Page 220 - TSMC 2018 Annual Report

financial related exposures. As of the end of the reporting period, the Company’s maximum credit risk exposure is equal to the carrying amount of financial assets.
Business related credit risk
The Company’s trade receivables are from its customers worldwide. The majority of the Company’s
outstanding trade receivables are not covered by collaterals or guarantees. While the Company has procedures to monitor and manage credit risk exposure on trade receivables, there is no assurance such procedures will effectively eliminate losses resulting from its credit risk. This risk is heightened during periods when economic conditions worsen.
As of December 31, 2018 and 2017, the Company’s ten largest customers accounted for 79% and 70% of accounts receivable, respectively. The Company believes the concentration of credit risk is not material for the remaining accounts receivable.
Financial credit risk
The Company mitigates its financial credit risk by selecting counterparties with investment-grade credit ratings and by limiting the exposure to any individual counterparty. The Company regularly monitors and reviews the limit applied to counterparties and adjusts the limit according to market conditions and the credit standing of the counterparties.
The risk management of expected credit loss for financial assets at amortized cost and investments in debt instruments at FVTOCI is as follows:
The Company only invests in debt instruments that are rated as investment grade or higher. The credit rating information is supplied by external rating agencies. The Company assesses whether there has been a significant increase in credit risk since initial recognition by reviewing changes in external credit ratings, financial market conditions and material information of the bond-issuers.
The Company assesses the 12-month expected credit loss and lifetime expected credit loss based on the
probability of default and loss given default provided by external credit rating agencies. credit risk assessment policies are as follows:
The current
Expected Credit Loss Ratio
0-0.1% -
- -
Category
Performing Doubtful
In default Write-off
Description
Credit rating on trade date and valuation date:
(1) Within investment grade (2) Between BB+ and BB- Credit rating on trade date and
valuation date:
(1) From investment grade to
non-investment grade
(2) From BB+~BB- to B+~CCC- Credit rating CC or below
There is evidence indicating that the debtor is in severe financial difficulty and the Company has no realistic prospect of recovery
Basis for Recognizing Expected Credit Loss
12 months expected credit loss
Lifetime expected credit loss-not credit impaired
Lifetime expected credit loss-credit impaired
Amount is written off
For the year ended December 31, 2018, the expected credit loss decreases NT$1,040 thousand, mainly attributed to asset allocation adjustment to debt investments of higher credit rating.
- 73 -