Senwesbel Consolidated Financial Statements | Page 62

Sensitivity of interest rates The potential impact of interest rate changes on finance costs is illustrated below: GROUP 2020 2019 (INCREASE)/ (INCREASE)/ DECREASE IN DECREASE IN INTEREST INTEREST INCREASE/ EXPENSES INCREASE/ EXPENSES (DECREASE) BEFORE TAX (DECREASE) BEFORE TAX % R’m % R’m Commodity finance 2% (0,8) 2% (2,4) 1% (0,4) 1% (1,2) (1)% 0,4 (1)% 1,2 (2)% 0,8 (2)% 2,4 Short-term rate 2% (71,1) 2% (34,9) 1% (35,6) 1% (17,5) (1)% 35,6 (1)% 17,5 (2)% 71,1 (2)% 34,9 Long-term rate 2% (13,4) 2% (20,0) 1% (6,7) 1% (10,0) (1)% 6,7 (1)% 10,0 (2)% 13,4 (2)% 20,0 24.1.2 Credit risk Concentration risk The potential credit concentration risk relates mainly to trade debtors. Trade debtors consist of a large number of clients, spread over different geographic areas and credit is extended in accordance with the credit policy of the group. Prudent credit evaluation processes are strictly adhered to. The value at risk is calculated as follows: Gross carry amount - Securities held = Gross exposure Gross exposure - Securities held = Net exposure to credit risk after net asset value gross exposure - Partial net asset value = Net exposure to credit risk after net asset value. 1. “Gross carry amount” is calculated by decreasing the total producer debtor balance by the security value held or ceded to Senwes as well as the appropriate allowance for expected credit losses. “Gross exposure” is calculated by decreasing the total gross carry amount by the securities held. “Net exposure” is calculated by decreasing the total gross exposure amount by the partial allocation of net asset value. “Security” may, without limiting the generality thereof, amongst others, assume the form of a special hypothec, a special notarial bond, right of retention, a lessor’s hypothec, pledge, cession, surety, option or any other form of security. 2. Distribution (spread) is measured against best practices in the industry, given the concentration in respect of geography, stratification, categorisation and arrears. Sources for measurement of concentration risk are formulated by using various agricultural industry norms, market trends in large companies and own analyses. The spread will increase the value at risk should it be higher than the norm and will decrease the risk should it be lower than the norm. The risk is measured in respect of concentration in the different areas, namely arrears, categorisation, stratification (individual extent of the balance of the debtor account) and geography and are discussed in detail below. Geography Low concentration risk is applicable due to an extensively spread geographic area, mainly the Free State, Northwest and Northern Cape. 61 SENWESBEL ANNUAL FINANCIAL STATEMENTS 2020 Senwesbel Limited Reg no: 1996/017629/06