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Togetherwe fulfil your ambitions

Annual Report 2014

02 Affin Bank Berhad Annual Report 2014

OUR VISION

OUR MISSION

A Premier Partner for Financial Growth and Innovative Services.

To provide innovative financial solutions and services to target customers in order to generate profits and create value for our shareholders and other stakeholders.

In so doing, we provide opportunities for employees to contribute and excel; and be competitive in providing our solutions and services to our valued customers.

We shall conduct our business with integrity and professionalism in compliance with good corporate governance principles and practices.

Our business has always been about providing you with the right solutions to fulfil your every

ambition. We take great care to listen and understand and thereafter to shape our products so that

you can live your lifestyle, or take your next steps. At AFFINBANK, we are banking without barriers

to touch the very core of our business - to fulfil your ambitions.

COVER RATIONALE

01Affin Bank Berhad Annual Report 2014

TABLE OF CONTENTS

16 Chairman’s Statement

18 MD/CEO’s Performance Review

20 Corporate Diary

22 Financial Highlights

ORGANISATION

FINANCIAL STATEMENTS

EXECUTIVE SUMMARY

OTHER INFORMATION

CORPORATE GOVERNANCE

4 Corporate Information

5 Corporate Structure

6 Board of Directors

7 Profile of Board of Directors

11 Management Team

12 Profile of Management Team

23 Statement on Corporate Governance

31 Statement on Risk Management & Internal Control

34 Audit & Examination Committee

36 Network of Branches

41 Notice of Annual General Meeting

42 Financial Statements

At AFFINBANK and AFFIN ISLAMIC, we provide financial solutions and services which allow you to live a prosperous lifestyle. We go beyond barriers to help shape you and your family’s future and fulfil ambitions, which otherwise may not have been made possible.

At AFFINBANK and AFFIN ISLAMIC, we provide financial solutions and services which allow you to live a prosperous lifestyle. We go beyond barriers to help shape you and your children’s future and fulfil ambitions, which otherwise may not have been made possible.


NAMEAffin Bank Berhad (Co. No.: 25046-T)

DATE OF INCORPORATION23 October 1975

PRINCIPAL ACTIVITIESAffin Bank Berhad is principally involved in the carrying out of banking and finance related services. The Bank has twelve (12) subsidiary companies and three (3) associate companies which are principally engaged in property management, nominee, trustee management and factoring services.

MANAGING DIRECTOR/CHIEF EXECUTIVE OFFICERYBhg. Dato’ Zulkiflee Abbas Bin Abdul Hamid

SECRETARYNimma Safira Binti Khalid

REGISTERED OFFICE17th Floor, Menara AFFIN,80, Jalan Raja Chulan,50200 Kuala Lumpur.Tel. : 03-2055 9000Fax : 03-2026 1415

AUTHORISED SHARE CAPITALNo. of shares2,000,000,000Par valueRM1.00TotalRM2,000,000,000

ISSUED AND PAID-UP SHARE CAPITALNo. of shares1,688,769,616Par valueRM1.00TotalRM1,688,769,616

SUBSTANTIAL SHAREHOLDER No. of sharesAffin Holdings Berhad - 1,688,769,616

EXTERNAL AUDITORSPricewaterhouseCoopers (AF 1146)

BOARD OF DIRECTORS

CORPORATE INFORMATION

YBhg. Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)Chairman(Non-Independent Non-Executive Director)

YBhg. Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin(Non-Independent Non-Executive Director)

YM. Dr. Raja Abdul Malek Bin Raja Jallaludin(Independent Non-Executive Director) (Retired w.e.f. 29 March 2014)

YBhg. Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman(Independent Non-Executive Director)

Mr. Aubrey Li Kwok-Sing(Non-Independent Non-Executive Director)

Mr. Gary Cheng Shui Hee (Alternate Director to Mr. Aubrey Li Kwok-Sing)(Resigned w.e.f. 17 March 2014)

Mr. Tang Peng Wah (Alternate Director to Mr. Aubrey Li Kwok-Sing)(Appointed w.e.f. 23 June 2014)

En. Mohd Suffian Bin Haji Haron (Independent Non-Executive Director)

YBhg. Tan Sri Dato’ Seri Mohamed Jawhar(Independent Non-Executive Director)

YBhg. Tan Sri Mohd Ghazali Bin Mohd Yusoff (Independent Non-Executive Director) (Appointed w.e.f. 20 June 2014)


CORPORATE STRUCTUREas at 31 December 2014

1 Dormant - company inactive but currently holding asset.2 Associate.3 Companies where application to strike-off has been filed by the Bank.4 56.84% represents the shareholding of LTAT in Boustead Holdings Berhad

as at 31 December 2014.

OTHERS

AFFIN HOLDINGS BERHAD

AFFIN Bank Berhad

AFFIN Islamic Bank Berhad

Lembaga Tabung Angkatan Tentera

AFFIN Capital Sdn Bhd

AXA AFFIN Life Insurance Berhad

AXA AFFIN General Insurance Berhad

AFFIN MoneyBrokers Sdn Bhd

AFFIN-ACF Holdings Sdn Bhd

AFFIN Hwang Investment Bank Berhad(formerly known as HWANGDBS INVESTMENT BANK BERHAD)

AFFIN Investment Bank Berhad

AFFIN-i Nadayu Sdn Bhd 2

(jointly owned by AFFIN Islamic Bank Berhad and Jurus Positif Sdn Bhd with a 50:50 ownership)

Boustead Holdings Berhad Bank of East Asia Limited

100%

100%

50%

KL South Development Sdn Bhd 2

(jointly owned by AFFIN Islamic Bank Berhad and Albatha Bukit Kiara Holdings Sdn Bhd with a 30:70 ownership)

30%100%

100%

100%

100%

100%

51%

34.5%

AFFIN Hwang Nominees (Tempatan)Sdn Bhd

100%

AFFIN Hwang Nominees (Asing)Sdn Bhd

100%

AFFIN Hwang Asset Management Berhad

70%

Asian Islamic Investment Management Sdn Bhd

100%

AFFIN Nominees (Tempatan) Sdn Bhd

100%

AFFIN Nominees (Asing) Sdn Bhd100%

AFFIN Hwang Futures Sdn Bhd100%

100%PAB Properties Sdn Bhd

100%ABB Trustee Berhad 2

(80% held by Directors of Affin Bank Berhad in trust for Affin Bank Berhad)

100%AFFIN Futures Sdn Bhd 1

100%ABB IT & Services Sdn Bhd 3

100%BSNCB Nominees (Tempatan) Sdn Bhd 3

100%AFFIN Recoveries Berhad

100%ABB Nominee (Tempatan) Sdn Bhd

100%AFFIN-ACF Nominees (Tempatan) Sdn Bhd 3

100%AFFIN Factors Sdn Bhd 1

100%ABB Nominee (Asing) Sdn Bhd 1

100%PAB Property Development Sdn Bhd 3

100%BSNC Nominees (Tempatan) Sdn Bhd 3

34.33%

56.84% 4

20.69% 23.52% 21.46%


BOARD OF DIRECTORS

1. YBhg. Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)

Chairman Non-Independent Non-Executive Director

2. YBhg. Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin Non-Independent Non-Executive Director

3. YBhg. Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman Independent Non-Executive Director

4. En. Mohd Suffian Bin Haji Haron Independent Non-Executive Director

5. YBhg. Tan Sri Mohd Ghazali Bin Mohd Yusoff Independent Non-Executive Director

(Appointed w.e.f. 20 June 2014)

6. YBhg. Tan Sri Dato’ Seri Mohamed Jawhar Independent Non-Executive Director

7. Mr. Aubrey Li Kwok-Sing Non-Independent Non-Executive Director

8. YM. Dr. Raja Abdul Malek Bin Raja Jallaludin Independent Non-Executive Director (Retired w.e.f. 29 March 2014)

1

45

67


8

3

2


Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara), aged 73, was appointed as the Director and Chairman of AFFINBANK on 21 May 2002.

He was formerly the Chief of Defence Force (CDF) of Malaysia from 1995 until his retirement in 1998, after 38 years of military service. He graduated from Royal Military Academy, Sandhurst, United Kingdom in 1961 and subsequently attended professional and management development courses at several institutions including The Land Forces Command and Staff College, Canada; the United Nation International Peace Academy, Vienna; the National Defence College, India and INTAN Malaysia.

His military service saw Key Command and Staff appointments at all levels of the Armed Forces. As CDF, his responsibilities included key roles in Malaysia’s Regional and International Defence Relations.

He was the Chairman of Affin Holdings Berhad and Affin-ACF Finance Berhad from 1999 prior to joining AFFINBANK. He currently holds directorships in Affin Islamic Bank Berhad, ABB Trustee Berhad, EP Engineering Sdn Bhd and Global Medical Alliance Sdn Bhd.

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) attended 13 out of 14 Board Meetings held during the financial year ended 31 December 2014.

PROFILE OF BOARD OF DIRECTORS

YBHG. JEN. TAN SRI DATO’ SERI ISMAIL BIN HAJI OMAR (BERSARA)

Chairman / Non-Independent Non-Executive Director

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin, aged 65, was reappointed to the Board of Directors of AFFINBANK on 4 October 2010. He was appointed as the Managing Director of Affin Holdings Berhad in February 1991 and redesignated as Deputy Chairman on 1 July 2008.

He has extensive experience in managing a provident fund and in the establishment,restructuring and management of various business interests ranging from plantation, trading, financial services, property development to oil and gas, pharmaceuticals and shipbuilding. He is the Chief Executive of LTAT and the Deputy Chairman / Group Managing Director of Boustead Holdings Berhad. Prior to joining LTAT, he was the General Manager of Perbadanan Kemajuan Bukit Fraser for 9 years.

He is also the Chairman of Boustead Heavy Industries Corporation Berhad, Boustead Naval Shipyard Sdn Bhd, Pharmaniaga Berhad, Boustead Petroleum Marketing Sdn Bhd and 1Malaysia Development Berhad. He sits on the Board of The University of Nottingham in Malaysia Sdn Bhd, Minority Shareholder Watchdog Group, FIDE Forum, Affin Islamic Bank Berhad, AFFIN Hwang Investment Bank Berhad, AXA Affin Life Insurance Berhad and Boustead Plantations Berhad.

He graduated from the University of Toledo, Ohio, USA with a Bachelor of Business Administration and a Master of Business Administration. Among the many awards Tan Sri Dato’ Seri Lodin received to-date include the Chevalier De La Legion D’Honneur from the French Government, the Malaysian Outstanding Entrepreneurship Award, the Degree of Laws honoris causa from the University of Nottingham, United Kingdom, the UiTM Alumnus of the Year 2010 Award and The BrandLaureate Most Eminent Brand ICON Leadership Award 2012 by Asia Pacific Brands Foundation.

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin attended all 14 Board Meetings held during the financial year ended 31 December 2014.

YBHG. TAN SRI DATO’ SERI LODIN BIN WOK KAMARUDDIN

Non-Independent Non-Executive Director



Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman, aged 68, was appointed to the Board of Directors of AFFINBANK on 28 January 2003.

He graduated with a Bachelor of Commerce from University of New South Wales, Sydney, Australia. He is a member of the Malaysian Institute of Certified Public Accountants (MICPA ) and the Malaysian Institute of Accountants (MIA).

He has served as Chairman and Board member of several government institutions, agencies and public listed companies, both in Australia and Malaysia.

At the corporate level he was with PricewaterhouseCoopers Sydney, Malaysia Airlines Berhad and Managing Director of Bank Kerjasama Rakyat Malaysia Berhad before venturing into politics and public service as the Pahang State Assemblyman, State Executive Councillor and Deputy Chief Minister of Pahang. He was a Senator of Malaysian Parliament for a maximum period of two (2) terms.

Presently he is a Board member of Affin Islamic Bank Berhad, the International Islamic University Malaysia and University Malaysia Pahang.

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman attended 13 out of 14 Board Meetings held during the financial year ended 31 December 2014.

YBHG. TAN SRI DATO’ SRI ABDUL AZIZ BIN ABDUL RAHMAN

Independent Non-Executive Director

Dr. Raja Abdul Malek Bin Raja Jallaludin, aged 69, was appointed to the Board of Directors of AFFINBANK on 29 January 1991.

He graduated as a doctor from the University of Malaya in 1972 and, early in his career, worked at the General Hospital, Kuala Lumpur and the Faculty of Medicine, UKM. In late 1975, he went into private medical practice and became a senior partner of Drs. Catterall, Khoo, Raja Malek & Partners until 2003 when he resigned from the firm. Professionally he is widely experienced and has served in various peer and academic activities. Amongst others, he had been a clinical tutor in the Faculty of Medicine, University Malaya; been a member of the Ethical Committee of the Malaysian Medical Council, Ministry of Health; was the Chairman of Council Academy of Family Physicians, Malaysia.

He has vast experience in the pharmaceutical world and had actively been involved since 1984. He had been the Medical Director (Malaysia-Singapore) for Parke Davis-Warner Lambert from 1984-2000, and had remained briefly so too with Pfizer Malaysia when these two Incorporations merged in 2001. In 2003, Dr. Raja Abdul Malek joined HOE Pharmaceuticals as the Director of Medical and Scientific Affairs and holds this position to this day.

Presently he is also on the Board of StemLife Berhad and Boustead Plantations Berhad.

Dr. Raja Abdul Malek Bin Raja Jallaludin attended all 4 Board Meetings held for the period from January to March 2014.

Dr. Raja Abdul Malek Bin Raja Jallaludin retired as a Director with effect from 29 March 2014.

YM. DR. RAJA ABDUL MALEK BIN RAJA JALLALUDIN

Independent Non-Executive Director(Retired w.e.f. 29 March 2014)



En. Mohd Suffian Bin Haji Haron, aged 69, was appointed to the Board of Directors of AFFINBANK on 15 August 2009.

He graduated with a Bachelor of Economics from University of Malaya in 1970 and holds a Master of Business Administration from University of Oregon (USA) in 1976.

He started his career as a Diplomatic and Administrative Officer, attached to the Prime Minister’s Department, and after thirteen years, left the Government Service to be the General Manager, International Business of a Government-Linked Company and after six years left for the Private Sector. He brings with him vast experience in the financial services sectors which include asset management and insurance-related services, general trading, power/energy, and the oil and gas services sectors.

Presently he is a Board member of Affin Islamic Bank Berhad, ABB Trustee Berhad, L.K. & Associates Sdn Bhd and Pharmaniaga Berhad.

En. Mohd Suffian Bin Haji Haron attended all 14 Board Meetings held during the financial year ended 31 December 2014.

EN. MOHD SUFFIAN BIN HAJI HARON


Mr. Aubrey Li Kwok-Sing, aged 64, was appointed to the Board of Directors of AFFINBANK on 17 March 2008. He is a Director of The Bank of East Asia, Limited and Chairman of IAM Holdings (Hong Kong) Limited (formerly known as MCL Partners Limited).

He possesses extensive experience in investment banking, merchant banking and capital markets. Presently he is a Board member of Café de Coral Holdings Limited, China Everbright International Limited, Kunlun Energy Limited, Kowloon Development Co. Ltd, Pokfulam Development Company Limited and Tai Ping Carpets International Limited.

Mr. Aubrey Li Kwok-Sing attended 9 out of 14 Board Meetings held during the financial year ended 31 December 2014.

Mr. Aubrey Li Kwok-Sing’s Alternate Director, Mr. Tang Peng Wah was appointed on 23 June 2014. He attended 3 out of 8 Board Meetings held during the financial year ended 31 December 2014.

MR. AUBREY LI KWOK-SING

Non-Independent Non-Executive Director



Tan Sri Dato’ Seri Mohamed Jawhar, aged 70, was appointed to the Board of Directors of AFFINBANK on 1 November 2011.

His other positions include: Independent Non-Executive Director, Affin Islamic Bank Berhad; Chairman, Institute of Strategic & International Studies (ISIS) Malaysia; Non-Executive Chairman, New Straits Times Press (Malaysia) Berhad; Member of Securities Commission Malaysia; Member, Advisory Board, Malaysian Anti-Corruption Commission; Distinguished Fellow, Institute of Diplomacy and Foreign Relations (IDFR); Distinguished Fellow, Malaysian Institute of Defence and Security (MiDAS); Fellow, Institute of Public Security of Malaysia (IPSOM), Ministry of Home Affairs; Board Member, Institute of Advanced Islamic Studies (IAIS); Member, Laureate Advisory Board, INTI International University and Colleges. He is also the Expert and Eminent Person for the ASEAN Regional Forum (ARF).

He was also the Co-Chair, Network of East Asia Think-tanks (NEAT) 2005-2006; Chairman, Malaysian National Committee, Pacific Economic Cooperation Council (PECC) 2006-2010; and Co-Chair, Council for Security Cooperation in the Asia Pacific (CSCAP) 2007-2009.

He served with the government for over 20 years before joining ISIS Malaysia as Deputy Director-General in 1990. He was appointed as Director-General in March 1997 and later as Chairman and CEO in 2006. He was appointed as the Chairman of ISIS Malaysia on 9 January 2010.

