MISC Annual Report 2017

NOTES TO THE FINANCIAL STATEMENTS 293 Financial Statements 37. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT'D.) (d) 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 exposure to credit risk arises primarily from its operating activities (mainly for trade receivables) and from its finance activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.  Credit risk from balances with banks and financial institutions is managed by Group Treasury in accordance with the Group's policy. The Group Treasury Investment Guideline defines the parameters within which the investment activities shall operate to achieve the Group's investment objective of preserving capital and generating optimal returns. In accordance with the guideline, investment of surplus funds are made only with highly credit rated counterparties. Effective from 1 July 2013, cash and bank balances were held in the In-House Account ("IHA") managed by PETRONAS Integrated Financial Shared Services Centre (“IFSSC”). The centralisation of fund management allows more effective cash visibility and fund management of the Group, as well as minimise exposure to counterparty credit risk. The beneficiary of these financial assets remains with the Corporation. PETRONAS IFSSC, which functions as a treasury management platform, in turn, places all funds under management in licensed financial institutions with strong credit ratings globally and in Malaysia. In addition, a majority of the Group's deposits are placed with licensed banks with strong credit ratings in Malaysia.  At the reporting date, the Group’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets mentioned in Notes 18(a) and 21, and is recognised in the statements of financial position.  The Group does not hold any collateral as security. Trade receivables The Group and the Corporation determine concentrations of credit risk by monitoring the industry sector profile of their receivables on an ongoing basis. The credit risk concentration profile of the Group's and the Corporation's trade receivables due from third parties at the reporting date are as follows: