Nokia 2005 Annual Report Download - page 200

Notes to the Consolidated Financial Statements (Continued)
38. Risk management (Continued)
b) Credit risk
Structured Finance Credit Risk
Network operators in some markets sometimes require their suppliers to arrange or provide term
financing in relation to infrastructure projects. Nokia has maintained a financing policy aimed at
close cooperation with banks, financial institutions and Export Credit Agencies to support selected
customers in their financing of infrastructure investments. Nokia actively mitigates, market
conditions permitting, this exposure by arrangements with these institutions and investors.
Credit risks related to customer financing are systematically analyzed, monitored and managed by
Nokia’s Customer Finance organization, reporting to the Chief Financial Officer. Credit risks are
approved and monitored by Nokia’s Credit Committee along principles defined in the Company’s
credit policy and according to the credit approval process. The Credit Committee consists of the
CFO, Group Controller, Head of Group Treasury and Head of Nokia Customer Finance.
At the end of December 31, 2005, our long-term loans to customers and other third parties totaled
EUR 63 million (no outstanding loans in 2004), while there was nil financial guarantees given on
behalf of third parties (EUR 3 million in 2004). In addition, we had financing commitments totaling
EUR 13 million, which does not, however, increase total outstanding and committed credit risk
from EUR 63 million, as it is available only provided that outstanding loan EUR 56 million is
repaid. Total structured financing (outstanding and committed) stood at EUR 63 million
(EUR 59 million in 2004).
The term structured financing portfolio at December 31, 2005 was:
Financing
Outstanding commitments Total
EURm EURm EURm
Total Portfolio ........................................ 63 13 63
The term structured financing portfolio at December 31, 2005 mainly consists of outstanding and
committed customer financing to a network operator.
Financial credit risk
Financial instruments contain an element of risk of the counterparties being unable to meet their
obligations. This risk is measured and monitored by the Treasury function. The Group minimizes
financial credit risk by limiting its counterparties to a sufficient number of major banks and
financial institutions, as well as through entering into netting arrangements, which gives the
Company the right to offset in the case that the counterparty would not be able to fulfill the
obligations.
Direct credit risk represents the risk of loss resulting from counterparty default in relation to
on-balance sheet products. The fixed income and money market investment decisions are based on
strict creditworthiness criteria. The outstanding investments are also constantly monitored by the
Treasury. Nokia does not expect the counterparties to default given their high credit quality.
F-62