Page 215 - Bank Muamalat_AR24

ANNUAL REPORT 2024 1 2 3 4 5 6 7 Our Numbers 8 213

2. MATERIAL ACCOUNTING POLICIES (CONT’D.)

(b) Financial assets (cont’d.)
(i) Initial recognition and subsequent measurement (cont’d.)

(1) Financial assets at amortised cost (cont’d.)
The details of these conditions are outlined below: (cont’d.)

(i) The SPPP test (cont’d.)
In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility
in the contractual cash flows that are unrelated to a basic financing arrangement do not give rise
to contractual cash flows that are solely payments of principal and profit on the amount outstanding.
In such cases, the financial asset is required to be measured at FVTPL.
(ii) Business model assessment

The Group and the Bank determine its business model at the level that best reflects how groups of
financial assets are managed to achieve its business objective.

The Group’s and the Bank’s business model is not assessed on an instrument-by-instrument basis,
but at a higher level of aggregated portfolios and is based on observable factors such as:
• The way the performance of the business model and the financial assets held within that business
model are evaluated and reported to the key management personnel.
• The risks that affect the performance of the business model (and the financial assets held within that
business model) and, in particular, the way those risks are managed.

• The way the managers of the business are compensated (for example, whether the compensation is
based on the fair value of the assets managed or on the contractual cash flows collected).
• The expected frequency, value and timing of sales which are also important aspects of the Group’s
and the Bank’s assessment.
• The business model assessment is based on reasonably expected scenarios without taking ‘worst
case’ or ‘stress case’ scenarios into account. If cash flows after initial recognition are realised in a
way that is different from the Group’s and the Bank’s original expectations, the Group and the Bank
do not change the classification of the remaining financial assets held in that business model, but
incorporate such information when assessing newly originated or newly purchased financial assets
going forward.

Included in financial assets at amortised cost are cash and short-term funds, deposits and placements
with licensed financial institutions, financial investments at amortised cost, financing of customers,
statutory deposits with Bank Negara Malaysia and a portion of other assets as disclosed in the
respective notes to the financial statements.