KENANGA ANNUAL REPORT 2017

48. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (CONT’D.) (iv) Derivatives Fair values are estimated based on quoted or observable market prices at the reporting date. Derivative products valued using a valuation technique are valued using the Black-Scholes model for options and discounted cash flow techniques for swap. The model incorporates various market and non-observable assumptions including market rate volatility. (v) Loans, advances and financing The fair values of fixed rate loans with remaining maturity of less than one year and variable rate loans are estimated to approximate their carrying values. For fixed rate loans with remaining maturity of more than one year, the fair values are estimated based on expected future cash flows of contractual instalment payments and discounted at applicable prevailing rates at the reporting date offered to new borrowers with similar credit profiles. (vi) Deposits from customers The fair values of deposit liabilities payable on demand (demand and savings deposits), or deposits with maturity of less than one year are estimated to approximate their carrying amounts. The fair values of fixed deposits with remaining maturities of more than one year are estimated based on expected future cash flows discounted at applicable prevailing rates offered for deposits of similar remaining maturities. The fair values of Islamic deposits are deemed to approximate their carrying amounts as profit rates are determined at the end of their holding periods based on the profit generated from the assets invested. (vii) Deposits and placements of banks and other financial institutions The carrying values of these financial instruments with remaining maturity of less than one year approximate their carrying amounts due to the relatively short maturity of the financial instruments. For deposits and placements with maturities of one year and above, the estimated fair value is based on discounted cash flows using prevailing money market interest rates at which similar deposits and placements would be made with financial institutions of similar credit risk and remaining period to maturity. Annual Report 2017 31 December 2017 173 notes to the financial statements