Note

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises principally from derivatives, trade receivables, bank deposits and funds on the bank accounts.

The following table presents the maximum exposure of the Group to the credit risk:

The structure of credit risk concerning trade receivables divided into segments is presented in the following table:

Trade receivables

 Not impaired overdue trade receivables

Changes in trade receivables impairment losses are presented in Note 17.

Over 45% of the Group’s trade receivables from third parties are insured under trade credit insurance policies (31 December 2015: 61%). It limits the credit risk exposure to the level of the Group’s own contribution (5-10% of the insured receivables value). The insurance policy provides the facility for current monitoring of customer’s current financial position and debt recovery when required. Additionally, upon customer's real or legal insolvency, the Group receives the compensation payment amounting to 90-95% of insured receivable value. Additionally, more than 32% (31 December 2015: 11%) of the Group’s trade receivables from third parties is secured by letters of credit and guarantees. Such receivables are excluded from the insurance. Further 10% (31 December 2015: 5%) is collateralised by mortgages and pledges.

The Group established a unified credit risk management policy and performs ongoing credit assessment including customer monitoring. For these purposes, the Group reviews business intelligence reports, debtor registers and where appropriate require adequate collateral. The Group grants trade credits up to the market value of the collaterals received which mainly relates to domestic customers in Fertilisers-Agro Segment.

Customers for which the Group does not have a positive history of cooperation or for which sales is made occasionally, and for which is not possible to receive the insured credit limit, perform the purchases on prepayment basis. The credit limit is granted to the customers primarily based on the decision issued by the insurer or additionally based on the positive history of cooperation and creditworthiness determined based on the business intelligence reports, financial statements and payment history.

Credit risk exposure is defined as the total of unpaid receivables and is monitored on an ongoing basis by the Group’s internal financial staff (individually for each customer) and in case of insured receivables additionally by the external credit risk analysts of the insurers. Taking into account the Group’s internal procedures and the diversified customers’ portfolio the concentration of credit risk not considered significant.

Approximately 56% (31 December 2015: 53%) of the balance concerns the trade receivables from domestic customers and the remaining 44% (as at 31 December 2015: 47%) relate to foreign customers.

The Group’s revenue concentrates in three main segments reflecting the Group’s business profile. The most significant portion of the Group’s trade receivables relate to Fertilizers-Agro Segment – 36% (31 December 2015: 35.6%), Chemicals Segment - 34% (31 December 2015: 30%) and Plastic Segment – 22% (31 December 2015: 26%). In Plastics and Chemicals Segments the foreign customers prevail, to which sales are made on deferred payment terms, mainly within the insured credit limits or based on the open letters of credit and guarantees. In the Fertilizers-Agro Segment domestic customers are dominant. Sales to these customers is made on prepaid basis and in case of customers with proven credit rating based on trade credit within the insured credit limits.

Cash and bank deposits

Cash and cash equivalents are held in the banks having high ratings and which maintain safe solvency ratios. The excess of domestic cash and cash equivalents is firstly consolidated in the Parent Company’s current account with the negative balances in the overdraft accounts held by the Group entities using the real cash pooling facility provided by PKO BP.