Strength & Stability - ECS Holdings Limited

29 Financial Risk Management (Cont’d)
Credit Risk (Group)
The Group has a credit policy in place which establishes credit limits for customers and monitors their balances on an ongoing basis.
Credit evaluations are performed on all customers requiring credit over a certain amount. If the customers are independently rated,
these ratings are used. Otherwise, the credit quality of customers is assessed after taking into account its financial position and past
experience with the customers.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other
receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures.
The allowance account in respect of trade and other receivables is used to record impairment losses unless the Group is satisfied that
no recovery of the amount owing is possible. At that point, the financial asset is considered irrecoverable and the amount charged to
the allowance account is written off against the carrying amount of the impaired financial asset.
Cash and fixed deposits are placed with banks and financial institutions which are regulated.
Liquidity Risk
The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance
the Group’s operations and to mitigate the effects of fluctuations in cash flows. Typically the Group ensures that it has sufficient
cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this
excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.
In addition, as at 31 December 2008, the Group maintains various lines of credit amounting to $434 million, of these, $353 million
of the credit facilities are unsecured.
Market Risk
Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and equity prices will affect the
Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and
control market risk exposures within acceptable parameters, while optimising the return on risk.
Foreign Currency Risk
The Group incurs foreign currency risk mainly from foreign currency denominated sales, purchases and borrowings that are
denominated in currencies other than the various functional currencies of Group entities. The currencies giving rise to this risk
are primarily the United States dollar (“USD”), Thai Baht (“THB”), Chinese Renminbi (“RMB”) and Ringgit Malaysia (“RM”).
Movements in their exchange rates against the Singapore dollar could result in the Group incurring foreign exchange losses/gains.
The Group recognises that any significant fluctuations in the USD dollar may affect the Group’s foreign currency risk. As a result, the
Group actively monitors its exposure and uses forward foreign exchange contracts and currency swaps to hedge against USD dollar
exposures, as and when necessary and where possible.
In view of the nature of the Group’s business which spans several countries, foreign exchange risks will continue to be an integral
aspect of the Group’s risk profile in the future.
p.
90
Notes to the
Financial Statements
These notes form an integral part of the financial statements.
ECS Holdings Limited