KENANGA ANNUAL REPORT 2020

263 ANNUAL REPORT 2020 // KENANGA INVESTMENT BANK BERHAD 50. FINANCIAL RISK MANAGEMENT (CONT’D.) (a) Credit risk (cont’d.) Impairment assessment (cont’d.) Significant increase in credit risk (“SICR”) SICR is defined as a significant change in the estimated default risk over the remaining expected life of the financial instrument. A SICR event triggers the measurement of loss allowance at an amount equal to lifetime expected credit losses instead of the 12-month expected credit losses estimate. The indicators for SICR are established to facilitate the staging assessment (from stage 1 to 2) for portfolios that apply the general approach in the measurement of ECL. An asset moves from 12-month ECL (stage 1) to lifetime ECL (stage 2) when there is a significant deterioration in credit quality after initial recognition. In assessing whether the credit risk of an asset has significantly increased, the Group and Bank take into account qualitative and quantitative reasonable and supportable forward looking information. An asset classified under stage 2 can potentially be transferred to stage 3 if the credit quality further deteriorates. It is also possible that an asset classified under stage 1 experiences drastic credit deterioration and requires to be directly transferred to stage 3. Accordingly, different stage transfer criteria/triggers are established to satisfy the mentioned staging assessment. The assessment of SICR incorporates forward-looking information and is performed on a quarterly basis at a portfolio level for all the above portfolios. The criteria used to identify SICR are monitored and reviewed periodically for appropriateness by the Group Risk Management. Grouping financial assets measured on a collective basis Asset classes where the Bank calculates ECL on a collective basis include: - Debt instruments at fair value through other comprehensive income - Debt instruments at cost - Loans, advances and financing - Balances due from clients and brokers - Other receivables The Group and the Bank group these exposures into smaller homogeneous portfolios, based on a combination of internal and external characteristics of the financial assets, as described below: For debt instruments these are: • Internal grade • Exposure value