CFSL - Annual report 2018

EXPLANATORY NOTES 30 SEPTEMBER 2018 4. FINANCIAL RISK MANAGEMENT (CONT’D) 4.1 Financial risk factors (cont’d) (a) Foreign exchange risk (cont’d) The sensitivity of the profit before tax with regards to the Group’s financial assets and liabilities and the USD to Mauritian Rupee and EURO to Mauritian Rupee exchange rate is shown below. If Mauritian Rupee had weakened/strengthened by 3% against USD and EURO respectively, the financial impact would be as follows: GROUP COMPANY Sep-18 Sep-17 Sep-18 Sep-17 MUR m MUR m MUR m MUR m Effect on profit before tax 70.9 75.9 66.0 75.1 (b) Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair value of financial instruments.The Group’s exposure to interest rate risk relates primarily to its borrowings and lendings with floating interest rates. The Group mitigates its interest rate risk by having a mixed portfolio of fixed and variable interest bearing lendings and borrowings. For a significant part of the existing interest bearing assets and liabilities, the Group’s income and operating cash flows are mostly independent of changes in market interest rates as the interest rates on leases and other credit agreements, loans and advances, and deposits from customers are mostly fixed. For those lendings and borrowings with floating interest rates, the Group ensures that the losses that may be created or reduced following interest margins change are not significant by setting limits on the level of mismatch in interest rate repricing that may be undertaken. The sensitivity of the profit before tax to a reasonably possible change in interest rate of + or - 50 basis points (2017: +/- 50 basis points), with all other variables held constant is shown below. The sensitivity has been based on the net exposure of financial assets and liabilities at the reporting date. These changes are considered to be reasonably possible based on observations of current market conditions. GROUP COMPANY Sep-18 Sep-17 Sep-18 Sep-17 MUR m MUR m MUR m MUR m Effect on profit before tax and equity 14.7 12.4 5.8 8.0 (c) Equity price risk Equity price risk is the risk that the fair value of equity securities fluctuates as a result of the changes in the prices of those securities. The Group is not exposed to significant equity price risks as it does not have any significant equity financial assets. 88 CIM FINANCIAL SERVICES LTD ANNUAL REPORT 2018