KENANGA ANNUAL REPORT 2019

254 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2019 50. FINANCIAL RISK MANAGEMENT (CONT’D.) (a) Credit risk (cont’d.) Impairment assessment (cont’d.) Simplified approach The Group and the Bank shall adopt two practical expedients for their applicable portfolios as detailed in the table below: Practical Expedient Provision Matrix Applicable portfolio Trade receivables, contract assets and lease receivables; balances due to clients and brokers; factoring. Criteria • Contract assets without significant financing component • Trade receivables without a significant financing component Measurement Lifetime ECL Methodology Based on the ‘age’ of receivables i.e. aging bucket Definition of Lifetime ECL Lifetime expected credit losses are the losses that result from all possible default of events at any point during the expected life of the financial instrument. Measurement of ECL by Simplified Approach For financial instruments that apply the provision matrix, aging bucket based on definition of default is established and incorporates the forward-looking element. Period over which ECL is measured The Group and the Bank measure ECL considering the risk of default over the maximum contractual period (including extension options) over which the entity is exposed to credit risk and not a longer period, even if contact extension or renewal is common business practice. However, for financial instruments such as revolving credit facilities that include both a loan and an undrawn commitment component, the Group’s and the Bank’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the Group’s and the Bank’s exposure to credit losses to the contractual notice period. For such financial instruments, the Bank measures ECL over the period that it is exposed to credit risk and ECL would not be mitigated by credit risk management actions, even if that period extends beyond the maximum contractual period. These financial instruments do not have a fixed term or repayment structure and have a short contractual cancellation period. Significant increase in credit risk (“SICR”) Significant increase in credit risk (“SICR”) is defined as a significant change in the estimated default risk over the remaining expected life of the financial instrument. A SICR event triggers the measurement of loss allowance at an amount equal to lifetime expected credit losses instead of the 12-month expected credit losses estimate.