During his government service, his positions included Director-General, Department of National Unity; Under-Secretary, Ministry of Home Affairs; Director (Analysis) Research Division, Prime Minister’s Department; and Principal Assistant Secretary, National Security Council. He also served as Counselor in the Malaysian Embassies in Indonesia and Thailand.

Tan Sri Dato’ Seri Mohamed Jawhar attended all 14 Board Meetings held during the financial year ended 31 December 2014.

YBHG. TAN SRI DATO’ SERI MOHAMED JAWHAR


Tan Sri Mohd Ghazali Bin Mohd Yusoff, aged 68 was appointed to the Board of Directors of AFFINBANK on 20 June 2014.

He holds a degree of the Utter Bar from Middle Temple, Inns-of-Court, London. He joined the Malaysian Judicial and Legal Service in 1974. Senior positions held include serving as deputy public prosecutor, State Legal Adviser, Registrar of Companies, Chief Registrar of the Supreme Court and Solicitor-General.

He was elevated to the bench as Judge of the High Court, Court of Appeal and the Federal Court. He retired in January 2012.

Presently he is a Board Member of AXA AFFIN Life Insurance Berhad.

Tan Sri Mohd Ghazali attended all 7 Board Meetings held for the period from June to December 2014.

YBHG. TAN SRI MOHD GHAZALI BIN MOHD YUSOFF

Independent Non-Executive Director(Appointed w.e.f. 20 June 2014)


MANAGEMENT TEAM

1. Mr. Kasinathan T. Kasipillai Group Chief Risk Officer

From left to right :

From left to right :

3. En. Kamarul Ariffin Bin Mohd Jamil Chief Executive Officer,

Affin Islamic Bank

5. En. Shariffudin Bin Mohamad Executive Director, Operations &

Strategic Services

2. En. Amirudin Bin Abdul Halim Executive Director, Banking

4. YBhg. Dato’ Zulkiflee Abbas Bin Abdul Hamid Managing Director /

Chief Executive Officer

6. Mr. Tan Kok Toon Director, Group Treasury

1. Pn. Nimma Safira Binti Khalid Head, Legal & Secretarial

6. Pn. Nor Rozita Binti Nordin Chief Human Resource Officer

4. Mr. Ramanathan Rajoo Chief Financial Officer (Appointed w.e.f. 1 April 2014)

5. Pn. Khatimah Binti Mahadi Group Chief Internal Auditor

2. En. Idris Bin Abd Hamid Director, Consumer Banking

7. Mr. Ee Kok Sin Chief Financial Officer (Retired w.e.f. 31 March 2014)

3. En. Nazlee Bin Khalifah Chief Corporate Strategist


PROFILE OF MANAGEMENT TEAM

Dato’ Zulkiflee Abbas Bin Abdul Hamid is the Managing Director / Chief Executive Officer of Affin Bank Berhad, a position held since April 2009. Dato’ Zulkiflee also holds the mandate to drive Affin Banking Group’s strategic and developmental agenda for all entities within the group. Subsequently, effective 2 January 2014, he was appointed the Group Chief Executive Officer of Affin Holdings Berhad. Dato’ Zulkiflee currently holds dual position as the Group CEO of Affin Holdings Berhad and MD/CEO of Affin Bank Berhad.

Dato’ Zulkiflee joined AFFINBANK on 1 March 2005 as Director of Enterprise Banking. Subsequently in 2008, Dato’ Zulkiflee was appointed as Executive Director of Banking, which encompassed both Business and Consumer Banking.

Dato’ Zulkiflee carries with him more than 30 years of banking experience, both locally in Malaysia and internationally in London and New York. Dato’ Zulkiflee has assumed pivotal roles in banking, which include Regional Manager, Chief Credit Officer, and Global Head of Enterprise Banking, amongst others.

Dato’ Zulkiflee holds a Master in Business Administration (1981) and a Bachelor of Science degree in Marketing (1979), both from Southern Illinois University.

En. Kamarul Ariffin Bin Mohd Jamil joined Affin Bank Berhad in 2003 as Head, Corporate Strategy Division. In 2005, Kamarul was appointed as Head, Islamic Banking Division. With the establishment of Affin Islamic Bank, Kamarul was appointed as its Chief Executive Officer.

Prior to AFFINBANK, Kamarul held various positions at Pengurusan Danaharta Nasional Berhad, Trenergy Malaysia Berhad and Shell Malaysia Trading Sdn Bhd in various capacities including business development, and strategic planning.

Kamarul graduated from the University of Cambridge in 1992 with a Bachelor of Arts in Economics.

En. Shariffudin Bin Mohamad joined Affin Bank Berhad in 2007 as Director of Operations and was appointed as Executive Director, Operations in 2009 and in 2014, he was redesignated as the Executive Director, Operations and Strategic Services.

Shariffudin has 25 years local and overseas experience in banking. His hands-on experience covers Branch Operations, Trade Finance, Corporate Banking, Corporate Relationship Management, Credit Operations, Cash Management and Securities Services. His last position was Head, Project Management Services (Technology & Operations) in a leading foreign bank and its local outsourcing subsidiary.

Shariffudin graduated from Southern illinois University, with a Master in Business Administration (1981) and a Bachelor of Science degree in Finance (1980).

EN. KAMARUL ARIFFIN BIN MOHD JAMIL

Chief Executive Officer, Affin Islamic Bank

EN. SHARIFFUDIN BIN MOHAMAD

Executive Director, Operations & Strategic Services

YBHG. DATO’ ZULKIFLEE ABBAS BIN ABDUL HAMID

Managing Director / Chief Executive Officer



Mr. Tan Kok Toon joined Affin Bank Berhad as its Head of Treasury in October 2004 and is responsible for managing all aspects of Treasury Division. He is currently the Honorary Secretary of Persatuan Pasaran Kewangan Malaysia (Association Cambiste Internationale) and Chair to the Seminar and Education Committee.

Prior to AFFINBANK, Tan was with a leading bank in Malaysia. Tan has more than 20 years banking experience, particularly in Treasury Operations. He has served as Treasury Manager with the New York Branch, and was Treasury Business Advisor to turn around a business project in the Philippines.

Tan graduated from University Malaya in 1987 with a Bachelor of Science degree (honours) in Mathematics.

En. Amirudin Bin Abdul Halim joined Affin Bank Berhad as Director, Business Banking in July 2009 and was appointed as Executive Director, Banking in 2014.

Prior to AFFINBANK, Amirudin was at a leading local bank for more than 21 years where he gained extensive banking experience in Branch Operations, Credit Control, Business Banking, Retail Marketing, Consumer Banking and Corporate Services.

He has served in several senior strategic roles, including Deputy Head of Business Banking Division, Head of Mortgage and Automobile Financing and as the Deputy Chief Executive Officer of a subsidiary of a leading local bank.

Amirudin graduated with a Bachelor of Arts degree in Finance from St. Louis University in 1986.

Mr. Kasinathan T. Kasipillai joined Affin Bank Berhad in 2005 as its Chief Risk Officer. Kasinathan has more than 35 years of local and overseas banking experience particularly in the areas of Risk Management. He comes from a foreign bank background working in the risk function serving in a number of countries including London, Singapore, Hong Kong, Mumbai and Jakarta.

Kasinathan holds a Masters in Business Administration from the University of Bath, UK and is a Certified Risk Professional awarded by Bank Administration Institute, Chicago, USA.

Kasinathan is also an Associate Fellow of Institute of Bankers Malaysia, and continues to serve as an active member of CCP Examination Committee.

MR. TAN KOK TOON

Director, Group Treasury

MR. KASINATHAN T. KASIPILLAI

Group Chief Risk Officer

EN. AMIRUDIN BIN ABDUL HALIM

Executive Director, Banking



Mr. Ramanathan joined BSN Commercial Bank (BSNC) in 1991, which merged with Affin Bank Berhad in 2001. Ramanathan was appointed as Head, Finance of the Bank in 2005 and subsequently appointed as Chief Financial Officer in 2014.

Ramanathan brings with him 27 years of experience in Finance and Accounting from various audit and financial institutions, which include auditing, financial accounting, financial management, administration and services, and credit recovery.

Ramanathan holds a Bachelor Degree in Accounting from UKM and a MBA (Finance) from UPM. He is a qualified Chartered Accountant with a Certified Practicing Accountant (CPA) qualification from Australia. He is also a member of The Malaysian Institute of Accountants (MIA), and a Certified Credit Professional.

En. Nazlee Bin Khalifah joined Affin Bank Berhad in February 2009 as Head of Business Strategy and Support, Business Banking Division. Subsequently, in April 2011, Nazlee was appointed as Chief Corporate Strategist.

Nazlee has more than 20 years’ experience in the banking industry. Prior to joining AFFINBANK, Nazlee was with a leading local bank for 17 years in various capacities, mostly in Strategic Management positions.

Nazlee graduated from Simon Fraser University in Vancouver in 1991, with a Bachelor degree in Business Administration, majoring in Accounting and Finance.

En. Idris Bin Abd. Hamid is the Director of Consumer Banking, a position he has held since May 2009.

Idris began his career with Affin Bank Berhad in 1994 as General Manager of Affin Finance Berhad. He was appointed as Deputy Chief Executive Officer for Affin-ACF Finance Berhad from 2000 to 2005.

Idris has over 30 years of experience in the banking industry, which includes exposure as Branch Manager, and in Corporate and Consumer Loans Management.

Idris graduated with a Master in Business Administration from the University of Northern Colorado in 1984.

MR. RAMANATHAN RAJOO

Head, Finance

EN. IDRIS BIN ABD. HAMID

Director, Consumer Banking

EN. NAZLEE BIN KHALIFAH

Chief Corporate Strategist

MR. RAMANATHAN RAJOO

Chief Financial Officer(Appointed w.e.f. 1 April 2014)


Pn. Khatimah Binti Mahadi joined Affin Bank Berhad as Chief internal Auditor in 2004. Khatimah has more than 30 years of experience in Internal Auditing.

She has led the Audit and Compliance function in a number of large local and foreign financial institutions.

Khatimah graduated with a Diploma in Accountancy from UITM in 1978.


Pn. Nor Rozita Binti Nordin was appointed as Chief Human Resource Officer of Affin Bank Berhad in May 2011. Prior to joining AFFINBANK, Rozita was Executive Vice-President and Head of Group Human Resources at a local banking group.

Rozita has more than 30 years’ experience in Human Resource Development and Customer Relations Strategy, in various industries which include banking, oil and gas, manufacturing, retail, and shared services. Rozita has taken on strategic and operational roles, both locally and abroad.

Rozita graduated from Southern illinois University with a Master of Science degree in 1984, a Bachelor of Science in Education and a Bachelor of Arts degree in Linguistics, both in 1982

Pn. Nimma Safira Binti Khalid is the Head, Legal & Secretarial / Company Secretary of Affin Bank Berhad, a position she has held since 2005. Nimma joined AFFINBANK in 2001 as Manager, Legal & Secretarial. Nimma was subsequently assigned to the President / CEO’s office as the Executive Assistant from 2003 to 2005.

Nimma started her career of 20 years as an Advocate & Solicitor of the High Court of Malaya in 1994. Nimma then moved in-house as Legal Officer / Company Secretary of a commercial bank from 1995 to 2000. Nimma graduated with Bachelor of Laws in 1992 and Bachelor of Laws (Shariah) in 1993; both from the International Islamic University, Malaysia

Mr. Ee Kok Sin joined Affin Bank Berhad in 2005 as the Chief Financial Officer. Prior to his appointment at AFFINBANK, Ee was the General Manager of Finance & Services at Pengurusan Danaharta Nasional Berhad. Ee began his career in 1982 as a Trainee Accountant with a firm of Chartered Accountants in London. He has extensive experience in auditing, treasury functions, financial accounting, financial management and information technology. Ee is a fellow Member of the Association of the Chartered Certified Accountants (ACCA) and a member of The Malaysian Institute of Certified Public Accountants (MICPA) and Malaysian Institute of Accountants (MIA).

Ee retired as Chief Financial Officer with effect from 31 March 2014.

PN. KHATIMAH BINTI MAHADI

Group Chief Internal Auditor

PN. NOR ROZITA BINTI NORDIN

Chief Human Resource Officer

PN. NIMMA SAFIRA BINTI KHALID

Head, Legal & Secretarial

MR. EE KOK SIN

Chief Financial Officer(Retired w.e.f. 31 March 2014)


CHAIRMAN’S STATEMENT

Dear Shareholders,

It has been a challenging year for the banking industry in 2014 amid the margin compression due to intense competition, and the introduction of various guidelines by the regulators to tighten household lending, and to strengthen liquidity and capital of the banks. Despite this, AFFINBANK continue to focus on strategic initiatives to grow the business and achieved a profit before zakat and taxation of RM720.1 million, while increasing the total assets by 5.5% to RM59.5 billion.

Throughout the year, the Bank focused on enhancing our balance sheet by improving our loans portfolio, but also grew deposits with new products and promotions offered to targeted customer segments. Our business growth, however, is undertaken with caution so as to preserve the asset quality and the capital of the Bank.

As the Chairman of AFFINBANK, I would like to take this opportunity to underline the importance placed by the Board in delivering maximum shareholder value.

“For the year under

review, AFFINBANK

achieved a profit

before zakat and

taxation of

RM720.1 million,

while increasing

the total assets

by 5.5% to

RM59.5 billion.”

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)Chairman

For the year ending 2014, the Bank declared an interim and final dividend of 13.9 sen amounting to RM235 million which represent a payout of 49.3% of the profit after zakat and taxation.

GOING OUT TO THE COMMUNITY

As we grow our business, we also constantly remember our responsibility to the society and community at large. Each year, we continue to plan and participate in a range of activities and programmes that enrich the nation either socially, religiously / ethically, through the promotion of sports and education, or simply to reach out to help those in need.

In 2014, we continue to participate in the “Sahabat Korporat” initiative organised by Lembaga Tabung Haji where we sponsored the publication of a prayer book for Hajj pilgrims. The Bank continue to support Malaysians in need via collaboration with BHPetrol in two (2) of their CSR initiatives - Di Celah-Celah Kehidupan, a TV series which features hardcore poor individuals and raise funds for them; and the BHPetrol Orange Run 2014, an annual fun charity run.

PROFIT BEFORE ZAKAT AND TAXATION

RM720.1million

TOTAL ASSETS

RM59.5billion

“Buka Puasa” dinner for orphans from selected orphanages.


CHAIRMAN’S STATEMENT

Several of our community activities were carried out during the festive seasons. During the month of Ramadan, we once again feted orphans to a “buka puasa” (breaking of fast) dinner at our head office. In conjunction with Hari Raya, we contributed RM100,000 to the Welfare Fund of Malaysian Armed Forces to provide festive gift packages as a mark of honour for their services and sacrifice. Volunteers from the Bank also visited an old folks’ home to bring cheer to the residents during Chinese New Year.

During the year, we pooled our resources with our subsidiary, AFFIN ISLAMIC, to be the Official Bank and Strategic Partner for the Global Economic Symposium (GES) held in Kuala Lumpur. GES is organised by the Kiel Institute for the World Economy, and attracts world leaders to generate solutions for current issues such as the financial crisis, unemployment, demographic change, brain drain, poverty, cybercrime and terrorism.

Motivated by our belief in the power of education to uplift lives, we continued to sponsor The Star Newspaper-in-Education Programme and supported Utusan Malaysia’s Tutor Pullout, which provides the teachers an alternative but creative approach to education in schools. The Bank also maintained our annual contribution of RM1 million cash to Yayasan Warisan Perajurit, a foundation established by our parent company, Lembaga Tabung Angkatan Tentera (LTAT) to provide scholarships and assistance to the children of Malaysian Armed Forces personnel.

Through our own AFFIN Education Excellence Award, in 2014 we provided aid to 127 children of our staff who had excelled in their SPM, STPM or A-level examinations. Since the award was launched in 2004, we have disbursed a total of RM1.7 million to more than 600 deserving students. Under the award programme, we also present scholarships worth RM60,000 each to students pursuing tertiary education in local universities.

In the sporting arena, AFFINBANK presented RM250,000 to the Raja Ashman Shah Asian Hockey Federation - Malaysian Hockey Confederation Academy; and RM1.25 million to the Football Club of the Malaysian Armed Forces for the 2014 Season.

We also continued to sponsor TrEES in the Young Voices for Conservation Programme for the fourth year. The programme is targeted at secondary school students and focuses on producing a generation of “eco-warriors” equipped with the knowledge and skills to protect the environment.

OUTLOOK

At AFFINBANK, we will continue to be guided by our focused goals and plans to retain our competitive edge by targeting selected customer segments, understanding their needs and expanding our range of innovative products to grow our business within well-defined risk parameters. We also aim to further enhance our brand value and visibility by increasing our domestic footprint with a greater focus on dedicated Islamic branches. At the same time, we will explore the regional

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)Chairman

market and prepare the groundwork to establish an international presence.

ACKNOWLEDGEMENTS

On behalf of our Board of Directors, I would like to acknowledge all our stakeholders for your continuous support and belief in us.

I would also like to acknowledge my fellow colleagues on the Board for their wise counsel that has guided AFFINBANK through the peaks and troughs of a very dynamic and demanding industry. Our management has played a critical role in taking the Bank to where we are today. My sincere appreciation goes to this team for their effective leadership. Most of all, I would like to express my heartfelt gratitude to all our employees who have demonstrated a high level of integrity and commitment in their daily actions and performance. Keep up the fantastic work, and together we will fulfil our objectives as well as that of our customers’ ambitions.

