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Financial Instruments
 12 Months Ended
Dec. 31, 2020
Disclosure Of Financial Instruments [Abstract]  
Financial Instruments

38.

FINANCIAL INSTRUMENTS

Categories of Financial Instruments

 

 

 

December 31

 

 

 

2019

 

 

2020

 

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Financial assets

 

 

 

 

 

 

 

 

Measured at FVTPL

 

 

 

 

 

 

 

 

Mandatorily measured at FVTPL

 

$

779

 

 

$

687

 

Hedging financial assets

 

 

—

 

 

 

2

 

Financial assets at amortized cost (Note a)

 

 

71,852

 

 

 

62,405

 

Financial assets at FVOCI

 

 

7,154

 

 

 

7,193

 

Financial liabilities

 

 

 

 

 

 

 

 

Measured at FVTPL

 

 

 

 

 

 

 

 

Held for trading

 

 

—

 

 

 

—

 

Measured at amortized cost (Note b)

 

 

34,434

 

 

 

62,557

 

 

Note a:

The balances included cash and cash equivalents, trade notes and accounts receivable, receivables from related parties, other current monetary assets and refundable deposits (classified as other noncurrent assets), which were financial assets measured at amortized cost.

 

Note b:

The balances included short-term loans, short-term bills payable, trade notes and accounts
payable, payables to related parties, partial other payables, customers’ deposits, bonds payable and long-term loans which were financial liabilities carried at amortized cost.

Financial Risk Management Objectives

The main financial instruments of the Company include equity investments, trade notes and accounts receivable, trade notes and accounts payable, lease liabilities, loans, short-term bills payable and bonds payable.  The Company’s Finance Department provides services to its business units, co-ordinates access to domestic and international capital markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks.  These risks include market risk (including foreign currency risk, interest rate risk and other price risk), credit risk, and liquidity risk.

The Company seeks to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures.  The use of financial derivatives is governed by the Company’s policies approved by the Board of Directors.  Those derivatives are used to hedge the risks of exchange rate fluctuation arising from operating or investment activities.  Compliance with policies and risk exposure limits is reviewed by the Company’s Finance Department on a continuous basis.  The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Chunghwa reports the significant risk exposures and related action plans timely and actively to the audit committee and if needed to the Board of Directors.

 

a.

Market risk

The Company is exposed to market risks of changes in foreign currency exchange rates and interest rates.  The Company uses forward exchange contracts to hedge the exchange rate risk arising from assets and liabilities denominated in foreign currencies.

There were no changes to the Company’s exposure to market risks or the manner in which these risks are managed and measured.

 

1)

Foreign currency risk

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities at the balance sheet dates were as follows:

 

 

 

December 31

 

 

 

2019

 

 

2020

 

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Assets

 

 

 

 

 

 

 

 

USD

 

$

5,782

 

 

$

2,711

 

EUR

 

 

12

 

 

 

15

 

SGD

 

 

225

 

 

 

170

 

JPY

 

 

17

 

 

 

22

 

RMB

 

 

9

 

 

 

30

 

HKD

 

 

—

 

 

 

69

 

Liabilities

 

 

 

 

 

 

 

 

USD

 

 

4,121

 

 

 

768

 

EUR

 

 

206

 

 

 

957

 

SGD

 

 

1,263

 

 

 

1,049

 

JPY

 

 

14

 

 

 

10

 

RMB

 

 

—

 

 

 

—

 

HKD

 

 

15

 

 

 

8

 

The carrying amounts of the Company’s derivatives with exchange rate risk exposures at the balance sheet dates were as follows:

 

 

 

December 31

 

 

 

2019

 

 

2020

 

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Assets

 

 

 

 

 

 

 

 

USD

 

$

—

 

 

$

—

 

EUR

 

 

—

 

 

 

4

 

Liabilities

 

 

 

 

 

 

 

 

USD

 

 

—

 

 

 

—

 

EUR

 

 

—

 

 

 

—

 

 

Foreign currency sensitivity analysis

The Company is mainly exposed to the fluctuations of the currencies USD, EUR, SGD, JPY, RMB and HKD as listed above.

The following table details the Company’s sensitivity to a 5% increase and decrease in the functional currency against the relevant foreign currencies.  5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible changes in foreign exchange rates.  The sensitivity analysis includes only outstanding foreign currency denominated monetary items and forward exchange contracts.  A positive number below indicates an increase in pre-tax profit or equity where the functional currency weakens 5% against the relevant currency.  

