Fraser & Neave Holdings Bhd Annual Report 2020

210 FRASER & NEAVE HOLDINGS BHD 196101000155 (4205-V) Notes to The Financial Statements (Cont’d.) 30. FINANCIAL INSTRUMENTS (CONTINUED) (C) FINANCIAL RISK MANAGEMENT The Group has exposure to the following risks from its use of financial instruments: • Credit risk • Liquidity risk • Market risk (D) CREDIT RISK Credit risk is the risk of a financial loss to the Group or the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group’s exposure to credit risk arises principally from its receivables from customers. The Company’s exposure to credit risk arises principally from loans and advances to subsidiaries and financial guarantees given to banks for credit facilities granted to certain subsidiaries of the Company. There are no significant changes as compared to prior periods. Trade receivables Risk management objectives, policies and processes for managing the risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on customers requiring credit over a certain amount. Certain customers are required to have collateral in the form of financial assets and/or bank guarantees. At each reporting date, the Group assesses whether any of the trade receivables are credit impaired. The gross carrying amounts of credit impaired trade receivables are written off (either partially or full) when there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. Nevertheless, trade receivables that are written off could still be subject to enforcement activities. There are no significant changes as compared to previous financial year. Exposure to credit risk, credit quality and collateral As at the end of the reporting period, the maximum exposure to credit risk arising from trade receivables is represented by the carrying amounts in the statement of financial position. The Group receives financial guarantees given by banks, shareholders or directors of customers in managing exposure to credit risks. At the end of the reporting period, financial guarantees received by the Group amounted to RM161,333,000 (2019: RM161,240,000) in respect of RM435,793,000 (2019: RM425,376,000) trade receivables. The remaining balance of trade receivables are not secured by any collateral or supported by any other credit enhancements. Recognition and measurement of impairment losses In managing credit risk of trade receivables, the Group manages its debtors and takes appropriate actions (including but not limited to legal actions) to recover long overdue balances. Generally, trade receivables will pay within 30 days. The Group’s debt recovery process is as follows: a) Above 30 days past due after credit term, the Group will start to initiate a structured debt recovery process which ismonitored by the credit management team; and b) Above 90 days past due, the Group will commence a legal proceeding against the customer.