KENANGA ANNUAL REPORT 2023

NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2023 165 OUR SUSTAINABILITY APPROACH HOW WE ARE GOVERNED FINANCIAL STATEMENTS SHAREHOLDERS’ INFORMATION ADDITIONAL INFORMATION 3. ACCOUNTING POLICIES (CONT’D.) 3.4 Material accounting policy information (cont’d.) (h) Reclassification of financial assets and liabilities The Group and the Bank have not reclassified their financial assets and financial liabilities subsequent to their initial recognition, apart from the exceptional circumstances in which the Group and the Bank acquire, dispose of, or terminate a business line. (i) Derecognition of financial assets and liabilities (a) Derecognition due to substantial modification of terms and conditions The Group and the Bank derecognise a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated substantially to the extent that, it becomes a new loan, with the difference in fair value recognised as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded. The newly recognised loans are classified as Stage 1 for ECL measurement purposes, unless the new loan is deemed to be Purchased or Originated Credit Impaired ("POCI"). When assessing whether or not to derecognise a loan to a customer, amongst others, the Group and the Bank consider the following factors: • Introduction of an equity feature; • Change in counterparty; and • If the modification is such that the instrument would no longer meet the SPPI criterion. If the terms are not substantially different, the renegotiation or modification does not result in derecognition, and the Group recalculates the gross carrying amount based on the revised cash flows of the financial asset and recognises a modification gain or loss in profit or loss. The new gross carrying amount is recalculated by discounting the modified cash flows at the original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets). For financial liabilities, the Bank considers a modification substantial based on qualitative factors and if it results in a difference between the adjusted discounted present value and the original carrying amount of the financial liability of, or greater than, ten percent. For financial assets, this assessment is based on qualitative factors. (b) Derecognition other than for substantial modification - Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when the rights to receive cash flows from the financial asset have expired. The Group and the Bank also derecognise the financial asset if it has both transferred the financial asset and the transfer qualifies for derecognition as follows: • The Group and the Bank have transferred their contractual rights to receive cash flows from the financial asset; or • They retain the rights to the cash flows, but have assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement.

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