210 KENANGA INVESTMENT BANK BERHAD INTEGRATED ANNUAL REPORT 2025 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2025 4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT’D.) (ii) The fair value of financial assets at fair value through profit or loss (Note 6), financial investments measured at FVOCI and at amortised cost (Note 7), derivative financial assets (Note 8) and derivative financial liabilities (Note 23) are derived from quoted and observable market prices. However, if the financial instruments are not traded in an active market, fair value may be established by using a valuation technique which includes but is not limited to using recent arm’s length market transactions between knowledgeable, willing parties, and reference to the current fair value of another instrument that is substantially the same. The Group and the Bank use acceptable valuation techniques which involves making assumptions based on market conditions and other factors as of the reporting date. Further information relating to the fair values are disclosed in Note 52. (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 loss 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 the models when necessary. The impairment losses on financial assets are disclosed in Notes 7, 9, 10 and 11. (iv) The Group and the Bank estimate the useful lives of property, plant and equipment and software based on factors such as the expected level of usage due to physical wear and tear, future technological developments and legal or other limits on the use of the relevant assets. Future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property, plant and equipment, and software would increase the recorded depreciation and decrease their carrying value. The total carrying amounts of property, plant and equipment, and software are disclosed in Note 16 and Note 17 respectively.
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