34. FINANCIAL INSTRUMENTS (CONTINUED) 34.4 Credit risk (continued) Concentration of credit risk The exposure of credit risk for receivables and contract assets (excluding prepayments) as at the end of the reporting period by geographical region was: Group 31.12.2024 31.12.2023 RM’000 RM’000 Asia 94,422 217,089 Europe 58,278 65,408 North America 10,241 39 162,941 282,536 Recognition and measurement of impairment losses In managing credit risk of trade receivables, the Group manages its debtors and takes appropriate actions (including but not limited to legal actions) to recover long overdue balances. Generally, the trade receivables will pay within 180 days. A significant portion of trade receivables are regular customers that have been transacting with the Group. The Group adopts the simplified approach and uses an allowance matrix to measure expected credit losses (“ECLs”) of trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics. Loss rates are calculated using a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to 180 days past due. Consistent with the debt recovery process, invoices which are past due 180 days will be considered as credit impaired. Loss rates are based on actual credit loss experience over the past two years. The Group also considers differences between (a) economic conditions during the period over which the historic data has been collected, (b) current conditions and (c) the Group’s view of economic conditions over the expected lives of the receivables. Nevertheless, the Group believes that these factors are immaterial for the purpose of impairment calculation for the year. The Group and the Company apply the 3-stage general approach to measuring expected credit losses for its other receivables and non-trade amount due from related parties. Under this approach, loss allowance is measured on either 12-month expected credit losses or lifetime expected credit losses, by considering the likelihood that the receivable would not be able to repay during the contractual period (probability of default, PD), the percentage of contractual cash flows that will not be collected if default happens (loss given default, LGD) and the outstanding amount that is exposed to default risk (exposure at default, EAD). In deriving the PD and LGD, the Group and the Company consider the receivable’s past payment status and its financial condition as at the reporting date. The PD is adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the receivable to settle its debts. Nevertheless, the Group believes that these factors are immaterial for the purpose of impairment calculation for the year. 184 Financial Statements DAGANG NeXCHANGE BERHAD Integrated Report 2024 NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 December 2024
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