Annual Report 2019

223 Transport International Holdings Limited 2019 Annual Report Notes to the Financial Statements 31 Financial risk management and fair values of financial instruments (continued) (c) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. It is the Group’s policy to closely monitor the market conditions and devise suitable strategies against interest rate risk. As at 31 December 2019 and 2018, all the Group’s borrowings were denominated in Hong Kong dollars and on a floating interest rate basis. The Group regularly reviews its strategy on interest rate risk management in the light of prevailing market conditions. (i) Interest rate profile The following table details the interest rate profile of the Group’s interest-bearing assets and liabilities at the end of the reporting period. 2019 2018 Effective interest rate p.a. Amount Effective interest rate p.a. Amount % $’ 000 % $’ 000 Fixed rate assets: Bank deposits 2.9 1,269,914 3.0 1,024,647 Investments in debt securities 4.0 1,449,971 3.9 1,428,067 2,719,885 2,452,714 Fixed rate liabilities: Lease liabilities (note) 2.7 (7,018) – – Variable rate liabilities: Bank loans 4.5 (2,706,572) 3.3 (2,625,039) Note: The Group has initially applied HKFRS 16 using the modified retrospective approach and adjusted the opening balances at 1 January 2019 to recognise lease liabilities relating to leases which were previously classified as operating leases under HKAS 17. Under this approach, the comparative information is not restated. See note 1(c). (ii) Sensitivity analysis At 31 December 2019, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would have decreased/increased the Group’s profit after tax and retained profits by approximately $10,131,000 (2018: $9,475,000). Other components of consolidated equity would have decreased/ increased by approximately $17,136,000 (2018: $23,961,000) in response to the general increase/decrease in interest rates. The sensitivity analysis above indicates the instantaneous change in the Group’s profit after tax (and retained profits) and other components of consolidated equity that would arise assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to re-measure those financial instruments held by the Group which expose the Group to fair value interest rate risk at the end of the reporting period. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the Group at the end of the reporting period, the impact on the Group’s profit after tax (and retained profits) is estimated as an annualised impact on interest expense or income of such a change in interest rates. The analysis is performed on the same basis for 2018.