Groupe Renault - 2020 Universal Registration Document

406 GROUPE RENAULT I UNIVERSAL REGISTRATION DOCUMENT 2020 Find out more at group.renault.com 04 CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS The operations in progress at December 31, 2020 are classified for accounting purposes as cash flow hedges, and accordingly changes in their fair value are included in other components of comprehensive income to the extent of the effective portion of the hedges. ANALYSIS OF FINANCIAL INSTRUMENTS’ SENSITIVITY TO COMMODITY RISKS Financial instruments’ accounting sensitivity to commodity risks results from derivatives used to hedge the Group’s economic exposure to these risks. A 10% increase in commodity prices for derivatives classified as hedging derivatives would have a positive impact of €21 million in other components of comprehensive income at December 31, 2020. Customer credit risk and bank counterparty risk B6 CUSTOMER CREDIT RISK ON AUTOMOTIVE RECEIVABLES The Automotive (excluding AVTOVAZ) segment’s exposure to credit risk is limited because of the assignment of many receivables leading to their deconsolidation, and systematic hedging of risks on export receivables. Non-assigned sales receivables and receivables covered by guarantee are regularly monitored. AVTOVAZ trades only with recognized, creditworthy third parties. All future customers requiring credit facilities are subject to credit verification procedures. In addition, receivables balances are monitored on an ongoing basis, and as a result, the AVTOVAZ Group’s exposure to bad debts is not significant. The maximum exposure is the carrying amount. There are no significant concentrations of credit risk within the AVTOVAZ Group. CREDIT RISK ON CUSTOMERS, DEALERS AND COMMITMENTS GIVEN BY THE SALES FINANCING SEGMENT The Sales Financing segment is exposed to customer and dealer credit risk when risk management techniques are insufficient for protection against default on payment by its counterparties. Credit risk is the risk of losses due to the incapacity of RCI Banque customers to fulfill the terms of a contract signed with the bank. Credit risk is closely linked to macro-economic factors including the unemployment rate, corporate bankruptcies, debt servicing costs, revenue growth, disposable household income, dealership profitability and the price of used vehicles. It has a significant impact on the Sales Financing segment’s business. The level of credit risk on the dealership network is influenced by the dealers’ financial health, the quality of guarantees, and the general demand for vehicles. to dealers. Although RCI Banque is constantly adjusting its acceptance policy in response to market conditions, any increase in credit risk would increase its cost of risk and its provisions for bad debt. RCI Banque has detailed procedures to recover receivables that are compromised or in default, arranging repossessions and sales of unpaid vehicles. However, there can be no guarantee that the policies of issuing credit, monitoring credit risk, payment recovery action, and repossession of vehicles are, or will be, sufficient to avoid an unfavorable impact on its financial results and position. RCI Banque uses advanced scoring systems and external databases to evaluate the quality of loans made to retail and business customers. It also uses an internal rating system to evaluate lending An increase in credit risk would increase the cost of risk and provisions for bad debt, with a direct impact on RCI’s financial results and potentially on its internal capital. BANK COUNTERPARTY RISK Due to its operations on the financial and banking markets to invest cash surpluses, manage foreign exchange risks and interest risks, and manage payment flows, the Group is exposed to a bank counterparty risk. This bank counterparty risk affecting Group entities is managed by both the Automotive and Sales Financing segments in a fully coordinated approach. It is founded on an internal rating system based mainly on counterparties’ long-term credit ratings and equity. This system is used by all Groupe Renault companies exposed to a bank counterparty risk. Group companies which, due to the nature of their business, are significantly exposed to a bank counterparty risk are monitored daily to ensure that they comply with authorized counterparty limits, in accordance with specific procedures. The Group produces a consolidated monthly report covering all its bank counterparties, organized by credit rating. This report provides a detailed analysis of compliance with limits in terms of amount, maturity and type, as well as a list of the main exposures. To reduce the bank counterparty risk, most deposits are contracted with large network banks and generally have terms shorter than 90 days, as this allows a good spread of the risk and lowers the systemic risk. In the event of volatile macroeconomic situations that may arise in emergent countries and potentially affect their banking systems, the Group introduces an action plan to step up counterparty risk monitoring and makes adjustments to the counterparty limits if necessary. The exposure on each banking group is assessed monthly on a consolidated basis, with the Automotive and Sales Financing entities. The Group is not subject to any significant risk concentration for its operations on the financial and banking markets. No losses due to default by a bank counterparty were recorded in 2020.