NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2023 164 WE ARE KENANGA LEADERSHIP MESSAGE VALUE CREATION MODEL KENANGA INVESTMENT BANK BERHAD ANNUAL REPORT 2023 3. ACCOUNTING POLICIES (CONT’D.) 3.4 Material accounting policy information (cont’d.) (g) Financial assets and liabilities (cont’d.) (vii) Financial liabilities at amortised cost Except for derivatives, the Group and the Bank classify and measure all other financial liabilities at amortised cost. Amortised cost is calculated by taking into account any discount or premium on issued funds, and costs that are an integral part of the effective interest rate ("EIR"). A compound financial instrument which contains both a liability and an equity component is separated at the issue date in the issuer's financial statements. (viii) Financial assets and financial liabilities at fair value through profit or loss Financial assets and financial liabilities in this category are those that are not held for trading and have been either designated by management upon initial recognition or are mandatorily required to be measured at fair value. Management only designates an instrument at FVTPL upon initial recognition when one of the following criteria are met. Such designation is determined on an instrument-by-instrument basis: • The designation eliminates, or significantly reduces, the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on them on a different basis; or • The liabilities are part of a group of financial liabilities, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or • The liabilities containing one or more embedded derivatives, unless they do not significantly modify the cash flows that would otherwise be required by the contract, or it is clear with little or no analysis when a similar instrument is first considered that separation of the embedded derivative is prohibited. Financial assets and financial liabilities at FVTPL are recorded in the statement of financial position at fair value. Changes in fair value are recorded in profit or loss. Interest earned or incurred on instruments designated at FVTPL are accrued in other operating income, respectively, using the EIR, taking into account any discount/ premium and qualifying transaction costs being an integral part of instrument. (ix) Undrawn loan commitments Undrawn loan commitments are commitments under which, over the duration of the commitment, the Group and the Bank are required to provide a loan or financing with pre-specified terms to the customer. These contracts fall under the scope of the ECL requirements. The nominal contractual value of undrawn loan commitments, where the loan or financing agreed to be provided is on market terms, are not recorded on in the statement of financial position. The nominal values of these instruments together with the corresponding ECLs are disclosed in Note 9.2(d). The Group and the Bank occasionally issue loan commitments at below market interest rates drawdown. Such commitments are subsequently measured at the higher of the amount of the ECL allowance (as explained in Notes 3.4(k)(i) and 51(a)) and the amount initially recognised less, when appropriate, the cumulative amount of income recognised.
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