management is to identify all key risks, and manage them in accordance with the Company’s procedures and policies.

The Company strives to anticipate various risks that arise in carrying out its business activities, both risks that can be controlled internally and risks which are beyond the Company’s control. Internal risks are wherever possible controlled and minimized by applying the prudence and Risk Management principles. Meanwhile, external risks shall be carefully identified on their potential and impact on the Company.

Risk Profile and its Mitigation

The Company has identified and mitigates several risks that could potentially affect its business activities, and the business activities of its Subsidiaries, which among others include the following:

Interest Rate Risk

The interest rate risk exposure relates to the amount of assets or liabilities subject to a risk wherein a movement in interest rates will adversely affect the income after tax. The Group has a policy of obtaining financing from the creditors who offer the most favorable interest rate. Approvals from the Directors and Commissioners must be obtained before committing the Group into any of the financial instruments to manage the interest rate risk exposure.

Foreign Currency Risk

The Group manages the foreign currency exposure by matching, as far as possible, receipts and payments in each individual currency.

Equity Price Risk

The Group’s long-term investments primarily consist of minority investments in the equity of private Indonesian companies. In connection with Indonesian companies in which the Group have investments, the Group’s financial performance is likely to be greatly influenced by economic conditions in Indonesia.

Credit Risk

Credit risk refers to the risk that counterparty will default on its contractual obligation resulting in a loss to the Group.

The Group’s credit risk is primarily attributed to its cash in banks, cash equivalents, receivables from customers, deposits used as collateral with Institute of Clearing and Settlement Guarantee for Securities Entity in Indonesia, financing receivables, loans, murabahah financing receivables, premiums and reinsurance assets. The Group places its bank balances with credit worthy financial institutions, while receivables are entered with respected and credit worthy third and related parties. The Group’s exposure and its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management annually.

Credit risk is the risk that the Group may incur losses arising from customer, client or other party who failed to meet their contractual obligations. There is no significant concentration of credit risk. The Group manages and controls credit risk by setting limits of acceptable risk for individual customers and monitors the exposure associated with these restrictions.

The Group conducts business relationships only with recognized and credible third parties. The Group has a policy for all third parties who will make trading on credit to go through verification procedures first. In addition, the amounts of receivables are monitored continuously to reduce the risk for doubtful accounts.

The carrying amount of the financial assets recorded in the consolidated financial statements, net of any allowance for impairment losses, and credit enhancements represents the Group’s exposure to credit risk.

Liquidity Risk

Liquidity risk is defined as the risk of current cashflow position of the Group showing short term revenues insufficient to cover short term expenditure. The Group on the date of this report has sufficient liquidity to cover short-term liabilities.

In managing liquidity risk, the Group monitors and maintains levels of cash and cash equivalents deemed adequate to finance the operations of the Group and overcome the impact of fluctuations in cash flow. The Group also regularly evaluates cash flow projections and actual cash flows, including the schedule of long-term debt maturity.