DESTINI Annual Report 2018

42. Financial Instruments (Cont’d) (c) Financial risk management objectives and policies (Cont’d) (i) Credit risk (Cont’d) The Group has 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 deposit 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. At each reporting date, the Group and the Company assess whether any if the receivables and contract assets are credit impaired. The gross carrying amounts of credit impaired trade receivables and contract assets 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 and contract assets 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 financial year represent the Group’s and the Company’s maximum exposure to credit risk except for financial guarantees provided to banks for banking facilities granted to certain subsidiaries. The Company’s maximum exposure in this respect is RM111,916,489 (2017: RM107,040,905), representing the outstanding banking facilities of the subsidiaries as at the end of the reporting period. There was no indication that any subsidiary would default on repayment as at the end of the reporting period. Financial guarantee The Group provides secured bankers’ guarantee in favour of the local authorities for purpose of securing development projects. The maximum exposure of credit risk amounted to RM40,988,359 (2017: RM59,548,762). There was no indication that the guarantee will be called upon. Intercompany loan advances The Company provides unsecured loans and advances to subsidiaries. The Company monitors the results of the subsidiaries regularly. As at the end of the reporting period, the maximum exposure to credit risk is represented by their carrying amounts in the statements of financial position. As at the end of the reporting period, there was no indication that the loans and advances to the subsidiaries are not recoverable. The Company does not specifically monitor the ageing of current advances to the subsidiaries. (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 is 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. NOTES TO THE FINANCIAL STATEMENTS DESTINI BERHAD ANNUAL REPORT 2018 194