Mercedes 2010 Annual Report Download - page 236

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Receivables from financial services. Daimler’s financing and
leasing activities are primarily focused on supporting the sale
of the automotive products of the Group. 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 an operating lease or a
finance lease contract. For this reason, statements concerning
the credit risk of Daimler Financial Services refer to the entire
leasing business, unless specified otherwise.
The 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 receivables from financial services, the portion of
the operating lease portfolio that is subject to credit risk and the
volumes from dealer inventory financing. Receivables from
financial services comprise claims arising from finance lease
contracts and repayment claims from financing loans. The
operating lease portfolio is reported under “equipment on oper-
ating leases” in the Group’s consolidated financial statements.
In addition, the Daimler Financial Services segment is exposed
to credit risk from irrevocable loan commitments to retailers and
end customers. At December 31, 2010, irrevocable loan com-
mitments of Daimler Financial Services amounted to €1,722 million,
of which €1,436 million had a maturity of less than one year,
€262 million had maturities between 2 and 3 years, and €24
million had maturities between 3 and 4 years. In 2009, irrevo-
cable loan commitments of Daimler Financial Services amounted
to €1,503 million, of which €651 million had a maturity of less
than one year, and €852 million had maturities between 2 and 3
years.
The Daimler Financial Services segment has guidelines at a global
as well as at a local level which set the framework for effective
risk management. In particular, these rules deal with minimum
requirements for all risk-relevant credit processes, the evalu-
ation of customer quality, requests for collateral as well as the
treatment of unsecured loans and non-performing claims.
The limitation of concentration risks is implemented primarily
by global limits, which refer to single customer exposures.
As of December 31, 2010, exposure to the top 15 customers did
not exceed 4.2% (2009: 4.5%) of the total portfolio.
With respect to its financing and lease activities, the Group
takes collateral for customer transactions. The value of collater-
al generally depends on the amount of the financed assets.
Usually, the financed vehicles serve as collateral, secured by
certificate of ownership. Furthermore, Daimler Financial
Services mitigates the credit risk from financing and lease activ-
ities, 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 custom-
ers are evaluated using internal rating instruments and external
credit bureau data if available.
The scoring and rating results as well as the availability of security
and other risk mitigation instruments, such as pre-payments,
guarantees and, to a lower extent, residual debt insurances, are
essential elements for credit decisions.
Significant financing loans and finance leases to corporate
customers are evaluated individually for impairment. An individual
loan or finance 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 finance lease receivables are
impaired include the following factors: significant financial
difficulty of the borrower, the probability that the borrower falls
bankrupt or become delinquent or defaults on its installment
payments, and restructured or renegotiated contracts to avoid
delinquency.
The vast majority of loans and finance lease receivables related
to retail or small business customers are grouped into homoge-
neous pools and collectively assessed for impairment. Objective
evidence that loans and finance lease receivables are impaired
includes, for example, adverse changes in the payment status of
borrowers included in the pool and an unfavorable change in
the economic conditions affecting the portfolio with similar risk
characteristics.
If single loans and lease receivables are identified to be indi-
vidually impaired, procedures are initiated 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. For the carrying amounts
of the receivables relating to renegotiated loans that would other-
wise be past due or impaired, please refer to Note 14.
Further details on receivables from financial services and the
balance of the recorded impairments are also provided in Note 14.