IFRS 7 paras 42A-42H, continuing involvement in derecognized financial assets, certain disclosures

Nippon Telegraph and Telephone Corporation – Annual report – 31 March 2021

Industry: telecoms

4.8. Financial Instruments (extract)

(2) Continuing Involvement in Derecognized Financial Asset

Credit card receivables

NTT group concluded an agreement for the transfer to third parties of the rights to receive cash flows from credit card receivables (Trade and other receivables) up to March 31, 2022, and transferred the rights on March 30, 2021 in the fiscal year ending March 31, 2021.

The credit card receivables subject to the transfer are separated into senior, mezzanine and sub-ordinated portions based on the risk of default. For the mezzanine portion, NTT group deposits cash for the third parties and bears the credit risk.

Although NTT group bears the credit risk for the mezzanine portion as stated above, the credit risk assumed by the NTT group is insignificant because the default risk is highly likely to be absorbed by the sub-ordinated portion. NTT group is also properly monitoring the default risk by tracking the actual collection of the transferred receivables as adequate. The rights to claim over the third parties for the portion of cash deposit are recognized as “Trade and other receivables” in the consolidated statement of financial position. The fair value of the cash deposit portion is same as its book value.

In the fiscal year ended March 31, 2020 and 2021, NTT group derecognized the transferred assets and treated the transactions as sales transactions as below, because substantially all the risks and rewards of ownership was transferred to third parties.

The fair value of the derecognized assets is same as its book value as of March 31, 2020 and 2021.

The amount of losses recognized as a result of this transaction was immaterial.

The maximum amount of exposure to losses pertaining to this matter as of March 31, 2020 and 2021 are ¥5,500 million and ¥33,000 million, which represent the total amount of cash deposits provided by the NTT group to the third parties. No credit losses were incurred for the fiscal year ended March 31, 2020 and 2021.

Telecommunications terminal equipment installment sales receivables

NTT group concluded an agreement for the transfer to third parties of financial assets arising from telecommunications terminal equipment installment sales receivables (Trade and other receivables), and transferred them on March 31, 2021.

The telecommunications terminal equipment installment sales receivables subject to the transfer are separated into senior, mezzanine and sub-ordinated portions based on the risk of default. For the mezzanine portion, NTT group holds the rights to receive cash flows and bears the credit risk.

Although NTT group bears the credit risk for the mezzanine portion as stated above, the credit risk assumed by the NTT group is insignificant because the default risk is highly likely to be absorbed by the sub-ordinated portion. NTT group is also properly monitoring the default risk by tracking the actual collection of the transferred receivables as adequate. The rights to receive cash flows for the mezzanine portion are recognized as “Trade and other receivables” in the consolidated statement of financial position. The fair value of the rights to receive cash flows for the mezzanine portion is same as its book value.

In the fiscal year ended March 31, 2021, NTT group derecognized the transferred assets and treated the transactions as sales transactions as below, because substantially all the risks and rewards of ownership was transferred to third parties.

The fair value of the derecognized assets is same as its book value.

The amount of losses recognized as a result of this transaction was immaterial.

The maximum amount of exposure to losses pertaining to this matter as of March 31, 2021 is ¥5,744 million, which represents the total amount of the rights to receive cash flows for the mezzanine portion which NTT holds. No credit losses were incurred for the fiscal year ended March 31, 2021.