127 I N T E G R A T E D R E P O R T 2 0 2 1 4. FINANCIAL RISK MANAGEMENT (CONT’D) 4.1 Financial risk factors (Cont’d) (d) Credit risk (Cont’d) The Group’s policies and procedures include the setting of limits on the amount of risk it is willing to accept for individual counterparties and industry concentrations, by monitoring exposures in relation to such limits. The Group maintains a credit risk grading to categorise exposures according to their risk of default. Large credit risk exposures are subject to regular monitoring through the Debtors Monitoring Committee on a monthly basis for closer attention and action to be taken, when appropriate. The Group has no significant concentration of credit risk, with exposure spread over a large number of customers and counterparties. The proportion of leases of the Group contracted with Corporates is 61% and 39% are with individuals. Leases and other credit agreements granted are also effectively secured as the rights to the leased assets revert to the lessor in the event of default. The majority of the assets financed under lease are motor vehicles with the remaining being various types of equipment. The period normally varies between 3 to 7 years for leases and between 1 to 4 years for other credit agreements; and the interest is principally at fixed rates. The Group has reviewed its credit risk framework into a more dynamic one to deal with the rapidly evolving situation. The Consumer Finance automated scorecards were adjusted to reflect increase in risk emerging from the post-lockdown uncertain environment (scorecard tightening). Similarly, for the other lending products, a more conservative approach is being adopted by the credit underwriting team for approval of new facilities. Impairment assessment Definition of default and cure The Group considers default of a financial asset for the purpose of determining expected credit losses, that is credit impaired assets classified in stage 3, when: • Instalments of principal and/or interest are due from an obligor and remain unpaid for 90 days or more; and/or • The Group considers that the obligor is ‘unlikely to pay’ its credit obligations in full, without recourse to actions such as realising security (if held). The indicators for unlikeliness to pay include the following: i. The Group puts the credit obligation on non-accrual status. ii. The Group makes account-specific provision resulting from a significant perceived decline in credit quality subsequent to the Group granting the credit facility. iii. The Group sells other credit obligations from the same counterparty at a material credit-related economic loss. iv. The Group consents to a distressed restructuring of the credit obligation where this is likely to result in a diminished financial obligation caused by the material forgiveness, or postponement, of principal, interest or, where relevant. v. The Group has filed for the debtor’s bankruptcy or a similar order in respect of the obligor’s credit obligation to the Group. vi. The debtor has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of the credit obligation to the financial institution. For financial assets within stage 2, these can only be transferred to stage 1 when they are no longer considered to have experienced a significant increase in credit risk. Where a significant increase in credit risk was determined using quantitative measures, the instruments will automatically transfer back to stage 1 when the criteria are no longer met. Where instruments were transferred to stage 2 due to assessment of qualitative factors, the issues that led to the reclassification must be cured before the instruments can be reclassified to stage 1. It is the Group’s policy to consider a financial instrument as ‘cured’ and therefore re-classified out of Stage 3 when none of the default criteria have been present for at least six consecutive months. The decision whether to classify an asset as Stage 2 or Stage 1 once cured depends on the updated credit grade, at the time of the cure, and whether this indicates there has been a significant increase in credit risk compared to initial recognition. Explanatory Notes 30 SEPTEMBER 2021 E x p l a n a t o r y N o t e s
RkJQdWJsaXNoZXIy MzQ3MjQ5