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ECONTENTS2 ABOUT THIS REPORT

4 SME BANKS JOURNEY OF GROWTH

6 HIGHLIGHTS 2014

7 CORPORATE VISITS

8 A MESSAGE FROM THE CHAIRMAN

12 GROUP MANAGING DIRECTORS STATEMENT

16 BOARD OF DIRECTORS

18 SENIOR MANAGEMENT

20 SHARIAH COMMITEE MEMBERS

22 ENGAGING WITH OUR STAKEHOLDERS

24 SMES AS THE ENGINE OF GROWTH

28 CORPORATE GOVERNANCE

32 SUSTAINABILITY IN THE WORKPLACE

54 SUSTAINABILITY IN THE MARKETPLACE

74 SUSTAINABILITY IN THE COMMUNITY

84 SUSTAINABILITY IN THE ENVIRONMENT

www.smebank.com.my

1-800-88-3 131

facebook.com/smebank

This annual report is available on the web at

http://www.smebank.com.my/2014-sustainability-report/

2 2014SUSTAINABILITYREPORT

ABOUT THIS REPORT

This is our rst sustainability report making us the rst development bank to disclose our annual sustainability progress in line with the Global Reporting Initiative (GRI) Guidelines. We are committed to operating sustainably and ef ciently. This includes assessing the impact of our business and making improvements when required. Protecting people and the environment, promoting local economic development and partnering with communities are part of business operations. We integrate sustainability throughout our products life cycles from concept to delivery.

Together with the annual report, which highlights the nancial aspects of our business, the two reports provide a clear, comprehensive and transparent representation of our performance in managing the economic, social and environmental aspects of operations.

This report follows the GRI guidelines, an internationally recognised standard for sustainability reporting. We have also considered several other local and international guidelines that are relevant to our business. We have structured this report according to the Bursa Malaysia Corporate Social Responsibility (CSR) Guidelines, which dedicates separate sections to Workplace, Marketplace, Environment and Community. We have also considered input from stakeholders including the GRI and the judging panels of various CSR awards.

In producing this report, we have collated information on our CR practices. We have examined issues affecting our stakeholders both direct and indirect including employees, shareholders, the surrounding community and

the public at large. This report is structured in a manner which helps readers understand our approach to sustaining our economic, social and environmental responsibilities. We have presented our data in the most accurate manner possible.

The report aims to be inclusive and address all material issues our stakeholders may have. We have also endeavoured to increase the level of transparency and the objectivity of this report, using quantitative indicators for accuracy wherever possible.

In 2015, we aim to produce a sustainability report in-line with the GRI G4 guidelines for 2015. We will conduct a detailed stakeholder and materiality study to identify areas that are material to our stakeholders and us. This information will include business areas that signi cantly in uence our business and can potentially affect stakeholders. This stakeholder and materiality study is scheduled to commence in 2015. The results will be disclosed in our next sustainability report.

SCOPE OF REPORT

Reporting period1 January to 31 December 2014 unless speci ed.

Reporting CycleAnnually

Coverage Small Medium Enterprise Development Bank Malaysia Berhad (SME Bank): References to SME Bank, the Company, the Organisation, the Bank and we refer to Small Medium Enterprise Development Bank Malaysia Berhad.

REFERENCE AND GUIDELINES

Principal Guidelines

GRI Sustainability Reporting Framework

Additional Guidelines

Bursa Malaysias Corporate Social Responsibility (CSR) Framework

ACCA Malaysia Sustainable Reporting Guidelines for Malaysian Companies

ISO 26000: Guidance on Social Responsibility

SME BANKS JOURNEY OF GROWTH


Bank Perusahaan Kecil dan Sederhana Malaysia Berhad or SME Bank was established as a subsidiary of Bank Pembangunan dan Infrastruktur Malaysia Berhad in October 2005. The Bank became a separate entity in 2008 to further strengthen its mission to develop SMEs to be the nations engine of growth which is in line with the Governments economic agenda.

In 2012, the Bank has taken a signi cant decision to change its conventional banking platform to become a fully edged Shariah compliant DFI. The Bank changed its name and logo to Small Medium Enterprise

Development Bank Malaysia Berhad in 2013 to re ect its developmental role in nurturing SMEs.

The SME sector plays an important role in driving the economy. Up to this point, SME Bank has had numerous successes in various industries. The Bank had nurtured several entrepreneurs from the beginning until some have also achieved international success. However, the list goes on but what keeps us ticking is not the list of successes that has been built but what we are currently building for the future.

Self sustaining &Global Standard

Year

2015

2014

2013

2012

2011

2010

INCORPORATING SUSTAINABILITY INTO BUSINESS MOVING TOWARDS A SELF SUSTAINING & GLOBAL STANDARD BANK

Five-year Transformation Key Milestones

Restructuring & Transformation

Inclusiveness & Sustainable Growth

Inclusiveness & Sustainable Growth

Leading Business Partners for SMEs Global referral for other DFIs

Inclusiveness & Sustainable Growth Towards Self Sustaining & Global Standards

Initiatives

Self sustaining &Global Standard

Key functions re-alignment Service delivery enhancement Robust compliance framework Integrated IT infrastructure Human capital development Structural reform - balance sheet strengthening Self sustaining and value creation business model

Expansion and market outreach Well balanced and far reaching developmental role

5

Sustainability has been a key driver since the Companys formation. Over the years, we have improved our performance in many areas. We created a solid foundation on which we can continue to build a sustainable business. We aggressively pursue other goals that touch all areas of business including our employees health and safety, environmental footprint and community engagement. Reaching these goals ensures that we ful l our commitments and surpass the expectations of all key stakeholders.

In 2014, we identi ed four key sustainability focus areas. They represent both risks to be managed and signi cant opportunities. These focus areas are aligned with the delivery of our business transformation while also being responsive to stakeholders. Over the coming months, the Bank will focus on improving these areas.

SME Banks Four Key Sustainability Focus Areas

SME Bank Stakeholder Engagement Model

Sustainability at SME Bank Moving Forward

Our sustainability roadmap begins with active engagement with our stakeholders to understand their priorities. This year, we produced our rst sustainability report to illustrate our commitment to superior governance and transparency. It also serves as a general overview of our social performance and environmental stewardship for employees, surrounding communities, supply chain partners, industry peers and authorities. In recent years, we have included stakeholders in various corporate events and engagement sessions to understand their perspectives more clearly.

We hope to conduct a materiality study to ascertain stakeholder priority areas and match them against the Banks business goals. This will help to set a strong foundation for our sustainability strategy.

Understanding the areas which matter the most to our stakeholders helps us focus on delivering exceptional performance which will result in long-term meaningful stakeholder relationships.

Sustainability Reporting Stakeholders Inclusivity

Active Engagement with Stakeholders

Materiality Study Formalising a Sustainability Strategy

Identifying Stakeholder Needs and Aligning Them with SME Banks Business

Addressing Stakeholders Needs Measuring Stakeholders

Satisfaction

Delivering Stakeholders Expectations

Preserving the Environment Promoting Environmental Awareness

SME Bank's Key

Sustainability Focus Areas

People First

Diversity and Inclusivity Training and Development Rewarding Achievements Health and Safety in the Workplace Nurturing Our Employees Welfare

Environmental Protection

Preserving the Environment Promoting Environmental Awareness

Integrity in the Marketplace

Delivering Service Excellence Prioritising Customers Growing the SME Industry

Community Development

Reaching out to the Community Nation-building


HIGHLIGHTS 2014

1,570 approvals for

RM2.90BILLIONof financing from

January to December 2014

More than

3000participated in the

ENGAGEMENT SESSIONS

Entrepreneur Premises Programme (EPP)

88.8% recorded occupancy rate

An average of

55TRAINING HOURScosting RM3,900 per employee in 2014

Customer satisfaction rate of

93.3%

GREEN BUILDING CONCEPTadopted for our newly renovated office building

Impeccable health

and safety record with

ZERO injuries and

ZERO fatalities

from 2012 to 2014

184 clients achieved upward migration under the Specific Intervention Programme

7

CORPORATE VISITS

Visit by YB Datuk Hj. Ahmad Bin Hj. Maslan, Deputy Minister of Finance

Visit by Minister of Commerce, Republic of Guinea

Visit by Delegation from Sri Lanka

Visit by Delegation from Ministry of Micro Small and Medium Enterprises (MSME) Government of India

Visit by YB Dato Lee Chee Leong, Deputy Minister, Ministry of International Trade and Industry (MITI)

Visit by YB Datuk Chua Tee Yong, Deputy Minister of Finance

Visit by YB Dato Noraini Ahmad, Chairman of MATRADE

Visit by IBFIM (Afghanistan Banks Association)

Visit by YB Datuk Ir. Dr. Wee Ka Siong, Minister in the Prime Ministers Department

Visit by Libyan and Islamic Development Bank (IDB) Delegations

Visit by Saudi Credit & Savings Bank (SCSB)


CHAIRMAN

AS WE CONTINUE TO GROW, WE ARE GUIDED BY OUR SUSTAINABILITY FOCUS FOR THE NEXT GENERATION - FOR BOTH OUR BUSINESS AND SOCIETY.