Affin Education Excellence Award 2014.

Cash sponsorship of RM1.25 million to the ATM football team.


MD/CEO’S PERFORMANCE REVIEW

The year 2014 was challenging for the banking sector in Malaysia given a generally softer economic environment; reduced consumer loan growth as a result of Bank Negara Malaysia’s prudent lending guidelines and ongoing net interest margin compression. Despite the challenges, AFFINBANK produced encouraging results due to its focused business direction, proactive risk management and focus on attracting quality assets.

FINANCIAL PERFORMANCE

In 2014, we achieved a 9.1% increase in net loans, advances and financing from RM36.2 billion (2013) to RM39.5 billion. This increase was achieved at the back of an improved gross impaired loans ratio from 1.92% to 1.78%, and similarly in net impaired loans ratio from 0.90% to 0.84%. Total assets grew by 5.5% from RM56.4 billion to RM59.5 billion.

Despite the intense competition, the Bank increased its deposits by 4.1% to RM48.0 billion. Amid the ongoing margin compression, I am pleased to report that our net interest income improved from RM813.1 million to RM819.5 million. At the same time, net income increased 1.2% to RM1.3 billion in 2014.

On the back of these key parameters, the Bank achieved a profit after zakat and taxation of RM543.7 million.

BUSINESS INITIATIVES

Realising the need to differentiate ourselves in a competitive marketplace, the Bank identified target market segments for which we customised products and services that would help our customers to fulfil their needs and ambitions.

For the individual customers, we grew retail deposits through special promotions designed for the various segment of customers. These included the Chinese New Year promotion offering special fixed deposit rates at the start of the year, and subsequently our popular OMG campaign, called

“Within a challenging

environment, we

achieved a

9.1% increase in

net loans, advances

and financing.”

4.1%GROWTH IN DEPOSITS FROM CUSTOMERS

9.1%GROWTH IN NET LOANS, ADVANCES & FINANCING

the One Million Giveaway. Towards the last quarter, AFFINBANK also started leveraging on the recently acquired Affin Hwang Investment Bank to acquire and grow the retail deposits further. For the affluent customer segment, we launched our AFFINBANK World MasterCard which provides a world of privileges and benefits befitting their lifestyle.

For the SME segment, besides existing products to facilitate SME financing, we collaborated with the Credit Guarantee Corporation Malaysia to launch portfolio guarantee financing at competitive rates which will allow local SMEs greater access to financing.

Finally, we embarked on an e-Payment campaign for our retail internet banking service (affinOnline) to encourage online banking in view of the 50 sen cheque processing fee which will be imposed from January 2015 following a directive by BNM.

IT & OPERATIONS HIGHLIGHTS

The year 2014 saw us embarked on various projects to enhance IT systems and operational processes that will support the business and for compliance to new or revised regulatory guidelines. Treasury system was upgraded to accommodate increasing transactions, and additional services were added to the ATM system adding to greater convenience to customers. A project to implement new grading models is in progress and, when implemented, will enable better assessment of customers for more effective loan management and further improve asset quality.

The Bank will continuously leverage on IT to further improve productivity as well as efficiency to service our customers.

RISK MANAGEMENT

AFFINBANK recognises the various risks within the banking industry and has in place comprehensive systems and processes to manage these. To meet BNM’s Risk-Weighted Capital Adequacy Framework – Internal Capital Adequacy

Dato’ Zulkiflee Abbas Bin Abdul HamidManaging Director /

Chief Executive Officer


MD/CEO’S PERFORMANCE REVIEW

Assessment Process (Pillar 2), we have a robust ICAAP Framework that ensures we maintain an adequate level of capital at all times to complement our risk profile and business strategies. Since the introduction of new and more stringent capital requirements under Basel III guidelines, we have been presenting quarterly reports to BNM on our leverage and liquidity positions and are gearing towards full compliance with all the guidelines by 2019, the deadline set by regulatory authorities.

Our Group Risk Management continuously monitors events that could impact the banking sector and our operating environment and recommends appropriate measures to protect the Bank’s position. The team also conducts regular in-depth reviews of our exposure to various industry segments to detect any sign of deterioration in asset quality.

DEVELOPING OUR PEOPLE

The Bank has a structured framework of continuous professional development aimed at enabling our employees to realise their true potential. We run three (3) programmes for fresh graduates that expose them to the banking industry, namely the AFFIN Management Programme, FSTEP and “Skim Latihan 1Malaysia” (SL1M). Each lasts for a year during which the trainees are equipped with technical and soft skills, and given on-the-job exposure via attachments at different departments in the Bank. A total

of 190 trainees have been recruited in this manner since 2005.

Our Human Resources constantly monitors the skills pool and, where deficiencies are identified, programmes are introduced to fill in the gaps. These programmes focused on salesmanship, relationship management, branch operations, customer service and the fundamentals of shariah, among others. Programmes are also tailored for our senior management to keep enhancing their leadership capabilities, as well as to nurture a talent pipeline to support our succession planning.

OUTLOOK

We continue to see opportunities to grow our business in the consumer and SME segment. For the consumer market, we will continue to focus on mortgage loans and hire purchase, and growing customer deposits at the same time with new products and promotions. Initiatives will also be planned to enhance our offering of wealth management products, especially since we can take advantage of the banking group synergies and leverage on our newly formed Affin Hwang Investment Bank.

The Bank will also continue to grow our financing within the SME market and other sectors driven by the government’s Economic Transformation Programme. By growing the corporate and commercial business segments, there

Grand prize winners for “O.M.G” campaign.

will be opportunities to further enhance our transactional banking services.

Our main aim is to be more focused in areas in which we excel to help our customers achieve their ambitions. We believe the strong relationships we have built with our customers will stand us in good stead to further grow our business in targeted key segments.

ACKNOWLEDGEMENTS

AFFINBANK is on an exciting journey towards a brighter and better future. We have achieved much that we can be proud of, but are conscious of the need to keep building on our strengths to attain our vision of becoming “a premier partner for financial growth and innovative services”. I believe we have what it takes to turn this vision into reality, given the dedication of our Board of Directors, the leadership of our management team and the commitment to our employees. I would like to acknowledge every single member of the AFFINBANK team for the hard work and perseverance. My appreciation goes to all stakeholders for their belief and trust in us.

We have come a long way, and we intend to go even further. With your continued support, no distance is too far to bridge.

AFFINBANK launched World MasterCard to capture affluent market segment.

Dato’ Zulkiflee Abbas Bin Abdul HamidManaging Director / Chief Executive Officer


CORPORATE DIARY

• Jom Karnival for New Branch - Lahad Datu, Sabah

• OMG & AFFINBANK World MasterCard Campaigns - Prize Giving Event

A Mercedes CLA and luxury travel package vouchers were given away to the winners of these 2 campaigns.

• Chinese New Year Charity Activity - Visit to Old Folks Home

• Blood Donation Drive

The first of the three blood donation drives was held at Menara Affin in collaboration with the National Blood Centre.

• Sponsorship - Hockey Academy

RM250,000 cash donation to the Raja Ashman Shah AHF-MHC Hockey Academy to develop the Academy in Ipoh, a CSR initiative in support and promotion of sports.

• Sponsorship - Utusan Malaysia’s “Tutor” Pullout

• Sponsorship - ATM Football Club

The Football Association of the Malaysian Armed Forces received a financial boost from AFFINBANK with a cash sponsorship of RM1.25 million to the football team for 2014 Season.

• Sponsorship - The Star Newspaper-in-Education

• Jom Karnival for New Branch - Taman Demang, Selangor

JANUARY - FEBRUARY 2014

MARCH - APRIL 2014

• Board of Directors Visits Sarawak Chief Minister

Members of the Board of Directors and Senior Management of AFFINBANK Group paid a courtesy visit to YAB Tan Sri Datuk Amar (Dr.) Haji Adenan Bin Haji Satem, Chief Minister of Sarawak. During the visit, the Bank also presented Zakat of RM400,000 to the Tabung Baitulmal Sarawak.


• AFFINBANK World MasterCard Launch

• AFFINBANK / AFFIN HOLDINGS Media Golf Meet 2014

• Sponsorship - “Sahabat Korporat” by Lembaga Tabung Haji

MAY - JUNE 2014


CORPORATE DIARY

• “Majlis Berbuka Puasa Bersama Anak-Anak Yatim dan Saudara / Saudari Baru”

AFFINBANK Group hosted a “Buka Puasa” event for a total of 150 guests comprising orphans and new Muslim converts at its corporate head office, Menara Affin.

• Hari Raya Open House - Customers & Business Partners

AFFINBANK Group’s Board of Directors, management and staff hosted its customers and business partners to a warm and delightful Hari Raya celebration with a scrumptious dinner at a prestigious hotel.

• Sponsorship - “Di Celah-celah Kehidupan” CSR Programme by BHPetrol

JULY - AUGUST 2014

SEPTEMBER - OCTOBER 2014• Sponsorship - BHPetrol Orange Run 2014

AFFINBANK collaborated with BHPetrol in support of their BHPetrol Orange Run 2014, a 12-km long run organised to raise funds for selected charities.

• Participation - The Edge KL Rat Race 2014

• Participation - Bursa Bull Charge 2014


• Sponsorship - “Tabung Pahlawan” Campaign

AFFINBANK sponsored the cost of advertising to promote the “Tabung Pahlawan” Campaign, a fund raising campaign that is organised each year to provide a platform for the general public to donate to the fund and to commemorate the sacrifices of the armed forces.

• Sponsorship - Global Economic Symposium (GES) 2014

AFFINBANK Group became the Official Bank and Strategic Partner for the GES 2014, a solution forum attracting world leaders to generate solutions for global issues such as financial crisis, unemployment, demographic change, brain drain, poverty, cybercrime and terrorism.

• Strategic Alliance Portfolio Guarantee - CGC & AFFINBANK

CGC Forms Strategic Alliance with AFFINBANK to offer Portfolio Guarantee Financing to boost the SME industry.

• TrEES “Young Voices for Conservation”

AFFINBANK sponsored the TrEES “Young Voices for Conservation”, a programme targeted at secondary school students to educate them on financial and leadership skills and the importance of protecting the environment.

NOVEMBER - DECEMBER 2014


FINANCIAL HIGHLIGHTS

Earnings Per Share (EPS)sen

Total Assets RM’billion

Deposits From Customers RM’billion

Profit Before Zakat And TaxationRM’million

Net Loans, Advances & Financing RM’billion

Shareholders’ Equity RM’billion

AFFINBANK’s EPS for the financial year ended 31 December 2014 stood at 33.3 sen compared to 37.5 sen the year before.

AFFINBANK’s financial position as at 31 December 2014 continued to remain strong with total assets of RM59.5 billion, an increase of 5.5% compared with RM56.4 billion as at 31 December 2013.

Total deposits increased by 4.1% year-on-year to RM48.0 billion as at 31 December 2014 compared to RM46.1 billion in the year before.

AFFINBANK recorded profit before zakat and taxation of RM720.1 million for the financial year ended 31 December 2014 compared to RM762.2 million in the same period of 2013.

AFFINBANK’s net loans, advances and financing grew by 9.1% to RM39.5 billion compared to RM36.2 billion in 2013.

Total shareholders’ equity of AFFINBANK was RM5.2 billion as at 31 December 2014 compared to RM4.4 billion in 2013.

‘13

37.5

‘11 ‘10‘14

33.3

‘12

35.0

30.6

26.5

720.1

‘14

762.2

‘13

703.2

‘12 ‘11

613.1

‘10

521.9

‘10

42.1

‘14

59.5

‘13

56.4

‘12

52.1

‘11

49.2

39.5

‘14

36.2

‘13

33.5

‘12 ‘11

29.7

‘10

26.0

‘10

48.046.1

41.3

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36.5

31.0

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5.2

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4.4

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3.6

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3.3


STATEMENT OF CORPORATE GOVERNANCE

The Board of Directors of AFFINBANK (Board) and Management seek to embrace high standards and principles of Corporate Governance in all areas of its business; having the ultimate objective of safeguarding the best interest of shareholder as well as having regard to the interest of depositors.

The Board and Management are fully committed and constantly strive in ensuring AFFFINBANK operates in accordance to the Financial Services Act 2013 and Islamic Financial Services Act 2013 (FSA/IFSA), Malaysian Code of Corporate Governance 2012 (MCCG), Bank Negara Malaysia (BNM) Guidelines on Corporate Governance for Licensed Institutions (Revised BNM/GP1) and other relevant regulations. The Board and Management place great importance on the long term viability, safety and soundness of AFFINBANK as a financial institution; where risks and business prudence are appropriately balanced. Throughout 2014 and to-date, AFFINBANK continues to conduct its business with integrity and exercises high level of transparency and objectivity.

AFFINBANK specifies standard for fit and proper requirement for Directors as laid out under the FSA/IFSA. The Board and Management are fully committed in ensuring employees adhere closely to BNM’s Guidelines (BNM/GP7) on Code of Ethics (COE), which aims at instilling the five values namely discipline, integrity, humility, caring and creativity in AFFINBANK. The Board and Management set good and reasonable standards of fair dealing and practices for business conduct as well as the code of behaviour for employees to adhere to. The Board believes in leadership by example, thus all Directors are guided by the Directors’ COE. The responsibility for implementation of COE policies and guidelines rests primarily with Management with oversight by the Audit & Examination Committee.

The following statements set out the commitment of AFFINBANK in applying best principles of Corporate Governance and the extent of compliance with the recommended practices.

BOARD OF DIRECTORS

The Board is committed in establishing long term sustainable value to the shareholders as well as the stakeholders. The Board is pleased to report that, AFFINBANK has complied with the principles and recommendations of MCCG throughout the financial year under review; save for the recommendation on the tenure of independent director of nine (9) years.

The Board comprises majority independent directors; where directors are representatives from the private sectors with suitable qualifications fulfilling the fit and proper criteria, a mixture of different skills, competencies, experience and personalities. Directors’ profiles which appear on page 7 to 10 reflects clearly the depth and diversity in expertise and perspective to lead AFFINBANK which allow for objective analysis of major issues.

Board Responsibilities

The Board acknowledges its roles and responsibilities for the overall performance of AFFINBANK.

The Board’s responsibilities remain within the framework of FSA/IFSA, BNM Policy Documents and AFFINBANK’s Board Policy Manual. The Board exercises great care to ensure that high ethical standards are upheld, and that the interests of stakeholders are not compromised. These include responsibility for determining AFFINBANK’s general policies and strategies for the short, medium and long term, approving business plans, including targets and budgets, and approving major strategic decisions.

In carrying out its functions, the Board has delegated specific responsibilities to other Board Committees, which operate under approved terms of reference, to assist the Board in discharging its duties. The Board Committees report the outcome of their meetings to the Board and any further deliberation is made at the Board level, if required. Reports and deliberations are incorporated into the Minutes of the Board meetings. The various Board Committees are listed below:-

Board Remuneration Committee (BRC)

The BRC is responsible for providing a formal and transparent procedure for developing the remuneration policy for Directors, Managing Director / Chief Executive Officer and key responsible persons. BRC is to ensure that compensation is competitive and consistent with AFFINBANK’s culture and strategic objectives. BRC obtains advice from experts in compensation and benefits, both internally and externally.



Board Nominating Committee (BNC)

The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors and Managing Director / Chief Executive Officer and key responsible persons. BNC assesses the effectiveness of individual Director, the Board as a whole and the performance of the Managing Director / Chief Executive Officer as well as key responsible persons.

The BNC also reviews and recommends the process for succession planning for the Board, Managing Director / CEO and key responsible persons; making recommendations to the Board as appropriate.

Board Risk Management Committee (BRMC)

The BRMC is responsible for overseeing management’s activities in managing credit, market, liquidity, operational, legal, reputational and other related risks so as to ensure that the risk management process is adequately in place and function effectively.

Board Loan Review and Recovery Committee (BLRRC)

The BLRRC is responsible in providing critical review of loans and other credit facilities with higher risk implications, after due process of checking, analysis, review and recommendation by the Group Risk Management function, and if found necessary, exercise the power to veto loan applications that have been approved by the Group Management Loan Committee.

Audit & Examination Committee (AEC)

The AEC is responsible for providing oversight on reviewing the adequacy and integrity of the internal control systems and oversees the work of the internal and external auditors.

Board Composition and Balance

During the financial year under review, the Board comprises the following:

Type of Directors Composition Percentage (%)

Non-Independent Non-Executive Directors* 3/7 42.9

Independent Non-Executive Directors 4/7 57.1

* not inclusive of one (1) Alternate Non-Independent Non-Executive Director

The Board composition of AFFINBANK meets the recommendations of the MCCG which states that the Board must comprise a majority of Independent Directors where the Chairman of the Board is not an Independent Director. All Directors fulfilled the fit and proper criteria in accordance with the Policy Documents issued by BNM.

The Board adopts AFFIN Holdings Group policy that the maximum tenure for an Independent Director is 15 years until 2013. Thereafter, the maximum tenure will be reduced to 12 years. Notwithstanding, the Nominating Committee determines on an annual basis whether an Independent Director remains objective and is free from relationship or influence that could undermine his ability to execute independent judgment.

