Notes to the Company annual financial statements | Note 6

Loans to group companies

These loans are unsecured, interest free and are repayable on demand, unless subject to a subordination agreement.

Expected credit losses

Expected credit losses (ECLs) for loans to group companies have been determined using the general impairment model in IFRS 9 (general approach). Under the general approach, an entity calculates ECLs for loans and receivables at initial recognition by considering the consequences and probabilities of possible defaults only for the next 12 months, rather than the life of the asset. It continues to apply this method until a significant increase in credit risk has occurred, at which point the loss allowance is measured based on lifetime ECLs.

BLT has applied the requirements of the general approach of IFRS 9 for counterparties where no external credit ratings are available, by way of the use of a management determined credit risk rating model. The management of BLT performs a rigorous internal rating assessment process of all counterparty credit risk exposures and rate these exposures allocating them into the below mentioned four groups which are then aligned to equivalent Moody's sourced default ratings.

The maximum exposure to credit risk is the gross carrying amount of the loans as presented below. BLT does not hold collateral or other credit enhancements against loans to group companies.

The ECLs (probability of default and loss given default) applied to these groupings are obtained from Moody's Analytics for a reference entity with similar credit risk characteristics to the counterparties to which BLT is exposed.

The table below discloses the credit quality of the loans to group companies for which no external credit ratings are available. Equivalent credit ratings were based on the latest Moody's default ratings. These ratings include forward looking adjustments for all relevant economic factors. Management defines default as when counterparties miss payments and future payments are either suspended or unlikely. Management writes off loans where they have actively pursued the debt and there is no indication of recovery.

The counterparties were categorised as follows:

• Group 1: Fully performing counterparties with no external credit ratings. ECL range up to 9.57% (2022: up to 7.63%);
• Group 2: Fully performing counterparties, with a credit rating equivalent to a Moody's rating of B1 or better. ECL range of 9.57% to 11.66% (2022: 7.63% to 9.26%);
• Group 3: Fully performing counterparties, with a credit rating equivalent to a Moody's rating of between B2 and Caa2. ECL range of 11.66% to 53.39% (2022: 9.26% to 54.0%); and
• Group 4: Counterparties who are considered to be in default and have an equivalent Moody's rating of Ca or lower. ECL of 53.39% to 100% (2022: 54.0% to 100%).

The groupings above are generally aligned to the staging requirements of IFRS 9 as follows:

• Group 1 financial assets are typically Stage 1.
• Group 2 financial assets are typically Stage 1, with minor Stage 2 balances.
• Group 3 financial assets are typically Stage 2, with minor Stage 1 balances.
• Group 4 financial assets are typically Stage 3.

The carrying amounts of loans from related parties approximates their fair values.