Annual Report 2015
3.3.3 Interest Rate Risk
As of December 31, 2015 the Company’s borrowing from local commercial banks, consisted of :1.
Working capital facilities which are based on MOR or Money Market Rate, a floating rate.
2.
Long-term loans to finance investments as per business expansion plan each year which are quoted by fixed interest rates and / or floating rates based on the prevailing MLR, THBFIX, fixed deposit rates, and BIBOR.
The Company is taking risk on fluctuations of floating interest rates as market interest rates always fluctuate.
Risk Counter-Measures
The Company implemented risk counter-measures for managing interest rate risk as follow:• Prepare cash flow projections and investment plans in advance so that the Company has sufficient time to find source of borrowings with appropriate interest rates; • Source additional revolving credit facilities from various financial institutions, in order to have more options in choosing the most appropriate source of short term funds with a lower interest rate; • Prepay principal amount as deemed appropriate, in case of excess liquidity, without incurring extra expense nor breaching financial covenants; • Monitor movement of interest rates and other factors that may effect change in interest rates for purpose of following its trend, and consider appropriate interest rates when more long-term loan is needed; • Consider an option of using fixed interest rate or floating rate which is based on various parameters for future borrowing of long-term loans in order to balance or diversify the risk of fluctuation of interest rate in the market; • Use financial tool to mitigate risk on fluctuation of interest rates and ascertain financing cost for the Company.
3.3.4 Credit Risk Due to most of the sales – both domestic and export-being on credit, existing and new customers, and expansion of customer base under different credit terms, the Company has exposed to credit risk that customers might not pay their dues.
Risk Counter-Measures The Company has set up criteria for customer credit rating, tried to find out more information about customers, and analyzed their respective credit worthiness before granting credit lines. The risk of granting credit is at an optimum level eventhough there are limited number of customers under some business line since they have sizable business, and good financial standing. However, the Company also diversifies the risk by having many other smaller and varied categories of customers in the portfolio. Given our past experience in collection of accounts receivable and credit control & approval processes, management believes that there is no significant credit risk or need for additional provision beyond the amounts provided as allowance for doubtful accounts and there was no significant change as compared with that of last year. Regarding payment terms, export customers are required to open letters of credit or make partial or full payments before shipments if they are new customers or their financial circumstances are still in doubt.
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Srithai Superware Public Company Limited