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21. Financial risk management continued 21.1 Interest rate risk Interest rate exposure 2020
< 1 YEAR $M
1 – 2 YEARS $M
2 – 5 YEARS $M
> 5 YEARS $M
TOTAL $M
500.0
457.2
740.5
1,212.9
2,910.6
Interest rate exposure: borrowings
Derivative contracts: Interest rate swaps Cross currency swaps
(1,030.0) 1,613.4 1,083.4
–
480.0
550.0
– –
(150.0)
(250.5)
(1,212.9)
Net interest rate exposure
307.2
970.0
550.0
2,910.6
Interest rate exposure 2019
< 1 YEAR $M
1 – 2 YEARS $M
2 – 5 YEARS $M
> 5 YEARS $M
TOTAL $M
Interest rate exposure: borrowings
1,041.6
–
947.7
665.8
2,655.1
Derivative contracts: Interest rate swaps Cross currency swaps
(1,150.0)
450.0
320.0
380.0
– –
816.3 707.9
–
(400.5)
(415.8)
Net interest rate exposure
450.0
867.2
630.0
2,655.1
Policies
Vector is exposed to interest rate risk through its borrowing activities. Interest rate exposures are managed primarily by entering into derivative contracts. The main objectives are to minimise the cost of total borrowings, control variations in the interest expense of the borrowings from year to year, and where practicable to match the interest rate risk prof ile of the borrowings with the risk prof ile of the group's assets. The Board has set and actively monitors maximum and minimum limits for the net interest rate exposure prof ile. Credit risk represents the risk of cash flow losses arising from counterparty defaults. Vector is exposed to credit risk in the normal course of business from: — Trade receivable transactions with business and mass market residential customers; and — Financial instruments transactions with f inancial institutions. The carrying amounts of f inancial assets represent the group’s maximum exposure to credit risk. The group has credit policies in place to minimise the impact of exposure to credit risk and associated f inancial losses: — The Board must approve placement of cash, short–term cash deposits or derivatives with f inancial institutions whose credit rating is less than A+. As at 30 June 2020, all f inancial instruments are held with f inancial institutions with credit rating above A+; — The Board sets limits and monitors exposure to f inancial institutions; and — Exposure is spread across a range of f inancial institutions. Where we deem there is credit exposure to energy retailers and customers, the group minimises its risk by performing credit evaluations and/or requiring a bond or other form of security.
21.2 Credit risk Policies
Notes to the Financial Statements
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