KENANGA ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 128 KENANGA INVESTMENT BANK BERHAD 3. ACCOUNTING POLICIES (CONT’D.) 3.4 Summary of significant accounting policies (cont’d.) (g) Financial assets and liabilities (i) Due from banks, loans and advances to customers, financial investments at amortised cost Before 1 January 2018, included in balance due from banks and loans and advances to customers were those non-derivative financial assets with fixed or determinable payments that were not quoted in an active market, other than those: • That the Group and the Bank intended to sell immediately or in the near term; • That the Group and the Bank, upon initial recognition, designated as at FVTPL or as available-for- sale; and • For which the Group and the Bank may not recover substantially all of its initial investment, other than because of credit deterioration, which were designated as available-for-sale. From 1 January 2018, the Group and the Bank only measure due from banks, loans and advances to customers and other financial investments at amortised cost if both of the following conditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding. The details of these conditions are outlined below. (1) Business model assessment The Group and the Bank determine their business model at the level that best reflects how they manage groups of financial assets to achieve their business objective. The Group’s and the Bank’s business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios and is based on observable factors such as: • How the performance of the business model and the financial assets held within that business model are evaluated and reported to the key entity’s management personnel; • The risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way those risks are managed; • How managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected); and • The expected frequency, value and timing of sales are also important important aspects of the Group’s and the Bank’s assessment.