KENANGA ANNUAL REPORT 2019

252 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2019 50. FINANCIAL RISK MANAGEMENT (CONT’D.) (a) Credit risk (cont’d.) Impairment assessment (cont’d.) General approach (cont’d.) Low Credit Risk The Group and the Bank shall adopt practical expedients for its applicable portfolios as detailed in the table below: Practical Expedient Low Credit Risk Applicable portfolio Government and quasi-government bonds, commercial paper, interbank deposit placement/lending. Criteria • the financial instrument has a low risk of default; • the borrower has a strong capacity to meet its contractual cash flow obligations in the near term; and • adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations Measurement 12-month ECL Methodology PD x LGD x EAD formula Definition of 12-month ECL 12-month expected credit losses are a portion of the lifetime expected credit losses that represent the ECLs that result from probable default events on a financial instrument occurring in the next 12 months. They are weighted by the probability of such a default occurring. Measurement of ECL by General Approach: Stage 1 - For financial instruments in stage 1, the Group and the Bank are required to recognise 12 month ECL. For financial instruments that are deemed as low credit risk, 12 month ECL is recognised. Stage 2 - When a financial instrument transfers to stage 2, the Group and the Bank are required to recognise lifetime ECL. Stage 3 - For financial instruments in stage 3, the Group and the Bank will continue to recognise lifetime ECL but based on specific provision approach. The expected credit loss under general approach can be written in the formula below: ECL = PD x LGD x EAD