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Notes to the Consolidated Financial Statements

31st March 2016

3 FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1 Financial risk factors (Continued)

(a) Market risk (Continued)

(ii) Cash flow and fair value interest rate risk

As the Group has no significant interest-bearing assets, other than short-term bank
deposits, the Group’s income and operating cash flows are substantially independent of
changes in market interest rates.

The Group’s interest rate risk arises from bank borrowings. The Group’s bank
borrowings are carried at floating rates which expose the Group to cash flow interest
rate risk. The Group has not entered into any interest rate swaps to hedge its exposure
to interest rate risk.

As at 31st March 2016, the Group’s borrowings at variable rates were denominated in
USD (2015: HKD).

At 31st March 2016, if interest rates on all borrowings had been 100 basis points
higher/lower with all other variables held constant, post-tax profit for the year would
have been HK$2,328,000 (2015: HK$517,000) lower/higher, mainly as a result of
higher/lower interest expense on floating rate borrowings.

At 31st March 2016, if interest rates on all interest-bearing bank and cash deposits had
been 100 basis points higher/lower with all other variables held constant, post-tax profit
for the year would have been HK$15,910,000 (2015: HK$8,870,000) higher/lower due
to interest income earned on market interest rate.

The total bank loans held by the Group as at 31st March 2016 and 2015 were all with
floating rates.

(b) Credit risk

Credit risk arises from cash and cash equivalents and short-term deposits with banks
and financial institutions, loans and receivables, as well as credit exposures to customers,
including outstanding receivables. Management has a credit policy in place and the
exposures to these credit risks are monitored on an ongoing basis.

The Group’s cash and short-term deposits are placed with reputable banks and financial
institutions. For credit exposures from customers, management assesses the credit quality of
each individual major customer, taking into account its financial position, past experience and
other factors.

52 ALCO HOLDINGS LIMITED ANNUAL REPORT 2016