KENANGA ANNUAL REPORT 2018

18 KENANGA INVESTMENT BANK BERHAD GROUP MANAGING DIRECTOR’S MANAGEMENT DISCUSSION AND ANALYSIS Outlook With escalating global geopolitical uncertainties leading to a more volatile 2019, KF expects an improvement in trading volume as client interest in managing price risks using derivatives, is likely to increase. KF will continue to equip its clients with product and regulatory knowledge to trade listed derivatives on both Bursa Malaysia Derivatives and CME Group, in keeping with its aspiration and efforts of building a smart derivatives trading community in Malaysia. Segmental Review: Structured Lending and Trade Financing The Group’s trade financing and structured lending division under Kenanga Capital Group (“ KCG ”), which consists of Kenanga Capital Sdn Bhd (“ KC ”) and Kenanga Islamic Capital Sdn Bhd (“ KCI ”), recorded a nominal increase in PBT to RM539,000 in 2018 compared to the year before of RM448,000. The performance of KC was affected by the lack of IPOs, while KCI was impacted by the contraction of the factoring business. Outlook KCG is looking to develop alternative lending products as it expects the challenging equity markets to prevail in 2019. It also intends to continue building on low-risk government contracts and pursue business growth through expansion into wider market segments. RISK MANAGEMENT Being an investment bank, the inherent market risks of the Group include interest rate risk, foreign exchange risk and equity market risk, primarily arising from our trading and investment activities. These risks are mitigated by our established risk limits on portfolio size, value-at-risk and loss triggers. Credit risk is managed via credit governance oversight and a management process which encompasses the establishment and enforcement of policies and procedures, as well as, the conduct of comprehensive credit assessments before deriving the appropriate trading and facility limits for the respective credit exposure. This year, we will continue to review our credit governance process with a view to further enhance the controls. In parallel with that, we will also be stepping up cyber security measures to reinforce enterprise resilience in this digital age. In terms of managing operational risks, we continue to practise Loss Incident Reporting, Risk Control Assessment and Key Risk Indicator to ensure risks are identified, assessed, monitored, mitigated and reported within a structured framework that include appropriate governance oversight. From a capital management perspective, we have ensured the Group meets BNM’s Risk Weighted Capital Adequacy Guidelines which aims to ensure banking institutions maintain a minimum size of capital to operate and perform its intermediation function effectively.