Annual Report 2010 - Christchurch City Council

Financial instrument
risks (continued)
Financial statements
Annual Report
Christchurch Otautahi
2010
p227.
Notes to financial statements
39. Financial instrument risks (continued)
Credit risk management
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
entity. Financial instruments that potentially subject the group
to concentrations of credit risk consist principally of cash and
short-term investments, trade receivables, loans and interest
rate swaps. The Council and group places its cash and short-term
investments with high credit quality financial institutions and
sovereign bodies and limits the amount of credit exposure to any
one financial institution in accordance with the treasury policies of
the respective members of the group.
The Council’s Investment policy includes parameters for investing
in financial institutions and other organisations including where
applicable entities that have required Standard and Poor’s credit
ratings.
Council receivables mainly arise from statutory functions,
therefore there are no procedures in place to monitor or report the
credit quality of debtors and other receivables with reference to
internal or external credit ratings. The Council has no significant
concentrations of credit risk in relation to these receivables, as it
has a large number of credit customers, mainly ratepayers, and the
Council has powers under the Local Government (Rating) Act 2002
to recover outstanding debts.
Orion New Zealand Ltd has a concentration of credit risk with
regard to its trade receivables, as it only has a small number of
electricity retailed customers. Christchurch International Airport
Ltd also has a concentration of credit risk on a small number of
customers, with 71.0% (2009: 62.0%) of trade receivables due from
10 customers. City Care Ltd also has a concentration of credit risk
in respect of its transactions with 47% (2009: 47.0%) of its revenue
derived from its ultimate shareholder, the Council. Red Bus Ltd has
a concentration of credit risk with Environment Canterbury, which
provides 59% (2009: 51%) of the company’s revenue.
The group manages its exposure to credit risk arising from trade
receivables by performing credit evaluations on all significant
customers requiring credit, wherever practicable, and continuously
monitors the outstanding credit exposure to individual customers.
With the exception of Orion New Zealand Ltd, which generally
requires collateral security (such as bank letters of credit) from its
electricity retailer customers against credit risk, the group does not
generally require collateral security from its customers.
The carrying value is the maximum exposure to credit risk for bank
balances, accounts receivable and interest rate swaps. No collateral
is held in respect of these financial assets.
The group has not renegotiated the terms of any financial assets
which would result in the carrying amount no longer being past
due or avoid a possible past due status other than trade receivables.