On behalf of the Board of Directors of SME Bank, I am pleased to present SME Banks Sustainability Report 2014. This year, we have implemented a wide range of initiatives aimed at fundamentally transforming our business and developing the nation. Our commitment to sustainability is integral to the success of our operations, whether it relates to streamlining our supply chain, developing innovative entrepreneurial activities, supporting the growth of emerging markets or creating professional development opportunities for employees. This is an increasingly important part of being a responsible corporate citizen and improving corporate performance. As we continue to grow, we are guided by our sustainability focus for the next generation - for both our business and society. We intend to continue building on our long track record of social responsibility. I am proud to share the Banks sustainability milestones in this inaugural sustainability report.

A MESSAGE FROM THE CHAIRMAN

9

OVER THE YEARS, ENTREPRENEURSHIP AND ENTERPRISE HAVE GAINED STEADY RECOGNITION IN ECONOMIC THEORY FOR THEIR ROLE IN PROPELLING AND SUSTAINING A COUNTRYS ECONOMY.

As part of the Governments continued focus on steering the country towards becoming a developed nation with a high-income economy by 2020, numerous programmes and incentives have been introduced by various agencies and development bodies in order to encourage entrepreneurship at all levels of Malaysian society. SME Bank is one such body that recently welcomed an allocation of RM550 million in the 2014 Budget presented by the Prime Minister in October 2013. This funding consisted of RM50 million for the Graduate Entrepreneur Fund and RM300 million for the Bumiputera Equity Fund. The remaining RM200 million was earmarked for development programmes in Malay reserve land located in strategic areas.

Over the years, entrepreneurship and enterprise have gained steady recognition in economic theory for their role in propelling and sustaining a countrys economy. Entrepreneurs are considered to be economic agents that drive innovation and economic growth. They introduce an element of human productivity and creativity into the previously considered passive rms in the classic models of economic theory. At SME Bank, initiatives to encourage entrepreneurship are not limited to providing start-up funds for aspiring beginners and capital for successful business.

We recorded 1,570 approvals with RM2.9 billion worth of nancing for the period of January to December 2014. This has been affected by the various engagement activities and the Speci c Intervention Programme that we undertake.


The Speci c Intervention Programme focuses on selected Bank customers. Direct intervention is identi ed at the beginning through structured gaps analysis. Various tools were applied to identify customers with the ability to migrate upward. We facilitate upward migration by changing delinquents to performing clients; improving the risk or SCORE rating; improving from NEED to MERIT; moving from BEST to TERAS; and progressing from local sales to exports. We ensure selected customers can establish SMEs that can sustain their businesses, which ensures a quality portfolio for SME Bank.

THE ULTIMATE AIM OF THIS INITIATIVE IS TO ENSURE SELECTED CUSTOMERS CAN PROGRESS AND SUBSEQUENTLY ESTABLISH SMES THAT CAN SUSTAIN THEIR BUSINESSES.

Given the fast-paced changes in the Malaysian economy, we will continue to play an active role in developing the SME sector and building our nation as a one-stop nancing and business development centre. Our strong collaboration and close engagement with customers, regulators, employees, business partners and the public at large helps us address sector-related issues on a timely basis.

Finally, I would like to record my deepest gratitude to the Board of Directors, management team and employees for their dedication to drive the Company to achieve a year of impressive growth. I would also like to thank our valued shareholders, business associates and all stakeholders for their vote of con dence. We look forward to your continued support in the many years to come.

TAN SRI AB AZIZ KASIMCHAIRMAN

A MESSAGE FROM THE CHAIRMAN CONTD

DATUK MOHD RADZIF MOHD YUNUSGROUP MANAGING DIRECTOR


GROUP MANAGING DIRECTORS STATEMENT

SME Bank has reached a milestone in the release of its rst sustainability report. We understand that being a responsible corporate citizen is essential for business success and our strategy of creating value for our clients, employees, shareholders and communities. Stakeholders have told us they care deeply about corporate responsibility (CR), particularly as it relates to workplace, marketplace, community and environmental sustainability. This report examines these four areas of our CR strategy extensively and I welcome you to read each aspect in detail.

WE UNDERSTAND THAT BEING A RESPONSIBLE CORPORATE CITIZEN IS ESSENTIAL FOR BUSINESS SUCCESS AND OUR STRATEGY OF CREATING VALUE FOR OUR CLIENTS, EMPLOYEES, SHAREHOLDERS AND COMMUNITIES.

13

programmes covering functional, technical and soft-skills, we also focused on two main initiatives to meet the Banks annual strategic objectives. Firstly, a full-scale training programme is delivered that supports the New Operating Model (NOM). This programme promotes sales and marketing to ensure the Banks sustainability while supporting the Governments agenda of developing the SME entrepreneurs. Secondly, we initiated Project Wisdom with the aim of achieving Shariah compliance by 2015.

SUSTAINABILITY IN THE MARKETPLACE

Every day, we see examples of how our support helps fuel the success of Malaysian SMEs, whether by enabling them to purchase equipment to ful l new contracts, providing expertise to manage their cash ow or advancing funds to expand their portfolios.

SME Bank also provides factory space rental, nancing, entrepreneurship training, advisory and technical assistance as well as operational improvements under the Entrepreneur Premises Programme (EPP). This programme was created for Bumiputera SMEs that are interested in expanding their businesses, establishing their business presence and eventually competing with industrys largest players.

Our Entrepreneur Premises Complex (EPC) is under the purview of the EPP unit that provides suitable factory space rental to potential business owners. Not limited to space rental, the eligible tenants at EPCs across Malaysia have the privilege of nancing facilities, entrepreneurial training as well as nancial and intervention services.

The Centre for Entrepreneur Development and Research (CEDAR) was established in response to one of the six focus areas under the SME Masterplan. It builds capacity and capability of not only entrepreneurs but also the general workforce involved in developing SME entrepreneurs. It conducts entrepreneur

SUSTAINABILITY IN THE WORKPLACE

Employees play a pivotal role in increasing stakeholder value and we focus on talent management and developing a knowledge culture. Building a strong foundation for a motivated and talented workforce, exempli es our core values with particular emphasis on passion and compassion. We expand our initiatives and improve the working environment for our employees. Embracing the culture of exible working hours, in-line with global best practice, has allowed us to boost staff productivity.

We introduced a wide range of training programmes to help employees develop their careers. A Certi cate in Islamic Development Banking & Finance (CIDBF), SME Business Counsellor Certification Programme, Graduate Trainee Programme (GTP) and Onboarding Programme are some of the career development programmes we deliver. In addition to standard core training


GROUP MANAGING DIRECTORS STATEMENT CONTD

development activities such as business coaching and consultancy; research and development; seminars and conferences; and publications.

SUSTAINABILITY IN THE COMMUNITY

We enrich the lives of our stakeholders and build Malaysias human capital in support of the Governments vision of nurturing a knowledge-rich and skilled nation. We introduced a special CR initiative to promote entrepreneurship in Malaysian secondary school students. This CR

15

programme is a competition entitled Program Inovasi Usahawan Muda SME Bank Y-Biz Challenge. We implemented this programme with the Ministry of Education (MoE) to groom and nurture future entrepreneurs. We created interest in entrepreneurship and helped students explore their creativity and innovativeness. The programme also provides students with experience and speci c knowledge so they can envisage entrepreneurship as their future careers.

Our CR programmes enrich the lives and ful l the dreams of the underprivileged including orphans. As we operate in a multi-cultural country, we are proud to celebrate many festive seasons throughout the year by sharing the joy with those who are less fortunate. One example of our signatory CR activities is the SME Bank Annual Ramadan Programme. In addition to various activities undertaken at the Head Of ce level, RM5,000 is allocated to each branch network to fund their own Ramadan programmes including food distribution, zakat and bubur lambok distributions.

