KENANGA ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 135 ANNUAL REPORT 2018 3. ACCOUNTING POLICIES (CONT’D.) 3.4 Summary of significant accounting policies (cont’d.) (g) Financial assets and liabilities (cont’d.) (xiii) Loans and receivables (Policy applicable before 1 January 2018) Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method less allowance for impairment. Gains and losses are recognised in profit or loss when the loans are impaired, and through the amortisation process. (h) Reclassification of financial assets and liabilities Prior to 1 January 2018, reclassifications are made at fair value as of the reclassification date. The fair value becomes the new cost or amortised cost as applicable. Any gain or loss already recognised before the reclassification date is not reversed. From 1 January 2018, the Group and the Bank have not reclassified their financial assets and financial liabilities subsequent to their initial recognition and upon adoption of MFRS 9, apart from the exceptional circumstances in which the Group and the Bank acquire, dispose of, or terminate a business line. (i) Derecognition of financial assets and liabilities (a) Derecognition due to substantial modification of terms and conditions The Group and the Bank derecognise a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that, substantially, it becomes a new loan, with the difference recognised as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded. The newly recognised loans are classified as Stage 1 for ECL measurement purposes, unless the new loan is deemed to be Purchased or Originated Credit Impaired (“POCI”). When assessing whether or not to derecognise a loan to a customer, amongst others, the Group and the Bank consider the following factors: • Introduction of an equity feature; • Change in counterparty; and • If the modification is such that the instrument would no longer meet the SPPI criterion. If the modification does not result in cash flows that are substantially different, the modification does not result in derecognition. Based on the change in cash flows discounted at the original EIR, the Group and the Bank record a modification gain or loss, to the extent that an impairment loss has not already been recorded.