KENANGA ANNUAL REPORT 2019

256 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2019 50. FINANCIAL RISK MANAGEMENT (CONT’D.) (a) Credit risk (cont’d.) Impairment assessment (cont’d.) Grouping financial assets measured on a collective basis (cont’d.) For balance due from clients and broker and other receivables these are: • Exposure value • Collateral type Forward-looking and probability-weighted To determine unbiased probability-weighted amount of ECL which considers range of possible outcomes and use of information about economic conditions, the Group and the Bank use external and internal information to generate a ‘base case’ scenario of future forecast of relevant economic variables along with a representative range of other possible forecast scenarios. The external information used includes economic data and forecasts published by governmental bodies and monetary authorities. The Group and the Bank apply probabilities to the forecast scenarios. The Group and the Bank have identified and documented key drivers of credit risk and credit losses for each portfolio of financial instruments and, using a statistical analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses. These are reviewed and monitored for appropriateness on a quarterly basis. Pearson’s Correlation Test Pearson’s Correlation model is used to test the linkage between each possible macroeconomic indicators and credit risk. The Group and the Bank will then select the relevant macroeconomic indicator(s) that show significant correlation (P-value) to default rate and has the most dynamic impact to credit risk. 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%