Annual Report 2019

NOTESTOTHE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2019 145 The United Laboratories International Holdings Limited Annual Report 2019 41. FINANCIAL INSTRUMENTS (Continued) Financial risk management objectives and policies (Continued) Credit risk and impairment assessment (Continued) As part of the Group’s credit risk management, the Group applied provision matrix based on grouping common risk characteristics that are representative of the customers’ abilities to pay all amounts due in accordance with the contractual terms. The customers are categorised into different internal credit ratings with higher, normal and lower risks, by assessing their business scale, market competitiveness, repayment ability and business reputation. The default rate of the internal credit ratings are based on historical default record of each category. The rate is then adjusted by forward looking macro-economic factors and the adjusting rate incremental in each aging group and risk level proposed by the group. The following expected credit loss rates are about the exposure to credit risk for trade receivables which are assessed based on provision matrix taking into account the weighted average rate of various categories’ debtors as at 31 December 2019 within lifetime ECL (not credit impaired). 2019 2018 Average Gross carrying Allowance Average Gross carrying Allowance loss rate amount amount loss rate amount amount RMB’000 RMB’000 RMB’000 RMB’000 Low risk 0.08% 681,406 545 0.68% 522,444 3,553 Normal risk 0.92% 357,912 3,293 1.55% 498,353 7,724 High risk 9.55% 202,218 19,329 12.50% 113,952 14,241 1,241,536 23,167 1,134,749 25,518 The estimated loss rates are estimated based on historical observed default rates over the expected life of the debtors and are adjusted for forward-looking information that is available without undue cost or effort. The grouping is regularly reviewed by management to ensure relevant information about specific debtors is updated. During the year ended 31 December 2019, an impairment loss of RMB23,167,000 (2018: RMB25,518,000) has been recognised for trade receivables, based on the provision matrix.