BT 2013 Annual Report Download - page 158

156 Financial statements
26. Financial instruments and risk management continued
Operational management policy
The group’s credit policy for trading-related financial assets is applied and managed by each of the lines of business to ensure compliance. The
policy requires that the creditworthiness and financial strength of customers is assessed at inception and on an ongoing basis. Payment terms are
set in accordance with industry standards. The group will also enhance credit protection, when appropriate, taking into consideration the group’s
exposure to the customer, by applying processes which include netting and offsetting, and requesting securities such as deposits, guarantees and
letters of credit. The group takes proactive steps including constantly reviewing credit ratings of relationship banks to minimise the impact of
adverse market conditions on trading-related financial assets.
Exposures
The maximum credit risk exposure of the group’s financial assets at the balance sheet date is as follows:
2013 2012
At 31 March Notes £m £m
Derivative financial assets 1,250 1,023
Investments 22 595 581
Trade and other receivablesa16 2,178 2,477
Cash and cash equivalents 23 924 331
4,947 4,412
aThe carrying amount excludes £184m (2011/12: £169m) of non-current trade and other receivables which relate to non-financial assets, and £699m (2011/12: £830m) of prepayments
and other receivables.
The credit quality and credit concentration of cash equivalents, current asset investments and derivative financial assets are detailed in the tables
below. Where the opinion of Moody’s and S&P differ, the lower rating is used.
Moody’s/S&P credit rating of counterparty
Aaa/AAA Aa3/AA– A1/A+ A2/A A3/A–aBaa1/BBB+ Baa2/BBBaTotal
At 31 March 2013 £m £m £m £m £m £m £m £m
Cash equivalents – 107 76 354 58 – – 595
Current asset investments 530 – – 1–––531
Derivative financial assets – 32 60 228 533 – 397 1,250
530 139 136 583 591 – 397 2,376
Moody’s/S&P credit rating of counterparty
Aaa/AAA Aa3/AA– A1/A+ A2/AaA3/A– Baa1/BBB+aBaa2/BBB Total
At 31 March 2012 £m £m £m £m £m £m £m £m
Cash equivalents – – 23 52–––75
Current asset investments 505 – – 8–––513
Derivative financial assets – 121 96 462 – 344 – 1,023
505 121 119 522 – 344 – 1,611
aThe group holds cash collateral of £385m (2011/12: £350m) in respect of derivative financial assets with certain counterparties.
The concentration of credit risk for trading balances of the group is provided in note 16, which analyses outstanding balances by line of business.
The derivative financial assets were held with 14 counterparties at 31 March 2013 (2011/12: nine counterparties). After applying the legal right of
set-off under the group’s ISDA documentation, the group had a net exposure to derivative counterparties of £910m (2011/12: £705m) of which
90% (2011/12: 98%) was with four counterparties (2011/12: six).
The group has credit support agreements with certain swap counterparties whereby on a weekly and monthly basis the fair value position on
notional £945m of long dated cross-currency swaps and interest rate swaps is collateralised. As at 31 March 2013, the group had paid cash
collateral of £26m (2011/12: £22m) in respect of fair value losses and had received cash collateral of £385m (2011/12: £350m) in respect of fair
value gains. The related net cash inflow, including foreign exchange of £2m (2011/12: £20m) is £33m (2011/12: £258m). The collateral paid and
received is recognised within cash and cash equivalents, and loans and other borrowings, respectively.