Telkom AR front.qxp

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Telkom Annual Report 2009
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
12.3. Credit risk management
Credit risk is the risk due to uncertainty in a counterparty’s ability to meet its obligations as they fall due.
Credit risk arises from derivative contracts entered into with financial institutions with a rating of A1 or better. The Company is not exposed
to significant concentrations of credit risk. Credit limits are set on an individual basis. The maximum exposure to the Company from
counterparties in respect of derivative contracts is a net favourable position of R29 million (2008: R289 million; 2007: R103 million). No
collateral is required when entering into derivative contracts. Credit limits are reviewed on an annual basis or when information becomes
available in the market. The Company limits the exposure to any counterparty and exposures are monitored daily. The Company expects
that all counterparties will meet their obligations.
With regard to credit risk arising from other financial assets of the Company, which comprises held-to-maturity investments, financial assets
held at fair value through profit or loss, loans and receivables and available-for-sale assets (other than equity investments), the Company’s
exposure to credit risk arises from a potential default by a counterparty, with a maximum exposure equal to the carrying amount of these
instruments.
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each type of customer. Management reduces
the risk of irrecoverable debt by improving credit management through credit checks and limits. To reduce the risk of counterparty failure,
limits are set based on the individual ratings of counterparties by well-known ratings agencies. Trade receivables comprise a large
widespread customer base, covering residential, business, government, wholesale, global and corporate customer profiles.
Credit checks are performed on all customers, other than prepaid customers, on application for new services on an ongoing basis where
appropriate.
The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other
receivables. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets as well
as expected future cash flows. Refer to note 17.
The Company has provided a financial guarantee to Africa Online Limited for bank loans. At March 31, 2009 there was R26 million
(2008: R23 million; 2007: RNil) outstanding.
Telkom guarantees a certain portion of employees’ housing loans. The amount guaranteed differs depending on facts such as employment
period and salary rates. When an employee leaves the employment of Telkom, any housing debt guaranteed by Telkom is settled before
any pension payout can be made to the employee. The Company recognises a provision when it becomes probable that a guarantee will
be called. There is no provision outstanding in respect of these contingencies. The maximum amount of the guarantee in the event of the
default is R12 million. The fair value of the guarantee at March 31, 2009 was RNil (2008: RNil; 2007: RNil).
Given the deterioration of credit markets, stricter objectives, policies and processes were applied for managing and measuring the risk than
in the previous period.