Page 70 - BAM ONE REPORT 2564 (ENGLISH VERSION)

68 Part 1
Business Operation and Performance

ever happening again in the future. Keeping the data record also allows the Company to maintain a database
of losses, where it can use for determining the guideline for preventing and mitigating the risks in the future,
or for minimizing the effects to its business operation.

(C) Financial Risk
1. Liquidity risk refers to risks that originate from the Company’s inability to pay its debts and obligations on
time, as the Company is unable to convert its assets into cash, in order to pay the matured debts, or the Company is
unable to sufficiently raise fund for such purpose, or the Company have to acquire cash to pay its debts at the financial
cost that is higher than the acceptable level. Liquidity risks may affect the Company’s revenue and financial positions.

The tool for managing the liquidity risks
The Company determines its risk management policies/guidelines, in terms of liquidity risks and other related
risks; and specifies the tools that will be used for monitoring and controlling the liquidity risks by related committees,
namely, the Assets and Liabilities Management Committee and the Risk Oversight Committee, as follows.
• Estimating the cash inflows and cash outflows, in order to assess the Company’s liquidity, at different
intervals, namely, at every 1, 3, 6, and 12 months in advance.
• Analyzing the financial ratios, using:
- Financial ratios, namely, the debt-to-equity ratio (D/E) and the operating cash flow to debt payment ratio.
- Analyzing the projected current ratio, in order to determine or estimate the Company’s repayment ability
for payable debts, for example, at every 3, 6, 9, and 12 months in advance.
• Performing the stress test of the Company’s liquidity.

Moreover, the Company also plans the contingency funding plan for any liquidity-related emergency, whether
for the normal situation or during crisis, in order to prepare the access to the source of funding that will be able to
provide the Company with sufficient amount of cash flow on time, under the appropriate financial cost, in an event of
liquidity-related emergency. The Company specifies the liquidity risk indicators, namely, the estimated cash inflows
and cash outflows from estimation of liquidity of each period (Liquidity Gap), the debt to equity ratio of shareholders,
and the stress test.

The Company regularly monitors and reports its liquidity, in order to provide the information to the Assets and
Liabilities Management Committee, so they may manage the short-term, medium-term, and long-term liquidity
appropriately. This information is also an instrument that allows top executives and related departments to learn about
the Company’s position and the level of existing risks, in order to acquire sufficient amount of funding or to reduce
the risks that may occur during the period where the Company experiences negative liquidity or tends to lack of liquidity.

2. Credit risk refers to the chance or possibility of the Company’s counterparty failing to fulfil the obligations
agreed with the Company with respect to the asset management company (AMC) business which does not generate
income from lending to customers, but from management of NPLs and NPAs and, hence, is mainly prone to asset
quality risk.