Page 169 - Capricorn IAR 2020

2020 INTEGRATED ANNUAL REPORT
NOTES TO THE CONSOLIDATED AND SEPARATE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 30 June 2020
3. FINANCIAL RISK MANAGEMENT (continued)
3.2 Credit risk (continued)
3.2.5 Risk limit control and mitigation policies
The group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to industry segments. Such risks are monitored on a monthly basis and are subject to regular review. Limits on the level of credit risk by country are approved by the board of directors. The exposure to any one borrower, including banks and brokers, is further restricted by sublimits covering on and off-statement of financial position exposures and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts.
Exposure to credit risk is managed up front when an application for credit is received. The credit risk management model is utilised by the Group and assesses the three components of safety, desirability and profitability. Throughout the lifespan of the credit facility, regular analyses of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations are assessed and lending limits are changed where appropriate. Exposure to credit risk is also managed in part by obtaining collateral, insurance and corporate and personal guarantees. The amount the Group is willing to lend unsecured is restricted and approved by the board.
Placements with banks, including loans and advances to banks, are subject to the normal credit process. The credit limits to these banks take into consideration ratings performed by external rating agencies.
Other specific control and mitigation measures are outlined below:
(a) Collateral
The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security
for funds advanced, which is common practice. Within the credit risk area, mandates are predetermined in order to ensure that the applicable level of authority provides guidance and approval for advances. Risk exposure to advances is reduced by obtaining approved security as defined by the board credit committee and listed in the advance instruction manual.
The Group implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation and the principal collateral types for loans and advances are:
• Cash deposited with and ceded to the Group
• Deposits with any registered financial institution and ceded to the Group
• Life insurance policies with a confirmed surrender value
• Any other form of tangible collateral security subject to approval by the board credit committee
Collateral per class of loans and advances:
Mortgages:
• First, second and third covering bond
• Cession of fire policy
Instalment finance:
• The instalment finance contract binds the underlying article as security
The following security can be given for any loan class depending on the circumstances and purpose of the loan:
• Suretyships
• Registered cession of life insurance policy
• Any other form of tangible collateral security subject to approval by the board credit committee
• Cession of fixed deposits, notice deposits, bills, bonds, shares, investments or debtors
Valuation methodologies (which include applying a haircut to the fair value of collateral depending on a number of factors) and the period of validity on collateral are outlined in established policies, which are approved by the board.
The Group’s policies regarding obtaining collateral have not significantly changed during the reporting period and there has been no significant change in the overall quality of the collateral held by the Group since the prior period.
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