SUSTAINABILITY IN THE ENVIRONMENT

Like other financial institutions, our environmental footprint is relatively small as we are an of ce-based business. However, our initiatives minimise our environmental footprint in each area of business, from the design of the of ce building, to the installation of xtures and ttings. In 2014, we introduced a green building concept in the upgrading of our of ce building based on Malaysias Green Building Index (GBI) rating. We have also launched a number of initiatives that help reduce our energy requirements and the amount of waste we produce, reuse and recycle.

ACKNOWLEDGEMENT

I would like to take the opportunity to extend my gratitude to all our stakeholders who encourage us to perform better with their feedback, opinions and support while we continue to invest in the future of the SMEs and our country. On behalf of the management, I would like to express my deepest appreciation to all employees for their continuous dedication, commitment and contribution. Together, we build capacity for growth in the SME sector. We measure our success by how we have helped customers develop and sustain their businesses for the future. We hope you nd our report useful and informative and we appreciate your feedback. Your input is vital for re ning our sustainability initiatives and developing our future.

DATUK MOHD RADZIF MOHD YUNUSGROUP MANAGING DIRECTOR

OUR CR PROGRAMMES ENRICH THE LIVES AND FULFIL THE DREAMS OF THE UNDERPRIVILEGED INCLUDING ORPHANS.


BOARD OF DIRECTORS

1 34 2

1 TAN SRI AB AZIZ KASIMNon-Executive Chairman

2 DATUK MOHD RADZIF MOHD YUNUSGroup Managing Director

3 ENCIK KHAIRUZZAMAN MUHAMMADIndependent Non-Executive Director

4 DATO ADZMY ABDULLAHIndependent Non-Executive Director

17

5 6 7 8 9 10

5 ENCIK ISHAK ISMAIL Independent Non-Executive Director

6 DATUK MOHD NASIR AHMAD Independent Non-Executive Director

7 ENCIK ASRI HAMIDONNon-Independent Non-Executive Director

8 DATO ABD MAJID KUTIRAN Non-Independent Non-Executive Director

9 DATO JAMELAH JAMALUDDINIndependent Non-Executive Director

10 PUAN HASMAH RAZALI Group Company Secretary


SENIOR MANAGEMENT

FROM LEFT TO RIGHT

DATUK MOHD RADZIF MOHD YUNUSGroup Managing Director

DATO MOHD RIZAL MOHD JAAFARGroup Chief Operating Officer Finance & Corporate Services

DATUK KAMALUDDIN ISMAILChief Operating Officer Banking

DATO RAZMAN MOHD NOORChief Risk Officer

DR. SHEIKH GHAZALI SHEIKH ABODChief Operating Officer CEDAR

ENCIK ASBULLAH ADNANDirector Development Banking & Liaison

19

FROM LEFT TO RIGHT

ENCIK MOHAMAD SABIR MOHAMAD SABRIDirector Group Financial Management

ENCIK ISMAIL KAMARUDDINGroup Chief Internal Auditor / Director

ENCIK SHAHRIR AMRANActing Director Group Human Capital Management

ENCIK ABD KARIM AHMADDirector Enterprise Banking

ENCIK MOHAMMAD HARDEE IBRAHIMDirector Treasury, Investment and Corporate Finance

PUAN ROKIAH RAJAKDirector Operations

PUAN HASMAH RAZALIGroup Company Secretary


SHARIAH COMMITTEE MEMBERS

1 5 62 43

1 PROF. DR. ABDUL BASIR MOHAMAD Chairman

2 PROF. MADYA DR. AHMAD BASRI IBRAHIM Member

3 HAJI JALIL HAJI SAIDMember

4 PROF. MADYA DR. YUSOF RAMLIMember

5 PROF. DR. NORHASHIMAH MOHD YASINMember

6 DR. ASMAK AB RAHMAN Member


ENGAGING WITH OUR STAKEHOLDERS

Stakeholders play an essential role in our continued success and we consider their varied perspectives. We engage with stakeholders worldwide to share information; discuss our sustainability priorities, programmes and performance; and determine collaboration opportunities to achieve common goals. Operating responsibly and addressing the needs of these interconnected groups, help us maintain commercial success. This in turn allows us to deliver on our sustainability promises.

We engage with stakeholders on key aspects of our business and products. Stakeholders are de ned as any group or individual who can affect or be affected by the achievement of the organisations objectives. Our primary stakeholder groups are illustrated in the adjacent table. Examples of the value we bring each are summarised below.

Bodies and Authorities

Government, Regulatory

Supp

liers

Investors

and Shareholders

Community

Empl

oyee

s

General Public

Customers and

SME Bank

23

Stakeholder Groups Value Provided Method of Engagement

Government, Regulatory Bodies and Authorities

Collaborating with the Government to provide solutions that develop SMEs

Realising the Governments aspirations including the 10th Malaysia Plan and National Key Economic Areas (NKEA)

Compliance Regular meetings Certi cation

NGOs, IPTA and Business Organisations

Assisting entrepreneurs by providing access to nancing

Brie ng on access to nancing issues Organisations we work with include:

Branding Association of Malaysia United Malays National Organisation (UMNO) Associated Chinese Chambers of Commerce

and Industry of Malaysia (ACCCIM)

Special Secretariat for Empowerment of Indian Entrepreneurs (SEED)

Forums and brie ngs Panel discussions Helpdesk Collaboration and joint

initiatives Dialogue sessions

Customers and General Public

Contributing to economic growth Helping address key SME needs Identifying opportunities and assisting in the

development of local SMEs

Branch networks Social media Website Online engagement Customer service hotline

Employees Working to protect the safety and health of employees

Creating an inclusive and diverse workforce Providing employees with professional growth

opportunities

Regular engagement Get-together sessions Performance appraisal

sessions Internal newsletters

Community Being an exemplary corporate citizen Giving back through philanthropic activities Nation-building

Community engagement Philanthropic activities Donations

Shareholders and Investors

Creating and maintaining shareholder value Annual general meetings Annual reports and other

publications Performance updates

Suppliers Transparent supply chain process Sustainable economy by prioritising local

suppliers

E-bidding Updates through online,

written and face-to-face engagement


SMEs AS THE ENGINE OF GROWTH

EnvironmentLegal an

d Regulatory

Tech

nolo

gy A

dopt

ion

Inno

vatio

n an

d

Infrastructure

DevelopmentHuman Capital

Acce

ss to

Fin

anci

ng

Market Access

SME Masterplan

We have always considered that the SME sector plays an important yet varied role across countries and regions. In high-income countries, they support the economy; in middle and low-income countries, they contribute to employment and GDP.

Worldwide, more than 95% of enterprises are estimated to be SMEs, providing approximately 60% of private sector employment. This may be due to SMEs being more labour intensive and therefore providing substantial employment.

SMEs are also an important contributor to innovation in economies. They tend to be more nimble and technologically driven, especially when collaborating with the larger corporate sector.

The SME Masterplan was launched by the Malaysian Government to boost economic growth through the active contribution of SMEs to the national economy. The plan outlines six factors that may in uence the performance of SMEs and the achievement of the following four strategic goals: Increasing the formation of businesses by an average

annual increase of 6%; Expanding the number of high growth and innovative

rms by an average annual increase of 10%; Doubling productivity increase from 2010 to 2020; and Intensifying the formalisation of SMEs at the rate of

15% of the Gross National Income (GNI).

These factors also serve as focus areas to formulate policies that improve SMEs performance.

We work together with the Government to increase Access to Financing. This factor is most relevant to us and ensures that creditworthy SMEs have access to nancing for working capital and investment. We achieve this through our comprehensive and consistent development and intervention roles to: Strengthen the current customer base; Improve the Banks customers business

sustainability; Implement technology tools to improve client

communication and relationships; and Programme-based nancing.

25

OUR ROLE

As a development nancial institution, it is our responsibility to be more involved in developing the sector.

We promote and help achieve the Governments speci c social and economic objectives.

We do whatever necessary to help SMEs succeed. This role lls the void left by commercial banks that are driven more by market forces and pro tability than the overall development of smaller companies.

We provide medium and long-term nancing of projects, which require specialised skills and focus. This type of nancing carries higher credit or market risks as they typically have longer investment tenures.

We focus on ve National Key Economic Areas: oil, gas and energy; wholesale and retail; education; healthcare and tourism. The potential and numerical value brought to the economy is considered when assessing SMEs viability.


SMEs AS THE ENGINE OF GROWTH CONTD

During its establishment in 2005, SME Banks Islamic nancing was only 15% of the total banks portfolio. In June 2011, SME Bank decided to transform its business into an operationally ef cient Islamic nancial provider under Project Wisdom which of cially commenced in May 2012. All new approvals on conventional loans were replaced with Islamic nancing following an internal circulation dated 22 February 2011.

