EXCEL FORCE MSC BERHAD Annual Report 2020

EXCEL FORCE MSC BERHAD - ANNUAL REPORT 2020 111 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2020 (CONT’D) 35. FINANCIAL INSTRUMENTS (CONT’D) (b) Financial risk management objectives and policies The Group’s financial risk management policy is to ensure that adequate financial resources are available for the development of the Group’s operations whilst managing its credit, liquidity, interest rate and foreign currency risks. The Group operates within clearly defined guidelines that are approved by the Board and the Group’s policy is not to engage in speculative transactions. The following sections provide details regarding the Group’s exposure to the above-mentioned financial risks and the objectives, policies and processes for the management of these risks. (i) Credit risk Credit risk is the risk of a financial loss to the Group 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 and deposits with banks. The Company’s exposure to credit risk arises principally from its receivables from customers, loans to subsidiary companies and deposits with banks. There are no significant changes as compared to previous years. The Group and the Company have adopted a policy of only dealing with creditworthy counterparties. Management has a credit policy in place to control credit risk by dealing with creditworthy counterparties and deposits with banks and financial institutions with good credit rating. The exposure to credit risk is monitored on an ongoing basis and action will be taken for long outstanding debts. The Company provides unsecured loans to its subsidiary companies. The Company monitors on an ongoing basis the results of the subsidiary company and repayments made by the subsidiary company. At each reporting date, the Group and the Company assess whether any of the receivables are credit impaired. The gross carrying amounts of credit impaired trade receivables are written off (either partial or full) when there is no realistic prospect of recovery. This is generally the case when the Group or the Company 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. The carrying amounts of the financial assets recorded on the statements of financial position at the end of the reporting period represents the Group’s and the Company’s maximum exposure to credit risk. The Group has no significant concentration to credit risk except as disclosed in Note 12. The Company has no significant concentration to credit risk except as disclosed in Note 12 and loans to its subsidiary companies where risks of default have been assessed to be low. (ii) Liquidity risk Liquidity risk refers to the risk that the Group or the Company will encounter difficulty in meeting its financial obligations as they fall due. The Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s and the Company’s funding requirements and liquidity risk are managed with the objective of meeting business obligations on a timely basis. The Group finances its liquidity through internally generated cash flows and minimises liquidity risk by keeping committed credit lines available.