Integrated Report 2020

INTEGRATED REPORT 2020 CIM FINANCIAL SERVICES LTD Explanatory Notes 30 SEPTEMBER 2020 2. ACCOUNTING POLICIES (CONT’D) 2.3 Going Concern and COVID-19 outbreak (Cont’d) (iv) Capital Adequacy Ratio (“CAR”) monitoring The Group monitors its CAR on a regular basis and uses the latter as a key metric to assess its robustness to sustain economic shocks, particularly in a bearish environment. With a solid equity base of around MUR 4bn, the Group’s CAR has remained above 20 in recent years. Due to exceptionally high macroeconomic uncertainty, the Group increased the expected credit losses to cater for the heightened credit risk. Thus for the FY 2019/20 the Group has impairment charges to the tune of MUR 0.6bn on the Group’s lending portfolio to reflect the inherent increase in credit risks on a forward looking basis. Despite this significant increase in the impairment charges, the CAR remained at a very reasonable level. This is a strong indication of the resilience of the Group amidst testing times. Further, benchmarking the Group’s CAR against the Basel III limits, it is noted that the Group has adequate buffer to sustain capital erosion under stressed scenarios and remains comfortable that its CAR level will remain above its minimum internal ratio and therefore will continue to operate as a going concern. (v) Liquidity monitoring The liquidity position of the Group is closely monitored and managed by the Treasury department on a daily basis. The Group maintains a deposit of MUR500 m and has cash balances hovering in the range of MUR500 m, translating into total liquid assets of approximately MUR1 bn. In addition to its banking facilities that consist of short-term to long-term instruments, the Group has raised funds in October 2019 and more recently, post lockdown, in July 20, to the tune of MUR 2 bn and MUR3 bn respectively through the Debt Capital Market, with both issues oversubscribed. Indeed the Group felt that it was important to secure funding for the business during these uncertain times to continue to meet its working capital requirements and financial obligations as they fall due. The combination of the Group’s banking facilities and corporate bonds funding will strengthen its liquidity position to mitigate against the negative impact of the pandemic and to continue to provide support to its client base by alleviating their immediate cash flow concerns. (vi) Costs monitoring and Easing Collection Following the outbreak of COVID-19, the group has doubled its effort in monitoring closely its expenses and where possible has deferred capital projects, thus alleviating any liquidity pressure. During the lockdown period, the Group launched its first mobile application “Mo Finans”, a user-friendly application that allows clients to check their accounts, view their monthly amount due and proceed with their payments. In parallel, the group also developed an online payment channel via its website. The repayment channels are fully operational and have generated a great interest from our clients who can now effect payment easily, from the comfort of their home, while ensuring secured access to their account and at the same time bringing customer experience to a completely new level. Such development has allowed Cim to receive payments even during the curfew. (vii) Client relationship management Managing the relationship with its clientele is a critical element of the success of Cim’s business, more so during difficult times. Following the lifting of the curfew in June, the Cim team has been reaching out to its clients to understand their financial situation and offered options to assist them in meeting their obligations, with rescheduling and moratoriums of both capital and interest elements ranging from three to six months. The process is on-going and will help to mitigate the risk of default of Cim’s loyal customers. The full magnitude of the economic and financial impact of the pandemic are yet to be known and will depend on a number of factors such as the duration and severity of the virus spread across countries and extent of preventive measures as well as support measures by the government. However, based on the group internal measures implemented to mitigate the downside risk caused by COVID-19 outbreak, management is satisfied that there is no material uncertainty that casts significant doubt upon the Group’s ability to continue as a going concern. 74