The role of these Independent Non-Executive Directors are particularly important in ensuring that the strategies proposed by the Management are fully deliberated and evaluated, in line with the long term objectives of AFFINBANK. No individual or small group of individuals dominate the Board’s decision making process.

Board meetings are presided by a Non-Independent Non-Executive Chairman whose role is clearly separated from the role of the Managing Director / Chief Executive Officer. The Chairman is responsible for ensuring the effectiveness and smooth functioning of the Board, the governance structure and the independence of the Board. The Chairman also inculcates positive culture in the Board.

The Board comprises Directors who, as a group, provides a mixture of core competencies such as finance, accounting, business management, marketing and investment management; which are essential for the effective functioning in discharging Board’s responsibilities.


The Managing Director / Chief Executive Officer is responsible for the overall day-to-day business affairs of AFFINBANK while providing strong leadership in the implementation of Board decisions.

Independence and Conflict of Interest

It is the Directors’ responsibility to declare whether they have a potential or actual interest in any transaction of AFFINBANK. Where issues involve conflict of interest, the interested Directors declared and abstained from discussing or voting on the matter. This is important to mitigate risk arising from potential conflict of interest situation or undue influence from interested parties.

Appointments and Re-election to the Board

In 2014, BNM approved the re-appointment of three (3) Non-Independent Non-Executive Directors (inclusive of one (1) alternate Non-Independent Non-Executive Director and two (2) Independent Non-Executive Directors). In accordance with the Company’s Memorandum and Articles of Association, one-third (1/3) of the Directors, or, if their number is not three (3) or a multiple of three (3), the number nearest to one-third (1/3), shall retire from office at each Annual General Meeting and they may offer themselves for re-election.

Continuing Education

All newly appointed Non-Executive Directors are furnished by AFFINBANK with copies of the FSA/IFSA and other relevant legislation governing the banking industry to facilitate their understanding and requirements of banking business. All Directors have attended various training programmes organised internally as well as externally by the relevant authorities such as BNM, Securities Commission (SC) and Companies Commission of Malaysia (CCM). All Directors are required to complete the Financial Institutions Directors’ Education training (FIDE) organized by BNM within one year from the date of appointment. In addition, the members of the Board keep abreast with the relevant developments in business, banking and finance industry as well as new regulatory requirements on a continuous basis through various conferences, seminars and training programmes. The development and training programmes attended by the Directors during the financial year ended 31 December 2014 are set out below.

YBhg. Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)

Trainer/Organiser Course Title Date

1. FIDE Recovery and Resolution Plan (RRP) in FI : Board Leading the way

9 May 2014

2. FIDE FIDE Forum “Risks : From Whereof?” Dialogue by Tan Sri Andrew Sheng

21 August 2014

3. FIDE Board Strategic Leadership in Managing Cybersecurity Risk in Financial Institutions

27 August 2014

4. MICG Asean Corporate Governance Summit 2014 1 - 2 October 2014

5. BNM Persidangan Pembiayaan Harta Intelek 2014 23 September 2014

YBhg. Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin


1. Affin Bank Berhad Financial Services Act 2013 (FSA) & Islamic Financial Act 2013 (IFSA)

21 January 2014

2. FIDE Bank Negara Malaysia FIDE Forum – Dialogue with Governor and Focus Group Discussion in Preparation for Dialogue with Governor

14 March 2014

3. FIDE FIDE Forum Dialogue with Governor “Economic & Financial Services Sector – Trends & Challenges Moving Forward”

24 March 2014

4. Affin Investment Bank Berhad

Affin Investment Conference Series 2014 – Look East Policy 8 April 2014

5. Securities Commission Briefing Session for the Securities Commission’s Annual Report 2013 organised by Securities Commission

11 April 2014




YBhg. Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin


6. FIDE FIDE Forum – Recovery and Resolution Plan in Financial Institution Board Leading the Way

9 May 2014

7. BNM Dialogue Sessions with Nomination Committee Members 20 May 2014

8. AFFIN Investment Bank Berhad

Talk by AT Kearney – Key Trends in Investment Banking & Equity Broking

25 June 2014

9. Securities Commission and MSWG

High Level Roundtable on The Malaysian Code For Institutional Investors

27 June 2014

10. FIDE FIDE Forum Dialogue by Tan Sri Andrew Sheng 21 August 2014

11. Prime Minister’s Office Business Leaders Dialogue with PM – “Partnerships In Nurturing Human Capital” at Securities Commission

26 August 2014

12. Malaysian Directors Academy and Alpha Catalyst Consulting

Innovation Governance in Practice – How Top Management Promote, Steer and Sustain Innovation

27 August 2014

13. UiTM Global Economic Symposium 2014 6 - 8 September 2014

14. Perdana Leadership Foundation

Perdana Leadership Foundation CEO Forum 24 September 2014

15. Bursa Malaysia Directors Breakfast Series with Beverly Behan “Great Companies Deserve Great Boards”

10 October 2014

16. ICLIF-Bursa Malaysia Nominating Committee Programme 15 October 2014

17. Affin Holdings Berhad Half day talk on• Amendments to Companies Bill;• GST Implications to Non-Executive Directors;• Recovery & Resolution Planning;• Cybercriminals in the Financial Services Sector

2 December 2014

YBhg. Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman


1. Affin Bank Berhad Financial Services Act 2013 (FSA) & Islamic Financial Act 2013 (IFSA)

21 January 2014

2. ASLI National Economic Summit & Dialogue with The Prime Minister of Malaysia

7 March 2014

3. ICLIF ICLIF – Launch of Asian Leadership Index [ALI] 2014 Intelligent Report

1 April 2014

4. MeLearn Global Cybersecurity & Governance Masterclass on “The Cyber Risk Governance GAP”

25 June 2014

5. MCI-Group Institute of Internal Auditors (IIA) 2014 – International Conference

6 - 9 July 2014

6. FIDE FIDE Forum “Risks : From Where of?” Dialogue by Tan Sri Andrew Sheng

21 August 2014

7. MICG Annual Asean Corporate Governance Summit 2014 1 October 2014

8. AIBIM Global Islamic Finance Forum 2014 (GIFF) 2 - 4 September 2014

9. UiTM Global Economic Symposium 2014 (GES) 6 - 8 September 2014

10. BNM Persidangan Pembiayaan Harta Intelek 2014 23 September 2014


Encik Mohd Suffian Bin Haji Haron


1. Affin Bank Berhad Financial Services Act (FSA) & Islamic Financial Act 2013 (IFSA) 21 January 2014

2. FIDE Recovery and Resolution Plan (RRP) in FI : Board Leading the way 9 May 2014

3. BNM Dialogue session with Nomination Committee Members 20 May 2014

Mr. Aubrey Li Kwok-Sing


1. PwC / Café de Coral Board Evaluation and Corporate Sustainability 22 January 2014

2. KPMG, Hong Kong KPMG Independent Non-Executive Directors Forum 17 March 2014

3. KPMG, Hong Kong KPMG Independent Non-Executive Directors Forum 16 June 2014

4. Institute of Chartered Secretaries, Hong Kong

Corporate Governance Conference 2014 19 September 2014

5. KPMG, Hong Kong KPMG Independent Non-Executive Directors Forum 13 October 2014

6. PwC, Hong Kong PwC Non-Executive Director Programme• Crisis Management – How will your Board respond in a

crisis?

14 October 2014

7. KPMG, Hong Kong KPMG Independent Non-Executive Directors Forum 8 December 2014

8. KPMG / China Everbright International, Hong Kong

• Update on Risk Management and Internal Control• Update on taxation

15 December 2014

9. PwC / Café de Coral Holdings, Hong Kong

• China M & A issues• Update on Code on Corporate Governance

18 December 2014

YBhg. Tan Sri Dato’ Seri Mohamed Jawhar


1. IISS 2nd IISS Fullerton Forum 12 January 2014

2. Affin Bank Berhad Financial Services Act (FSA) & Islamic Financial Act 2013 (IFSA) 21 January 2014

3. ISIS ISIS National Forum on “GST” 11 February 2014

4. Perdana Leadership Foundation

Perdana Leadership Roundtable on “Surviving The Next Global Financial Crisis”

17 March 2014

5. BNM BNM-FIDE Forum Dialogue with the Governor “Economic & Financial Services Sector : Trends & Challenges Moving Forward”

24 March 2014

6. BNM / FIDE FIDE Forum : Recovery & Resolution Plan (RRP) : “Board Leading the way”

9 May 2014

7. MIDAS MIDAS Talk by Dr. Chandra Muzzafar : “The Influence of Major Powers in ASEAN Region”

15 May 2014

8. BNM BNM Dialogue Session with Nomination Committee Members 20 May 2014

9. Centre of Asean Studies, Thammasat University, Thailand

TU-ASEAN International Conference 2014. Theme : “ASEAN Emerging Global & Regional Players?”

6 July 2014

10. ASLI ASLI / CPPS Forum – Growing Together : ASEAN at 47 8 August 2014

11. UITM UITM Global Economic Symposium (GES) 6 September 2014

12. Ekuinas / EPF 2nd Day Malaysian Private Equity Forum 10 September 2014

13. BNM International Seminar on GST 2014 (MOF). Venue : BNM 15 September 2014




YBhg. Tan Sri Dato’ Seri Mohamed Jawhar


14. BNM Intellectual Property (IP) Financing Conference 23 September 2014

15. Affin Bank Berhad 2nd Day Annual ASEAN Corporate Governance Summit 2014 – “Governance and Regulatory Updates”

2 October 2014

16. ISIS ISIS-IAF on The Crisis in Ukraine and Emergin GEO political issues

7 October 2014

17. Bursa Malaysia Berhad Board of Directors Breakfast Series – “Great Companies Deserve Great Board”

10 October 2014

18. ISIS 3rd German-Malaysia Security Dialogue 13 October 2014

19. Mercy Malaysia / IDFR Sultan Nazrin’s Lecture Series 2014 27 November 2014


2 December 2014

YBhg. Tan Sri Mohd Ghazali Bin Mohd Yusoff


1. FIDE “The Director Register” – the development of an effective and robust process to provide Board talent to the financial services industry

7 April 2014

2. FIDE A Comprehensive Talent-based Approach to Board Recruitment

16 June 2014

3. Affin Holdings Berhad Half day talk by MICG relating to the following topics:(a) Anti-Money Laundering and Anti-Terrorism Financing Act

2001(b) From Compliance to performance – Using risk

management as a catalyst for performance(c) Best Practices in ensuring Boardroom effectiveness and

Accountability – Getting it right for high performance

18 August 2014

4. FIDE Board Strategic Leadership in Managing Cybersecurity Risk in Financial Insttutions

27 August 2014

5. Affin Bank Berhad Induction course (for new directors) 20 October 2014


2 December 2014

BNM - Bank Negara MalaysiaASLI - Asian Strategy & Leadership InstituteISIS - Institute of Strategic & International Studies MalaysiaMICG - Malaysia Institute of Corporate GovernanceMIDAS - Malaysia Institute of Defence SecurityMSWG - Minority Shareholder Watchdog GroupUiTM - Universiti Teknologi MARAIISS - The International Institute for Strategic StudiesAIBIM - Association of Islamic Banking Institutions Malaysia


Meeting and Supply of Information to the Board

Board meetings are scheduled in advance at the beginning of calendar year with additional meetings duly convened as and when necessary to review progress reports on AFFINBANK’s financial performance, approved strategies, business plans and significant policies as well as to consider business and other proposals which require the Board’s approval. For the financial year ended 31 December 2014, fourteen (14) Board meetings were held. Meetings are usually held at the Board Room at 19th Floor, Menara Affin, 80, Jalan Raja Chulan, 50200 Kuala Lumpur.

The Board has full and timely access to information with Board papers distributed in advance of meetings to enable the Directors to obtain further explanation, where necessary, in order to be properly briefed prior to the meetings. The Board pack include the minutes of previous Board meeting, minutes of meeting of Board Committees and reports relevant to the issues of the meetings covering all related banking aspects such as financial, investment, information technology, operational, human resource and regulatory compliance matters. The Managing Director / Chief Executive Officer keeps the Board informed, on timely basis, of all material matters affecting AFFINBANK’s performance and major developments.

Members of the Senior Management are invited to attend the Board meetings to present and brief the Board on matters / reports relating to their areas of responsibility as and when required.

All the Board members have unrestricted access to timely and accurate information and access to the advice and services of the Company Secretary, who is responsible for ensuring that the Board meeting’s procedures are followed and that all applicable rules and regulations are complied with.

Procedures are in place for Directors to seek independent professional advice at AFFINBANK’s expense. AFFINBANK also provides the Board full access to necessary materials and relevant information including the services of the Company Secretary in order for the Board to fulfil their duties and specific responsibilities.

DIRECTORS’ REMUNERATION

AFFINBANK acknowledges the importance of attracting and retaining qualified Directors with high calibre having the necessary skills, qualifications and experience for effective Board oversight of AFFINBANK’s business activities and affairs.

AFFINBANK believes that one area that the Board needs to focus on in order to remain effective in the discharge of its duties and responsibilities is the setting of a fair and comprehensive remuneration package that commensurate with the expertise, skills, responsibilities and the risks of being a director of a financial institution.

The determination of remuneration packages for Non-Executive Directors (NEDs) including the non-executive Chairman is a matter for the Board as a whole following the relevant recommendation made by the BRC after independent benchmarking with relevant external peers.

Remuneration package for Non-executive Directors is structured such that it is competitive with the industry and consistent with AFFINBANK’s business policy and so as to link to their level of responsibilities undertaken and contribution to the effective functioning of the Board. Non-executive Directors’ emoluments consist of three (3) components – an annual fee as a Board member, an allowance for attendance of meetings and a committee fee.

The make-up of the Managing Director / Chief Executive Officer’s remuneration consists of salary, allowances, bonus and other customary benefits as appropriate. Any salary review, takes into account market rates and the performance of the individual and of AFFINBANK. A significant portion of the Managing Director / Chief Executive Officer’s compensation package has been made variable in nature depending on AFFINBANK’s performance during the year, which is determined based on the individual Key Performance Indicators aligned with the corporate objectives, and approved by the Board.



In line with good corporate governance, the Board has set out its intention to periodically review the Directors’ remuneration, the existing remuneration framework is in line with AFFIN Holdings Group’s overall practice on compensation and benefits. Managing Director / Chief Executive Officer does not participate in any way in determining his individual remuneration. The Board as a whole determines the remuneration of Non-Executive Directors.

Directors’ emoluments are disclosed in the relevant note to the financial statements as an aggregate sum, in conformance to the relevant legislation.

SHAREHOLDER

AFFINBANK is a wholly-owned subsidiary of AFFIN Holdings Berhad, a company listed on Bursa Malaysia Securities Berhad.

ANNUAL GENERAL MEETING (“AGM”)

The Annual Report and financial statements for the year ended 31 December 2013 were tabled at the 38th AGM on 25 March 2014. Likewise the Annual Report and financial statements for the year ended 31 December 2014 will be tabled at the 39th AGM on Tuesday, 24 March 2015.



STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROL

INTERNAL CONTROL

AFFINBANK has a well-established and fully operational risk management and internal control system. The Statement on Internal Control, which is set out in the Annual Report provides an overview on the risk management process / framework as well as on how the internal control system has been designed to manage risks and avert failures. AFFINBANK continues to enhance its system of internal control and risk management, in order to better quantify its compliance with the Code.

The Board has overall responsibility for maintaining the proper management and protection of AFFINBANK’s interests by ensuring effective implementation of the risk management policy and process, as well as adherence to a sound system of internal control, and by seeking regular assurance on their effectiveness. The Board also recognizes that risks cannot be eliminated completely. As such, the inherent system of internal control is designed to provide a reasonable though not absolute assurance against the risk on material errors, fraud or losses occurring.

The Audit & Examination Committee has an oversight responsibility for the adequacy and integrity of the internal control system. Reliance is placed on the results of independent audits performed primarily by Group internal auditors, the outcome of statutory audits on financial statements conducted by external auditors and on representations by Management based on their control self-assessment on all areas of their responsibility.

Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to Board members for notation and discussion.

AFFINBANK has an established Group Internal Audit Division which reports functionally to the Audit & Examination Committee and administratively to the Managing Director / Chief Executive Officer. The division is responsible for conducting independent audits in accordance with the approved annual Internal Audit Plan.

RELATIONSHIP WITH AUDITORS

A professional and transparent relationship continues to exist between the Board / Audit & Examination Committee and the external auditors. The Audit Committee is authorized to communicate directly with both the external and Group internal auditors. A full Audit Committee report outlining its role in relation to the Auditors is also set out in the Annual Report. In addition, the external auditors meet with the Board at least once a year when the annual audited financial statements are presented to the Board.

ASSURANCE

The Board through the Audit & Examination Committee has satisfactorily performed its oversight role in ensuring there is a sound internal control system and regular review on the adequacy and integrity of the system. Assurance on the effectiveness of risk management, control and governance process is obtained from the Management and Auditors (internal and external).

