Ntegrator International Ltd. - Annual Report 2020

89 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December 2020 24. Financial risk management (continued) (a) Market risk (continued) (i) Currency risk (continued) The Company is not exposed to currency risk since all its financial assets and liabilities as at 31 December 2020 and 31 December 2019 are denominated in Singapore Dollar. If the foreign currencies change against the SGD decrease/increase by 1.8% (2019: 1.4%) with all other variables including tax rate being held constant, the effects arising from the net financial assets/liabilities position on the Group’s loss after tax are not significant. (ii) Price risk The Group does not have exposure to equity price risk as it does not hold equity financial assets. (iii) Cash flow and fair value interest rate risks Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates. As the Group has no significant interest-bearing assets, the Group’s income is substantially independent of changes in market interest rates. The Group’s interest rate risk mainly arises from bank overdrafts and borrowings at floating interest rate. The Group manages its interest rate risks by keeping bank loans to the minimum required to sustain the operations of the Group. The Group’s borrowings at variable rates on which effective hedges have not been entered into are denominated mainly in SGD. If the SGD interest rates had increased/ decreased by 0.5% (2019: 0.5%) with all other variables including tax rate being held constant, the (loss)/profit after tax would have been lower/higher by S$65,000 (2019: S$54,000) respectively as a result of higher/lower interest expense on these borrowings. (b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The major classes of financial assets of the Group and of the Company are cash and cash equivalents and trade and other receivables. The Group’s and the Company’s exposure to credit risk arises primary from trade and other receivables. For trade receivables, the Group adopts the policy of dealing with customers of appropriate credit standing and history, and obtaining sufficient collateral or buying credit insurance where appropriate to mitigate credit risk. For other financial assets, the Group and the Company minimise credit risk by dealing exclusively with high credit rating counterparties. Cash and cash equivalents are subject to immaterial credit loss as cash are mainly placed at banks with high credit-rating. It is also the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. Customers with high credit risks are required either to pay on cash term, make advance payments or issue letter of credits. The Group trades only with recognised, creditworthy and secured third parties, there is no requirement for collateral. In addition, receivable balances are monitored on an on-going basis with the result that the Group’s exposure to bad debts is not significant. For other financial assets, the Group adopts the policy of dealing only with high credit quality counterparties. The Group has concentration of credit risk with customers, who are foreign companies, for whom it has completed several network infrastructure projects. These customers have made an arrangement with a financial institution in its own country to issue irrevocable letters of credit in favour of the Group for the settlement of these projects. As at 31 December 2020, the total amount of the irrevocable letters of credit issued in favour of the Group amounted to S$535,000 (2019: S$Nil), which are classified as bills receivables (Note 12), and represents 3% (2019: 0%) of the total trade receivables, bills receivables, contract assets and unbilled revenue of the Group as at that date.