BT 2012 Annual Report Download - page 150

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Financial statements
Notes to the consolidated financial statements
26. Financial instruments and risk management continued
Moody’s/S&P credit rating of counterparty
Aaa/AAA Aa2/AA Aa3/AA– A1/A+ A2/AaBaa1/BBBaTotal
At 31 March 2011 £m £m £m £m £m £m £m
Cash equivalents – 18 159 32 1 – 210
Current asset investments – – – 7 12 – 19
Derivative financial assets – 52 115 378 188 – 733
– 70 274 417 201 – 962
aThe group holds cash collateral of £350m (2011: £104m) in respect of derivative financial assets with certain counterparties.
The concentration of credit risk for trading balances of the group is provided in note 17, which analyses outstanding balances by line of business
and reflects the nature of customers in each line of business.
The derivative financial assets were held with nine counterparties at 31 March 2012 (2011: 14 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 £705m (2011: £549m) of which
98% (2011: 94%) was with six counterparties (2011: six).
The group has credit support agreements with certain swap counterparties whereby on a weekly and monthly basis the fair value position on a
notional £945m of long dated cross-currency swaps and interest rate swaps is collateralised. As at 31 March 2012, the group had paid cash
collateral of £22m (2011: £14m) in respect of fair value losses and had received cash collateral of £350m (2011: £104m) in respect of fair value
gains. The collateral paid and received is recognised within cash and cash equivalents, and loans and other borrowings, respectively.
The majority of the group’s derivatives are in designated cash flow hedges. With all other factors remaining constant and based on the
composition of net derivative financial assets at 31 March 2012, a 1% change in interest rates across each of the ratings categories within which
these derivative financial assets are classified would change their carrying values and impact equity, before tax, as follows:
Change in interest rates
+1% –1%
£m £m
(Reduce) (Reduce)
At 31 March 2012 Increase Increase
Moody’s/S&P credit rating
Aa3/AA (21) 11
A1/A+ (56) 62
A2/A (169) 156
Baa1/BBB (131) 156
(377) 385
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.
Overview
BusinessStrategy
Performance
Governance
Financial statements
Additional information Overview
BusinessStrategy
Performance
Governance
Financial statements
Additional information