 

 

Year Ended December 31

 

 

 

2018

 

 

2019

 

 

2020

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Monetary assets and liabilities (a)

 

 

 

 

 

 

 

 

 

 

 

 

USD

 

$

(55

)

 

$

83

 

 

$

97

 

EUR

 

 

(59

)

 

 

(10

)

 

 

(47

)

SGD

 

 

4

 

 

 

(52

)

 

 

(44

)

JPY

 

 

—

 

 

 

—

 

 

 

1

 

RMB

 

 

—

 

 

 

—

 

 

 

1

 

HKD

 

 

—

 

 

 

(1

)

 

 

3

 

Derivatives (b)

 

 

 

 

 

 

 

 

 

 

 

 

USD

 

 

3

 

 

 

1

 

 

 

(19

)

EUR

 

 

10

 

 

 

3

 

 

 

3

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives (c)

 

 

 

 

 

 

 

 

 

 

 

 

EUR

 

 

9

 

 

 

4

 

 

 

10

 

 

 

a)

This is mainly attributable to the exposure to foreign currency denominated receivables and payables of the Company outstanding at the balance sheet dates.

 

b)

This is mainly attributable to forward exchange contracts.

 

c)

This is mainly attributable to the changes in the fair value of derivatives that are designated as cash flow hedges.

For a 5% strengthening of the functional currency against the relevant currencies, there would be an equal and opposite effect on the pre-tax profit or equity for the amounts shown above.

 

2)

Interest rate risk

The carrying amounts of the Company’s exposures to interest rates on financial assets and financial liabilities at the balance sheet dates were as follows:

 

 

December 31

 

 

 

2019

 

 

2020

 

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Fair value interest rate risk

 

 

 

 

 

 

 

 

Financial assets

 

$

30,947

 

 

$

24,218

 

Financial liabilities

 

 

9,758

 

 

 

36,576

 

Cash flow interest rate risk

 

 

 

 

 

 

 

 

Financial assets

 

 

7,681

 

 

 

9,306

 

Financial liabilities

 

 

1,690

 

 

 

1,667

 

Interest rate sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the end of the reporting period.  A 25 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 25 basis points higher/lower and all other variables were held constant, the Company’s pre-tax income would increase/decrease by $19 million, $15 million and $19 million for the years ended December 31, 2018, 2019 and 2020, respectively.  This is mainly attributable to the Company’s exposure to floating interest rates on its financial assets and short-term and long-term loans.

 

3)

Other price risk

The Company is exposed to equity price risks arising from holding other company’s equity.  Equity investments are held for strategic rather than trading purposes.  The management managed the risk through holding various risk portfolios.  Further, the Company assigned finance and investment departments to monitor the price risk.

Equity price sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices had been 5% higher/lower, pre-tax profit and pre-tax other comprehensive income for the year ended December 31, 2018 would have increased/decreased by $26 million and $347 million as a result of the changes in fair value of financial assets at FVTPL and financial assets at FVOCI, respectively.  If equity prices had been 5% higher/lower, pre-tax profit and pre-tax other comprehensive income for the year ended December 31, 2019 would have increased/decreased by $39 million and $358 million as a result of the changes in fair value of financial assets at FVTPL and financial assets at FVOCI, respectively. If equity prices had been 5% higher/lower, pre-tax profit and pre-tax other comprehensive income for the year ended December 31, 2020 would have increased/decreased by $34 million and $360 million as a result of the changes in fair value of financial assets at FVTPL and financial assets at FVOCI, respectively.

 

b.

Credit risk

Credit risk refers to the risk that a counterparty would default on its contractual obligations resulting in financial loss to the Company.  The maximum credit exposure of the aforementioned financial instruments is equal to their carrying amounts recognized in the consolidated balance sheet as of the balance sheet date.

The Company has large trade receivables outstanding with its customers.  A substantial majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance.  The Company has implemented ongoing measures including enhancing credit assessments and strengthening overall risk management to reduce its credit risk.  While the Company has procedures to monitor and limit exposure to credit risk on trade receivables, there can be no assurance such procedures will effectively limit its credit risk and avoid losses.  This risk is heightened during periods when economic conditions worsen.

As the Company serves a large number of unrelated consumers, the concentration of credit risk was limited.

 

c.

