35 CONTINGENT LIABILITIES AND COMMITMENTS
To meet the financial needs of customers, the Group and the Bank enter into various irrevocable commitments and contingent liabilities. These consist of financial guarantees, letters of credit and other undrawn commitments to lend. Even though the obligations may not be recognised on the statements of financial position they do contain credit risk and are therefore part of the overall risk of the Group and the Bank.
One of the subsidiary, ACML entered into an arrangement with its clients, where the latter are now managing their own funds.
Refer to note 37 for disclosure on allowance for impairment losses.
Litigation is a common occurrence in the banking industry due to the nature of the business undertaken. The Group and the Bank have formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Group and the Bank make adjustments to account for any adverse effects which the claims may have on its financial standing.
During the reporting period, a customer of the Bank instigates proceedings against it for breach of contract in connection to an outward transfer payment of MUR 5M.
Management considers that no liability will arise as the case is currently still at preliminary stage before the Supreme Court of Mauritius and is remote.
Undrawn commitments to lend
Commitments to extend credit represent contractual commitments to make loans and revolving credits. Commitments generally have fixed expiry dates, or other termination clauses. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements.
However, the potential credit loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific standards. The Group and the Bank monitor the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.
The Group and the Bank have entered into commercial leases on premises and vehicles. These leases have an average life that ranges between three and five years with no renewal option included in the contract. There are no restrictions placed upon the lessee by entering the leases.
Future minimum lease payments under the non-cancellable operating leases at 30 June are as follows: