CFSL - Annual report 2018

EXPLANATORY NOTES 30 SEPTEMBER 2018 4. FINANCIAL RISK MANAGEMENT (CONT’D) 4.1 Financial risk factors (cont’d) (d) Credit risk Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group manages and controls its credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties, and for geography and industry concentrations, and by monitoring exposures in relation to such limits. The Group has policies in place to assess the credit quality of customers through the use of a scorecard system to ensure that leases and other credit facilities are granted to customers with appropriate credit history, and that limit the amount of credit exposure to any one financial position. The Group’s policies in place also ensure that credit sales of products and services are made to customers after a credit assessment has been carried out and credit terms agreed. The Group has no significant concentration of credit risk, with exposure spread over a large number of customers. Credit facilities to customers are monitored and the Company has policies in place to identify defaults and recover amounts due. Leases and hire purchases granted are also effectively secured as the rights to the leased assets revert to the lessor in the event of default. There are two types of leases, Finance lease & Operating lease. Most of the assets financed are motor vehicles and the rest are various types of equipment. The period of lease will normally vary between 3-7 years and are mostly given at fixed rates. The Group also holds collaterals on lendings made to customers. The Group used incurred loss models for the recognition of losses on impaired financial assets. This means that losses are recognised when objective evidence of specific loss event has been observed. The Group also ensures that the guidelines of the regulator, in respect of credit impairment, are followed. The table below shows the credit quality for all financial assets exposed to credit risk. The amounts presented are gross of impairment allowance. GROUP Neither past due nor impaired Past due but not impaired Individually impaired Total 30 September 2018 MUR m MUR m MUR m MUR m Bank balances and cash 526.1 - - 526.1 Deposits with banks 1,026.0 - - 1,026.0 Net investment in leases and other credit agreements 5,786.0 1,887.0 383.6 8,056.6 Loans and advances 2,176.0 703.5 142.7 3,022.2 Investments in financial assets 1,597.7 - - 1,597.7 Other assets 604.9 0.6 - 605.5 11,716.7 2,591.1 526.3 14,834.1 GROUP Neither past due nor impaired Past due but not impaired Individually impaired Total 30 September 2017 MUR m MUR m MUR m MUR m Bank balances and cash 505.4 - - 505.4 Deposits with banks 2,738.9 - - 2,738.9 Net investment in leases and other credit agreements 4,973.5 1,656.7 267.1 6,897.3 Loans and advances 1,801.3 584.6 101.3 2,487.2 Investments in financial assets 8.0 - - 8.0 Other assets 484.4 1.4 - 485.8 10,511.5 2,242.7 368.4 13,122.6 The net investment in leases and other credit agreements, and loans and advances that are neither past due nor impaired, are spread over a large number of customers. These balances, along with the balances past due but not impaired, are subject to portfolio provision on credit impairment according to the history of credit quality of the portfolio of customers of the Group. 89 CIM FINANCIAL SERVICES LTD ANNUAL REPORT 2018