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27.Financialinstrumentsandnancialriskfactorscontinued
At31December2010,asingleequityinvestmentmadeup80%(200973%)ofthecarryingamountofnon-currentavailable-for-salenancialassetsthus
thegroup’sexposureisconcentratedonchangesinthesharepriceofthisequityinparticular.
(b)Creditrisk
Creditriskistheriskthatacustomerorcounterpartytoanancialinstrumentwillfailtoperformorfailtopayamountsduecausingnanciallosstothe
groupandarisesfromcashandcashequivalents,derivativenancialinstrumentsanddepositswithnancialinstitutionsandprincipallyfromcredit
exposurestocustomersrelatingtooutstandingreceivables.
Thegrouphasacreditpolicy,approvedbytheCFO,thatisdesignedtoensurethatconsistentprocessesareinplacethroughoutthegroupto
measureandcontrolcreditrisk.Creditriskisconsideredaspartoftherisk-rewardbalanceofdoingbusiness.Onenteringintoanybusinesscontractthe
extenttowhichthearrangementexposesthegrouptocreditriskisconsidered.Keyrequirementsofthepolicyareformaldelegatedauthoritiestothe
salesandmarketingteamstoincurcreditriskandtoaspecializedcreditfunctiontosetcounterpartylimits;theestablishmentofcreditsystemsand
processestoensurethatcounterpartiesareratedandlimitsset;andsystemstomonitorexposureagainstlimitsandreportregularlyonthoseexposures,
andimmediatelyonanyexcesses,andtotrackandreportcreditlosses.Thetreasuryfunctionprovidesasimilarcreditriskmanagementactivitywith
respecttogroup-wideexposurestobanksandothernancialinstitutions.
Whiletheglobalcreditenvironmentshowedsignsofstabilizationandimprovementin2010,economicandpoliticaluncertaintiescontinuetodrive
heightenedawareness,discussionandco-ordinationaroundthecreditrisksarisingfromthegroup’sactivities.
Beforetradingwithanewcounterpartycanstart,itscreditworthinessisassessedandacreditratingisallocatedthatindicatestheprobabilityof
default,alongwithacreditexposurelimit.Theassessmentprocesstakesintoaccountallavailablequalitativeandquantitativeinformationaboutthe
counterpartyandthegroup,ifany,towhichthecounterpartybelongs.Thecounterparty’sbusinessactivities,nancialresourcesandbusinessrisk
managementprocessesaretakenintoaccountintheassessment,totheextentthatthisinformationispubliclyavailableorotherwisedisclosedtoBPby
thecounterparty,togetherwithexternalcreditratings.Creditworthinesscontinuestobeevaluatedaftertransactionshavebeeninitiatedandawatchlistof
higher-riskcounterpartiesismaintained.
Thegroupdoesnotaimtoremovecreditriskbutexpectstoexperienceacertainlevelofcreditlosses.Thegroupattemptstomitigatecreditriskby
enteringintocontractsthatpermitnettingandallowforterminationofthecontractontheoccurrenceofcertaineventsofdefault.Dependingonthe
creditworthinessofthecounterparty,thegroupmayrequirecollateralorothercreditenhancementssuchascashdepositsorlettersofcreditandparent
companyguarantees.Tradereceivablesandpayables,andderivativeassetsandliabilities,arepresentedonanetbasiswhereunconditionalnetting
arrangementsareinplacewithcounterpartiesandwherethereisanintenttosettleamountsdueonanetbasis.Themaximumcreditexposureassociated
withnancialassetsisequaltothecarryingamount.At31December2010,themaximumcreditexposurewas$60,643million(2009$49,575million).
Collateralreceivedandrecognizedinthebalancesheetattheyearendwas$313million(2009$549million)andcollateralheldoffbalancesheetwas
$52million(2009$48million).Creditexposureexistsinrelationtoguaranteesissuedbygroupcompaniesunderwhichamountsoutstandingat
31December2010were$404million(2009$319million)inrespectofliabilitiesofjointlycontrolledentitiesandassociatesand$664million(2009$667
million)inrespectofliabilitiesofotherthirdparties.
Notwithstandingtheprocessesdescribedabove,signicantunexpectedcreditlossescanoccasionallyoccur.Exposuretounexpectedlosses
increaseswithconcentrationsofcreditriskthatexistwhenanumberofcounterpartiesareinvolvedinsimilaractivitiesoroperateinthesameindustry
sectororgeographicalarea,whichmayresultintheirabilitytomeetcontractualobligationsbeingimpactedbychangesineconomic,politicalorother
conditions.Thegroup’sprincipalcustomers,suppliersandnancialinstitutionswithwhichitconductsbusinessarelocatedthroughouttheworld.Inaddition,
theserisksaremanagedbymaintainingagroupwatchlistandaggregatingmulti-segmentexposurestoensurethatamaterialcreditriskisnotmissed.
ReportsareregularlypreparedandpresentedtotheGFRCthatcoverthegroup’soverallcreditexposureandexpectedlosstrends,exposureby
segment,andoverallqualityoftheportfolio.Thereportsalsoincludedetailsofthelargestcounterpartiesbyexposurelevelandexpectedloss,anddetails
ofcounterpartiesonthegroupwatchlist.
Somemitigationofcreditexposureisachievedby:nettingarrangements;creditsupportagreementswhichrequirethecounterpartytoprovide
collateralorothercreditriskmitigation;andcreditinsuranceandotherrisktransferinstruments.
Forthecontractscomprisingderivativenancialinstrumentsinanassetpositionat31December2010,itisestimatedthatover80%(2009over
80%)oftheunmitigatedcreditexposureistocounterpartiesofinvestmentgradecreditquality.
Forcashandcashequivalents,thetreasuryfunctiondynamicallymanagesbankdepositlimitstoensurecashiswell-diversiedandtoavoid
concentrationrisks.At31December2010,over80%ofthecashandcashequivalentsbalancewasdepositedwithnancialinstitutionsratedA+orhigher.
Tradeandotherreceivablesofthegroupareanalysedinthetablebelow.BycomparingtheBPcreditratingstotheequivalentexternalcreditratings,
itisestimatedthatapproximately50-60%(2009approximately55-60%)oftheunmitigatedtradereceivablesportfolioexposureisofinvestmentgrade
creditquality.Withrespecttothetradeandotherreceivablesthatareneitherimpairednorpastdue,therearenoindicationsasofthereportingdatethat
thedebtorswillnotmeettheirpaymentobligations.
Thegroupdoesnottypicallyrenegotiatethetermsoftradereceivables;however,ifarenegotiationdoestakeplace,theoutstandingbalance
isincludedintheanalysisbasedontheoriginalpaymentterms.Therewerenosignicantrenegotiatedbalancesoutstandingat31December2010or
31December2009.
$million
Tradeandotherreceivablesat31December 2010 2009
Neitherimpairednorpastdue 30,181 29,426
Impaired(netofvaluationallowance) 67 91
Notimpairedandpastdueinthefollowingperiods
within30days 1,358 808
31to60days 249 151
61to90days 101 76
over90days 424 464
32,380 31,016
188BPAnnualReportandForm20-F2010