We identi ed gaps and raised awareness of the process, people, product and system. In May 2012, the Islamic nancing portfolio was estimated to be 44.5%; by December 2014, the portfolio had increased to 85.4% with a total amount of RM4.1 billion. The total Islamic fund acceptance increased to 100% from 57.6%, an increase of 42.4%. The total Islamic fund placement also increased to 98.8% from 51.6%, a total increase of 47.9%. Several Islamic nancing contracts have also been developed. Commodity Murabahah and Ijarah Muntahiah Bitamlik serve SMEs needs in service industries. Since the Banks portfolio and competency levels have improved signi cantly, the Bank has set a target to become a full- edged Shariah compliant DFI by 2015.

This decision complements Malaysia becoming the hub for Islamic nance, which is part of Bank Negara Malaysias Financial Master Plan. The growth of Islamic banking in Malaysia has been impressive and the potential for further growth is huge. The Islamic nancial services industry is now at the threshold of its next stage of development. Signi cant progress has been made over the last decade and Islamic nance is now more widely accepted as a form of nancial intermediation.

SME Bank has become a competitive form of nancial intermediation that is able to meet the differentiated requirements of economies. In an environment of rapid change, a key factor in uencing future prospects of the Islamic nancial services industry will be investments to build the foundations on which further progress can be achieved. Investing in the future; research and development; and developing talent and expertise will be differentiating factors that will contribute to the industrys effectiveness, resilience and competitiveness. This undertaking must be the joint responsibility of the private and public sectors to mutually elevate the industrys performance, thereby increasing its wealth creation potential for the prosperity of our nation.

The Banks Shariah Committee ensures that all aspects of the Banks Islamic banking business are conducted in accordance with the Shariah principles. It adds another level of oversight which inherently safeguards against irresponsible practices.

Moving Towards Becoming A Full-Fledged Shariah Compliant DFI

27

Islamic Portfolio

Conventional Portfolio

Banks Islamic Financing and Treasury Portfolio

As at December 2014

As at 31 May 2012

44.5

%-

RM1.

815b

55.5%-RM2.266b

14.6

%- R

M704m

85.4%-RM4.133b

42.4

%-

RM1.

524b

57.6%-RM2.071b

100.0%-RM3.461b

48.4

%-

RM1.

649b

51.6%-RM1.760b

1.2%- RM21.5m

98.8%-RM1.727b

Financings PortfolioComposition

Banks Total Financing Portfolio:

RM4.081b

Financings PortfolioComposition

Banks Total Financing Portfolio:

RM4.837b

Fund AcceptanceCompositionTotal FundAcceptance

RM3.596b

Fund AcceptanceCompositionTotal FundAcceptance

RM3.461b

Fund PlacementCompositionTotal Fund Placement:

RM3.409b

Fund PlacementCompositionTotal Fund Placement:

RM1.748b


CORPORATE GOVERNANCE

The Board of Directors (Board) is committed to high standards of Corporate Governance. The Board subscribes to Bank Negara Malaysias Guideline on Corporate Governance Standards on Directorship for Development Financial Institutions (BNM/RH/GL 005-14) to achieve an optimal governance framework and maximise shareholder value.

BOARD OF DIRECTORS

The Board is governed by nine members consisting of one Non-Executive Chairman, one Non-Independent Executive Director who is the Banks Group Managing Director, two Non-Independent Non-Executive Directors representing Minister of Finance Incorporated (MOF) and Ministry of International Trade and Industry (MITI) respectively and ve Independent Non-Executive Directors.

The diversity of the Directors backgrounds from the elds of Management, Banking, Finance, Accounting, Legal and Entrepreneur Development were accumulated while serving in both private and government sectors. It brings the necessary range of expertise and experience required by the Board to effectively perform its functions.

The Chairman and all Directors are experts in their respective elds and have contributed signi cantly to the Boards decision making process. The Group Managing Director executes the policies of the Board and manages the day-to-day affairs of the Bank.

The Board is responsible for ensuring the effectiveness of the Banks operations. This includes the responsibility for determining the Banks overall strategic direction, approval of performance targets, monitoring of management achievements, providing overall policy guidance and ensuring that policies and procedures for the internal control system and succession planning are in place.

The Board meets at least once a month to discuss matters relating to policies, strategies, performance, resources, overall conduct of the Banks business and nancial matters as well as to monitor the Banks overall performance.

The appointment of the Chairman and all the Directors are with accordance to the Guidelines on Corporate Governance for DFIs and the Banks Articles of Association.

The composition of the Board of Directors during 2014 is presented below. In 2014, fteen meetings were held.

Board of Directors Meetings Held in 2014

No. Name of Director Designation No. of Meetings Attended

1. Tan Sri Ab. Aziz bin Kasim Non-Executive Chairman(appointed w.e.f. 1 May 2014)

9/9

2. Datuk Mohd Radzif bin Mohd Yunus Group Managing Director(Non-Independent Executive Director)

15/15

3. Dato Abd Majid bin Kutiran Non-Independent Non-Executive Director(representing MITI)(appointed w.e.f. 1 October 2014)

2/2

29

No. Name of Director Designation No. of Meetings Attended

4. Encik Asri bin Hamidon Non-Independent Non-Executive Director(representing MOF)

14/15

5. Datuk Mohd Nasir bin Ahmad Independent Non-Executive Director 15/15

6. Dato Adzmy bin Abdullah Independent Non-Executive Director 14/15

7. Encik Ishak bin Ismail Independent Non-Executive Director 15/15

8. Encik Khairuzzaman Muhammad Independent Non-Executive Director 14/15

9. Dato Jamelah Jamaluddin Independent Non-Executive Director(appointed w.e.f. 1 February 2014)

12/13

10. Dato Abdul Ghafar bin Musa Non-Independent Non-Executive Director (representing MITI)(ceased w.e.f. 1 May 2014)

*4/5

* The number of meetings attended during the time the Director held of ce.

SUPPLY OF INFORMATION

Directors are provided with notices and board papers prior to Board meetings. This gives Directors time to deliberate on issues raised at meetings.

All Directors have direct access to the services of the Group Company Secretary and senior management. Independent professional advice is also made available to Directors in furtherance of their duties in the event such services are required.

TRAINING OF DIRECTORS

It is the Banks practice that each new Director is given a Board Kit. An on-boarding session briefs the Directors on the Banks history, operations and nancial performance to enable them to have rst-hand understanding of the Banks operations.

The members of the Board keep abreast with developments in the banking industry by attending conferences and seminars held in Malaysia and abroad.

The Bank also organises AMLA and talks on relevance topics and encourages Directors to attend talks, training programmes and seminars to update themselves on new developments in the business environment.

The Directors of the Bank in 2014 attended the Financial Institutions Directors Education (FIDE) Programme

organised by The Iclif Leadership and Governance Centre.

BOARD COMMITTEES

There are ve board committees established to assist the Board in discharging of its duties and responsibilities, namely the Audit Committee (AC), Risk Management Committee (RMC), Nomination Committee (NC), Remuneration Committee (RC) and Asset Quality Review Committee (AQRC) (established effective 28 October 2014).

SME BankBoard

Committees

Audit Committee

Risk Managem

ent

Comm

ittee

Nomina

tio

n

Commi

tteeRem

uneration

Committee

Ass

et Q

ualit

y Re

view

Com

mitt

ee

SUSTAINABILITY IN THEWORKPLACE

HUMANCAPITALDEVELOPMENT


Our competitive bene ts package help us attract and retain a skilled workforce so we can remain relevant in the market. Our rigorous career development programmes are speci cally designed to increase productivity, maintain a safe environment, boost employee engagement and encourage innovation. We engage with each and every employee regularly. Our effective safety and health programmes have resulted in zero injuries and fatalities over the last three years.

AN EMPLOYER OF CHOICEOur ambition is to be the employer of choice both for our current and future employees as this will lead to business success. While we continue to attract talented and quali ed individuals, we also challenge ourselves to do whatever necessary to remain an attractive employer. Our approach is straightforward. We take feedback from current and potential future employees and act to continually improve our employment performance. We measure this through employee

engagement and benchmarking ourselves against industry best practice.

Companies focusing on organisation strategy, systems, organisational structure and climate, shared values, workforce skills, individual attitudes, beliefs and competencies are able to transform themselves into highly effective and ef cient businesses. This process is used by a large number of national and global organisations to achieve superior performance. It supports leaders, managers and teams to drive change and transform situations in their respective business units.

