Entire Document - Chris Hani District Municipality

The municipality is not exposed to interest rate risk as the municipality borrows fundsat fixed interest rates.The municipality’s exposures to interest rates on Financial Assets and FinancialLiabilities are detailed in the Credit Risk Management section of this note.Interest Rate Sensitivity AnalysisThe sensitivity analysis below have been determined based on the exposure tointerest rates at the Statement of Financial Position date. The analysis is preparedby averaging the amount of the investment at the beginning of the financial yearand the amount of the investment at the end of the financial year. A 100 basis pointincrease or decrease was used, which represents management’s assessment ofthe reasonably possible change in interest rates. The short and long-term financialinstruments at year-end with variable interest rates are set out in Note 47.9 below:Chapter 4Cash and Cash Equivalents:If interest rates had been 100 basis points higher / lower and all other variables wereheld constant, the municipality’s:• Surplus for the year ended 30 June 2012 would have decreased / increasedby R3 405 145 (2011: decreased / increased by R3 626 344). This is mainlyattributable to the municipality’s exposure to interest rates on its variablerate investments.The municipality’s sensitivity to interest rates has increased during thecurrent period mainly due to the increase in variable rate debt instruments.47.7 Credit Risk ManagementCredit Risk refers to the risk that a counterparty will default on its contractual obligationsresulting in financial loss to the municipality. The municipality has a sound creditcontrol and debt collection policy and obtains sufficient collateral, where appropriate,as a means of mitigating the risk of financial loss from defaults. The municipalityuses other publicly available financial information and its own trading records toassess its major customers. The municipality’s exposure of its counterparties aremonitored regularly.Potential concentrations of credit rate risk consist mainly of variable rate depositinvestments, long-term receivables, consumer debtors, other debtors, bank andcash balances.Investments/Bank, Cash and Cash Equivalents199