KENANGA INVESTMENT BANK BERHAD 28 INTEGRATED ANNUAL REPORT 2025 KEY RISKS, MITIGATION AND OPPORTUNITIES The risk of loss arising from obligor’s or counterparty’s failure to fulfil their financial and contractual obligations in accordance with the agreed terms. It stems primarily from the Group’s lending/ financing, underwriting, investment, hedging and trading activities from both on and off-balance sheet transactions, including settlement and pre-settlement risks from capital market transactions. Mitigation Measures • Established Credit Risk Management policies at both the Group-wide and business unit levels, which are reviewed regularly to reflect current market, economic and regulatory conditions. • Board-approved authority structures at both the Group and business unit levels ensure that transactions remain within the risk appetite. • Internal risk thresholds and limits (e.g., single counterparty, sectoral exposure) are set to mitigate concentration risk. • Stringent pre-approval assessments are conducted on clients and collateral quality, including valuation caps. • Climate-related risk i.e. transition and physical risks are integrated into the underwriting process. • Credit risk tools, such as Internal Credit Risk Rating and Collateral Scoring Model, are used to assess counterparty strength and collateral quality. • Independent reviews are conducted for material credit decisions. • Regular monitoring of large exposures, high-risk sectors, and watchlist accounts are conducted to detect early warning signals. • Comprehensive reporting on credit risk position (e.g., portfolio risk, problematic credits) is provided to the Board and Risk Management and Credit Committees on a regular basis. • Risk Management and Credit Committees oversee policies, stress testing results, and key risk reports. • Annual reviews and impairment assessments (via Impairment Assessment Report) are conducted to identify deteriorating credits at an early stage. • Independent Credit Review conducts post-approval review on a regular basis to ensure adherence to policies and regulatory requirements. • Adequate Expected Credit Loss provisions and management overlays are in place for impaired loans/ financing. • Keep abreast of market, regulatory and global developments that may impact credit risk. • Conduct regular stress testing to identify key vulnerabilities and reinforce risk mitigation controls. Opportunities • Optimise risk-adjusted returns through appropriate pricing of credit exposures in line with the level of risk and mitigating factors. • Enhance portfolio composition and capital efficiency through active management of concentration exposures and risk-weighted assets. • Build capacity and expertise to leverage technology and AI for improved analytics, streamlined credit processes and faster turnaround times. • Integrate climate risk scenario analysis and stress testing results as part of credit risk assessment to derive actionable insights, enable better informed decision-making and proactive risk mitigation strategies. Our Approach Effective transaction-level and portfoliolevel credit risk management enables the Group to make a robust assessment of the counterparty’s creditworthiness in fulfilling its obligations throughout its credit and economic life cycles. This is supported by an appropriate credit structure, covenants and a risk-based pricing framework, which lead to more sustainable growth and profitability. Impact to Kenanga Credit risk leads to potential impairment losses, which impact financial return and capital R1 Credit Risk
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