Credit risk management
Credit risk is defined as the risk that assumes the possibility of Company's counterparties not being able to meet their contractual obligations. KGHM Polska Miedź S.A. is exposed to credit risk mainly in three areas, related to:
- trade receivables,
- cash and cash equivalents and bank deposits,
- derivative transactions.
The Management Board is responsible for credit risk management in the Company and for adherence to policy in this regard. The main body involved in realising activities in this respect is the Credit Risk Committee.
An indispensable component of the credit risk management process carried out in the Company is the on-going monitoring of the receivables’ status and the internal reporting system. The Company limits its exposure to credit risk related to receivables from recipients by evaluating and monitoring of the financial condition of its customers, setting credit limits and using debtor security. Buyer’s credit is only provided to proven, long-term customers, while sale of products to new customers is mostly based on prepayments or trade financing instruments that transfer the whole credit risk to the financial institutions. To secure its receivables, the Company uses various forms of security and has entered into a receivables insurance contract.
Cash and cash equivalents and bank deposits
Credit risk related to bank deposits is monitored on on-going basis through analyzing credit ratings of financial institutions that the Company cooperates with, and reduction in concentration of resources in particular institutions.
The Company deposits periodically unallocated cash in accordance with the requirements to maintain financial liquidity and limit risk and in order to protect capital and maximise interest income in accordance with the „Financial Liquidity Management Policy” adopted by the Management Board.
While derivative transactions enable a reduction in the level of market risk, they result in the exposure to credit risk related to financial institutions. Derivative transactions are entered into with financial institutions with medium-high and medium ratings issued by the leading international rating agencies. Credit risk related to derivative transactions is monitored through an analysis of credit ratings and limited by the strive for a diversified composition while introducing the security strategies.
Detailed numerical data with respect to credit risk are presented in: