163 06 / FINANCIAL STATEMENTS 01 02 03 04 05 07 08 09 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF KENANGA INVESTMENT BANK BERHAD (INCORPORATED IN MALAYSIA) Key audit matters (cont’d.) Risk area and rationale Our response 1) Expected credit losses of loans, advances and financing and investments not carried at fair value through profit or loss As at 31 December 2025, loans, advances and financing represent RM1,750.16 million or 24.61% and RM1,765.43 million or 27.34% of the total assets of the Group and of the Bank, respectively, and debt instruments carried at amortised cost and fair value through other comprehensive income represent RM1,128.30 million or 15.87% and RM1,128.30 million or 17.47% of the total assets of the Group and of the Bank, respectively. The Group and the Bank are required to account for impairment losses on loans, advances and financing, and debt instruments carried at amortised cost and fair value through other comprehensive income using the expected credit loss (“ECL”) approach. The accounting policy for calculation of ECL is disclosed in Note 3.4(k)(ii), significant accounting estimates and judgements involved in Note 4(iii), relevant details of loans, advances and financing in Note 9, relevant details of investments (other than those carried at fair value through profit or loss) in Note 7 and credit risk exposures in Note 51(a) to the financial statements. The measurement of ECL requires the application of significant judgement with complexity involving expected future cash flows, forward-looking macro-economic factors and probability-weighted scenarios. This includes the identification of on-balance sheet and off- balance sheet credit exposures with significant deterioration in credit quality, and the use of assumptions in the ECL models for assessing the credit exposures individually or collectively. Our audit procedures included the assessment of key controls over the origination, segmentation, internal credit quality assessments, recording and monitoring of the loans, advances and financing and the investments. We assessed the processes and effectiveness of key controls over the transfer criteria (for the three stages of credit exposures based on credit quality), impairment measurement methodologies, governance for development, maintenance and validation of ECL models, inputs, basis and assumptions used by the Group and the Bank in staging the credit exposures and calculating the ECL. For staging and identification of credit exposures with significant deterioration in credit quality, we assessed and tested the reasonableness of the transfer criteria applied by the Group and the Bank for different types of credit exposures. We evaluated if the transfer criteria are consistent with the Group’s and the Bank’s credit risk management practices. For the measurement of ECL, we assessed and tested reasonableness of the Group’s and of the Bank’s ECL models, including model input, model design and model performance and management overlays. We challenged whether historical experience is representative of current circumstances and of the recent losses incurred and assessed the reasonableness of forward looking adjustments, macroeconomic factor analysis and probability-weighted scenarios.
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