Sustainability and Governance Report
Notes to the FINANCIAL STATEMENTS
Not
28. Financial risk management objectives and policies (cont'd)
(b) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group's and the Company's financial instruments will fluctuate because of changes in market
interest rates. The Group's exposure to interest rate risk arises primarily from bills payable and bank borrowings. The Group does not use derivative financial instruments
to hedge its exposure to interest rate fluctuations. However, it is the Group's policy to obtain the most favourable interest rates available wherever the Group obtains
additional financing through bank borrowings. The Group has cash balances placed with reputable banks which generate interest income for the Group. The Group
manages its interest rate risks by placing such balances of varying maturities and interest rate terms.
Sensitivity analysis for interest rate risk
The table below demonstrates the sensitivity to a reasonably possible change in interest rates with all other variables held constant, of the Group's profit net of tax (through
the impact on interest expense on floating rate bills payable and short-term bank loans).
Group
2020
Loans and borrowings
2019
Loans and borrowings
Basis points
(Higher/Lower)
75
Effect on
profit net of tax
(Lower/Higher)
$'000
36
75
45
(c) Credit risk
Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group's and the Company's
exposure to credit risk arises primarily from trade and other receivables. For other financial assets (including cash and short-term deposits), the Group and the Company
minimise credit risk by dealing exclusively with high credit rating counterparties.
The Group's objective is to seek continual revenue growth while minimising losses incurred due to increased credit risk exposure. The Group trades only with recognised
and creditworthy third parties. It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable
balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant. For transactions that do not occur in the country of
the relevant operating unit, the Group does not offer credit terms without the approval of the Senior Management.
The Group considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis
throughout each reporting period.
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