34.
FINANCIAL RISK MANAGEMENT (CONTINUED)
The following sections provide details regarding the Group’s and Company’s exposure to the above-
mentioned financial risks and the objectives, policies and processes for the management of these risks.
(a)
Credit risk
Credit risk is the risk of loss that may arise on outstanding financial instruments should a
counterparty default on its obligations. The Group’s and Company’s credit risk arises primarily
from trade and other receivables. For other financial assets (including derivatives financial
instruments, investment held for trading and cash and cash equivalents), the Group and the
Company minimise credit risks by dealing exclusively with high credit rating counterparties.
The Group and Company have a credit policy in place and the exposure to credit risk is
monitored on an on-going basis. Credit review, which takes into account qualitative and
quantitative factors like business performance and profile of the customers, is performed and
approved by the management before credit is granted. The customer’s payment profile and
credit exposures are monitored on an on-going basis by the Credit Controller.
Concentration risk
Concentration risk arises when a number of counterparties are engaged in similar business
activities, or activities in the same geographical region, or have economic features that would
cause their ability to meet contractual obligations to be similarly affected by changes in
economic, political or other conditions. Concentrations indicate the relative sensitivity of the
Group’s performance to developments affecting a particular industry.
In order to avoid excessive concentrations of risk, the Group’s policies and procedures include
specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations
of credit risks are controlled and managed accordingly.
Exposure to credit risk
At the balance sheet date, the Group’s and the Company’s maximum exposure to credit risk
is represented by:
–
the carrying amount of each class of financial assets recognised in the balance sheets.
–
an amount of $5,630,000 (2014: $7,434,200) relating to corporate guarantees
provided by the Company to banks on its subsidiaries’ borrowings and other banking
facilities.
118
NOTES TO THE
FINANCIAL STATEMENTS
For the financial year ended 31 December 2015
HG METAL MANUFACTURING LIMITED
ANNUAL REPORT 2015
