Page 310 - TSMC 2019 Annual Report

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 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. The current credit risk assessment policies are as follows:
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
Expected Credit Loss Ratio
0% -
-
-
For the years ended December 31, 2019 and 2018, no expected credit loss was recognized. e. Liquidity risk management
The objective of liquidity risk management is to ensure the Company has sufficient liquidity to fund its business operations over the next 12 months. The Company manages its liquidity risk by maintaining adequate cash and cash equivalent.
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