Annual Report 2021

NOTESTOTHE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2021 135 The United Laboratories International Holdings Limited Annual Report 2021 38. FINANCIAL INSTRUMENTS (Continued) Financial risk management objectives and policies (Continued) Credit risk and impairment assessment At 31 December 2021, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits and credit approvals. Before accepting any new customer, the Group assesses the potential customer’s credit quality and defines credit limits by customer. Limits attributed to customers are reviewed once a year. Other monitoring procedures are in place to ensure that follow-up action is taken to recover overdue debts. The Group only accepts bills issued or guaranteed by reputable PRC banks if trade receivables are settled by bills and therefore the directors of the Company consider the credit risk arising from the endorsed or discounted bills is insignificant. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced. Trade receivables arising from contracts with customers Trade receivables consist of a large number of customers so the concentration of credit risk is insignificant. The Group uses provision matrix to calculate ECL for trade receivables. The provision rates are based on internal credit risk as groupings of various debtors that have similar loss patterns. The provision matrix is based on the Group’s historical default rates taking into consideration forward-looking information that is reasonable and supportable available without undue costs or effort. At every reporting date, the historical observed default rates are reassessed and changes in the forward-looking information are considered. Impairment of RMB2,612,000 (2020: reversal of impairment of RMB3,470,000) is recognised during the year. Details of the quantitative disclosures are set out below in this note. Bank balances, bank and other deposits and bills receivables The credit risk on bank balances, bank and other deposits and bills receivables are limited because the counterparties are banks mostly with high credit ratings of grade A or above assigned by international credit-rating agencies. The Group assessed 12m ECL for bank balances, bank and other deposits and bills receivables by reference to information relating to probability of default and loss given default of the respective credit rating grades published by external credit rating agencies. Based on the average loss rates, the 12m ECL on bank balances, bank and other deposits and bills receivables is considered to be insignificant and therefore no loss allowance was recognised.