132 Cyprus Energy Regulatory Authority Sensitivity analysis An increase of 100 basis points in interest rates at 31 December 2021 would have increased/ (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. For a decrease of 100 basis points there would be an equal and opposite impact on the profit and other equity. Profit or loss 2021 2020 € € Variable rate instruments 76.433 75.206 76.433 75.206 6.3 Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to meet an obligation. Credit risk arises from cash and cash equivalents, contractual cash flows of debt investments carried at amortised cost, at fair value through other comprehensive income (FVOCI) and at fair value through profit or loss (FVTPL), favourable derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and contract assets as well as lease receivables. Further, credit risk arises from financial guarantees and credit related commitments. i. Risk management Credit risk is managed on a group basis. For banks and financial institutions, the Authority has established policies whereby the majority of bank balances are held with independently rated parties with a minimum rating of ['C']. If wholesale customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, Top Management assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual credit limits and credit terms are set based on the credit quality of the customer in accordance with limits set by the Top Management. The utilisation of credit limits is regularly monitored. Sales to retail customers are settled in cash or using major credit cards. There are no significant concentrations of credit risk, whether through exposure to individual customers, specific industry sectors and/or regions. The Authority's investments in debt instruments are considered to be low risk investments. The credit ratings of the investments are monitored for credit deterioration. These policies enable the Authority to reduce its credit risk significantly. ii. Impairment of financial assets The Authority has the following types of financial assets that are subject to the expected credit loss model: • trade receivables • financial assets carried at FVOCI • cash and cash equivalents • credit commitments
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