customers irrespective of their financial standing. For the purpose of determining
the credit quality of customers, the LGUs apply its past experience with
customers in determining the risk of default posed by customers. In line with the
methodology applied, customers are classified into the following credit quality
groups:
(a) High – Those customers who have no history of defaulting on payments to
the LGU and only includes customers who settle their accounts in full and
within the prescribed minimum period;
(b) Medium – Those customers with a history of late payments only. These
customers usually arrange ahead of time with the LGU in settling balances
in arrears and when payments are made, the outstanding amounts
(including interest) are settled in full; and
(c) Low – Those customers with a significant history of defaults. The balances
of these customers are rarely settled in full. The recovery of outstanding
balances from these customers is problematic.
The credit quality of the balance of receivables and other receivables is made up,
as follows:
Investments
The LGUs limit its exposure to credit risk by investing with only reputable
financial institutions that have a sound credit rating (rated BB and above), which
are within the specific guidelines set in accordance with the LGUs Finance
Committee and the Sanggunian approved investment policy. Consequently, the
LGUs do not consider there to be any significant exposure to credit risk.
Receivables
Receivables are amounts owed by consumers, and are presented net of
impairment losses. The LGUs have a credit risk policy in place, and the exposure
to credit risk is monitored on an ongoing basis. The LGUs are compelled, by its
constitutional mandate, to provide all of its residents with basic minimum
services, without recourse to an assessment of creditworthiness. There were no
material changes in the exposure to credit risk and its objectives, policies and
processes for managing and measuring the risk during the year under review.
The LGUs’ maximum exposure to credit risk is represented by the carrying value
of each financial asset in the statement of financial performance. The LGU has no
significant concentration of credit risk, with exposure spread over a large number
of consumers, and is not concentrated in any particular sector or geographic area.
28
