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

Nippon Telegraph and Telephone Corporation – Annual report – 31 March 2020

Industry: telecoms

4.8. Financial Instruments (extract)

(2) Continuing Involvement in Derecognized Financial Asset

Continuing involvement in financial assets derecognized during the fiscal year ended March 31, 2020 was as follows.

NTT DOCOMO, a subsidiary of NTT, 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, 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 deposit cash for the third parties and bear the credit risk.

Although NTT group bear 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 are 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 the same as its book value. In the fiscal year ended March 31, 2020, 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 amount of losses recognized as a result of this transaction was immaterial.

The maximum amount of exposure to losses pertaining to this matter is ¥5,500 million, which represents 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.