CFSL Integrated Report 2021

126 C I M F I N A N C I A L S E R V I C E S L T D 4. FINANCIAL RISK MANAGEMENT (CONT’D) 4.1 Financial risk factors (Cont’d) (a) Foreign exchange risk (Cont’d) The sensitivity of the profit before tax with regards to the Group’s financial assets and liabilities and the USD to Mauritian Rupee and EURO to Mauritian Rupee exchange rate is shown below. If Mauritian Rupee had weakened/strengthened by 4% against USD and EURO respectively, the financial impact would be as follows: GROUP COMPANY Sep-21 MUR m Sep-20 MUR m Sep-21 MUR m Sep-20 MUR m Effect on profit before tax (+/-) 7.5 7.2 1.5 0.2 Equity (+/-) 6.2 6.1 - - (b) Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair value of financial instruments.The Group’s exposure to interest rate risk and positive balances relate primarily to its borrowings and lendings with floating interest rates. The Group mitigates its interest rate risk by having a mixed portfolio of fixed and variable interest bearing lendings and borrowings. For those lendings and borrowings with floating interest rates, the Group ensures that the losses that may be created or reduced following interest margins change are not significant by setting limits on the level of mismatch in interest rate repricing that may be undertaken. The sensitivity of the profit before tax to a reasonably possible change in interest rate of + or - 50 basis points (2020: +/- 50 basis points), with all other variables held constant is shown below. The sensitivity has been based on the net exposure of financial assets and liabilities at the reporting date. These changes are considered to be reasonably possible based on observations of current market conditions. GROUP COMPANY Sep-21 MUR m Sep-20 MUR m Sep-21 MUR m Sep-20 MUR m Effect on profit before tax (+/-) 3.2 4.0 3.2 0.1 (c) Equity price risk Equity price risk is the risk that the fair value of equity securities fluctuates as a result of the changes in the prices of those securities. The Group is not exposed to significant equity price risks as it does not have any significant equity financial assets. (d) Credit risk Credit risk is defined as the potential that a borrower or counterparty will fail to meet its obligations in accordance with agreed terms. Credit risk in the Group arises mainly from various forms of lending from all its core activities covering all the credit portfolios; credit facilities, money lending, credit cards, factoring, and leasing as well as deposits and balances held with banks. The effective management of credit risk is a critical component of risk management and essential to the long-term success of the organisation. The Risk Management Committee has oversight of the management of the credit risk framework. The objective of the Group’s credit risk management framework is to ensure all material credit risks to which the organisation is exposed are identified, measured, managed, monitored, mitigated and reported on a consistent basis. This requires careful consideration of proposed extensions of credit, the setting of specific limits, monitoring during the life of the exposure, active use of credit mitigation tools and a disciplined approach to recognising credit impairment. The Group’s credit processes are designed with the aim of combining an appropriate level of authority in its credit approval processes with timely and responsible decision-making and customer services. Within the powers to act granted by the Board of Directors, credits are approved by decision making authorities at different levels in the organisation depending on the riskiness and the credit exposure of the customer. The Group’s credit risk management framework incorporates governing principles that are defined in a series of creditrelated policies and standards, which are further applied to more specific operating procedures. Explanatory Notes 30 SEPTEMBER 2021 E x p l a n a t o r y N o t e s The 4% change in rates used above was derived from the average fluctuation in the respective foreign currencies for the last 5 years.

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