BNM auditors, Group internal auditors and external auditors conduct independent audits on AFFINBANK’s business operations, support activities and financial records and statements respectively to derive an opinion on the adequacy and integrity of AFFINBANK’s overall internal control framework.



Finally, with the benefit of the above assurances and the external auditor’s comments incorporated in their audit report to the financial statements for the financial year ended 31 December 2014, the Board is able to conclude that AFFINBANK conducts its business prudently and in line with good governance practice.

Responsibility

The Board acknowledges overall responsibility for AFFINBANK Group’s system of internal controls and its effectiveness. The system of internal controls encompasses controls relating to financial, operational, risk management and compliance with applicable laws, regulations, policies and guidelines.

The Board has an established process for identifying, evaluating, managing and reporting all significant risks that may impact the achievement of business goals and objectives of the Group. The system of internal controls is dynamic and updated from time to time to meet the changes in regulatory guidelines and business environment. This process is regularly reviewed by the Board through its Board Risk Management Committee (BRMC) and Audit and Examination Committee (AEC).

The Board is of the view that the system of internal controls in place for the year under review is sound and sufficient to safeguard the investment of the shareholders, the interest of the customers and regulators, and the assets of the Group.

The Management assists the Board in implementing the policies approved by the Board, implementing risk and control procedures, and developing, operating and monitoring internal controls to mitigate and control identified risks.

Key Internal Control Processes

The key processes put in place to assist the Board in reviewing the adequacy and integrity of the system of internal controls includes the following:

• Relevant Board committees are established with specific responsibilities delegated by the Board to deliberate on matters within the respective scope of responsibility. The committees are guided by written terms of reference and their minutes of meetings are tabled to the Board.

• The BRMC assists the Board in its supervisory role concerning the overall management of risk in the Bank. it has responsibility for reviewing and approving all risk management policies and risk management methodologies. BRMC also reviews guidelines and portfolio management reports including risk exposure information.

• The Board Loan Review and Recovery Committee (BLRRC) critically reviews loans and other credit facilities with higher risk implications, after due process of checking, analysis, review and recommendation by Group Risk Management and if found necessary, exercise the power to veto loan applications that have been approved by the Group Management Loan Committee (GMLC). BLRRC also reviews the impaired loan reports presented by the Management.

• Group Management Committee (GMCM), comprising the senior management team, assists the Board in managing day-to-day operations and ensures its effectiveness. GMCM formulates tactical plans and business strategies, monitors the Bank’s overall performance and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual business plan and budget.


• The Group Management Loan Committee (GMLC) is established within senior management to approve complex and larger loans and workout recovery proposals beyond the delegated authority of the concerned individual senior management personnel of the Bank. The other committees comprising senior management include Asset & Liability Management Committee (ALCO) which manages market and liquidity risks, Liquidity Management Committee (LMC) which is a sub-committee of the ALCO with specific focus on liquidity matters, Group Operational Risk Management Committee (GORMC) which manages operational risk, and Early Alert Committee (EAC) which monitors credit quality.

• A detailed budgeting process is in place with annual business plans and budgets prepared by the business divisions, reviewed by the GMCM and approved by the Board. The actual business performances are monitored against the approved targets and budgets of each business division by GMCM on a monthly basis.

• The business plan is supported by an annual credit plan, prepared by Group Risk Management and approved by BRMC. The credit plan sets out the prevailing risk appetite and provides credit strategies and lending guidelines for the development and management of new and existing customer relationships.

• Policies and procedures for key processes are documented and regularly updated to ensure relevance and compliance with internal controls, directives, laws and regulations. To enhance risk culture and awareness, road shows are undertaken by Group Risk Management across the Bank.

• Proper guidelines for the hiring and termination of employees, staff training programs and performance appraisals are established and other relevant procedures in place to ensure staff are adequately trained and equipped to carry out their responsibilities competently.

• An integrated risk management framework is in place. The risk management function operates in an independent capacity and is a part of the Bank’s senior management structure which works closely as a team in managing risks to enhance stakeholders’ value. Its responsibilities extend to cover market, liquidity, credit and operational risks. The risk management function reports to BRMC.



AUDIT AND EXAMINATION COMMITTEE

TERMS OF REFERENCE OF THE AUDIT AND EXAMINATION COMMITTEE

Size and Composition

The Committee shall consist of at least three (3) members, appointed by the Board from amongst the Independent Non-Executive Directors of the Bank.

Meetings

Meetings shall be held at a frequency to be decided by the Audit and Examination Committee. At the request of the Group Chief Internal Auditor, the Chairman shall convene a meeting to consider any matters that they may wish to bring to the attention of the Directors or shareholders. A quorum shall consist of at least two (2) members. The Group Chief Internal Auditor shall be the Secretary to the Audit and Examination Committee.

YBhg. Dato’ Sri Abdul Aziz Bin Abdul RahmanAEC Chairman

Associate Professor Dr. Said BouheraouaMember

YBhg. Tan Sri Mohd Ghazali Bin Mohd YusoffMember

YBhg. Tan Sri Dato’ Seri Mohamed JawharMember


Authority

The Committee shall have unlimited access to all records, information and documents relevant to its activities, to the Group Internal Audit and External Auditors and to senior management of the Bank and its subsidiaries. The Group Internal Auditors and External Auditors shall have free access to the Audit and Examination Committee and be allowed to attend and to be heard at the Committee meetings. The Committee is authorised by the Board to obtain outside and independent professional advice

as and when it is considered necessary.

Duties and Responsibilities

The duties and responsibilities of the Audit and Examination Committee are:

1. To review AFFINBANK’s financial statements and to ensure compliance with disclosure requirements and any adjustments as suggested by the External Auditors, prior to submission to the Board.

2. To review the reports of the Group Internal Auditor, the External Auditors, Bank Negara Malaysia examiners or any other relevant parties and decide on actions to be taken on relevant issues raised in the reports.

3. To review with the External Auditors the scope of their audit plan, the system of internal accounting controls, the audit reports, the assistance given by the management and its staff to the auditors, and any findings and action to be taken.

4. To make recommendation to the Board on the appointment of External Auditors.

5. To review the effectiveness and performance of the Group Internal Audit functions from time to time.

6. To review and approve the annual audit plan and budget for Group Internal Audit, which sets out the audit objectives, auditable areas, scope of coverage, frequency of audit and duration of each audit assignment.

7. To ensure that Group Internal Audit has adequate resources and support services to carry out its functions.

8. To review the overall performance of the Group Chief Internal Auditor, including the remuneration package.

9. To review any significant related party transactions that may arise within the Bank’s group or associate companies and report to the Board any areas of concern.

10. To escalate to the Board via minutes of meetings or special reports on any exception identified.

11. To carry out such other responsibilities as may be delegated by the Board from time to time.

AUDIT AND EXAMINATION COMMITTEE


WILAYAH PERSEKUTUAN

1. Bangsar No. 4 & 6, Jalan Telawi 3, Bangsar Baru, 59100 Kuala Lumpur. Tel : 03-2283 5025 Fax : 03-2283 5028

2. Bangunan Getah Asli Tingkat Bawah, 148, Jalan Ampang, 50450 Kuala Lumpur. Tel : 03-2162 8770 Fax : 03-2162 8587

3. Batu Cantonment No. 840 & 842, Batu 4 3/4, Jalan Ipoh, 51200 Kuala Lumpur. Tel : 03-6258 7370 Fax : 03-6251 8214

4. Central Ground & Mezzanine Floor, 80, Menara Affin, Jalan Raja Chulan, P.O.Box 12744, 50788 Kuala Lumpur. Tel : 03-2055 2222 Fax : 03-2070 7592

5. Jalan Bunus 133, Jalan Bunus, Off Jalan Masjid India, 50100 Kuala Lumpur. Tel : 03-2693 4686 Fax : 03-2691 3207

6. Jalan Ipoh 468-11 & 468-11B, Batu 3, Jalan Ipoh, 51200 Kuala Lumpur. Tel : 03-4042 5554 Fax : 03-4042 4912

7. LTAT Ground Floor, Bangunan LTAT, Jalan Bukit Bintang, 55100 Kuala Lumpur. Tel : 03-2142 6311 Fax : 03-2148 0586

8. Selayang 81-85, Jalan 2/3A, Pusat Bandar Utara, KM 12, Jalan Ipoh, 68100 Batu Caves,

Kuala Lumpur. Tel : 03-6137 2053 Fax : 03-6138 7122

9. Seri Petaling 10-12, Jalan Raden Tengah, Bandar Baru Seri Petaling, 57000 Kuala Lumpur. Tel : 03-9058 5600 Fax : 03-9058 8513

10. Setapak 159 & 161, Jalan Genting Kelang, P.O.Box 202, 53300 Setapak,

Kuala Lumpur. Tel : 03-4023 0455 Fax : 03-4021 3921

11. Taman Maluri 250 & 252, Jalan Mahkota, Taman Maluri, 55100 Kuala Lumpur. Tel : 03-9282 7250 Fax : 03-9283 4380

12. Taman Midah 38 & 40, Jalan Midah 1, Taman Midah, Cheras, 56000 Kuala Lumpur. Tel : 03-9130 0366 Fax : 03-9131 7024

13. Taman Tun Dr. Ismail 47 & 49, Jalan Tun Mohd Fuad 3, Taman Tun Dr. Ismail, 60000 Kuala Lumpur. Tel : 03-7727 9080 Fax : 03-7727 9543

14. Wangsa Maju No. 2 & 4, Jalan 1/27F, Kuala Lumpur Sub-Urban Centre, Wangsa Maju, 53300 Kuala Lumpur. Tel : 03-4143 2814 Fax : 03-4143 3095

15. Wisma Pertahanan G.05, Tingkat Bawah, Wisma Pertahanan, Kementerian Pertahanan Malaysia, Jalan Padang Tembak, 50634 Kuala Lumpur. Tel : 03-2698 7912 Fax : 03-2698 6071

WILAYAH PERSEKUTUAN PUTRAJAYA

1. Putrajaya Bangunan Jabatan Akauntan Negara, Kompleks Kementerian Kewangan, No. 1, Persiaran Perdana, Presint 2, 62594 Putrajaya, Wilayah Persekutuan. Tel : 03-8888 3814 Fax : 03-8889 2082

WILAYAH PERSEKUTUAN LABUAN (OFFSHORE)

1. Labuan Offshore Unit 3 (J), Level 3, Main Office Tower, Financial Park Labuan, Jalan Merdeka, 87000 Federal Territory Labuan. Tel : 087-411 931 Fax : 087-411 973

SELANGOR

1. Ampang Jaya No. 11 & 11A, Jalan Mamanda 7/1, Ampang Point, 68000 Ampang, Selangor. Tel : 03-4257 6802 Fax : 03-4257 8636

2. Ampang New Village No. 21G & 23G, Jalan Wawasan 2/2, Bandar Baru Ampang, 68000 Ampang, Selangor. Tel : 03-4296 2311 Fax : 03-4296 2206

3. Ara Damansara Unit B-G-07 & B-G-08 Block B, No. 2 Jalan PJU 1A/7A, Ara Damansara, 47301 Petaling Jaya, Selangor. Tel : 03-7847 3177 Fax : 03-7847 2677

NETWORK OF BRANCHES


NETWORK OF BRANCHES

4. Bandar Bukit Tinggi No. 77 & 79, Jalan Batu Nilam 5, Bandar Bukit Tinggi, 41200 Klang, Selangor. Tel : 03-3323 2822 Fax : 03-3323 2858

5. Cyberjaya P1-13, Shaftsbury Square, Lot No. 2350, Cyber 6, Persiaran Multimedia, 63000 Cyberjaya, Selangor. Tel : 03-8318 1944 Fax : 03-8318 1934

6. Jalan Meru, Klang No. 38 & 40, Pelangi Avenue, Jalan Kelicap 42A/KU1, Klang Bandar DiRaja, 41050 Klang, Selangor. Tel : 03-3341 5237 Fax : 03-3341 5427

7. Kajang 2 & 3, Jalan Saga, Taman Sri Saga, Off Jalan Sg. Chua, 43000 Kajang, Selangor. Tel : 03-8737 7435 Fax : 03-8737 7433

8. Kepong 6, Jalan 54, Desa Jaya, 52100 Kepong, Selangor. Tel : 03-6276 4942 Fax : 03-6276 6375

9. Kinrara No. 1, Jalan TK1/11A, Taman Kinrara, Section 1, Batu 7 1/2, Jalan Puchong, 47100 Puchong, Selangor. Tel : 03-8075 5682 Fax : 03-8075 8159

10. Klang Utara No. 29 & 31, Jalan Tiara 3, Bandar Baru Klang, 41150 Klang, Selangor. Tel : 03-3342 1585 Fax : 03-3342 1719

11. Kompleks PKNS Lot G17-20, Ground Floor, Kompleks PKNS, 40000 Shah Alam, Selangor. Tel : 03-5510 5200 Fax : 03-5510 8200

12. Kota Damansara No. B-G-19, 20 & 21 (GF), Dataran Cascades, Jalan PJU 5/1, Kota Damansara PJU 5, 47810 Petaling Jaya, Selangor. Tel : 03-7610 0890 Fax : 03-7610 0889

13. Kota Kemuning No. 15-1 & 17-1 (GF), No. 8 Jalan Anggerik Vanilla, BE 31/BE Kota Kemuning, Seksyen 31, 40460 Shah Alam, Selangor. Tel : 03-5120 1811 Fax : 03-5120 1588

14. Kota Warisan No. 48, Jalan Warisan Megah 1/4, 43900 Sepang, Selangor. Tel : 03-8706 6300 Fax : 03-8706 6599

15. PJ State No. 38 & 40, Jalan Yong Shook Lin, 46050 Petaling Jaya, Selangor. Tel : 03-7955 0032 Fax : 03-7954 0012

16. Port Klang No. 1, Jalan Berangan, 42000 Port Klang, Selangor. Tel : 03-3168 8366 Fax : 03-3167 2784 / 6432

17. Puchong J-03-G, Block J, Setiawalk, Persiaran Wawasan, Pusat Bandar Puchong, 47160 Puchong, Selangor. Tel : 03-5882 2880 Fax : 03-5882 2881

18. Rawang No. 33G & 35G, Jln 1B, Fortune Avenue, 48000 Rawang, Selangor. Tel : 03-6091 3322 Fax : 03-6091 3344

19. Sea Park 20-22, Jalan 21/12, Sea Park, 46300 Petaling Jaya, Selangor. Tel : 03-7875 6514 Fax : 03-7876 6020

20. Seri Kembangan No. 36, Jalan PSK 3, Pusat Perdagangan Seri Kembangan, 43300 Seri Kembangan, Selangor. Tel : 03-8945 6429 Fax : 03-8945 6442 03-8943 5306

21. Subang Jaya 7 & 9, Jalan SS 15/8A, 47500 Subang Jaya, Selangor. Tel : 03-5634 8045 Fax : 03-5634 8040

22. Taman Demang No. 47, Jalan DD3A/1, BASCO Business Centre, Taman Dato’ Demang, 43300 Seri Kembangan, Selangor. Tel : 03-8959 2588 Fax : 03-8958 5288

23. The Curve Lot K-G32A-D & G32, Ground Floor, The Curve Shopping Complex, Jalan PJU 7/8, Mutiara Damansara, 47800 Petaling Jaya, Selangor. Tel : 03-7726 7258 Fax : 03-7727 8912

24. UiTM Universiti Teknologi MARA, Tingkat 2, Menara Sultan Abdul Aziz Shah, 40450 Shah Alam, Selangor. Tel : 03-5519 2377 Fax : 03-5510 5580

25. USJ Taipan 8A & 8B, Jalan USJ 10/1J, 47610 UEP Subang Jaya, Petaling Jaya, Selangor. Tel : 03-8023 7271 Fax : 03-8023 9161


NEGERI SEMBILAN

1. Gemas No. 1 & 2, Ground Floor, Laman Niaga Pernama, Kem Syed Sirajuddin, 73400 Gemas, Negeri Sembilan. Tel : 07-948 3622 Fax : 07-948 5022

2. Nilai 5733 & 5734, Jalan TS 2/1, Taman Semarak Phase II, 71800 Nilai, Negeri Sembilan. Tel : 06-799 4114 Fax : 06-799 5115

3. Port Dickson 3 & 4, Jalan Mahajaya, P.D. Centre Point, 71000 Port Dickson, Negeri Sembilan. Tel : 06-647 3950 Fax : 06-647 4776

4. Seremban No. 175,

Jalan Dato’ Bandar Tunggal, 70000 Seremban,

Negeri Sembilan. Tel : 06-762 9651 Fax : 06-763 6125

MELAKA

1. Bukit Baru No. 7 & 8, Jalan DR1, Delima Point, Taman Delima Raya, 75150 Melaka. Tel : 06-232 1386 Fax : 06-232 1579

2. Melaka Raya 200 & 201, Taman Melaka Raya, Off Jalan Parameswara, 75000 Melaka. Tel : 06-283 5500 Fax : 06-284 6618

JOHOR

1. Ayer Hitam No. 765, Jalan Batu Pahat, 86100 Ayer Hitam, Johor. Tel : 07-758 1100 Fax : 07-758 1001

2. Batu Pahat No. 3 & 4, Jalan Merah, Taman Bukit Pasir, 83000 Batu Pahat, Johor. Tel : 07-433 4210 Fax : 07-433 3246

3. Danga Bay No. 17 & 18 Blok 6, Danga Bay, Jalan Skudai, 80200 Johor Bahru, Johor. Tel : 07-234 3842 Fax : 07-234 8852

4. Johor Bahru No. 24 & 25, Jalan Kebun Teh 1, Kebun Teh Commercial City, 80250 Johor Bahru, Johor. Tel : 07-221 2403 Fax : 07-221 2462

