NOTES TO
FINANCIAL STATEMENTS
December 31, 2015
82
CITIC ENVIROTECH LTD.
Annual Report
2015
4 FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS
MANAGEMENT (cont’d)
(d)
Financial risk management policies and objectives (cont’d)
(iii) Credit risk management (cont’d)
The credit risk concentration profile of the Group’s trade receivables at the end of the
reporting period is 98% concentrated in the PRC (March 31, 2015 : 97%).
The Group’s credit risk primarily relates to the Group’s trade and other receivables, trade
prepayments and pledged bank deposits. Management of the Group generally grants
credit only to customers with good credit ratings and also closely monitors overdue
trade debts. The recoverable amount of each individual trade debt is reviewed at the
end of each reporting period and adequate allowance for doubtful debts has been
made for irrecoverable amounts. In this regard, management of the Group considers
that the credit risk associated with the Group’s trade receivable and trade prepayments
is significantly reduced.
The credit risk in relation to the Group’s pledged bank deposits is not significant as
the corresponding banks are reputable banking institutions in the PRC. The credit risk
associated with cash and cash equivalents is limited because the counterparties are
reputable banks.
The maximum exposure to credit risk in the event that the counterparties fail to perform
their obligations as at end of the financial period in relation to each class of recognised
financial assets is the carrying amounts of those assets as stated in the statement of
financial position.
Further details of credit risks on trade and other receivables are disclosed in Notes 7 and
9 to the financial statements respectively.
The maximum amount the Company could be forced to settle under the financial
guarantee contract in Note 38, if the full guaranteed amount is claimed by the
counterparty to the guarantee is US$15,000,000 (March 31, 2015 : US$15,000,000).
Based on the expectations at the end of the reporting period, the Company considers
that it is more likely than not that no amount will be payable under the arrangement.
However, this estimate is subject to change depending on the probability of the
counterparty claiming under the guarantee which is a function of the likelihood that the
financial receivables held by the counterparty which are guaranteed suffer credit losses.
(iv) Liquidity risk management
In the management of the liquidity risk, the Group monitors and maintains a level of
cash and cash equivalents deemed adequate by management to finance the Group’s
operations and mitigate the effects of fluctuations in cash flows. Management monitors
the utilisation of bank borrowings and ensures compliance with loan covenants.
