45. OTHER INFORMATION (continued)

 

45.3 Operating lease commitments

 

The Company leases office under operating lease arrangements. As at 31 December 2018, the committed future rental payments under the operating lease agreements are as follows:

 


45.4 Commitments relating to margin lending service

 

The Company signed margin lending contracts with investors to facilitate securities trading activities of investors.

 

The Company’s commitments to provide funds under outstanding margin lending contracts as of 31 December 2018 and 31 December 2017 are as follows:

 

 

45.5 Purposes and policies of financial risk management
 
The Company’s financial liabilities comprise mostly liabilities and borrowings, payables to suppliers and other payables. The main purpose of these financial liabilities is to finance the Company’s operations. The Company has loans, trade and other receivables, cash and short-term deposits that arise directly from its operations. The Company does not hold or issue derivative financial instruments.
 
The Company is exposed to market risk, credit risk and liquidity risk. 
 
Risk management is integral to the whole business of the Company. The Company has a system of controls in place to maintain an acceptable balance between the cost arisen from risks and the cost of managing the risks. The Management continually monitors the Company's risk management process to ensure that an appropriate balance between risk and control is achieved. 
 
Management reviews and agrees policies for monitoring each of these risks which are summarized below.
 
Market risk
 
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. There are four types of market risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits and available-for-sale investments. 
 
The Company manages market risk by analysing financial sensitivity of the Company as at 31 December 2018 and 31 December 2017. When analysing sensitivity, Management assumes that sensitivity of Available-for-sale debt instruments in the statement of financial position and other related items in the income statement is affected by changes in corresponding market risk. The analysis is based on financial assets and liabilities held by the Company as at 31 December 2018 and 31 December 2017.
 
Interest rate risk
 
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to market risk due to changes in interest rate relates primarily to cash and short-term deposits of the Company and its subsidiaries. Financial liabilities have fixed interest rate. 
 
The Company manages interest rate risk by looking at the competitive structure of the market to identify a proper interest rate policy which is favourable for purposes of the Company and its subsidiaries within its risk management limits.
 
No analysis on interest sensitivity is performed since the Company’s exposure to risk of changes in interest rate is insignificant.
 
Foreign exchange risk
 
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities in which revenue or expense is denominated in a different currency from the Company’s accounting currency and its investments in overseas subsidiaries.
 
The Company manages foreign exchange risk by hedging against transactions that are expected to take place in the future. 
 
Equity price risk
 
Listed and unlisted securities which are held by the Company are affected by market risk arising from the uncertainty of future value of invested securities. The Company manages equity price risk by establishing investment limits. The Company’s Investment Council considers and approves investments in securities.
 
As at the reporting date, the fair value of listed shares (FVTPL and AFS) was VND 2,208,885,700,770. The 10% increase (or decrease) in market index would possibly result in a corresponding increase (or decrease) in revenue from investment of the Company, depending on its magnitude and length as well as the Company’s ownership position of securities which have significant influence on market index. 
 
Credit risk
 
Credit risk is the risk that counterparty would not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily for loans and receivables) and from its financing activities, including deposits with banks, foreign exchanges activities and other financial instruments.
 
Receivables
 
Customer credit risk is managed by the Company based on its established policies, procedures and control relating to customer credit risk management. Credit quality of customers is evaluated on the basis of Management’s assessment.
 
Outstanding customer receivables are regularly monitored. Customer credit quality’s impairment is analysed at each reporting date on an individual basis for major clients. The Company closely monitors outstanding receivables and operates a credit control unit to mitigate credit risk. Due to the fact that the Company’s receivables relate to a large number of diversified customers, there is no significant concentration of credit risk.
 
Bank deposits
 
The Company's bank balances are mainly maintained with high credit rating banks in Vietnam. Credit risk from balances with banks is managed by the Company’s treasury department in accordance with the Company’s policy. The Company’s maximum exposure to credit risk for the components of the statement of financial position at each reporting date is the carrying value as presented in Notes 5, 7.3 and 11. The Company evaluates the concentration of credit risk with respect to bank deposits as low.
 
Margin lending and advances to customers
 
The Company manages its credit risks via the use of internal control policies, processes and procedures relevant to margin lending and advance payments to customers. The Company only provides margin lending with securities eligible to perform margin trading under the Regulation on Margin Lending and is rated in accordance with SSI's principle of share quality assessment. The credit limits are measured based on value of collateral assets, customer’s credit rating and other indicators. 
 
The following loans are considered as overdue as at 31 December 2018 (excluding contracts that was extended or liquidated before the signing date of this report). Except for financial assets which are reserved for impairment as stated in Notes 8 and 9, according to the Management’s assessment, the remaining financial assets are neither overdue nor impaired as they are all liquid. 
 
 
Liquidity risk
 
The liquidity risk is the risk that the Company will encounter difficulties in meeting financial obligations. The Company’s exposure to liquidity risk arises when the Company is unable to meet its financial obligations as they fall due, primarily due to mismatches in the maturity terms of financial assets and liabilities. The maturity terms of financial assets and liabilities reflect the remaining year of financial assets and liabilities from the reporting date to the date of settlement set out in the contracts or terms of issuance. For FVTPL and AFS financial assets, the maturity terms are determined based on the liquidity of the assets (the ability to sell and purchase the assets in short term) on the market.
 
The Company monitors its liquidity risk by maintaining a level of cash and cash equivalents, borrowings deemed adequate by the Management to finance the Company’s operations and to mitigate the effects of fluctuations in cash flows. 
 
The below table summarizes the maturity profile of the Company’s assets and liabilities based on contractual undiscounted payments:
 
 
The Company assessed the concentration of risk with respect to its debt payments as low. The Company is able to access to different sources of funds and all the borrowings which are due within 12 months can be renewed with the current lenders.
 
Collaterals
 
The Company used a part of its term deposits and certificates of deposits as collaterals for bank overdrafts and short-term borrowings from commercial banks. As at 31 December 2018, the total carrying value of term deposits and certificates of deposits used as collaterals for bank overdrafts were VND 4,345,000,000,000, and the total carrying value of term deposits used as collaterals for short-term borrowings were VND 7,267,000,000,000.
 
Among financial assets at fair value through profit and loss, financial assets available-for-sale and investment in associates as at 31 December 2018, there were 17,097,938 shares with the par value of VND 170,979,380,000 used as collaterals for short-term borrowings. 
 
The Company held securities as collateral for margin loans to customers as at 31 December 2018. 
 
Other than that, the Company did not hold any other party's collateral at 31 December 2018 and 31 December 2017.