Siemens 2013 Annual Report Download - page 322

92 A. To our Shareholders 117 B. Corporate Governance 155 C. Combined Management Report
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tions in financings, such as syndicated loans. In part, Siemens
takes a security interest in the assets Siemens finances or
Siemens receives additional collateral. Siemens may incur
losses if the credit quality of its customers deteriorates or if
they default on their payment obligations to Siemens, such as
a consequence of a financial or political crisis and a global
downturn.
The effective monitoring and controlling of credit risk is a core
competency of our risk management system. Siemens has im-
plemented a binding credit policy for all entities. Hence, credit
evaluations and ratings are performed for all customers with an
exposure or requiring credit beyond centrally defined limits.
Customer ratings, analyzed and defined by SFS, and individual
customer limits are based on generally accepted rating meth-
odologies, with the input consisting of information obtained
from the customer, external rating agencies, data service pro-
viders and Siemens’ customer default experiences. Ratings
and credit limits are carefully considered in determining the
conditions under which direct or indirect financing will be of-
fered to customers. As part of the process, internal risk assess-
ment specialists determine and continuously update ratings
and credit limits for Siemens’ public and private customers,
both in the euro zone and around the world. For public cus-
tomers our policy provides that the rating applied to individual
customers cannot be better than the weakest of the sovereign
ratings provided by Moody ’s, S & P’s and Fitch for the respective
country.
Credit risk is recorded and monitored on an ongoing basis ap-
plying different systems and processes dependent on the un-
derlying product. Central systems are used for ongoing moni-
toring of counterparty risk. In addition, SFS uses own systems
for its financing activities. There are also a number of decen-
tralized tools used for management of individual credit risks
within the operating units. A central IT application processes
data from the operating units together with rating and default
information and calculates an estimate which may be used as
a basis for individual bad debt provisions. In addition to this
automated process, qualitative information is considered, in
particular to incorporate the latest developments.
To increase transparency with regard to credit risk Corporate
Treasury has established the Siemens Credit Warehouse to
which numerous operating units from the Siemens Group reg-
ularly transfer business partner data as a basis for a centralized
rating process. In addition, numerous operating units transfer
their trade receivables with a remaining term up to one year
along with the inherent credit risk to the Siemens Credit Ware-
house, but remain responsible for servicing activities such as
collections and receivables management. The Siemens Credit
Warehouse actively identifies, quantifies and manages the
credit risk in its portfolio, such as by selling or hedging expo-
sure to specific customers, countries and industries. In addi-
tion to an increased transparency with regard to credit risk, the
Siemens Credit Warehouse may provide Siemens with an addi-
tional source of liquidity and strengthens Siemens’ funding
flexibility.
The maximum exposure to credit risk of financial assets, with-
out taking account of any collateral, is represented by their
carrying amount. As of September ,  and  the collat-
eral for financial instruments classified as financial assets
measured at fair value in the form of netting agreements for
derivatives in the event of insolvency of the respective coun-
terparty amounted to € million and € million, respec-
tively. As of September ,  and  the collateral held for
financial instruments classified as receivables from finance
leases amounted to €, million and €, million, respec-
tively, mainly in the form of the leased equipment. As of Sep-
tember ,  and  the collateral held for financial in-
struments classified as financial assets measured at cost or
amortized cost amounted to €, million and €, million,
respectively. The collateral mainly consisted of property, plant
and equipment and letters of credit. In addition, for this class
Siemens holds collateral in the form of securities related to
reverse repurchase agreements that can be sold or re-pledged
in absence of default by the owner of the collateral. As of
September ,  and  the fair value of the collateral
held amounted to € million and € million, respectively.
In fiscal  and  Siemens has not exercised the right
to sell or re-pledge the collateral. Credit risks arising from irre-
vocable loan commitments are equal to the expected future
pay-offs resulting from these commitments. As of September
,  and  the collateral held for these commitments
amounted to €, million and €, million, respectively,
mainly in the form of inventories and receivables. Credit risks
arising from credit guarantees are described in NOTE  COM-
MITMENTS AND CONTINGENCIES. There were no significant concen-
trations of credit risk as of September ,  and .
Concerning trade receivables and other receivables, as well as
loans or receivables included in line item Other financial assets
that are neither impaired nor past due, there were no indi-
cations as of September , , that defaults in payment
obligations will occur, which lead to a decrease in the net as-
sets of Siemens. Overdue financial instruments are generally