Volvo 2012 Annual Report Download - page 111

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CREDIT RISKS
Credit risks are defined as the risk that Volvo Group’s does not receive
payment for recognized accounts receivable and customer-financing
receivables (commercial credit risk), that Volvo Group’s investments are
unable to be realized (financial credit risk) and that potential profit is not
realized due to the counterparty not fulfilling its part of the contract when
using derivative instruments (financial counterparty risk).
POLICY
The objective of the Volvo Group Credit Policy is to define and measure
the credit exposure and control the risk of losses deriving from credits to
customers, credits to suppliers, counter party risks and Customer Dealer
Financing activities.
Commercial credit risk
Volvo Group’s credit granting is steered by Group-wide policies and cus-
tomer-classification rules. The credit portfolio should contain a distribu-
tion among different customer categories and industries. The credit risks
are managed through active credit monitoring, follow-up routines and,
where applicable, product repossession. Moreover, regular monitoring
ensures that the necessary allowances are made for incurred losses on
doubtful receivables. In Notes 15 and 16, ageing analyses are presented
of customer finance receivables overdue and accounts receivables over-
due in relation to the reserves made.
The customer-financing receivables in the Volvo Group’s customer-
financing operations amounted at December 31, 2012, to approximately
net SEK 81 billion (79). The credit risk of this portfolio is distributed over a
large number of retail customers and dealers. Collaterals are provided in
the form of the financed products. In the credit granting the Volvo Group
strives for a balance between risk exposure and expected return.
Read more about Volvo’s credit risk in the customer-financing operation in
Note 15.
The Volvo Group’s accounts receivables amounted as of December 31,
2012 to approximately net SEK 27 billion (28).
Financial credit risk
The Volvo Group’s financial assets are largely managed by Volvo Treasury
and invested in the money and capital markets. All investments must meet
the requirements of low credit risk and high liquidity. According to Volvo
Group’s credit policy, counterparties for investments and derivative trans-
actions should have a rating of A or better from one of the well-
established credit rating institutions.
Liquid funds and marketable securites amounted as of December 31,
2012 to approximately SEK 29 billion (37).
Read more about Volvo Group’s Marketable securities and liquid funds in
Note 18.
Financial counterparty risk
The use of derivatives involves a counterparty risk, in that a potential gain
will not be realized if the counterparty fails to fulfill its part of the contract.
To reduce the exposure, master netting agreements are signed, wherever
possible, with the counterparty in question. Counterparty risk exposure for
futures contracts is limited through daily or monthly cash transfers cor-
responding to the value change of open contracts. The estimated gross
exposure to counterparty risk relating to futures, interest-rate swaps and
interest-rate forward contracts, options and commodities derivatives
amounted as of December 31, 2012, to 1,144 (281), 2,507 (2,757), 10
(284) and 23 (68).
CREDIT RISKS
107