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Notes to the Financial Statements (cont’d)
For the financial year ended 31 December 2011
38. Financial risk management objectives and policies (cont’d)
(c) Liquidity risk (cont’d)
Financial guarantees
The table below shows the contractual expiry by maturity of the Group’s and the Company’s financial guarantees. The
maximum amount of the financial guarantee contracts are allocated to the earliest period in which the guarantee could
be called.
Within 1 to 5
Group 1 year years Total
RM’000 RM’000 RM’000
31 December 2011
Financial guarantees 1,000 – 1,000
31 December 2010
Financial guarantees 1,000 – 1,000
Company
31 December 2011
Financial guarantees 71,200 – 71,200
31 December 2010
Financial guarantees 90,300 – 90,300
(d) Credit risk
Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its
obligations. The Group’s and the Company’s exposure to credit risk arises primarily from trade and other receivables.
For other financial assets (including investment securities, cash and bank balances and derivatives), the Group and the
Company minimise credit risk by dealing exclusively with high credit rating counterparties.
Credit risks, or the risk of counterparties defaulting are controlled by the application of credit approvals, limit and
monitoring procedures. Credit risks are minimized and monitored by limiting the Group’s and the Company’s associations
to business partners with high creditworthiness. Trade receivables are monitored on an ongoing basis via Group
management reporting procedures. The Group and the Company place its cash deposits with reputable banks and
financial institutions.
Exposure to credit risk
At the reporting date, the Group’s and the Company’s maximum exposure to credit risk is represented by:
- The carrying amount of each class of financial assets recognised in the statements of financial position, including
derivatives with positive fair values.
- A bank guarantee for RM1.0 million issued by the Company to Kuala Lumpur Tin Market.
- A bank guarantee for RM1.2 million given by the Company to the Perak State Authorities on behalf of a subsidiary.
- A standby letter of credit issued as guarantee for bank facilities amounting to RM69.0 million (USD21.75 million)
utilized by a subsidiary.
The Group has a concentration of credit risk that may arise from exposures to a single debtor which constitutes
approximately 17.3% (2010: 22.5%) of its trade receivables and 34.2% (2010: 26.8%) of its other receivables.
MALAYSIA SMELTING CORPORATION (43072-A) • ANNUAL REPORT 2011 159