11.2.6 Credit risk
Management of credit risk in financial transactions consists in the verification of creditworthiness of the current and potential counterparties and monitoring of credit exposures against the granted limits.
Credit exposure includes bank deposits, cash balances in bank accounts, measurement of derivative financial instruments, and granted security.
The counterparties must have an appropriate credit rating assigned by leading rating agencies or hold guarantees from institutions meeting the minimum acceptable rating requirement. The Group enters into financial transactions with reputable firms with sound credit standing, and diversifies the group of relationship institutions.
As at December 31st 2021 and December 31st 2020, the concentration of credit risk exposure to any single counterparty in the Parent’s financial transactions did not exceed PLN 380m and PLN 577.5m, respectively (3.18% and 6.11% of the Parent’s equity, respectively).
As regards management of counterparty risk in non-financial transactions, all customers who request trading on credit terms are subject to credit assessment, whose results determine the level of possible credit limits. The Parent uses an internal rating model to support the process of assigning limits to trading partners. The Parent defines guidelines for managing counterparty risk in non-financial transactions to ensure that appropriate standards of credit analysis and operational security are observed across the entire Group.
As at December 31st 2021 and December 31st 2020, the concentration of credit risk exposure to any single counterparty in the Parent’s trade transactions did not exceed PLN 335m and PLN 206.8m, respectively (2.81% and 2.19% of the Parent’s equity, respectively).
Credit risk is measured by the maximum exposure to risk of each class of financial assets. Carrying amounts of financial assets represent the maximum credit risk exposure.
| Maximum credit risk exposure of financial assets | Note | Dec 31 2021 | Dec 31 2020 |
|---|---|---|---|
| Derivative financial instruments | 10.11 | 216.7 | 67.1 |
| Trade receivables | 10.3 | 2,648.5 | 1,693.9 |
| Cash and cash equivalents | 10.7 | 2,572.1 | 2,145.6 |
| Loans | 10.4 | 210.3 | 195.9 |
| Shares | 10.5 | 297.4 | 309.8 |
| Other financial assets | 10.3 | 211.1 | 208.6 |
| Total | 6,156.1 | 4,620.9 |
In the Management Board’s opinion, the risk related to non-performing financial assets is reflected in the recognised impairment losses. For information on impairment of financial assets, see Notes 9.8 and 10.3.1.
For discussion of credit risk concentrations for trade receivables, see Note 10.3.1. For ageing of trade receivables and expected credit losses, see Note 10.3.1.
For ageing of receivables past due but not impaired, see Note 10.3.1.