KENANGA ANNUAL REPORT 2023

NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2023 185 OUR SUSTAINABILITY APPROACH HOW WE ARE GOVERNED FINANCIAL STATEMENTS SHAREHOLDERS’ INFORMATION ADDITIONAL INFORMATION 4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT’D.) (iii) The measurement of impairment losses on financial assets subject to impairment assessment requires judgement, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining impairment losses and the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can result in different levels of allowances. The Group’s and the Bank’s ECL calculations are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are considered accounting judgements and estimates include: • The Group’s and the Bank’s internal credit rating model, which assigns PDs to the individual grades; • The Group’s and the Bank’s criteria for assessing if there has been a significant increase in credit risk and so allowances for financial assets should be measured on a LTECLs basis and the qualitative assessment; • The segmentation of financial assets when their ECL is assessed on a collective basis; • Development of ECL models, including the various formulas and the choice of inputs; • Determination of associations between macroeconomic scenarios and economic inputs, such as unemployment levels and collateral values, and the effect on PDs, EADs and LGDs; and • Selection of forward-looking macroeconomic scenarios and their probability weightings, to derive the economic inputs into the ECL models. It has been the Group’s and the Bank’s policy to regularly review its models in the context of actual loss experience and adjust when necessary. The impairment losses on financial assets are disclosed in Notes 7, 9, 10 and 11.

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