KENANGA ANNUAL REPORT 2019

255 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2019 50. FINANCIAL RISK MANAGEMENT (CONT’D.) (a) Credit risk (cont’d.) Impairment assessment (cont’d.) Significant increase in credit risk (“SICR”) (cont’d.) The indicators for significant increase in credit risk are established to facilitate the staging assessment (from stages 1 to 2) for portfolios that apply the general approach in the measurement of ECL. An asset moves from 12-month expected credit losses (stage 1) to lifetime expected credit losses (stage 2) when there is a significant deterioration in credit quality after initial recognition. In assessing whether the credit risk of an asset has significantly increased, the Bank takes into account qualitative and quantitative reasonable and supportable forward looking information. An asset classified under stage 2 can potentially be transferred to stage 3 if the credit quality further deteriorates. It is also possible that an asset classified under stage 1 experiences drastic credit deterioration and requires to be transferred out to stage 3 directly. Accordingly, different stage transfer criteria/triggers are established to satisfy the mentioned staging assessment. The assessment of SICR incorporates forward-looking information and is performed on a quarterly basis at a portfolio level for all the above portfolios. The criteria used to identify SICR are monitored and reviewed periodically for appropriateness by the Group Risk Management. Grouping financial assets measured on a collective basis Asset classes where the Bank calculates ECL on a collective basis include: - Debt instruments at fair value through other comprehensive income - Debt instruments at cost - Loans, advances and financing - Balances due from clients and brokers - Other receivables The Group and the Bank group these exposures into smaller homogeneous portfolios, based on a combination of internal and external characteristics of the financial assets, as described below: For debt instruments these are: • Internal grade • Exposure value For loan and financing these are: • Product type (corporate loan, factoring and share margin) • Internal credit grade • Exposure value • Collateral type • Borrower’s industry