KENANGA ANNUAL REPORT 2018

NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 241 ANNUAL REPORT 2018 50. FINANCIAL RISK MANAGEMENT (CONT’D.) (a) Credit risk (cont’d.) Impairment assessment (Policy applicable from 1 January 2018) (cont’d.) Forward-looking and probability-weighted (cont’d.) Multiple-scenario Analysis The Group and the Bank generate a ‘base case’ scenario of the future direction of relevant economic variables as well as a representative range of other possible forecast scenarios. The Group and the Bank then use these forecasts, which are probability-weighted, to adjust their estimates of PDs. The scenarios by state of economy namely, “Booming”, “Normal” and “Downside” were used as defined in below table: State of Economy GDP Growth Rate (annual) KLCI Index (annual %) Downturn (D) <4.0% >-15.0% Normal (N) 4.0%-6.0% >+15% or >-15% Booming (B) >6.0% >+15% The assumptions used for the ECL estimates as at 31 December 2018 are set out below. Economic Factor Scenario 2018 2019 2020 GDP Growth Rate 1 D N B 2 N N N 3 N D D KICL Index 1 D N B 2 N N N 3 N D D The weightings assigned to each state of economy as at 31 December 2018 were as follows: All portfolios State of Economy Weighting B 30% N 50% D 20%