5. Johor Jaya 130 & 132, Jalan Ros Merah 2/17, Taman Johor Jaya, 81100 Johor Bahru, Johor. Tel : 07-351 8602 Fax : 07-351 4122

6. Kluang 503, Jalan Mersing, 86000 Kluang, Johor. Tel : 07-772 4736 Fax : 07-772 4486

7. Kulai 13 & 14, Jalan Raya, Taman Sri Kulai Baru, Batu 21, 81000 Kulai, Johor. Tel : 07-663 9799 Fax : 07-663 9800

8. Muar No. 30A & 30A-1, Jalan Arab, 84000 Muar, Johor. Tel : 06-953 2384 Fax : 06-953 3489

9. Mutiara Rini No. 28 & 30, Jalan Utama 45, Taman Mutiara Rini, 81300, Skudai, Johor. Tel : 07-557 0900 Fax : 07-557 1244

10. Permas Jaya 23 & 25, Jalan Permas 10/2, Bandar Baru Permas Jaya, 81750 Johor Bahru, Johor. Tel : 07-386 3703 Fax : 07-386 5061

11. Segamat No. 1, G-Floor, Jalan Nagasari 23, Bandar Segamat Baru, 85000 Segamat, Johor. Tel : 07-943 1378 Fax : 07-943 1373

12. Tampoi No. 49 & 51, Jalan Sri Perkasa 2/1, Taman Tampoi Utama, 81200 Tampoi, Johor Bahru, Johor. Tel : 07-241 4946 Fax : 07-241 4953

NETWORK OF BRANCHES


NETWORK OF BRANCHES

PERAK

1. Ipoh No. 1 & 3, Ground & First Floor, Persiaran Greentown 9, Greentown Business Centre, 30450 Ipoh, Perak. Tel : 05-255 0980 Fax : 05-255 0976

2. Ipoh Garden No. 27A-27A1, Jalan Sultan Azlan Shah Utara, 31400 Ipoh, Perak. Tel : 05-549 7277 Fax : 05-549 7299

3. Lumut Ground Floor, Kompleks Mutiara Armada, Jalan Nakhoda, Pengkalan TLDM, 32100 Lumut, Perak. Tel : 05-683 5051 Fax : 05-683 5579

4. Sitiawan No. 11 & 12, Taman Sitiawan 1, Jalan Lumut, 32000 Sitiawan, Perak. Tel : 05-692 8401 Fax : 05-691 7339

5. Taiping No. 40 & 42, Jalan Tupai, 34000 Taiping, Perak. Tel : 05-806 6816 Fax : 05-808 0432

6. Teluk Intan 11, Medan Sri Intan, Jalan Sekolah, 36000 Teluk Intan, Perak. Tel : 05-621 0130 Fax : 05-621 0128

PULAU PINANG

1. Bayan Baru 124 & 126, Jalan Mayang Pasir, Taman Sri Tunas, 11950 Bayan Baru, Pulau Pinang. Tel : 04-644 7593 Fax : 04-645 2709

2. Butterworth 55-57, Jalan Selat, Taman Selat, P.O.Box 165, Off Jalan Bagan Luar, 12000 Butterworth, Pulau Pinang. Tel : 04-333 1372 Fax : 04-332 3299

3. Fettes Park No. 98-G-31 & 32, Jalan Fettes, Prima Tanjung Business Centre, Tanjung Tokong, 11200 Pulau Pinang. Tel : 04-899 9069 Fax : 04-899 0767

4. Jalan Macalister No. 104C, 104D & 104E, Jalan Macalister, 10400 Pulau Pinang. Tel : 04-229 1495 Fax : 04-226 1530

5. Kepala Batas Lot 1317 & 1318, Lorong Malinja, Taman Sepakat, Off Jalan Butterworth, 13200 Kepala Batas, Seberang Prai Utara, Pulau Pinang. Tel : 04-575 1824 Fax : 04-575 1975

6. Prai No. 2, Tingkat Kikik 7, Taman Inderawasih, 13600 Prai, Pulau Pinang. Tel : 04-397 8543 Fax : 04-397 9243

7. Seberang Jaya No. 10, Jalan Todak Satu, Pusat Bandar Seberang Jaya, 13700 Prai, Pulau Pinang. Tel : 04-399 5881 Fax : 04-399 2881

8. Wisma Pelaut 1A, Light Street, Wisma Pelaut, 10200 Pulau Pinang. Tel : 04-263 6633 Fax : 04-261 9801

KEDAH

1. Alor Setar No. 147 & 148, Susuran Sultan Abdul Hamid 8, Kompleks Sultan Abdul Hamid, Fasa 2, Persiaran Sultan Abdul

Hamid, 05050 Alor Setar, Kedah. Tel : 04-772 1477 Fax : 04-771 4796

2. Kulim No. 13 & 14, Jalan KLC Satu (1), Kulim Landmark Central, 09000 Kulim, Kedah. Tel : 04-495 5566 Fax : 04-490 4717

3. Langkawi 149-151, Persiaran Bunga Raya, Langkawi Mall, 07000 Kuah, Langkawi, Kedah. Tel : 04-966 4426 Fax : 04-966 4717

4. Sungai Petani No. 55, Jalan Perdana Heights,

2/2, Perdana Heights, 08000 Sungai Petani, Kedah. Tel : 04-421 1808 Fax : 04-422 6675


TERENGGANU

1. Kemaman K711-713, Wisma IKY Naga, Jalan Sulaimani, 24000 Kemaman, Terengganu. Tel : 09-858 1744 Fax : 09-859 1572

2. Kemaman Supply Base Ground Floor, Admin Building Block B, Kemaman Supply Base, 24007 Kemaman, Terengganu. Tel : 09-863 1297 Fax : 09-863 1295

KELANTAN

1. Jeli A1 & A2, Blok A, Bandar Baru Bukit Bunga, 11700 Bukit Bunga, Tanah Merah, Kelantan. Tel : 09-946 8955 Fax : 09-946 8954

2. Kota Bharu 3788H & 3788I, Seksyen 13, Jalan Sultan Ibrahim, 15050 Kota Bharu, Kelantan. Tel : 09-744 5688 Fax : 09-744 2202

PAHANG

1. Jengka Nadi Kota, 26400 Bandar Jengka, Pahang. Tel : 09-466 2233 Fax : 09-466 2422

2. Kuantan G2-Ground Floor G2, Menara Zenith, Jalan Putra, Square 6, Putra Square, 25200 Kuantan, Pahang. Tel : 09-514 8584 Fax : 09-514 8580

3. Mentakab 70, Jalan Temerloh, 28400 Mentakab, Pahang. Tel : 09-278 4487 Fax : 09-277 6654

4. Temerloh No. 9, Ground Floor, Jalan Ahmad Shah, 28000 Temerloh, Pahang. Tel : 09-296 8811 Fax : 09-296 8800

PERLIS

1. Kangar No. 25 & 27, Jalan Satu, Taman Pertiwi Indah, Jalan Kangar - Alor Setar, 01000 Kangar, Perlis Tel : 04-977 7200 Fax : 04-977 6100

SABAH

1. Jalan Gaya, Kota Kinabalu No. 86, Jalan Gaya, 88000 Kota Kinabalu, Sabah. Tel : 088-230 213 Fax : 088-265 430/ 088-212 476

2. Kota Kinabalu Lot 19 & 20, Block K, Sadong Jaya Complex, Jalan Ikan Juara 3, Karamunsing, 88300 Kota Kinabalu, Sabah. Tel : 088-264 410 Fax : 088-261 414

3. Lahad Datu Ground Floor, Lot 1 & 2, Bandar Sri Perdana, Fasa 5 KM4, Jalan Silam Bandar Sri Perdana, 91100 Lahad Datu, Sabah. Tel : 089-865 733 Fax : 089-865 735

4. Sandakan Lot No. 163 & 164, Block 18, Jalan Prima Square, Batu 4, Jalan Utara, 90000 Sandakan, Sabah. Tel : 089-212 752 Fax : 089-212 644

5. Tawau TB. 281, 282 & 283, Jalan Haji Karim, Town Extension II, P.O. Box 630, 91008 Tawau, Sabah. Tel : 089-778 197 Fax : 089-762 199

SARAWAK

1. Bintulu Sub Lot 13, Off Lot 3299, Parkcity Commerce Square, 97000 Bintulu, Sarawak. Tel : 086-314 248 Fax : 086-314 206

2. Kuching Lot 247 & 248, Section 49, KTLD, Jalan Tuanku Abdul Rahman, 93100 Kuching, Sarawak. Tel : 082-245 888 Fax : 082-257 366

3. Miri Lot 2387 & 2388, 1st Floor, Block A4, Jalan Boulevard 1A, Boulevard Commercial Center, KM 3, Jalan Miri-Pujut, 98000 Miri, Sarawak. Tel : 085-437 442 Fax : 085-437 297

4. Prince Commercial Centre Ground Floor, No. 1 & 2, Jalan Penrissen Batu 7, Kota Sentosa, 93250 Kuching, Sarawak. Tel : 082-613 466 Fax : 082-629 466

5. Sibu No. 91 & 93, Jalan Kampung Nyabor, 96000 Sibu, Sarawak. Tel : 084-325 926 Fax : 084-325 960

NETWORK OF BRANCHES


NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT THE 39TH ANNUAL GENERAL MEETING OF AFFIN BANK BERHAD WILL BE HELD AT THE BOARD ROOM, 19TH FLOOR, MENARA AFFIN, 80, JALAN RAJA CHULAN, 50200 KUALA LUMPUR ON TUESDAY, 24 MARCH 2015 AT 9.30 A.M. FOR THE TRANSACTION OF THE FOLLOWING BUSINESSES:-

AGENDA:

1. To receive the Statutory Statements of Accounts for the year ended 31 December 2014 together with the Directors’ and Auditors’ Reports thereon.

2. To declare a final single tier dividend of 3.91 sen amounting to RM66,030,891.99 for the financial year ended 31 December 2014.

3. To re-elect the following Directors who retire pursuant to Article 91(a) of the Articles of Association and who, being eligible, offer themselves for re-election:-

(a) YBhg. Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin(b) Mr. Aubrey Li Kwok-Sing

4. To re-elect YBhg. Tan Sri Mohd Ghazali Bin Mohd Yusoff who retire in accordance with Article 91(e) of the Company’s Article of Association and who being eligible, offers himself for re-election.

5. To consider and if thought fit, to pass the following resolutions in accordance with Section 129(6) of the Companies Act, 1965:-

(a) “That pursuant to Section 129(6) of the Companies Act, 1965, YBhg. Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) be and is hereby re-appointed as Director of the Company to hold office until the next Annual General Meeting”.

(b) “That pursuant to Section 129(6) of the Companies Act, 1965, YBhg. Tan Sri Dato’ Seri Mohamed Jawhar be and is hereby re-appointed as Director of the Company to hold office until the next Annual General Meeting”.

6. To approve Directors’ fees and Committees’ fees for 2014.

7. To appoint Messrs PricewaterhouseCoopers as Auditors for the financial year ending 31 December 2015 and to authorise the Directors to fix their remuneration.

8. To transact any other ordinary business of the Company.

BY ORDER OF THE BOARD

NIMMA SAFIRA BINTI KHALIDSecretary

NOTE:A member entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote instead of him and the proxy need not be a member of the Company.

The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing or, if the appointor is a corporation, either under the seal or in some other manner approved by Directors.

The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power or authority shall be deposited at the Company’s registered office at the 17th Floor, Menara Affin, 80, Jalan Raja Chulan, 50200 Kuala Lumpur, at least forty-eight (48) hours before the time appointed for holding the Meeting or adjourned Meeting as the case may be otherwise the person so named shall not be entitled to vote in respect thereof.


FINANCIAL STATEMENTS43 Directors’ Report

60 Statements of Financial Position

61 Income Statements

62 Statements of Comprehensive Income

63 Statements of Changes in Equity

65 Statements of Cash Flows

68 Summary of Significant Accounting Policies

85 Notes to the Financial Statements

184 Statement by Directors

184 Statutory Declaration

185 Independent Auditors’ Report

187 Basel II Pillar 3 Disclosures


DIRECTORS’ REPORTfor the financial year ended 31 December 2014

The Directors hereby submit their report together with the audited financial statements of the Group and the Bank for the financial year ended 31 December 2014.

PRINCIPAL ACTIVITIES

The principal activities of the Bank during the financial year are banking and related financial services. The principal activities of the subsidiaries are Islamic banking business, property management services, nominee and trustee services. Islamic banking business refers generally to the acceptance of deposits and granting of financing under the Shariah principles. There were no significant changes in the nature of these activities during the financial year.

FINANCIAL RESULTS

The Group The Bank

RM’000 RM’000

Profit before zakat and taxation 720,130 627,700

Zakat (4,772) -

Profit before taxation 715,358 627,700

Taxation (171,631) (151,221)

Net profit for the financial year 543,727 476,479

DIVIDENDS

The dividends on ordinary shares paid or declared by the Bank since 31 December 2013 were as follows:

In respect of the financial year ended 31 December 2013 as shown in the Directors’ report for that financial year:

RM’000

Final single-tier dividend of 6 sen per share paid on 31 March 2014 91,100

In respect of the financial year ended 31 December 2014:

Single-tier interim dividend of 10 sen per share paid on 22 December 2014 168,877

The Directors now recommend the payment of a final single-tier dividend of 3.91 sen per share on the Bank’s issued and paid up capital of RM1,688,769,616 comprising of 1,688,769,616 shares amounting to RM66,030,892 for the financial year ended 31 December 2014 which is subject to the approval of members at the forthcoming Annual General Meeting of the Bank.



RESERVES AND PROVISIONS

All material transfers to or from reserves or provisions during the financial year are shown in the financial statements and notes to the financial statements.

BAD AND DOUBTFUL DEBTS AND FINANCING

Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad debts and financing and the making of allowance for bad and doubtful debts and financing, and satisfied themselves that all known bad debts and financing had been written off and adequate allowances made for doubtful debts and financing.

At the date of this report, the Directors are not aware of any circumstances which would render the amount written off for bad debts and financing, or the amount of the allowance for doubtful debts and financing, in the financial statements of the Group and the Bank inadequate to any substantial extent.

CURRENT ASSETS

Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that any current assets, other than debts and financing, which were unlikely to realise in the ordinary course of business, their values as shown in the accounting records of the Group and the Bank, have been written down to an amount which they might expected so to realise.

At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Group and the Bank misleading.

VALUATION METHODS

At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities in the Group’s and the Bank’s financial statements misleading or inappropriate.

CONTINGENT AND OTHER LIABILITIES At the date of this report there does not exist:

(a) any charge on the assets of the Group or the Bank which has arisen since the end of the financial year which secures the liabilities of any other person; or

(b) any contingent liability in respect of the Group or the Bank that has arisen since the end of the financial year other than in the ordinary course of banking business or activities of the Group.

No contingent or other liability of the Group or the Bank has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group or the Bank to meet their obligation as and when they fall due.


CHANGE OF CIRCUMSTANCES At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and the Bank that would render any amount stated in the financial statements misleading.

ITEMS OF AN UNUSUAL NATURE The results of the operations of the Group and the Bank during the financial year were not, in the opinion of the Directors, substantially affected by any item, transaction or event of a material and unusual nature.

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the Group or the Bank for the current financial year in which this report is made.

SIGNIFICANT EVENT DURING THE FINANCIAL YEAR There is no significant event during the financial year.

SUBSEQUENT EVENTS There were no material events subsequent to the reporting date that require disclosure or adjustments to the financial statements.

DIRECTORS

The Directors of the Bank who have held office since the date of the last report and at the date of this report are: Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) Chairman / Non-Independent Non-Executive Director Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin Non-Independent Non-Executive Director Dr Raja Abdul Malek Bin Raja Jallaludin Independent Non-Executive Director (Retired w.e.f. 29.3.2014) Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman Independent Non-Executive Director Tan Sri Dato’ Seri Mohamed Jawhar Independent Non-Executive Director Tan Sri Mohd Ghazali Bin Mohd Yusoff Independent Non-Executive Director (Appointment w.e.f. 20.6.2014) En. Mohd Suffian Bin Haji Haron Independent Non-Executive Director



DIRECTORS (continued)

Mr Aubrey Li Kwok-Sing Non-Independent Non-Executive Director Mr Gary Cheng Shui Hee Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing) (Resigned w.e.f. 17.3.2014) Mr Tang Peng Wah Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing) (Appointment w.e.f. 23.6.2014)

RESPONSIBILITY STATEMENT BY BOARD OF DIRECTORS In the course of preparing the annual financial statements of the Group and of the Bank, the Directors are collectively responsible in ensuring that these financial statements are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

It is the responsibility of the Directors to ensure that the financial reporting of the Group and of the Bank present a true and fair view of the state of affairs of the Group and of the Bank as at 31 December 2014 and of the financial results and cash flows of the Group and of the Bank for the financial year then ended.