Our transformation journey commenced with the Corporate Team Building Programme (CTP) from 2010 to 2011. It continued with the Internalising Business Mindset and Shared Values Programme (InMINDs) in 2012; followed by Service Transformation for Excellent Performance (STEP) in 2013. The Brand Internalisation Programme (BRAIN) commenced in 2014.

SUSTAINABILITY IN THEWORKPLACE

The Process of Change and

Transformation

Organisational

Performance

Change

Initiatives

Struct

ure, Sy

stems

,

Styl

e

Shared Va

lues,

Te

chno

logy

Strateg

y,

Sk

ills,

Beliefs,

Superstitions

Mindset,

Attitudes,

Org

anis

atio

nal

Beh

avio

ur

CHANGE MANAGEMENT - CULTURE TRANSFORMATION

CultureTransformation

Service

Transform

ation

For Exce

llent

Performan

ce (ST

EP)

Bra

ndIn

tern

alis

atio

n(B

RA

IN)

Corporate Team

Building

Program

me (CTP)

Internalising

Business Mindset

Shared Values

Programme (InMINDs)

33

BRAIN encompasses our core values of Passion, Commitment and Trust (PaCT); and behaviour competencies of Leadership, Integrity, Performance, Competent and Innovation (LIPCI). We devised a brand identity that is demonstrated through the Brand Personality of Care, Empathy and Subject Matter Expert (S.M.E.).

BRAIN was of cially launched by our Group Managing Director on 14 April 2014 and incorporated as part of the Banks strategic plan. Progress is assessed during the monthly BRAIN Steering Committee (BSC) meeting chaired by the Group Managing Director.

Brand Personality We Desire Employees to Demonstrate

i. Care - be fair, sincere and attentive to all internal and external customers. Several programmes and activities were conducted to instil this personality:

Iron Man & Iron Lady: A designated SMC member for each region was assisted by co-agents from head of ce, regional of ce and enterprise centres.

Acknowledgements and small celebrations such as weddings, child birth and childrens examinations

Recognition: Long service awards and excellent service awards

NGO association ii. Empathy be responsive, reliable and go the extra

mile. Hospitalisation visits, death or funeral visits are some of the activities and programmes offered to instil this personality. Kita-Kita Aje, are informal sessions with respective Iron Men or Ladies to discuss personal or work related issues.

iii. Subject Matter Expert (S.M.E.) - be knowledgeable, solution provider and good listeners. Planned activity is be a referral point by establishing a referral point group within the organisation for employees easy reference. A newcomer induction programme (Corporate On-boarding), talks by guest speakers, benchmarking visits and training are some of the activities and programmes that emphasise this personality.

BRAIN commenced with Team Bonding and BRAIN Launch Pad sessions. A total of 31 sessions were delivered throughout August and September 2014. In 2014, 1,000 employees enrolled and graduated.

The SME Bank Way consists of SALAM, SAPA, MESRA, SOPAN, MATA, HATI, HELO and CLEAN. It was introduced to standardise bank behaviours to internal and external customers. The SME Bank ways are promoted via various communication channels such as posters, quizzes and events.


PRIORITISING LOCAL TALENT

We make a difference to the communities where we operate and seek ways to assist them. The hiring and development of local people are prioritised and we work with local supply chains wherever possible. We take part in various career fairs to attract graduates from our country and offer various forms of work opportunities including internship programmes.

Internship Programme

We recognise our community service role to provide Malaysian students with an opportunity to join the Internship Programme for a speci c duration. The Internship Programme is offered to students from recognised higher learning institutions that:

Have obtained a current cumulative GPA of at least 3.0;

Are undergoing a diploma, degree or equivalent programme in a eld of study speci ed by the heads of department from a recognised higher learning institution;

Demonstrate an acceptable level of interpersonal skills;

Are active in curriculum activities in universities or colleges; and

Have strong initiative and are able to work independently.

The internship period varies between universities or college programmes. Most candidates had a background in economics, accounting, nance, Islamic banking, IT or human resources. In 2014, we welcomed 10 internship candidates who were attached to various functions.

Breakdown of Internship Candidates in 2014

COMPETITIVE BENEFITS AND REMUNERATION

A fair and adequate remuneration system is critical to motivate, attract and retain competent and high-potential employees. Our internal equity promotes fair and equitable compensation for all employees with remuneration that is proportionate to their contribution. We also believe in external equity, which delivers remuneration packages that are fair and equitable in comparison to the external market.

We conduct remuneration reviews regularly to determine adequate remuneration for employees. This helps us align our remuneration packages with the changing business environment. It allows us to be more equitable in rewarding high achievers in the workplace, develop employee talent and determine our competitiveness vis--vis the market.

SUSTAINABILITY IN THEWORKPLACE CONTD

Finance and Accounting

Human Capital Development

Human Capital Services

Information Technology

33

21

1

35

A percentage of employees basic salaries is given to the Employees Provident Fund (EPF) as per statutory requirements. This is inclusive of the employers contribution to EPF required by law.

Bene ts are de ned as forms of value other than payment that are provided to employees in return for their contribution to the organisation. We offer various employment bene ts to all levels of employees. Key bene ts are illustrated in the diagram above.

Practices for Retiring Employees

Retirement Age

On 16 August 2012, the Malaysian Government announced the enforcement of the minimum retirement age for private sector employees, upon reaching the age of 60 years, through the enforcement of Minimum Retirement Age Act 2012.

Employees may opt to retire early at any time once reaching 50 years of age. However, approval is subject to the managements discretion. Employees who are not medically or physically t to work may be advised to

retire earlier by a doctor from one of our panel clinics, hospitals or any government medical practitioner.

Employees retiring in the normal course of service who have reached the retirement age receive one months paid leave.

Retirement Bene t

Employees who joined the Bank are eligible for retirement bene t in terms of additional employers EPF contributions based on the years of service. These bene ts vary slightly depending on when the employee joined the Company.

Additional EPF Contributions

Additional Contributions (% Basic Salary)

Length of Service

Joined before 1 July 2012

Joined after 1 July 2012

< 5 years 2% 2%

5 - 10 years 4% 4%

> 10 years 6.5% 5.5%

Key Bene tsAllowances

MedicalBene ts

Leave

EducationStaff

Financing

Others

InsuranceScheme

East Malaysia, COLA for Non-executives, car, petrol, mobile phone, treasury dealers, subsistence, accomodation, mileage, miscellaneous, short-term placement and secondment

Group Term Life (GTL), Group Personal Accident (GPA) and Group Hospitalisation & Surgery (GHS)

Staff nancing subsidy scheme for housing

and vehicleCorporate club m

emberships, exible w

orking

hours, shift working hours, em

ergency cash advance,

discretionary retirement gifts and interest free

festival cash advance for Non-Executives

Intere

st free

educa

tion n

ancing

and E

mploy

ee

Educat

ion As

sistan

ce Prog

ramme

Gene

rous

ann

ual l

eave

, med

ical

, com

pass

iona

te,

mar

riag

e, m

ater

nity

/pat

erni

ty, s

peci

al p

aid,

Haj

j,

repl

acem

ent a

nd re

titre

men

t

Unl

imit

ed o

utpa

tien

t, h

ospi

talis

atio

n an

d su

rgic

al fo

r em

ploy

ees,

mat

erni

ty, h

ealt

h sc

reen

ing,

den

tal a

nd

spec

tacl

es


LEARNING AND DEVELOPMENT

Employees need to develop their technical, behavioural and leadership competencies in relation to their employment functions, which are aligned with the Banks business strategy, vision and mission.

The average annual training requirement is ve days for executive level and above and three for non-executives. The average number of hours of training spent per year per employee for the past three years is listed below.

Superiors are responsible for nominating their employees to attend programmes in the annual learning and development calendar as and when required. Employees are provided with opportunities to attend external training that is not in this calendar. Such training is assessed on a needs basis and requires approval by the respective division.

Annual learning and development needs are identi ed for all employees. It is conducted during the performance

appraisal process and considers information from the appraisal form and competency assessment. The Human Capital Development and Learning and Development divisions determine the appropriate training and non-training interventions. They develop a training plan based on the performance appraisal and competency gap results.

Employees learning and development needs are identi ed as a result of: Corporate, organisation requirements and business

plan; The performance appraisal process and competency

gaps; Feedback from superiors or heads of department;

and Regulatory requirements.

Background information from some of our signi cant training programmes held in 2014 is presented below.


