AL-SALAM REIT ANNUAL REPORT 2017

156 AL-SALĀM REIT ANNUAL REPORT 2017 22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund’s financial risk management policies seek to ensure that adequate financial resources are available for the development of the Fund’s portfolios whilst managing its credit risks, liquidity risks and financing rate risks. The Fund has taken measures to minimise its exposure to the risks associated with its financing, investing and operating activities and operates within clearly defined guidelines as set out in the SC Guidelines and the Fund’s Trust Deed. The following sections provide details regarding the Fund’s exposure to the above-mentioned financial risks and the objectives, policies and procedures for the management of these risks: (a) Credit Risk Management Credit risk refers to the risk that a counter party will default on its contractual obligation resulting in financial loss to the Fund. Credit risk with respect to trade and other receivables is managed through the application of credit approvals, credit limits and monitoring procedures. Credit is extended to the customers based upon careful evaluation of the customers’ financial condition and credit history. Exposure to credit risk At the reporting date, the Fund’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the statement of financial position. Information regarding credit enhancements for trade and other receivables is disclosed in Note 13. Credit risk concentration profile The Fund determines concentrations of credit risk by monitoring individual profile of its trade receivables on an ongoing basis. At the reporting date, the Fund does not have any significant exposure to any individual customer or counterparty nor do they have any major concentration of credit risk related to any financial instrument. Financial instruments that are neither past due nor impaired Information regarding receivables that are neither past due nor impaired is disclosed in Note 13. Deposits with banks and other financial institutions are placed with reputable financial institutions with good credit ratings. (b) Liquidity Risk Management Liquidity risk is the risk that the Fund may encounter difficulty in meeting financial obligations on time due to shortage of funds. The Fund’s exposure to liquidity risk arises frommismatches of the maturities of financial assets and liabilities. The Fund’s approach is to maintain a balance between continuity of funding and flexibility through the use of its credit and financing facilities. The Fund manages liquidity risk by maintaining adequate reserves, banking facilities and financing facilities, by continuously monitoring forecast and actual cash flow from its portfolios, and by matching the maturity profiles of financial assets and liabilities. NOTES TO THE FINANCIAL STATEMENTS - CONT’D