The financial statements are prepared on the going concern basis and the Directors have ensured that proper accounting records are kept, applied the appropriate accounting policies on a consistent basis and made accounting estimates that are reasonable and fair so as to enable the preparation of the financial statements of the Group and of the Bank with reasonable accuracy.

The Directors have also taken the necessary steps to ensure that appropriate systems are in place for the assets of the Group and of the Bank to be properly safeguarded for the prevention and detection of fraud and other irregularities. The systems, by their nature, can only provide reasonable and not absolute assurance against material misstatements, whether due to fraud or error.

The Statement by Directors pursuant to Section 169 of the Companies Act, 1965 is set out on page 184 of the financial statements.



DIRECTORS’ INTERESTS According to the register of Directors’ shareholdings, the interest of Directors in office at the end of the financial year in shares, warrants and options of related companies are as follows:

Ordinary shares of RM1 each

As at As at1.1.2014 Bought Sold 31.12.2014

AFFIN Holdings BerhadTan Sri Dato’ Seri Lodin Bin Wok Kamaruddin * 808,714 ^ 242,614 - * 1,051,328

Boustead Heavy Industries Corporation BerhadTan Sri Dato’ Seri Lodin Bin Wok Kamaruddin * 2,000,000 - - * 2,000,000

Boustead Petroleum Sdn BhdTan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 5,916,465 - - 5,916,465

Al-Hadharah Boustead REITTan Sri Dato’ Seri Lodin Bin Wok Kamaruddin * 250,000 - ^^ 250,000 -

* Shares held in trust by nominee company^ Rights shares issued on 4 July 2014^^ Privatisation of Al-Hadharah Boustead REIT on 29 January 2014

Ordinary shares of 50 sen eachAs at As at

1.1.2014 Bought Sold 31.12.2014Pharmaniaga BerhadTan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 12,500,148 - - 12,500,148

Ordinary shares of RM10 each; RM5 uncalledAs at As at

1.1.2014 Bought Transfer 31.12.2014ABB Trustee Berhad **Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) 20,000 - - 20,000

** Shares held in trust for the Bank

Ordinary shares of 50 sen eachAs at As at

1.1.2014 Bought Sold 31.12.2014Boustead Holdings BerhadTan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 28,192,758 - - 28,192,758

Boustead Plantation Berhad ***Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin - + 31,381,600 - 31,381,600

+ IPO on 26 June 2014 *** Shares held in trust by nominee company - 30,941,600 Shares held under own name - 440,000

Other than the above, the Directors in office at the end of the financial year did not have any other interest in shares, warrants and options over shares in the Bank or its related corporations during the financial year.



DIRECTORS’ BENEFITS During and at the end of the financial year, no other arrangements subsisted to which the Bank or any of its subsidiaries is a party with the object or objects of enabling Directors of the Bank or any of its subsidiaries to acquire benefits by means of the acquisition of shares in, or debenture of, the Bank or any other body corporate.

Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive a benefit (other than the fees and other emoluments shown in the Note 31 to the financial statements) by reason of a contract made by the Bank or by a related corporation with the Director or with a firm of which he is a member or with a company in which he has a substantial financial interest.


The Board of Directors is committed to ensure the highest standards of corporate governance throughout the organisation with the objectives of safeguarding the interests of all stakeholders and enhancing the shareholders’ value and financial performance of the Bank. The Board considers that it has applied the Best Practices as set out in the Malaysian Code of Corporate Governance throughout the financial year. The Bank is also required to comply with BNM’s Guidelines on Corporate Governance for Licensed Institutions. (i) Board of Directors Responsibility and Oversight The Board of Directors The direction and control of the Bank rest firmly with the Board as it effectively assumes the overall responsibility for

corporate governance, strategic direction, formulation of policies and overseeing the investments and operations of the Bank. The Board exercises independent oversight on the management and bears the overall accountability for the performance of the Bank and compliance with the principle of good governance.

There is a clear division of responsibility between the Chairman and the Managing Director/Chief Executive Officer (‘MD/CEO’) to ensure that there is a balance of power and authority. The Board is responsible for reviewing and approving the longer-term strategic plans of the Bank as well as the business strategies. It is also responsible for identifying the principal risks and implementation of appropriate systems to manage those risks as well as reviewing the adequacy and integrity of the Bank’s internal control systems, management information systems, including systems for compliance with applicable laws, regulations and guidelines.

Whilst, the Management Committee, headed by the MD/CEO, is responsible for the implementation of the strategies and internal control as well as monitoring performance. The Committee is also a forum to deliberate issues pertaining to the Bank’s business, strategic initiatives, risk management, manpower development, supporting technology platform and business processes.

The Board Meetings

The Board meets on a monthly basis, to review the Bank’s financial and business performance, to oversee the conduct of the Bank’s business as well as to ensure that adequate internal control systems are in place. The Board met 12 times during the financial year.

Board Balance

The Board of Directors comprises of seven Non-Executive Directors and one alternate Non-Executive Director. There are four Independent Non-Executive Directors and four Non-Independent Non-Executive Directors. The Board of Directors meetings are presided by a Non-Independent Non-Executive Chairman whose role is clearly separated from the role of the MD/CEO.

In 2014, the Bank continues to have a strong and experienced Board, befitting its aspiration to become a mid size Bank of prominence. It consists of representatives from the private sector with suitable qualifications and experience in relevant areas particularly in banking.




(i) Board of Directors Responsibility and Oversight (continued) Board Balance (continued)

The composition of the Board and the number of meetings attended by each director are as follows:

Directors Total Meetings Attended

Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) 13 / 14


Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 14 / 14

Member / Non-Independent Non-Executive Director

Dr Raja Abdul Malek Bin Raja Jallaludin 4 / 4

Member / Independent Non-Executive Director

(Retired w.e.f. 29.3.2014)

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman 13 / 14


Tan Sri Dato’ Seri Mohamed Jawhar 14 / 14


Tan Sri Mohd Ghazali Bin Mohd Yusoff 8 / 8


(Appointment w.e.f. 20.6.2014)

En. Mohd Suffian Bin Haji Haron 14 / 14


Mr Aubrey Li Kwok-Sing 9 / 14


Mr Gary Cheng Shui Hee 0 / 3


(Alternate Director to Mr Aubrey Li Kwok-Sing)

(Resigned w.e.f. 17.3.2014)

Mr Tang Peng Wah 3 / 8


(Alternate Director to Mr Aubrey Li Kwok-Sing)





(i) Board of Directors Responsibility and Oversight (continued)

Board Committees Nomination Committee Nominating Committee was established to provide a formal and transparent procedure for the appointment of Directors

and MD/CEO. The committee also assesses the effectiveness of the Board as a whole, contribution of each Director, contribution of the Board’s various committees and the performance of MD/CEO and key senior management officers.

During the financial year ended 31 December 2014, a total of 6 meetings were held. The Nominating Committee comprises the following members and the details of attendance of each member at the Nominating Committee meetings held during the financial year are as follows:

Members Total Meetings Attended


Chairman / Independent Non-Executive Director





(Retired w.e.f. 29.3.2014)





Tan Sri Mohd Ghazali bin Mohd Yusoff 3 / 3







Board Committees (continued)

Remuneration Committee Remuneration Committee was established to evaluate and recommend a framework of remuneration for Directors, the

MD/CEO and key senior management officers that is competitive and consistent with the Bank’s culture, objectives and strategy.

During the financial year ended 31 December 2014, a total of 3 meetings were held. The Remuneration Committee comprises the following members and the details of attendance of each member at the Remuneration Committee meetings held during the financial year are as follows:







(Retired w.e.f. 29.3.2014)










Board Committees (continued)

Shariah Committee AFFIN Islamic Bank Berhad’s business activities are subject to Shariah compliance and conformation by the Shariah

Committee. The Shariah Committee is formed as legislated under the Islamic Financial Services Act 2013 and as per Shariah Governance Framework for Islamic Financial Institutions.

The main duties and responsibilities of the Shariah Committee are as follows:

• To advise the Board on Shariah matters in order to ensure that the business operations of the Bank comply with the Shariah principles at all times;

• To endorse and validate relevant documentations of the Bank’s products to ensure that the products comply with

Shariah principles; and • To advise the AFFIN Islamic Bank Berhad on matters to be referred to the Shariah Advisory Council.

The Shariah Committee was established in December 1995. During the year, a total of 9 meetings were held. The Shariah Committee comprises the following members and the details of attendance of each member at the Shariah Committee meetings held are as follows:


Associate Professor Dr. Said Bouheraoua 9 / 9

Chairman


Dr. Asyraf Wajdi Bin Dato’ Dusuki 4 / 4

Chairman


Assistant Professor Dr. Ahmad Azam Bin Othman 9 / 9

Member

Dr. Yasmin Hanani Binti Mohd Safian 9 / 9

Member

Dr. Zulkifli Bin Hasan 7 / 9

Member

Ustaz Mohammad Mahbubi Bin Ali 4 / 4

Member





(ii) Group Risk Management The Group Risk Management function, operating in an independent capacity, is part of the Bank’s senior management

structure which works closely as a team in managing risks to enhance stakeholders’ value.

The Group Risk Management function provides support to the Board Risk Management Committee (‘BRMC’). Committees namely Board Loan Review and Recovery Committee (‘BLRRC’), Management Committee (‘MCM’), Group Management Loan Committee (‘GMLC’), Asset and Liability Management Committee (‘ALCO’), Liquidity Management Committee (‘LMC’), Group Operational Risk Management Committee (‘GORMC’) and Group Early Alert Committee (‘GEAC’) assist the BRMC in managing credit, market, liquidity and operational risks respectively.

Responsibilities of these committees include:• risk identification• risk assessment and measurement• risk control and mitigation• risk monitoring

Board Risk Management Committee (‘BRMC’) The main function of Board Risk Management Committee (‘BRMC’) is to assist the Board in its supervisory role in the management

of risk in the Bank. It has responsibility for approving and reviewing all risk management policies and methodologies of the Bank. BRMC also reviews guidelines and portfolio management reports including risk exposure information.

BRMC provides oversight and management of all risks in the Bank. The Committee also ensures that the procedures and framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively. The Bank’s risk management framework is set out in Note 38 to the financial statements.

The BRMC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31 December 2014, a total of 5 meetings were held. The BRMC comprises the following members and details of attendance of each member at the BRMC meetings held during the financial year are as follows:








(Retired w.e.f. 29.3.2014)



(Represent AFFIN Islamic Bank Berhad)







(ii) Group Risk Management (continued)

Board Loan Review and Recovery Committee (‘BLRRC’) Board Loan Review and Recovery Committee (‘BLRRC’) critically reviews loans and other credit facilities with higher

risk implications, after due process of checking, analysis, review and recommendation by the Credit Risk Management function, and if found necessary, exercise the power to veto loan applications that have been accepted by the Group Management Loan Committee (‘GMLC’). The Committee is also responsible to review the impaired loans presented by Management.

The BLRRC meeting for the Bank were jointly held with AFFIN Islamic Bank and during the financial year ended 31

December 2014, a total of 12 meetings were held. The BLRRC comprises the following members and details of attendance of each member at the BLRRC meetings held during the financial year are as follows:


Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) 12 / 12




Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Mohd Nor (Bersara) 12 / 12





Management Committee (‘MCM’) MCM comprising the senior management team chaired by the MD/CEO, assists the Board in managing the day-to-day

operations and ensure its effectiveness. MCM formulates tactical plans and business strategies, monitors the Bank’s overall performance, and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual business plan and budget.




(ii) Group Risk Management (continued)

Group Management Loan Committee (‘GMLC’) Group Management Loan Committee (‘GMLC’) approves complex and larger loans and workout/recovery proposals

beyond the delegated authority of the concerned individual senior management personnel of the Bank. Individual approvers Credit authority is delegated based on skills, experience and track record of the officer assuming an approver’s position.

Delegation of credit authority is subject to credit checks to ensure approvers have a clean disciplinary record and not be in a financially embarrassed position.

Asset and Liability Management Committee (‘ALCO’) ALCO comprising the senior management team chaired by the MD/CEO, manages the Bank’s asset liability position and

oversees the Bank’s capital management to ensure that the Bank is adequately capitalised on an economic and regulatory basis.

Liquidity Management Committee (‘LMC’) LMC is a sub-committee of the ALCO and its role is to augment the functions of the ALCO by directing its focus specifically

to liquidity issues.

Group Operational Risk Management Committee (‘GORMC’) Responsibilities of the committee include:

• To evaluate operational risks issues of escalating importance/strategic risk exposure;• To review and recommend on broad operational risks management policies/best practices for adoption by the Bank’s

operating units;• To review the effectiveness of broad internal controls and make recommendation/approve on changes, if necessary;• To review/approve recommendation of operational risk management groups set up to address specific area;• To take the lead in inculcating an operational risks awareness culture;• To approve operational risk management methodologies/measurements tools; • To review and approve the strategic operational risk management initiatives/plans and to endorse for BRMC’s approval

if necessary;• To update BRMC on loss events and relevant key issues that may adversely impact core processes, system defects

and any changes to critical business or system related processes; and• To effectively manage reputational risk in relation to environmental, social, business and regulatory issues across the

Bank.

Group Early Alert Committee (‘GEAC’)

Group Early Alert Committee (‘GEAC’) is established within senior management to monitor credit quality through monthly review of the Early Alert, Watchlist and Exit Accounts and review the actions taken to address the emerging risks and issues in these accounts.




(iii) Internal Audit and Internal Control Activities

In accordance with Bank Negara Malaysia’s Guidelines on Corporate Governance for Licensed Institutions, the Group Internal Audit Division (‘GIA’) conducts continuous reviews on auditable areas within the Bank. The continuous reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance to the audit plan approved by the Audit and Examination Committee (‘AEC’). The risk highlighted on the respective auditable areas as well as recommendation made by the GIA are addressed at AEC and Management meetings on bi-monthly basis. The AEC also conduct annual reviews on the adequacy of internal audit function, scope of work, resources and budget of GIA.

At present, GIA consists of Operational Audit, IS Audit, Credit Review, Investigation and Compliance. Audit activities include these key components:

• Conduct audit on all auditable entities (Head Office, branches and subsidiaries) processes, services, products, system and provide an independent assessment to the Board of Directors, AEC and Management that appropriate control environment is maintained with clear authority and responsibility with sufficient staff and resources to carry out control responsibilities.

• Perform risk assessments to identify risk and evaluate actions taken to provide reasonable assurance that procedures and controls exist to contain those risks.

• Maintain strong control activities including documented processes and system incorporating adequate controls to produce accurate financial data and provide for the safeguarding of assets, and a documented review of reported results.

• Ensure effective information flows and communication, including: - training and the dissemination of standards and requirements; - an information system to produce and convey complete, accurate and timely data including financial data;- the upward communication of trends, developments and emerging issues.

• Monitor controls, including procedures to verify that controls are in place and functioning, follow up on corrective action on control finding until its full resolution.

Based on GIA’s review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an opinion on the effectiveness of internal controls maintained by each entity.

Audit and Examination Committee (‘AEC’) The AEC comprises members of the Bank’s Board of Directors whose primary function is to assist the Board of Directors

in its supervision over:

• The reliability and integrity of accounting policies and financial reporting and disclosure practices;

• The provision of advice to the Board with regards to the financial statements and business risks to enable the Board to fulfill its fiduciary duties and obligations; and

• The establishment and maintenance of processes to ensure that they:

- are in compliance with all applicable laws, regulations and policies; and - have adequately addressed the risk relating to internal controls and system, management of inherent and business

risks, and ensuring that the assets are properly managed and safeguarded.




(iii) Internal Audit and Internal Control Activities (continued)

Audit and Examination Committee (‘AEC’) (continued)

The AEC is made up of at least three but not more than five members appointed by the Board of Directors from among its non-executive directors.

The AEC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31 December 2014, a total of 7 meetings were held. The AEC comprises the following members and details of attendance of each member at the AEC meetings held during the financial year are as follows:









(Retired w.e.f. 29.3.2014)

Dr. Asyraf Wajdi Bin Dato’ Dusuki 2 / 3



Tan Sri Mohd Ghazali bin Mohd Yusoff 3 / 3



Associate Professor Dr. Said Bouheraoua 3 / 3







(iv) Management Reports

Before each Board meeting, Directors are provided with a complete set of board papers itemised in the agenda for Board’s review/approval and/or notation.

The Board monitors the Bank’s performance by reviewing the monthly Management Report, which provides a comprehensive review and analysis of the Bank’s operations and financial issues. In addition, the minutes of the Board Committees and Management Committees meetings and other issues are also tabled and considered by the Board.

Procedures are in place for Directors to seek both independent professional advice at the Bank’s expense and the advice and services of the Company Secretary in order to fulfill their duties and specific responsibilities.

BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014

In financial year 2014, the Bank was able to sustain its business growth despite challenging economic environment. The Bank’s continuous efforts to increase profitable loans, with strong focus in SME market has led to 8.9% growth in net loans and advances. The Bank also performed well in the consumer banking segment by registering consumer deposits growth exceeding 11% despite stiff competition. Our cost to income ratio of 45.4% is also within the industry average of 48.0%.

