Integrated Reports Senwes Financial Review 2018 - Page 45

FINANCIAL REVIEW GROUP Gross exposure Concentration decreased due to better credit spread and distribution Value at risk of producer debtors (VaR) 2018 R’m 2017 R’m 1 028 938 (306) (258) 722 680 The value at risk of R722 million (2017: R680 million), with a maximum exposure of R1 028 million, was calculated before taking into account the statement of financial position of clients. The book increased by R214 million and the VaR increased by R42 million from 2017 and can be attributed to more first grade securities (covering bonds) vested. All credit was approved according to the credit policy. This is an indication that the profiles o f clients are better secured than in previous years. The provision decreased by R5,4 million compared to R6,3 million in 2017. 45 A fair distribution of client size and arrears is applicable and the size of the current book is in line with the risk appetite per segment of Senwes. Categorisation GROUP Distribution of debtors by category Category 1 2018 Trade debtors 2017 Trade debtors 34,7% 38,1% Category 2 52,6% 47,2% Category 3 9,6% 12,4% Category 4 0,8% 0,3% Other 1,8% 1,2% Legal clients 0,5% 0,8% 100,0% 100,0% The above values at risk are measured in respect of concentration in the different areas, namely arrears, categorisation, stratification (individual extent of the balance of the debtor account) and geography and are discussed in detail below: Total Geography Category 1 client: Top clients in the market with an excellent credit history, balance sheet, financial position and repayment ability. Category 2 client: Top quartile clients (with the exclusion of category 1 clients) in the market with a good credit history, sound financial position and excellent repayment ability. Category 3 and 4 client: Represents a broad client base varying from beginner farmers with relatively poor balance sheets to producers involved in a fight for survival. Senwes’ policy only provides for this category in circumstances which include a high security position, specific tailor-made low risk financing products and where Senwes is of the opinion that the client should be able to recover to a stronger position. Other: Accounts are evaluated on the basis on which the account is handled. Legal clients: Clients whose accounts are in arrears and handed over to the legal depart- ment. The different categories are defined as follows: Low concentration risk is applicable due to an extensively spread geographic area, mainly the Free State, Northwest and Northern Cape. Stratification and arrears GROUP 2017 2018 Stratification of the client base to the extent of credit extended Arrears 19,3% 1,5% 19,5% 2,0% 9,0% 2,7% 2,7% 8,2% 3,0% 7,7% 2,5% R3 000 000 – R5 000 000 14,8% 3,2% 16,4% 1,4% R5 000 000 – R12 500 000 23,4% 0,9% 26,0% 2,9% Above R12 500 000 50,0% 0,5% 44,7% 1,9% 0,5% 86,1% 1,0% 72,2% Arrears 1,1% R500 000 – R1 250 000 R1 250 000 – R3 000 000 R1 – R500 000 Legal clients Total 100,0% 100,0% Counter-party risk The credit crunch raises generic questions regarding the ability and appetite of financiers for funding. Absa and Nedbank as key financiers are regarded as excellent counter-parties and therefore fall within acceptable levels of counter-party risk. Counter-party risk relating to credit extension to clients is managed actively and is considered to be within acceptable levels. The total arrears for 2018 amounted to 2,03% (2017: 3,14%). FINANCIAL REVIEW Exposure of book Exposure of book