Page 273 - InterloopAnnualReport2020

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended June 30, 2020

53. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The group finances its operations through equity, borrowings and management of working capital with a view to
maintain an appropriate mix between various sources of finance to minimize risk. The group follows an effective cash
management and planning policy and maintains flexibility in funding by keeping committed credit lines available.
Market risks are managed by the group through the adoption of appropriate policies to cover currency risks and
interest rate risks.
The group has exposures to the following risks from its use of financial instruments:
– Market risk
– Credit risk
– Liquidity risk

53.1 Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because
of changes in market prices. Market risk comprises interest rate risk, currency risk and other price risk such
as equity risk. The sensitivity analysis in the following sections relate to the position as at June 30, 2020 and
2019.

53.1.1 Interest rate risk
Interest rate risk represents the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. Majority of the interest rate exposure arises from
investments in term deposit receipts, long term and short term loans, short term borrowings, long term
financing and liabilities against assets subject to finance lease.

At the balance sheet date, the interest rate profile of the group’s interest bearing financial instruments is as
follows:
2020 2019
Fixed rate instruments
Short term investments (Rupees ‘000) 125,044 1,076,355
Loan to Metis International (Pvt) Limited – Secured (Rupees ‘000) 6,777 9,560
Receivables from IL Bangla Limited (Rupees ‘000) 88,562 82,766
Long term financing – Secured (Rupees ‘000) 3,725,554 2,639,611
Lease liabilities (Rupees ‘000) 227,844 –
Short term borrowings – Secured (Rupees ‘000) 484,861 –
Variable rate instruments
Loan to director – Secured (Rupees ‘000) 27,054 33,250
Effective interest rate in percentage 2.40 6.07
Receivables from IL Bangla Limited (Rupees ‘000) 88,562 82,766
Effective interest rate in percentage 7.53 7.53
Long term financing from financial institutions –
Secured (Rupees ‘000) 3,559,544 2,236,325
Effective interest rate in percentage 10.29 13.35
Short term borrowings from financial institutions –
Secured (Rupees ‘000) 14,419,968 11,855,742
Effective interest rate in percentage 4.19 3.03

Fair value sensitivity analysis for fixed rate instruments
The Company does not account for any fixed rate financial assets and liabilities at fair value through profit
or loss. Therefore, a change in interest rate at the balance sheet date would not affect statement of profit or
loss of the Company.

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