MS AR 2018 (1)

45.1 Credit risk
Credit risk represents the risk that one party to a financial instrument will cause a financial loss for the other
party by failing to discharge an obligation. Company’s credit risk is primarily attributable to its long-term loan to
employees, long-term deposits, trade debts, certain loans and advances, certain deposits, prepayments and
receivables and its balances with banks. To manage credit risk, the Company maintains procedures covering the
application for credit approvals, granting and renewal of counterparty limits and monitoring of exposures against
these limits. As part of these processes the financial viability of all counterparties is regularly monitored and
assessed. Customer credit risk is managed according to Company’s policy, procedures and controls relating to
customer credit risk management. Credit limits are established for all customers based on internal rating criteria.
Credit quality of the customer is assessed and as based on an extensive credit rating. Outstanding customer
receivables are regularly monitored.
Exposure to credit risk:
The carrying amounts of financial assets represents the maximum credit exposure. The financial assets exposed
to credit risk amounted to Rs. 2,569.967 million (2017: Rs. 3,744.622 million) as at June 30, 2018 and are as
follows:
Rupees 2018 2017
Long-term loans to employees 6,570,659 5,640,118
Long-term deposits 20,845,317 18,258,313
Trade debts 1,263,279,786 1,347,038,735
Loans and advances 28,058,616 29,459,715
Deposits, prepayments and other receivables 194,862 5,661,350
Bank balances 1,248,652,589 2,338,563,433
2,567,601,829 3,744,621,664
Concentration of credit risk:
The Company identifies concentration of credit risk by reference to type of counterparty. Maximum exposure to
credit risk by type of counterparty is as follows:
Rupees 2018 2017
Trade debts 1,263,279,786 1,347,038,735
Bank balances with banking companies and financial institutions 1,248,847,451 2,341,197,776
Others 55,474,592 56,385,153
2,567,601,829 3,744,621,664
Geographically there is no concentration of credit risk. Out of the total financial assets credit risk is concentrated
in trade debts and bank balances as they constitute 98% (2017: 98%) of the total financial assets. The maximum
exposure to credit risk for trade debts as at June 30, 2018 and 2017 is with government and semi-government
departments and various other contractors. The Company believes that it is not exposed to any specific credit
risk in respect of trade debts. Trade debts amounting to Rs. Nil (2017: Rs. 354.833 million) are secured against
letter of credit. The Company does not hold any collateral as security against any of its financial assets other than
long-term loans to employees and loans and advances as detailed in relevant notes.
Credit quality of financial assets:
Credit quality of financial assets is assessed by reference to external credit ratings of counter parties determined
by Pakistan Credit Rating Agency Limited (PACRA) and JCR-VIS Credit Rating Company Limited (JCR-VIS),
Annual Report 2018
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