KENANGA ANNUAL REPORT 2019

132 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2019 2. CHANGES IN ACCOUNTING POLICIES AND REGULATORY REQUIREMENT (CONT’D.) 2.1 New and amended Malaysian Financial Reporting Standards (“MFRSs”) adopted (cont’d.) (a) MFRS 16 Leases (cont’d.) Based on the above, as at 1 January 2019: • Right-of-use assets of RM14.0 million were recognised and presented in the statement of financial position. • Additional lease liabilities of RM14.0 million were recognised. • The adoption of MFRS 16 had no impact on the Bank’s retained earnings and no material impact on its Common Equity Tier 1 ratio. The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31 December 2018, as follows: Group RM’000 Bank RM’000 Operating lease commitment as at 31 December 2018 14,486 13,877 Weighted average incremental borrowing rate as at 1 January 2019 5.82% 5.88% Discounted operating lease commitment as at 1 January 2019 13,314 12,742 Add: Lease payments relating to renewal periods not included in operating lease commitments as at 31 December 2018 9,733 9,415 Lease liability as at 1 January 2019 23,047 22,157 (b) Amendments to MFRS 9: Prepayment Features with Negative Compensation Under MFRS 9, a debt instrument can be measured at amortised cost or at fair value through other comprehensive income, provided that the contractual cash flows are ‘solely payments of principal and interest on the principal amount outstanding’ (the ‘SPPI’ criterion) and the instrument is held within the appropriate business model for that classification. The amendments to MFRS 9 clarify that a financial asset can pass the SPPI criterion regardless of the event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract. Early termination can result from a contractual term or from an event outside the control of the parties to the contract, such as a change in law or regulation leading to the early termination of the contract. Where the prepayment is made at current fair value or at an amount that includes the fair value of the cost to terminate an associated hedging instruments, the Bank assesses the specific contractual cash flows for the relevant debt instruments in order to determine whether they meet the SPPI criterion. These amendments had no impact on the financial statements of the Group and the Bank.