KENANGA INVESTMENT BANK BERHAD INTEGRATED ANNUAL REPORT 2024 WE ARE KENANGA OUR SUSTAINABILITY APPROACH LEADERSHIP STATEMENT HOW WE ARE GOVERNED SHAREHOLDERS’ INFORMATION NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2024 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2024 FINANCIAL STATEMENTS ADDITIONAL INFORMATION OUR VALUE CREATION APPROACH 181 180 3. ACCOUNTING POLICIES (CONT’D.) 3.4 Material accounting policy information (cont’d.) (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. 3. ACCOUNTING POLICIES (CONT’D.) 3.4 Material accounting policy information (cont’d.) (i) Derecognition of financial assets and liabilities (cont’d.) (b) Derecognition other than for substantial modification - Financial assets (cont’d.) Pass-through arrangements are transactions whereby the Group and the Bank retain the contractual rights to receive the cash flows of a financial asset (the ‘original asset’), but assumes a contractual obligation to pay those cash flows to one or more entities (the ‘eventual recipients’), when all of the following three conditions are met: • The Group and the Bank have no obligation to pay amounts to the eventual recipients unless it has collected equivalent amounts from the original asset, excluding short-term advances with the right to full recovery of the amount lent plus accrued interest at market rates; • The Group and the Bank cannot sell or pledge the original asset other than as security to the eventual recipients; and • The Group and the Bank have to remit any cash flows it collect on behalf of the eventual recipients without material delay. In addition, the Group and the Bank are not entitled to reinvest such cash flows, except for investments in cash or cash equivalents including interest earned, during the period between the collection date and the date of required remittance to the eventual recipients. A transfer only qualifies for derecognition if either: • The Group and the Bank have transferred substantially all the risks and rewards of the asset; or • The Group and the Bank have neither transferred nor retained substantially all the risks and rewards of the asset, but have transferred control of the asset. The Group and the Bank consider control to be transferred if and only if, the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without imposing additional restrictions on the transfer. When the Group and the Bank have neither transferred nor retained substantially all the risks and rewards and has retained control of the asset, the asset continues to be recognised only to the extent of the Group’s and of the Bank’s continuing involvement, in which case, the Group and the Bank also recognise an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group and the Bank have retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration the Group and the Bank could be required to pay. If continuing involvement takes the form of a written or purchased option (or both) on the transferred asset, the continuing involvement is measured at the value the Group and the Bank would be required to pay upon repurchase. In the case of a written put option on an asset that is measured at fair value, the extent of the entity’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.
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