Annual Report 2012 - singapore land limited

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Singapore Land Limited - Annual Report 2012
NOTES TO THE FINANCIAL STATEMENTS
For the fi nancial year ended 31 December 2012
28. FINANCIAL RISK MANAGEMENT (continued)
(a)
Market risk (continued)
(ii)
Cash fl ow and fair value interest rate risks
Cash fl ow interest rate risk is the risk that the future cash fl ows of a fi nancial instrument will fl uctuate
because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a
fi nancial instrument will fl uctuate due to changes in market interest rates. As the Group has no signifi cant
interest-bearing assets, the Group’s income and operating cash fl ows are substantially independent of
changes in market interest rates.
The Group’s interest rate risks mainly arise from borrowings. Borrowings at variable rates expose
the Group to cash fl ow interest rate risk. Borrowings obtained at fi xed rates expose the Group to fair
value interest rate risk. The Group monitors the interest rates on borrowings closely to ensure that the
borrowings are maintained at favourable rates.
If the interest rates increase/decrease by 25 basis points (2011: 25 basis points) with all other variables
remaining constant, the profi t after tax for the Group and the Company will be lower/higher by $291,000
(2011: $526,000) and $281,000 (2011: $374,000) respectively as a result of higher/lower interest
expense on these borrowings.
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in fi nancial
loss to the Group. For trade receivables, the Group adopts the policy of dealing only with customers of
appropriate credit standing and history, and obtaining suffi cient security where appropriate to mitigate credit
risk. For the property investment segment, generally advance deposits of at least 3 months rental (or equivalent
amount in bankers’ guarantee) are obtained for all tenancies. For the property trading segment, progress
billings from customers are followed up, and appropriate action taken promptly in instances of non-payment
or delay in payment. For other fi nancial assets, the Group adopts the policy of dealing only with high credit
quality counterparties.
Other than amounts due from subsidiary and associated companies, and joint ventures, concentration of
credit risk relating to trade receivables is limited due to the Group’s many varied customers.
As the Group and the Company do not hold any collateral, the maximum exposure to credit risk for each
class of fi nancial instruments is the carrying amount of that class of fi nancial instruments presented on the
statement of fi nancial position.
The Group’s and the Company’s major classes of fi nancial assets are bank deposits, trade receivables and
other non-current receivables.