Mazaya_FS_E Q4. 20

AL-MAZAYA HOLDING COMPANY - K.S.C. (PUBLIC) AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 (All amounts are in Kuwaiti Dinars) 46 27. Financial risk management In the normal course of business, the Group uses primary financial instruments such as cash and cash equivalents, financial assets at FVTPL, accounts receivable, financial assets at FVTOCI, accounts payable, lease liabilities, Islamic bank facilities, and term loans and as a result, is exposed to the risks indicated below. The Group currently does not use derivative financial instruments to manage its exposure to these risks. a) Interest rate, profit rate and finance cost risk Financial instruments are subject to the risk of changes in value due to changes in the level of interest rate, profit rate, or finance cost for its financial assets and liabilities carrying floating interest rates. The effective interest rates, profit rates and finance cost and the periods in which interest-bearing financial assets and liabilities are repriced or mature are indicated in the respective notes. The following table demonstrates the sensitivity to a reasonably possible change in interest rates, profit rates, and finance cost with all other variables held constant, of the Group’s profit: 2020 Increase (Decrease) in interest rate Balance Effect on consolidated statement of profit or loss Term deposit ± 0.5% 2,000,000 ± 10,000 Islamic bank facilities ± 0.5% 98,018,232 ± 490,091 ± 500,091 2019 Increase (Decrease) in interest rate Balance Effect on consolidated statement of profit or loss Term deposit ± 0.5% 5,000,000 ± 25,000 Term loan ± 0.5% 7,364,745 ± 36,824 Islamic bank facilities ± 0.5% 97,182,991 ± 485,915 ± 547,739 b) Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge a contractual obligation causing the other party to incur a financial loss. Financial assets which potentially subject the Group to credit risk consist principally of cash and cash equivalent and receivables. The Group’s cash is placed with high credit rating financial institutions. Receivables is presented net of allowance for expected credit losses. Cash and cash equivalent The Group’s cash and cash equivalent measured at amortized cost are considered to have a low credit risk and the loss allowance is based on the 12 months expected loss. The Group's cash and cash equivalent are placed with high credit rating financial institutions with no recent history of default. Based on management’s assessment, the expected credit loss impact arising from such financial assets are insignificant to the Group as the risk of default has not increased significantly since initial recognition. The Group’s maximum exposure arising from default of the counter-party is limited to the carrying amount of cash and cash equivalent and receivables. c) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with financial instruments. To manage this risk, the Group periodically assesses the financial viability of customers.