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enricHing national Progress ENRICHING SUSTAINABLE RETURNS

notes to tHe financial statements

for the year ended 31 december 2023

34. FiNANCiAL RiSK (CONTiNUED)
(d) Credit risk (continued)

(ii) Measurement of Expected Credit Loss ("ECL")

the group and KWap use the three (3) stage approach for loans and receivables and debt instruments to
reflect the respective credit risk and the determination of the loss allowance for each category. a summary of
the assumptions underpinning the group’s and KWap’s ecl model is as follows:

Category Group’s and KWAP’s definition of category Basis for recognising ECL

stage 1 debtors with a low risk of default and a strong 12-months ecl
capacity to meet contractual cash flows.

stage 2 debtors for which there is a significant increase lifetime ecl
in the credit risk or presumption of a significant
increase in the credit risk if the interest and/or principal
repayments are 30 days past due.

stage 3 interest and/or principal repayments are 90 days lifetime ecl
past due or there is evidence to indicate
credit-impairment of financial asset.

based on the above, the loss allowance is measured on either 12-months ecl or lifetime ecl using
a pd x lgd x ead methodology as follows:

• PD (“Probability of Default”) – the likelihood that the debtor would not be able to repay during the
contractual period;
• LGD (“Loss Given Default”) – the percentage of the contractual cash flows that will not be collected in the
event of default; and
• EAD (“Exposure At Default”) – the outstanding amount that is exposed to default risk.
the group and KWap identified the bank negara malaysia (“bnm”) overnight policy rate (“opr”) (lag 1 year)
& equity index as the most relevant factors for domestic instruments, and the federal funds rate and the broad
commodity index as the most relevant factors for international instruments. the group and KWap accordingly
adjust the external benchmark information based on the expected changes in these factors.

226 KUMPULAN WANG PERSARAAN (DIPERBADANKAN) i INTEGRATED REPORT 2023