Page 74 - E-BOOK

(C) Financial risks
1. Liquidity risks: risks that originate from the Company’s inability to pay its debts and obligations on time,
as the Company is unable to convert its assets into cash, in order to pay the matured debts, or the
Company is unable to sufficiently raise fund for such purpose, or the Company have to acquire cash to
pay its debts at the financial cost that is higher than the acceptable level. Liquidity risks may affect the
Company’s revenue and financial positions.

The tool for managing the liquidity risks
The Company determines its risk management policies/guidelines, in terms of liquidity risks and other related
risks; and specifies the tools that will be used for monitoring and controlling the liquidity risks by related committees,
namely, the Assets and Liabilities Management Committee and the Risk Oversight Committee, as follows.
• Estimating the cash inflows and cash outflows, in order to assess the Company’s liquidity, at different
intervals, namely, at every 1, 3, 6, and 12 months in advance.
• Analyzing the financial ratios, using:
- Financial ratios, namely, the debt-to-equity ratio (D/E) and the operating cash flow to debt paymen
ratio.
- Analyzing the projected current ratio, in order to determine or estimate the Company’s repayment
ability for payable debts, for example, at every 3, 6, 9, and 12 months in advance.
• Performing the stress test of the Company’s liquidity.

Moreover, the Company also plans the contingency funding plan for any liquidity-related emergency,
whether for the normal situation or during crisis, in order to prepare the access to the source of funding that will
72 be able to provide the Company with sufficient amount of cash flow on time, under the appropriate financial cost,

in an event of liquidity-related emergency.

The Company specifies the liquidity risk indicators, namely, the estimated cash inflows and cash outflows
from estimation of liquidity of each period (Liquidity Gap), the debt to equity ratio of shareholders, and the stress
test. The Company regularly monitors and reports its liquidity, in order to provide the information to the Assets
and Liabilities Management Committee, so they may manage the short-term, medium-term, and long-term liquidity
appropriately. This information is also an instrument that allows top executives and related departments to learn
about the Company’s position and the level of existing risks, in order to acquire sufficient amount of funding or to
reduce the risks that may occur during the period where the Company experiences negative liquidity or tends to
lack of liquidity.

2. Credit risk: credit risks mainly involve the asset quality risk, and involve the business operation of asset
management companies, whose revenue does not come from giving credit to their customers but from the
management and sales of NPLs and NPAs.

The tool for managing the asset quality risk
• The Company determines the purchasing prices of NPLs and NPAs using related factors of those NPLs
and NPAs, for example, debtors’ history, debt obligation, the quality of collaterals, the quality of the