Liquidity risk

The Company manages and maintains sufficient cash and cash equivalent position to support the operations and reduce the impact on fluctuation of cash flow.

 

1)

Liquidity and interest risk tables

The following tables detailed the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods.  The tables had been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company is required to pay.

December 31, 2019

 

 

Weighted

Average

Effective

Interest

Rate (%)

 

 

Less than

1 Month

 

 

1-3

Months

 

 

3 Months

to 1 Year

 

 

1-5 Years

 

 

More than

5 Years

 

 

Total

 

 

 

 

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

 

 

 

 

 

(In Millions)

 

Non-derivative financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing

 

 

—

 

 

$

36,387

 

 

$

—

 

 

$

2,532

 

 

$

4,748

 

 

$

—

 

 

$

43,667

 

Floating interest rate instruments

 

 

0.98

 

 

 

50

 

 

 

10

 

 

 

30

 

 

 

1,600

 

 

 

—

 

 

 

1,690

 

 

 

 

 

 

 

$

36,437

 

 

$

10

 

 

$

2,562

 

 

$

6,348

 

 

$

—

 

 

$

45,357

 

Information about the maturity analysis for lease liabilities was as follows:

 

 

Less than 1 Year

 

 

1-3 Years

 

 

3-5 Years

 

 

More than 5 Years

 

 

Total

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Lease liabilities

 

$

3,310

 

 

$

4,394

 

 

$

1,581

 

 

$

645

 

 

$

9,930

 

December 31, 2020

 

 

Weighted

Average

Effective

Interest

Rate (%)

 

 

Less than

1 Month

 

 

1-3

Months

 

 

3 Months

to 1 Year

 

 

1-5 Years

 

 

More than

5 Years

 

 

Total

 

 

 

 

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

 

 

 

 

 

(In Millions)

 

Non-derivative financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing

 

 

—

 

 

$

37,749

 

 

$

—

 

 

$

2,476

 

 

$

4,827

 

 

$

—

 

 

$

45,052

 

Floating interest rate instruments

 

 

0.78

 

 

 

—

 

 

 

7

 

 

 

1,660

 

 

 

—

 

 

 

—

 

 

 

1,667

 

Fixed interest rate instruments

 

 

0.50

 

 

 

7,000

 

 

 

—

 

 

 

—

 

 

 

8,800

 

 

 

11,200

 

 

 

27,000

 

 

 

 

 

 

 

$

44,749

 

 

$

7

 

 

$

4,136

 

 

$

13,627

 

 

$

11,200

 

 

$

73,719

 

Information about the maturity analysis for lease liabilities was as follows:

 

 

Less than 1 Year

 

 

1-3 Years

 

 

3-5 Years

 

 

More than 5 Years

 

 

Total

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Lease liabilities

 

$

3,397

 

 

$

4,240

 

 

$

1,691

 

 

$

409

 

 

$

9,737

 

 

The following table detailed the Company’s liquidity analysis for its derivative financial instruments.  The table had been drawn up based on the undiscounted gross inflows and outflows on those derivatives that require gross settlement.

 

 

 

Less than

1 Month

 

 

1-3 Months

 

 

3 Months to

1 Year

 

 

1-5 Years

 

 

Total

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross settled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward exchange contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inflows

 

$

26

 

 

$

135

 

 

$

—

 

 

$

—

 

 

$

161

 

Outflows

 

 

26

 

 

 

135

 

 

 

—

 

 

 

—

 

 

 

161

 

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross settled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward exchange contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inflows

 

$

—

 

 

$

635

 

 

$

—

 

 

$

—

 

 

$

635

 

Outflows

 

 

—

 

 

 

631

 

 

 

—

 

 

 

—

 

 

 

631

 

 

 

$

—

 

 

$

4

 

 

$

—

 

 

$

—

 

 

$

4

 

 

 

2)

Financing facilities

 

 

 

December 31

 

 

 

2019

 

 

2020

 

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Unsecured bank loan facility

 

 

 

 

 

 

 

 

Amount used

 

$

121

 

 

$

7,068

 

Amount unused

 

 

46,109

 

 

 

59,277

 

 

 

$

46,230

 

 

$

66,345

 

Secured bank loan facility

 

 

 

 

 

 

 

 

Amount used

 

$

1,600

 

 

$

1,600

 

Amount unused

 

 

1,340

 

 

 

20

 

 

 

$

2,940

 

 

$

1,620