277 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2022 KENANGA INVESTMENT BANK BERHAD Annual Report 2022 50. FINANCIAL RISK MANAGEMENT (CONT’D.) (a) Credit risk (cont’d.) Impairment assessment (cont’d.) General approach (cont’d.) Key Components of ECL Measurement (cont’d.) Loss Given Default (“LGD”) (cont’d.) Details on mapping of the Group’s and of the Bank’s ICRR to the external ratings are presented in Note 50(a)(i). LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the Group and the Bank would expect to receive, taking into account cash flows from any collateral. Exposure at Default (“EAD”) EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities. 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. 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. ageing bucket Definition of Lifetime ECL Lifetime ECL are the losses that result from all possible events of default 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, ageing bucket based on definition of default is established and incorporates the forward-looking element.
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