ESR AR 2019 EN

Notes to the Consolidated Financial Statements 31 December 2019 227 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ESR Annual Report 2019 45. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Credit risk IFRS 9 Credit risk is the risk of loss due to the inability or unwillingness of a counterparty to meets its contractual obligation. The Group has no concentration of credit risk from third party debtors. The carrying amounts of restricted cash, cash and bank balances, financial assets included in prepayments, other receivables and other assets in the consolidated statement of financial position represent the Group’s maximum exposure to credit risk in relation to its financial assets. All cash and bank balances were deposited in high-credit-quality financial institutions without significant credit risk. The Group has established a policy to perform an assessment of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the other receivables into Stage 1 and Stage 2, as described below: Stage 1 — When other receivables are first recognised, the Group recognises an allowance based on 12 months’ expected credit loss (ECL) Stage 2 — When other receivables have shown a significant increase in credit risk since origination, the Group recognises an allowance for the lifetime ECLs Management also regularly reviews the recoverability of these receivables and follow up the dispute or amount overdue, if any. The management is of the opinion that the risk of default by counterparties is low. The Group considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk, the Group compare the risk of a default occurring on the asset as of the reporting date with the risk of default as of the date of initial recognition. It considers available reasonable and supportive forwarding-looking information. The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. The expected loss allowance provision for these balances was not material during the years ended 31 December 2019 and 2018. The Group assessed that the expected credit losses for these receivables are not material under the 12-month expected loss method. Thus no loss allowance provision was recognised during the years ended 31 December 2019 and 2018. Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables and other receivables are disclosed in note 23 and note 24.