Average annual training budget

per employee

2012 2013 2014

RM Hours

60

3,70

0

3,90

055

56

4,00

04,000

3,900

3,800

3,700

3.600

3,500

62

60

58

56

54

52

Training Budget and Hours

37

Name of Programme Background Objective

Certi cate in Islamic Development Banking & Finance (CIDBF)

Currently, SME Bank is transforming into an operationally ef cient Islamic Financial Provider under Project Wisdom. All new approvals for conventional loans have ceased and been replaced with Islamic nancing. The Bank identi es gaps and creates awareness on the process, people, product and system. 278 employees enrolled and 202 graduated from a course in Certified Islamic Development Banking (CIDB). 305 employees enrolled and 287 graduated from a course in Professional Islamic Development Banking (PIDB).

To build capacity by providing fundamental knowledge for DFI executives considering incorporating Islamic nancing products in their business operations

To improve DFI executives appreciation of the concept and application of Islamic nance and its relevance in day-to-day banking operations

On-boarding Programme for Executive (COPE)

COPE is part of the Talent Management Programme that provides a systematic and comprehensive approach to orienting new employees.

To allow employees to understand some of the Companys values and priorities

To encourage socialisation and create a sense of belonging

To build an optimistic attitude towards the Company

Professional Credit Certi cation (PCC)

Developed by AICB in consultation with senior credit practitioners, the specialist PCC professional certification demonstrates the achievement of the minimum professional standard of core competency for credit personnel in the banking and nance industry.

To raise credit management awareness of the Malaysian nancial system and regulations governing lending in Malaysia

To brief employees on types of borrowers, securities and credit support as well as credit processes speci c to consumer or business lending

Sales and Marketing (Master sales professional programme) - MSP

The MSP is under the Value Creation Programme to support the Banks transformational agenda.

To equip and improve of cers skills to be more con dent in selling and nalising deals

To inculcate a mentally tough sales-oriented mindset to overcome objections and increase the closing rate


Staff Training Fund

The Staff Training Fund (STF) acts as a deterrent against recruiting experienced personnel from other nancial institutions. The hiring institution is required to contribute a maximum of six months of the personnels new gross salary to the STF. The STF is applicable if the recruitment is made within six months of the employees resignation whose previous salary exceeded RM5,000 per month. In 1993, staff pinching rules were liberalised and rede ned to refer to the recruitment of new employees who had not been released by a previous employer.

All contributions to the STF are used to fund training courses for banking personnel. This scheme is in collaboration with Asian Institute of Chartered Banker, which was previously known as Institut Bank-Bank Malaysia.

International Mobility Programme

We value employees with global skill sets and international technical exposure. SME Bank and selected international nancial institutions collaborate on the International Mobility Programme. This programme exposes employees to various international assignments and provides international exposure opportunities. It supports the development and retention of banking professionals.

Secondments or engagements vary from a short-term of between three and 12 months, to long-term of between one and three years.

The programme is designed to improve global knowledge, teach skill sets, build cross-cultural capabilities and develop leadership or management competencies. Employees selected to undergo this international programme are bonded for a minimum of one year, depending on the total cost. These employees are expected to share their knowledge, experience and


Name of Programme Background Objective

Up-skilling and Re-skilling Redeployment Programme

New operating model strengthens the Banks operation by moving staff to different job functions. The redeployment programme equips staff with related skills and knowledge of operations.

To ensure proper learning and development interventions are provided to employees

SME Business Counsellor Certi cation Programme

This programme is an adaptation of similar certi cation from Japan.Certi ed business counsellors are highly sought after and play a important role in improving SME businesses in the country. 26 employees enrolled and graduated from this programme.

To develop a pool of expertise accessible to SMEs to improve competitiveness in local and global markets

To ensure high quality counselling services are provided

39

newly acquired skills with the Bank upon the programmes completion.

To be eligible for this programme, employees must: Be pro cient in English; Be of managerial level with at least three years of

experience with SME Bank; Possess a degree or equivalent technical

quali cation; Have exceeded expectations in the past two

performance appraisals; Be aged between 35 and 50 years old with

potential; and Be willing to relocate during the programme.

In 2014, we collaborated with Kalkinma on this programme, which ran from 26 May to 6 June. Three candidates were seconded to the Development Bank of Turkey for this programme.

Graduate Trainee Programme (GTP)

The SME Bank Graduate Trainee Programme is designed to accelerate learning and development opportunities to prepare young talents for future managerial and leadership roles within the Bank. GTP provides young talent with an opportunity to launch their careers in development banking through an on-job learning traineeship. The Bank selects trainees from local and international tertiary institutions.

Trainees undergo a training programme consisting of formal training, on-job training and assessments to meet the Banks entry level of requirements. Mentors are assigned to coach and guide trainees throughout the programme.

In 2014, 30 new trainees have undergone this programme and have been placed in various departments within Enterprise Banking, Corporate Finance and Enterprise Centres.

On-Boarding Programme

Our guidelines ensure all new employees are effectively and ef ciently introduced to their new positions. They are given access to all relevant policies, systems and processes to perform and develop their roles.

The objectives of this programme are to: Facilitate new employees abilities to contribute

to the new role; Increase new employees comfort levels in their

new roles; Reinforce employees decisions to stay longer in

their roles; Enhance productivity; and Encourage commitment and employee

engagement.



Expected Outcomes

An employee who has participated in the on-boardingprogramme will: Understand their role and the work required

of them Feel valued, supported and involved in the

organisation Work successfully in the context of department Understand and know how to access relevant

policies, guidelines and procedures Understand the professional standards and

behaviour expected of them

New Operating Model

In 2014, we focused on two main initiatives in addition to our core functional, technical and soft-skill training programmes that support our strategic objectives.

Our full-scale training programme supported the New Operating Model (NOM) that covered sales and marketing. This programme contributed to the Banks sustainability and supported the government agenda of developing SME entrepreneurs.

We also supported one programme from Project Wisdom that aimed to make the Bank fully Shariah compliant by 2015.

Up-skilling

Re-skillingP

rofessional

Master Sales

NewOperating

Model

Non-executive to Relationships Managers (RMs) Non-operations to RMs Credit Admins (CAs) to RMs

RMs to RMs CAs to General Intervention

Stage 1(Professional selling methods, continuous learning mind-set and commitment to win methods, continuous learning mind-set and commitment to win) Stage 2 (Review, difference applications and C-level approaches)

Training Programmes that supports NOM

41

Up-skilling and Re-skillingWe introduced NOM to strengthen operations, which included moving non-operations staff to different job functions.

Our Redeployment Programme ensures that proper learning and development initiatives are provided to employees deployed to business operational functions.

The training is delivered by internal trainers to equip staff with the necessary skills and knowledge required for relationship management job functions and general intervention. We deliver the programme in batches depending on the number of trainees and new functions created. This approach ensures employees are equipped with the necessary skills and knowledge for the speci c function they are assigned to.

Redeployment Programme - Job Familiarisation

We upskilled non-operations staff to Relationship Managers from 3 to 5 June 2015 at the Premiere Hotel. 30 selected employees attended the programme. We also trained existing relationship managers to improve their skills and knowledge based on the NOM. 64 employees were involved in this redeployment programme.

Master Sales Professional Our Master Sales Professional (MSP) programme inculcated a mentally tough sales achieving mindset to sustain growth and achieve quantum high performance. Achieving sales targets is no longer the sole responsibility of the sales and marketing team. Every single employee must work together to meet the quantum sales target quickly.

MSP raised the commitment of the Relationship Management Team to believe that marketing can make a difference and every small contribution counts. 326 relationship managers and 30 heads of department took part in this programme.

MSP covers four stages:

Stage 1. Professional selling methods, continuous learning mindset and commitment to win;

Stage 2. Review, different applications and C-level approaches;

Stage 3. Creative applications and high performance motivation (MSP Transformation); and

Stage 4. MSP, assessment, grading of sales projects and certi cation.

MSP taught participants ways to stay motivated to achieve extraordinary targets in a competitive environment. They learned the role of Relationship Managers so they could fully support the teams, apply the MSP Quantum-leap mindset and support each other to achieve ambitious targets.

Relationship management staff attended the rst Stage 1 course on 28 January 2014 at the Premiere Hotel. A total of 326 employees attended Stages 1 and 2. Stage 3 is scheduled for completion in 2015.

Project Wisdom

In June 2011, we decided to transform into an operationally ef cient Islamic nancial provider under Project Wisdom. All new conventional loan approvals ceased and were replaced with Islamic nancing following an internal circulation on 22 February 2011.

