Notes to the financial statements
23. Financial risk management continued 23.1 Interest rate risk
Interest rate exposure 2023
< 1 YEAR $M
1 - 2 YEARS $M
2 - 5 YEARS $M
> 5 YEARS $M
TOTAL $M
240.0
250.0
979.4
935.7
2,405.1
Interest rate exposure: borrowings
Derivative contracts: Interest rate swaps Cross currency swaps
(860.0)
110.0
700.0
50.0
– –
1,212.9
–
(277.2)
(935.7)
Net interest rate exposure
592.9
360.0
1,402.2
50.0
2,405.1
Interest rate exposure 2022
< 1 YEAR $M
1 - 2 YEARS $M
2 - 5 YEARS $M
> 5 YEARS $M
TOTAL $M
Interest rate exposure: borrowings
886.5
240.0
727.2
1,437.9
3,291.6
Derivative contracts: Interest rate swaps Cross currency swaps
(1,140.0) 1,212.9
280.0
710.0
150.0
– –
–
–
(1,212.9)
Net interest rate exposure
959.4
520.0
1,437.2
375.0
3,291.6
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 profile of the borrowings with the risk profile of the group’s assets. The board has set and actively monitors maximum and minimum limits for the net interest rate exposure profile. 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 financial institutions. The carrying amounts of financial 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 financial losses: — The board must approve placement of cash, short-term cash deposits or derivatives with financial institutions whose credit rating is less than A+. As at 30 June 2023, all financial instruments are held with financial institutions with credit rating above A+; — The board sets limits and monitors exposure to financial institutions; and — Exposure is spread across a range of financial 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.
23.2 Credit risk Policies
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