New Zealand Gazette – 2004 – No. 11

Page 263

✨ Financial Risk Assessment Criteria

5 FEBRUARY

NEW ZEALAND GAZETTE

263

Criteria for Risk Assessment

The criteria listed in the table below enable an objective assessment to be made of whether an institution or the operation or long-term viability of an institution is at risk and, if so, the level of such risk. The level of risk determines the nature of action available to the Secretary or the Minister. Each of the criteria is marked in columns 1, 2 or 3. The marking indicates which level of risk the criteria are relevant to assessing. The key to the table is:

Level 1 = relevant to assessing whether an institution may be at risk

Level 2 = relevant to assessing whether an institution may be at risk and/or whether the operation or long-term viability of an institution is at risk

Level 3 = relevant to assessing whether an institution may be at risk and/or whether the operation or long-term viability of an institution is at risk and/or whether there is a serious risk to the operation or long-term viability of an institution

No.	Criteria	Relevance of Criteria to Level of Risk
		1
-----	----------	---
	Financial ratios calculated by reference to the latest audited group financial statements of an institution as at the time of assessment
1.	Operating Surplus/Deficit is negative or less than 3.0% of Total Revenue.	●
2.	If the institution is, at the time of assessment, party to an Approved Borrowing Agreement which specifies a Minimum Required Interest Cover Ratio, the interest cover ratio calculated in accordance with that Approved Borrowing Agreement and on the basis of those group financial statements is less than 1.25 times that Minimum Required Interest Cover Ratio.	●
	If the institution is not, at the time of assessment, party to an Approved Borrowing Agreement which specifies a Minimum Required Interest Cover Ratio, the Default Interest Cover Ratio is less than 3.0.
3.	If the institution is, at the time of assessment, party to an Approved Borrowing Agreement which specifies a Maximum Permitted Debt/Equity Ratio and/or a Maximum Permitted Liabilities to Assets Ratio, the debt/equity ratio calculated in accordance with that Approved Borrowing Agreement and on the basis of those group financial statements is more than 0.75 times that Maximum Permitted Debt/Equity Ratio and/or the liabilities to assets ratio calculated in accordance with that Approved Borrowing Agreement and on the basis of those group financial statements is more than 0.75 times that Maximum Permitted Liabilities to Assets Ratio.
	If the institution is not, at the time of assessment, party to an Approved Borrowing Agreement which specifies a Maximum Permitted Debt/Equity Ratio and/or a Maximum Permitted Liabilities to Assets Ratio, the Default Debt/Equity Ratio is greater than 20%.
4.	Operating Cash Receipts is less than 111% of Operating Cash Payments.
5.	The Liquid Funds Ratio is less than 12.0%
	Financial ratios calculated by reference to the council-approved group budget of an institution for the financial year current as at the time of assessment
6.	Operating Surplus/Deficit is negative or less than 3.0% of Total Revenue.	●
7.	If the institution is, at the time of assessment, party to an Approved Borrowing Agreement which specifies a Minimum Required Interest Cover Ratio, the interest cover ratio calculated in accordance with that Approved Borrowing Agreement and on the basis of that group budget is less than 1.25 times that Minimum Required Interest Cover Ratio.	●
	If the institution is not, at the time of assessment, party to an Approved Borrowing Agreement which specifies a Minimum Required Interest Cover Ratio, the Default Interest Cover Ratio is less than 3.0.
8.	If the institution is, at the time of assessment, party to an Approved Borrowing Agreement which specifies a Maximum Permitted Debt/Equity Ratio and/or a Maximum Permitted Liabilities to Assets Ratio, the debt/equity ratio calculated in accordance with that Approved Borrowing Agreement and on the basis of that group budget is more than 0.75 times that Maximum Permitted Debt/Equity Ratio and/or the liabilities to assets ratio calculated in accordance with that Approved Borrowing Agreement and on the basis of that group budget is more than 0.75 times that Maximum Permitted Liabilities to Assets Ratio.
	If the institution is not, at the time of assessment, party to an Approved Borrowing Agreement which specifies a Maximum Permitted Debt/Equity Ratio and/or a Maximum Permitted Liabilities to Assets Ratio, the Default Debt/Equity Ratio is greater than 20%.