Project Wisdom of cially commenced in May 2012 with an Islamic nancing and treasury portfolio. Our initiatives included identifying gaps and raising awareness of the process, people, product and system. Our learning and development training programmes focus on people. Initiatives carried out by Human Capital Development with the cooperation of CEDAR and the Shariah Management Department are highlighted below.

Certi ed Islamic Development BankingOur Certi ed Islamic Development Banking (CIDB) programme offers practical working knowledge of Islamic nance and banking with an emphasis on developmental roles. It caters to middle and upper-level executives within development nancial institutions (DFIs).

The scope of Islamic nance has broadened signi cantly with related products and their mode of transactions growing rapidly. The programme increases DFI executives understanding of Islamic nance and its relevance to day-to-day banking operations. These executives acquired fundamental knowledge to incorporate Islamic nancing products in their business operations.

In 2014, a total of 305 had completed CIDB training and 287 passed the examination.


Professional Islamic Development Banking

Professional Islamic Development Banking (PIDB) is advanced level certi cation for bank of cers in Islamic development banking and nance. The modules cover: Financial management and controls in SMEs and

development banking Business process and best practices of SMEs and

development banking Risk management in SMEs and development banking Credit analyses and entrepreneur pro ling in SMEs

nancing Contemporary issues of DFIs and entrepreneurships

PIDB was delivered to 10 groups and attended by customer-facing employees. Approximately 278 employees have attended PIDB and 127 passed the examination.

Structuring Job Training

The Learning and Development Section of Human Capital Development departments also work with the Shariah Management Department on structuring job training. This training enriches and increases employees understanding, competency and knowledge of Islamic banking. It focuses on outcomes and translates into application and execution.

The modules covered in this initiative include: Continuous structured training modules on Islamic

banking operations and the application of Shariah requirements on legal and security documents via SOJT at our headquarters, enterprise centres, business centres or regional centres;

Islamic banking nancing packaging and structuring; The application and execution of standardised

transaction documents; Shariah applications and requirements of security

documentations for all Islamic nancing contracts; Performing assessments of participants and learning

facilitators; and Developing resource persons in their workplaces.

TALENT MANAGEMENT AND SUCCESSION PLANNING

Talent management and succession planning is the process of pinpointing key needs for intellectual talent and leadership. It prepares employees for present and future work responsibilities needed by the Bank. It emphasises the internal development of people. Talent management and succession planning is treated as a business continuity plan for our sustainability.

Each year, all heads of department name three performing employees with the potential to rise to the next level.

Candidates are selected objectively based on set criteria. The potential subordinates will be assessed for suitability and will be provided with learning and development opportunities as well as relevant exposure on a priority basis. The respective heads of departments and Human Capital Development jointly develop the career paths and development plans for the named successors.


43

COMPETENCY ASSESSMENT

The ongoing development of the employees personal and professional competencies is essential. Each position has a de ned set of core competencies and functional competencies which are required at speci c pro ciency levels.

The competency assessment is performed as and when required for speci cally measuring and evaluating an employees competencies. The outcomes of the competency assessment help in identifying the learning and development needs.

The assessment processes may include multiple-choice tests, structured interviews, pro ling questionnaires, job-knowledge tests, social skills inventories, executive assessment centres, language-learning ability tests and professional examinations for managers and executives.

The results of the competency assessment are analysed to identify the learning and development requirements of employees. The employee competency assessment is conducted by Human Capital Development to measure the employees competency.

MANAGING PERFORMANCE

We are committed to inculcating a high performance work culture. We provide each employee with clear performance objectives, professional development, ongoing performance coaching and feedback. We recognise performers and rehabilitate under-performers.

Performance management is ongoing and linked to the Banks nancial cycle. There are three main activities in performance management: Performance planning; Mid-year performance review; and Year-end Review.

Employees at executive level and above undertake all three activities; non-executive level employees only receive a year-end review.

Management may adjust performance ratings for evaluation consistency. We may also use information from performance management forms in decisions involving promotions, performance-based disciplinary action, performance-based salary increases and

workforce resizing. Performance management forms become permanently entered on employees personal les.

Performance Planning

We perform all performance planning at the beginning of each nancial year. Management communicates and cascades down the Banks Key Performance Indicators (KPIs) to all heads of department who align their respective divisional or departmental KPIs with the Banks. The approved divisional and departmental KPIs are raised to the next supervision level. This process takes place for individual employees in each respective division, department, section or unit.

At this stage, clear performance planning is established and communicated to employees. Expectations regarding employees performance are established. The criteria by which employees actual performance will be measured and their success determined is speci ed. Employees are also clear about how meeting these expectations will contribute to the achievement of divisional, departmental and the Banks KPIs.

Employees and their immediate superiors must agree with the performance planning. In the event that the parties do not agree, the managers decision is nal.

Mid-year Performance Review

Employees meet informally with their immediate superiors throughout the performance cycle to discuss a broad range of issues and resolve any problems. Employees are responsible for meeting their performance expectations. Immediate superiors use appropriate supervisory techniques that help employees meet or surpass their performance expectations.

A formal mid-year performance review is held during an informal supervision meeting. Generally, this takes place in the sixth month after the performance planning. Performance expectations are measured, reported, discussed and documented during this review.

When expectations alter during the course of the performance cycle, managers communicate these changes and modify performance planning accordingly. Modi cations must be agreed by both parties.



Year-End Review

Superiors conduct year-end reviews to measure employees performance against agreed KPIs. The evaluation is performed at the end of the nancial year and the process is as transparent as possible.

Supervisors use veri able information collected and documented throughout the cycle. They determine the extent to which actual performance has met the expectations de ned in the performance planning.

The evaluation is documented in the Performance Management System. The annual performance appraisal uses a six-level rating scale for reporting overall performance.

Performance Improvement Plan

We are committed to fostering an environment in which employees can perform to the best of their ability. The Performance Improvement Plan (PIP) promotes an organisational culture that educates and improves underperformers. We do not terminate employees employment contracts without rst giving them a chance to improve.

The PIP speci cally addresses employees performance that requires improvement in critical areas. We ensure a fair and consistent approach to enforcing performance standards across all divisions.

The PIP does not apply to employees who are under probation and periodic or temporary employees, outsourced employees and contractors who are not under our direct employment.

Employees understand what is expected of them and ways they can contribute to achieving organisational goals. Immediate superiors guide their employees in achieving their goals and objectives. They ensure employees know what is expected of them how to meet speci c goals within a reasonable timeframe.

EMPLOYEE ENGAGEMENT

We encourage closer and stronger relationships between employees. Various events are held throughout the year such as family days, annual dinners, employee gatherings during the festive season, employee competitions and sports tournaments. These events increase employee engagement and their commitment to the Bank.

Employee event management is facilitated by the Employee Relations Section. Annual events are aligned with the corporate vision and mission. An annual employee event calendar is prepared based on the annual budget allocation.

45

Methods of Engagement in 2014

Regular Engagement

Details Frequency

Knowledge Sharing Talk Monthly

Ramadan Gift Giving to All Employees Annually

Iftar Ramadan: Distribution of Iftar for Those Doing Overtime During Ramadan

Annually during Ramadan

Quarterly Assembly: GMD Disseminating Information to Employees Quarterly

Group MD Walkabout to Branches Monthly and when required

Employee Engagement Survey Annually

Grievance Process As and when required

Donation Drive such as Fires or Floods As and when required

Table Get Togethers

Details Frequency

Family Day or Annual Dinner Annually

Chinese New Year Lunch with the Senior Management Committee (SMC) Annually

Deepavali Lunch with the SMC Annually

Kuliah Zohor Monthly

Kuliah Muslimat Monthly

Hari Raya Celebration Annually

MITI Gathering in SME Bank Annually

Recognition

Details Frequency

Education Incentives to Employees or Their Children According to the Guidelines

Annually

Taska Pintar Graduation Day for Children Annually

Retirement Event As and when required


PROMOTING EMPLOYEES WELLBEING

We are committed to helping our employees achieve well-being in many facets of their lives. Whether health, nancial, personal or professional well-being, we conduct numerous programmes that help them achieve their personal goals. Some of the many programmes provided at the Bank are highlighted below.

Childcare Centre (Taska Pintar)

Our childcare centre provides a family-orientated workplace environment to employees with young children. The childcare centre is managed ef ciently with set rules and regulations for childrens safety and security.

Employees may enrol their children on a rst-come, rst-served basis at the Banks discretion. The centre delivers an accredited child development curriculum and programme. It is regulated by requirements stipulated in the Child Care Centre Act 1984 and Department of Social Welfare policies.

