Mercedes 2015 Annual Report Download - page 252

E | CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 259
on the borrower’s very high creditworthiness and on balanced
risk diversification. The limits and their utilizations are
reassessed continuously. In this assessment, Daimler also
considers the credit risk assessment of its counterparties
by the capital markets. In line with the Group’s risk policy, most
liquid assets are held in investments with an external rating
of “A” or better.
Receivables from financial services
Daimler’s financing and leasing activities are primarily
focused on supporting the sales of the Group’s automotive
products. As a consequence of these activities, the Group
is exposed to credit risk, which is monitored and managed based
on defined standards, guidelines and procedures. Daimler
Financial Services manages its credit risk irrespective of whether
it is related to a financing contract or to an operating lease or
a finance lease contract. For this reason, statements concerning
the credit risk of Daimler Financial Services refer to the entire
financing and leasing business, unless specified otherwise.
Exposure to credit risk from financing and lease activities
is monitored based on the portfolio subject to credit risk.
The portfolio subject to credit risk is an internal control quantity
that consists of wholesale and retail receivables from financial
services and the portion of the operating lease portfolio that
is subject to credit risk. Receivables from financial services
comprise claims arising from finance lease contracts and repay-
ment claims from financing loans. The operating lease port-
folio is reported under equipment on operating leases in the
Group’s consolidated financial statements. Overdue lease
payments from operating lease contracts are recognized in
trade receivables.
In addition, the Daimler Financial Services segment is exposed
to credit risk from irrevocable loan commitments to retailers
and end customers. At December 31, 2015, irrevocable loan
commitments of Daimler Financial Services amounted to
€1,913 million (2014: €1,306 million), of which €1,186 million
had a maturity of less than one year (2014: €772 million),
€378 million had maturities between one and three years
(2014: €249 million), €228 million had maturities between
three and four years (2014: €172 million), €92 million had matur-
ities between four and five years (2014: €113 million) and €29
million had maturities later than five years (2014: €0 million).
The Daimler Financial Services segment has guidelines setting
the framework for effective risk management at a global
as well as at a local level. In particular, these rules deal with
minimum requirements for all risk-relevant credit processes,
the definition of financing products offered, the evaluation of
customer quality, requests for collateral as well as the treat-
ment of unsecured loans and non-performing claims. The limita-
tion of concentration risks is implemented primarily by means
of global limits, which refer to single customer exposures.
As of December 31, 2015, exposure to the biggest 15 customers
did not exceed 4.8% (2014: 4.0%) of the total portfolio.
With respect to its financing and lease activities, the Group
holds collateral for customer transactions. The value of collat-
eral generally depends on the amount of the financed assets.
The financed vehicles usually serve as collateral. Furthermore,
Daimler Financial Services mitigates the credit risk from
financing and lease activities, for example through advance
payments from customers.
Scoring systems are applied for the assessment of the default
risk of retail and small business customers. Corporate customers
are evaluated using internal rating instruments. Both evalua-
tion processes use external credit bureau data if available.
The scoring and rating results as well as the availability of secu-
rity and other risk mitigation instruments, such as advance
payments, guarantees and, to a lower extent, residual debt
insurances, are essential elements for credit decisions.
Significant loans and leases to corporate customers are tested
individually for impairment. An individual loan or lease is
considered impaired when there is objective evidence that the
Group will be unable to collect all amounts due as specified
by the contractual terms. Examples of objective evidence that
loans or lease receivables may be impaired include the following
factors: significant financial difficulty of the borrower, a rising
probability that the borrower will become bankrupt, delinquency
in his installment payments, and restructured or renegotiated
contracts to avoid immediate default.
Loans and finance lease receivables related to retail or small
business customers are grouped into homogeneous pools and
collectively assessed for impairment. Impairments are required
for example if there are adverse changes in the payment status
of the borrowers included in the pool, adverse changes in
expected loss frequency and severity, and adverse changes
in economic conditions.
Within the framework of testing for impairment, existing
collateral is generally given due consideration. In that context,
any excess collateral of individual customers is not netted
off with insufficient collateral of other customers. The maxi-
mum credit risk is limited by the fair value of collateral
(e.g. financed vehicles).
If, in connection with contracts, a worsening of payment
behavior or other causes of a need for impairment are recognized,
collection procedures are initiated by claims management to
obtain the overdue payments of the customer, to take possession
of the asset financed or leased or, alternatively, to renegotiate
the impaired contract. Restructuring policies and practices are
based on the indicators or criteria which, in the judgment
of local management, indicate that repayment will probably
continue and that the total proceeds expected to be derived
from the renegotiated contract exceed the expected proceeds
to be derived from repossession and remarketing.
The allowance ratio remained at the low level of the previous
year.
Further details on receivables from financial services and the
balance of the recorded impairments are provided in Note 14.