KENANGA ANNUAL REPORT 2017

50. FINANCIAL RISK MANAGEMENT (CONT’D.) (a) Credit risk (cont’d.) Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters. The main types of collateral obtained are as follows: (i) Cash; (ii) Charges over financial instruments; (iii) Securities; (iv) Charges over real estate properties, inventory and trade receivables; (v) Mortgages over properties; or (vi) Financial guarantees. Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and monitors the market value of collateral obtained during its review of the adequacy of the allowance for impairment losses. It is the Group’s policy to dispose of repossessed properties in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Group does not occupy repossessed properties for business use. (i) Credit quality by class of financial assets as at 31 December 2017 The credit quality of financial assets is managed by the Group using internal credit ratings. The table below shows the credit quality by class of asset for all financial assets exposed to credit risk, based on the Group’s internal credit rating system. Credit quality of financial assets neither past due nor impaired The credit quality of financial assets is managed by the Bank using internal ratings which aim to reflect the relative ability of counterparties to fulfil, on time, their credit-related obligations, and is based on their current probability of default. Internal rating Strong credit profile Customers that have demonstrated superior stability in their operating and financial performance over the long-term, and whose debt servicing capacity is not significantly vulnerable to foreseeable events. This rating broadly corresponds to ratings “AAA” to “AA” of RAM Rating Services Berhad (“RAM”) and Malaysian Rating Corporation Berhad (“MARC”) respectively. Satisfactory risk Customers that have consistently demonstrated sound operational and financial stability over the medium to long term, even though some may be susceptible to cyclical trends or variability in earnings. This rating broadly corresponds to ratings “A” to “BBB” of RAM and MARC respectively. Substandard but not past due nor impaired Customers that have demonstrated some operational and financial instability, with variability and uncertainty in profitability and liquidity projected to continue over the short and possibly medium term. This rating broadly corresponds to ratings “BB” to “C” of RAM and MARC respectively. Kenanga Investment Bank Berhad 31 December 2017 184 notes to the financial statements