The centre is open to all employees with children aged between two and four years old. It has a maximum capacity of 25 children.

Flexi Hours

At SME Bank, we understand that individuals who are able to balance the needs of work and home are more effective employees and more successful family and community members. We recognise blending personal and professional lives is different for each person and can also vary over time. We strive to provide our employees with a supportive work environment and a choice of exible work hours from 8.30am to 5.30pm or 9.00am to 6.00pm.

EMPLOYEES PERSONAL DATA PROTECTION

Our employees personal data is subject to applicable data protection and privacy requirements as mandated by the PDPA. We only process employees personal data if: It is for a lawful purpose directly related to

employment; Necessary and directly related to managing the

employee; It is adequate but not excessive in relation to the

employment purpose; The employees consent is obtained to use it; and Explicit consent of the employee is obtained to

process sensitive personal data.

We will not disclose the employees personal data for other purposes or to third parties without the employees consent.

EMPLOYEES RIGHTS AT WORKWe acknowledge our responsibility to respect employees rights in accordance to the Human Rights Commission of Malaysia (SUHAKAM). We do not tolerate any form of workplace harassment, discrimination or violence. We are governed by our own Terms and Conditions of Service but also comply with the labour practice and legislation such as Employment Act 1955 and Code of Conduct of Industrial Harmony.

We respect employees rights to bargain collectively under the National Union Commercial Workers (NUCW). 20% of our non-executive workforce was represented by NUCW as at 31 December 2014. We conduct regular meetings and enjoy good relations with the union and its representatives. In 2014, issues raised included promotion and working hours. These issues were resolved with mutual understanding between the parties.


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We also protect supply-chain personnel and local community members. The Human Resources Policy recognises that while governments are primarily responsible for human rights protection, the rights of individuals may be affected by company activities. All operations: Provide a safe and healthy workplace for associates; Do not use child, forced, prison, indentured, bonded

or involuntary labour; Prohibit discrimination in their hiring and

employment practices; Forbid actual and threats of physical abuse and

harassment of associates; and Support freedom of association and the rights of

workers and employers to bargain collectively.

All employees are governed by their Terms and Conditions of Service; contractors and vendors are governed by their general contract with the Bank. All standard agreements protect all parties.

Everyone should be treated with dignity and respect and we conduct business in a manner consistent with this principle. We comply with all applicable employment and human rights laws and regulations where we have operations and our suppliers must do the same. All employees, including security personnel, are issued with an Employee Handbook and Code of Conduct. These documents clearly de ne the scope of our ethical responsibilities.

We comply with the Children and Young Persons (Employment) Act 1966. Individuals aged below 18 years cannot be employed as mandated in the Malaysian Employment Act 1955. Although we do not have a dedicated non-discrimination policy, there is ample protection in the Employee Code of Conduct. This code governs all aspects of employment including discrimination.

We have had no incidents of discrimination or risk to freedom of association and collective bargaining. There have been no reported incidents of risks of child, forced or compulsory labour. No violations of human rights involving the rights of indigenous people have occurred at any time in the Companys history.

EMPLOYEE GRIEVANCE HANDLING

A grievance is de ned as reasonable and legitimate dissatisfaction by an employee in his or her work environment. Grievance handling is performed as and when issues occur. Problems are resolved promptly and employees have the option to elevate their grievances to higher levels of authority if necessary.

It is each and every employees right to air employment grievances or raise complaints about working conditions. The employees future employment prospects are not affected in any way.

An employee who has a grievance or complaint may write or complete the Grievance Information Form. The complaint must be submitted to an immediate superior, head of department or Human Capital Relations.

We try to resolve grievances within the department. The employees immediate superior or head will review and respond to the complainant.

If a grievance cannot be resolved, it is escalated to Human Capital Relations who will assess the case and lead the investigation. If there is a case, Human Capital Relations will take necessary disciplinary action in accordance with the Industrial Relations process. If not, Human Capital Relations will respond to the complainant to resolve the case amicably.

Year No. of Grievances

Received

No. of Grievances

Solved

2012 0 0

2013 0 0

2014 4 4


OCCUPATIONAL SAFETY AND HEALTH (OSH)

We are committed to providing a safe, healthy and secure workplace for all employees, contractors, visitors and customers. Our commitment to implementing a safety and health policy is integrated into the daily activities of all people frequenting our places of work effectively.

We meet our safety and health commitments by: Acknowledging our legislative requirement and

ensuring compliance as the minimum acceptable standard.

Holding all levels of management accountable for the safety and health of employees under their leadership.

Establishing a continuous and organised occupational safety and health management system in accordance with the law.

Creating safe and healthy working conditions and providing appropriate safety equipment.

Providing our people with information, training, instruction and supervision so they have the required skills and competencies for their roles.

Investigating all accidents, illnesses, injuries, poisoning and dangerous occurrences and taking preventative measures to ensure incidents do not recur.

Raising staff awareness of occupational safety and health awareness so they view good health as common practice in work or society.

Providing employees with basic welfare facilities. Reviewing and revising the policy when necessary.

The Occupational Safety and Health Act, 1994 requires the appointment of a safety and health committee (SHC). Our SHC is represented by 0.9% of the workforce and was established to: Assist in the development of safety and health rules

and safe systems of work. Review the effectiveness of the existing safety and

health programme. Conduct studies on trends of accidents, near-misses,

dangerous occurrences, occupational poisoning and disease that occur in the workplace.

Report any unsafe or unhealthy conditions or practices in the workplace with recommendations for corrective action.

Review workplace safety and health policies and recommend any revisions.


Health Safety and Environment (HSE) Committee

Dato Mohd Rizal Mohd JaafarChairman (COO, Finance & Corporate Services)

EMPLOYER REPRESENTATIVES EMPLOYEE REPRESENTATIVES

Zainal OsmanPresident, KSR SME

Yoshran ZaidonBusiness, Continuity

Management

Saipul MD RamliIn house Committee Chairman of NUCW

Mohamad Ridzuan Mansor

Head, General Services

Mustafar MaarofHead, Employees Relations

Mohamed Khairil Mohamed Khalid

Head, Facility Management

Zaihani Abdul HamidDirector, Operations

Noor Nazmi AhmadHead, Operational Risk

Shahrir AmranActing Director, Group Human Capital Management Mohd Zuhar Mohamed Nor/Mohd Tarmizi Mohamad

Secretary SHO

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SHC meetings are held at least quarterly or as required by the Occupational Safety and Health Act, 1994. Minutes of each meeting are recorded to document problems, issues, proposed corrective action and actions taken. Attendance is compulsory and committee members failing to attend are removed.

Safety and health inspections of individual departments are conducted periodically to: Identify hazards and unsafe acts for correction; Evaluate programme effectiveness; and Assign corrective responsibility; Report identified problems and progress to improve

workplace safety and health.

Safety and Health Committee responsibilities are guided by the Occupational Safety and Health Act, 1994 to Identify potential hazards; Recommend corrective action; and Evaluate these hazards; Follow up on implemented recommendations

Occupational Safety and Health (OSH) 2012 2013 2014

Absentee Rate (AR) for Total Workforce * 957 631 1,833

Injury Rate 0 0 0

Fatality Rate 0 0 0

*Sick Leave Taken

Safety and Health Training

We collaborate with the National Institute of OSH Indicator in delivering employee safety and health training modules. We have developed comprehensive health and safety procedures that are updated regularly to comply with governmental regulations, standards and business best practice. Job safety analyses and risk assessments support these policies and procedures. We conduct audits and inspections to determine the effectiveness of these measures.

Training Programme Relevant to Safety and Health Conducted in 2014

Programme Title Organiser No. of Participants

Ergonomics and Manual Handling in the Workplace NIOSH 1

Occupational Safety and Health in Offices NIOSH 1

Fire Safety Seminar 2014 BOMBA 1

Emergency Preparedness and Response Plan NIOSH 3

Oil and Gas Safety Passport NIOSH 1

OSH Management System: MS 1722 & OHSAS 18001 Interpretation & Implementation: Module 1 of 2 (Lead Auditor)

NIOSH Certification Sdn Bhd

2

Understanding, Evaluating and Implementing an Effective HIRARC at Work NIOSH 1

Construction Safety & Health Officer (CSHO) CIDB 1

Effective Security Management A 21st Century Perspective U Performa Resources

1

Safety and Health Officer Course CONSIST 1

Occupant Safe

sustainability report 2014 - sme bank

Documents

sustainability report

workplace54 sustainability

marketplace74 sustainability

community84 sustainability

annual sustainability

comsmebankthis annual

business operations

corporate visits8