CIM FINANCE. INTEGRATED REPORT 2022 | 135 EXPLANATORY NOTES 30 SEPTEMBER 2022 4. FINANCIAL RISK MANAGEMENT (CONT’D) 4.1 Financial risk factors (Cont’d) (d) Credit risk (Cont’d) 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 designedwith the aimof 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. TheGroup’s credit riskmanagement framework incorporates governing principles that are defined in a series of credit-related policies and standards, which are further applied to more specific operating procedures. 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, bymonitoring exposures in relation to such limits. The Groupmaintains a credit risk grading to categorise exposures according to their risk of default. Large credit risk exposures are subject to regular monitoring through the DebtorsMonitoring Committee on amonthly 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 41% and 59% 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 fromthe post-lockdown uncertain environment (scorecard tightening). Similarly, for the other lending products, amore 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 Groupmakes account-specific provision resulting froma 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 theGroup. vi. The debtor has sought or has been placed in bankruptcy or similar protectionwhere this would avoid or delay repayment of the credit obligation to the financial institution.
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