One of our key focuses in 2014 given the challenging economic climate was preservation of asset quality. Proactive account management allows us to identify potential distress assets thus allowing the Bank to take necessary remedial/preventive measures. As at 31 December 2014, our gross and net impaired loans ratios stood at 1.8% and 0.8% respectively, as compared to the industry average of 1.7% and 1.3% respectively.

Management will continue to remain prudent to ensure business sustainability and profitability growth in the next financial year.

BUSINESS OUTLOOK FOR 2015

Moving forward, the Bank expects the upcoming financial year to present many challenges but we also see huge opportunities ahead. Recent economic development on oil prices, Ringgit depreciation, subsidy rationalisation as well as the implementation of Goods and Services Tax (‘GST’) in the second quarter of 2015, will give an impact to the Banking industry as a whole. We would also expect a moderation in household demand and potential stress in asset quality.

Under the current environment, the Bank will be stepping up efforts to improve efficiency and productivity in delivering our products and services. In consumer segment, the Bank will be more active in secondary mortgage market and will also take advantage of the government’s affordable housing schemes.

In the auto financing segment, we see opportunities in the national car segment, where yield is expected to be better. Opportunities in commercial vehicle financing will also be our focus area. For business banking, we will continue to focus on SME lending and target financing to bankable sectors aligned with the Economic Transformation Programme (‘ETP’) projects. The Bank will also continue to focus on transactional banking as a major source of fee income.

As we explore new collaboration and opportunities within the Group, the Bank is in a solid position to deliver another year of business growth. The Bank is also continuously enhancing our network presence for better customer service and actively seeking out for new growth opportunities domestically or beyond Malaysian shore.



RATING BY EXTERNAL AGENCIES The Bank has been rated by the following external rating agency:

Name of rating agency: RATING AGENCY MALAYSIA BERHAD (‘RAM’)

Date of rating: 24 July 2014

Rating classifications:

- Long term: AA3

- Short term: P1

RAM has reaffirmed the Bank’s long-term and short-term financial institution ratings, at AA3 and P1, respectively, with a stable outlook.

‘AA’ rating is defined by RAM as an entity has a strong capacity to meet its financial obligations and is resilient against adverse changes in circumstances, economic condition and/or operating environments. The subscript 3 in this category indicates as the lower end of its generic rating in the AA category.

A P1 rating is defined by RAM as obligations which are supported by superior ability with regards to timely payment of obligations. ZAKAT

The Bank’s subsidiary, AFFIN Islamic Bank Berhad (‘AFFIN Islamic’) is obliged to pay zakat to comply with the principles of Shariah. AFFIN Islamic does not pay zakat on behalf of its depositors.

HOLDING COMPANY AND ULTIMATE HOLDING CORPORATE BODY

The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan Tentera Act, 1973.

AUDITORS The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office. In accordance with resolution of the Board of Directors dated 6 March 2015.

Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) Chairman

En. Mohd Suffian Bin Haji Haron Director



The Group The Bank

Note

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

ASSETS

Cash and short-term funds 2 6,938,912 9,401,701 3,777,042 4,987,696

Deposits and placements with banks and

other financial institutions 3 238,222 482,597 962,050 1,106,756

Financial assets held-for-trading 4 149,904 149,544 149,904 149,544

Derivative financial assets 5 88,658 56,274 88,672 56,274

Financial investments available-for-sale 6 9,947,911 7,614,537 8,415,411 6,331,414

Financial investments held-to-maturity 7 476,155 500,336 393,401 415,271

Loans, advances and financing 8 39,456,172 36,227,785 32,292,551 30,178,910

Other assets 9 223,406 220,097 174,655 176,555

Amount due from subsidiaries 10 - - 438 60,723

Amount due from joint ventures 14,855 4,185 - -

Tax recoverable 20 17 - -

Deferred tax assets 11 3,118 9,945 218 6,985

Statutory deposits with Bank Negara Malaysia 12 1,696,550 1,459,350 1,398,550 1,226,350

Investment in subsidiaries 13 - - 389,074 389,088

Property and equipment 15 149,131 158,740 141,031 150,803

Intangible assets 16 147,688 152,005 150,690 154,232

TOTAL ASSETS 59,530,702 56,437,113 48,333,687 45,390,601

LIABILITIES AND EQUITY

Deposits from customers 17 48,047,224 46,088,082 38,180,212 36,800,728

Deposits and placements of banks and

other financial institutions 18 4,849,676 4,065,544 3,699,386 2,659,535

Derivative financial liabilities 19 237,426 94,522 237,419 94,522

Bills and acceptances payable 94,308 90,208 94,308 90,208

Recourse obligation on loans

sold to Cagamas Berhad 20 139,147 397,790 139,147 397,790

Other liabilities 21 359,644 391,977 328,063 359,837

Amount due to subsidiaries 22 - - 296,781 53,559

Provision for taxation 28,029 36,402 23,939 34,351

Subordinated term loan 23 604,310 904,964 604,310 904,964

TOTAL LIABILITIES 54,359,764 52,069,489 43,603,565 41,395,494

Share capital 24 1,688,770 1,518,337 1,688,770 1,518,337

Reserves 25 3,482,168 2,849,287 3,041,352 2,476,770

TOTAL EQUITY 5,170,938 4,367,624 4,730,122 3,995,107

TOTAL LIABILITIES AND EQUITY 59,530,702 56,437,113 48,333,687 45,390,601

COMMITMENTS AND CONTINGENCIES 37 23,427,860 21,863,606 21,359,914 20,196,417

STATEMENTS OF FINANCIAL POSITIONas at 31 December 2014


INCOME STATEMENTSfor the financial year ended 31 December 2014

The Group The Bank

Note

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Interest income 26 2,270,988 2,121,127 2,299,786 2,150,845

Interest expense 27 (1,451,528) (1,308,068) (1,451,595) (1,308,113)

Net interest income 819,460 813,059 848,191 842,732

Income from Islamic banking business 28 244,223 220,745 - -

1,063,683 1,033,804 848,191 842,732

Other operating income 29 223,222 237,366 222,544 234,862

Net income 1,286,905 1,271,170 1,070,735 1,077,594

Other operating expense 30 (584,693) (565,186) (465,228) (461,133)

Operating profit before allowances 702,212 705,984 605,507 616,461

Write-back of allowances for losses on

loans, advances and financing 32 18,468 56,937 22,193 56,567

Impairment losses on securities (550) (499) - (499)

720,130 762,422 627,700 672,529

Share of joint venture’s results - (210) - -

Profit before zakat and taxation 720,130 762,212 627,700 672,529

Zakat (4,772) (8,583) - -

Profit before taxation 715,358 753,629 627,700 672,529

Taxation 34 (171,631) (183,807) (151,221) (163,930)

Net profit after zakat and taxation 543,727 569,822 476,479 508,599

Attributable to:

Equity holders of the Bank 543,727 569,822 476,479 508,599

Earnings per share (sen):

- Basic 35 33.3 37.5 29.2 33.5

The accounting policies on pages 68 to 84 and the notes on pages 85 to 183 form an integral part of these financial statements.


STATEMENTS OF COMPREHENSIVE INCOMEfor the financial year ended 31 December 2014

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Profit after zakat and taxation 543,727 569,822 476,479 508,599

Other comprehensive income:

Items that may be reclassified subsequently to

profit and loss:

Net fair value change in financial

investments available-for-sale 25,742 (102,027) 24,360 (86,770)

Deferred tax on financial investments available-for-sale (Note 11) (6,178) 24,811 (5,847) 21,758

Other comprehensive income/(expense) for the financial year, net of tax 19,564 (77,216) 18,513 (65,012)

Total comprehensive income for

the financial year 563,291 492,606 494,992 443,587

Attributable to equity holders of the Bank:

- Total comprehensive income 563,291 492,606 494,992 443,587



Attributable to Equity Holders of the Bank

AFS revaluation

reserves RM’000

Share capital

RM’000

Share premium

RM’000

Statutory reserves RM’000

Regulatory reserves RM’000

Retained profits

RM’000 Total

RM’000 The Group

At 1 January 2014 1,518,337 529,337 1,317,376 (1,960) - 1,004,534 4,367,624

Net profit for the financial year - - - - - 543,727 543,727

Other comprehensive income (net of tax)

- Financial investments available-for-sale - - - 19,564 - - 19,564

Total comprehensive income - - - 19,564 - 543,727 563,291

Shares issued during the financial year (Note 24) 170,433 329,567 - - - - 500,000

Dividends paid (Note 36) - - - - - (259,977) (259,977)Transfer to statutory

reserves / regulatory reserves - - 152,418 - 184,366 (336,784) -

At 31 December 2014 1,688,770 858,904 1,469,794 17,604 184,366 951,500 5,170,938

At 1 January 2013 1,518,337 529,337 1,160,651 75,256 - 834,371 4,117,952



- Financial investments available-for-sale - - - (77,216) - - (77,216)

Total comprehensive income - - - (77,216) - 569,822 492,606

Dividends paid (Note 36) - - - - - (242,934) (242,934)Transfer to statutory

reserves - - 156,725 - - (156,725) - At 31 December 2013 1,518,337 529,337 1,317,376 (1,960) - 1,004,534 4,367,624

STATEMENTS OF CHANGES IN EQUITYfor the financial year ended 31 December 2014


Non-distributable Distributable

AFS

revaluation reserves RM’000

Share capital

RM’000

Share premium

RM’000

Statutory reserves RM’000

Regulatory reserves RM’000

Retained profits

RM’000 Total

RM’000 The Bank

At 1 January 2014 1,518,337 529,337 1,144,350 4,965 - 798,118 3,995,107



- Financial investments available-for-sale - - - 18,513 - - 18,513

Total comprehensive income - - - 18,513 - 476,479 494,992

Shares issued during the financial year (Note 24) 170,433 329,567 - - - - 500,000

Dividends paid (Note 36) - - - - - (259,977) (259,977)

Transfer to statutory reserves / regulatory reserves - - 119,120 - 135,347 (254,467) -

At 31 December 2014 1,688,770 858,904 1,263,470 23,478 135,347 760,153 4,730,122

At 1 January 2013 1,518,337 529,337 1,017,200 69,977 - 659,603 3,794,454



- Financial investments available-for-sale - - - (65,012) - - (65,012)

Total comprehensive income - - - (65,012) - 508,599 443,587

Dividends paid (Note 36) - - - - - (242,934) (242,934)

Transfer to statutory reserves - - 127,150 - - (127,150) -

At 31 December 2013 1,518,337 529,337 1,144,350 4,965 - 798,118 3,995,107

STATEMENTS OF CHANGES IN EQUITYfor the financial year ended 31 December 2014



STATEMENTS OF CASH FLOWSfor the financial year ended 31 December 2014

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation 715,358 753,629 627,700 672,529

Adjustments for items not involving the movement

of cash and cash equivalents:

Interest income:

- financial assets held-for-trading (155,606) (94,163) (155,606) (94,163)

- financial investments available-for-sale (234,629) (202,084) (234,629) (201,936)

- financial investments held-to-maturity (20,062) (19,984) (20,062) (19,984)

Dividend income:


Accretion of discount less amortisation of premium


- financial investments held-to-maturity (1,092) (1,024) (1,092) (1,024)

Gain on sale:

- financial assets held-for-trading (347) (366) (347) (366)


Gain on redemption of financial investments held-to-maturity (3,500) (6,144) (3,500) (6,144)

Unrealised (gain)/loss on revaluation

- financial assets held-for-trading (219) (455) (219) (455)

- derivatives (7,302) (5,282) (7,302) (5,282)

- foreign exchange 122,129 54,118 122,129 54,118

Allowance for impairment loss

- financial investments available-for-sale 550 499 - 499

Depreciation of property and equipment 14,951 16,019 13,954 15,166

Property and equipment written-off 114 91 110 91

Gain on sale of property and equipment (6,319) (3,910) (6,319) (3,910)

Amortisation of intangible assets 6,304 7,989 5,529 7,197

Gain on sale of foreclosed properties (3,329) (11,041) (2,937) (11,041)

Net individual impairment 83,225 43,872 85,498 43,615

Net collective impairment 35,666 15,253 29,283 15,011

Bad debt and financing written-off 4,380 4,583 4,370 4,509

Interest expense - subordinated term loan 29,879 41,473 29,879 41,473

Zakat 4,772 8,583 - -

Subsidiaries - writeback of allowances for

impairment losses - - - (1,707)

Share of joint venture’s results - 210 - -

Operating profit before changes

in working capital 536,949 563,435 438,465 473,240



The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

CASH FLOWS FROM OPERATING

ACTIVITIES (continued)

Decrease/(increase) in operating assets:

Reverse repurchase agreements with

financial institutions - 20,057 - 20,057

Deposits and placements with banks and

other financial institutions 244,375 113,855 144,706 (62,931)

Financial assets held-for-trading 155,812 111,032 155,812 111,032

Loans, advances and financing (3,351,658) (2,808,867) (2,232,792) (1,902,776)

Other assets (166,316) 18,210 (158,609) (2,818)

Derivative financial instruments 110,520 47,457 110,499 47,457

Statutory deposits with Bank Negara Malaysia (237,200) (46,050) (172,200) (14,550)

Amount due from subsidiaries - - 303,507 98,257

Amount due from joint ventures (10,670) (1,440) - -

Increase/(decrease) in operating liabilities:

Deposits from customers 1,959,142 4,824,546 1,379,484 4,575,911

Deposits and placements of banks and

other financial institutions 784,132 (743,779) 1,039,851 (1,068,728)

Bills and acceptances payable 4,100 (62,192) 4,100 (62,192)

Recourse obligation on loans sold to

Cagamas Berhad (258,643) (15,759) (258,643) (15,759)

Other liabilities (26,221) 86,746 (29,639) 78,172

Cash (used in)/generated from operations (255,678) 2,107,251 724,541 2,274,372

Zakat paid (10,885) (7,616) (2,134) -

Tax refund 2,016 510 - 480

Tax paid (181,372) (210,386) (160,713) (182,778)

Net cash (used in)/generated from

operating activities (445,919) 1,889,759 561,694 2,092,074



The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in associate - 30 - 30

Investment in joint ventures - (150) - -

Interest received:

- financial investments available-for-sale 234,629 202,084 234,629 201,936

- financial investments held-to-maturity 20,062 19,984 20,062 19,984

Dividend income:

- financial investments available-for-sale 2,589 4,058 2,589 4,058

Redemption of financial investments

held-to-maturity net of purchase 28,773 (41,497) 26,464 43,568

Net purchase of financial investments

available-for-sale (2,262,796) (42,036) (2,014,252) (729,623)

Proceeds from disposal of

- property and equipment 13,009 7,377 13,009 7,377

- foreclosed properties 10,055 21,961 9,075 21,961

Purchase of property and equipment (13,898) (17,443) (12,734) (16,624)

Purchase of intangible assets (236) (1,236) (236) (1,236)

Net cash (used in)/generated from

investing activities (1,967,813) 153,132 (1,721,394) (448,569)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of shares 500,000 - 500,000 -

Repayment of subordinated term loan (330,534) (41,469) (330,534) (41,469)

Payment of dividend (259,977) (242,934) (259,977) (242,934)

Net cash used in financing activities (90,511) (284,403) (90,511) (284,403)

Net (decrease)/increase in cash and

cash equivalents (2,504,243) 1,758,488 (1,250,211) 1,359,102

Net increase/(decrease) in foreign exchange 41,454 (5,691) 39,557 (5,248)

Cash and cash equivalents at beginning of

the financial year 9,401,701 7,648,904 4,987,696 3,633,842

CASH AND CASH EQUIVALENTS AT

END OF THE FINANCIAL YEAR (Note 2) 6,938,912 9,401,701 3,777,042 4,987,696



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESfor the financial year ended 31 December 2014

The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. These policies have been consistently applied to all the financial years presented, unless otherwise stated.

(A) BASIS OF PREPARATION

The financial statements of the Group and the Bank have been prepared in accordance with Malaysian Financial Reporting Standards (‘MFRS’), International Financial Reporting Standards and the requirements of the Companies Act 1965 in Malaysia. The financial statements incorporate those activities relating to Islamic banking business which have been undertaken by AFFIN Islamic Bank Berhad, a wholly owned subsidiary of the Bank. Islamic banking business refers generally to the acceptance of deposits and granting of financing under the Shariah principles.

The financial statements of the Group and the Bank have been prepared under the historical cost convention, unless otherwise indicated in this summary of significant accounting policies.

The preparation of financial statements in conformity with MFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires Directors to exercise their judgment in the process of applying the Group and Bank’s accounting policies. Although these estimates and judgment are based on the Directors’ best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 44.

Standards, amendments to published standards and interpretations that are effective

The new accounting standards, amendments and improvements to published standards and interpretations that are effective for the Group and the Bank’s financial year beginning on or after 1 January 2014 are as follows:

• Amendments to MFRS 132 ‘Offsetting Financial Assets and Financial Liabilities’

• Amendments to MFRS 136 ‘Recoverable Amount Disclosures for Non-Financial Assets’

• Amendments to MFRS 139 ‘Novation of Derivatives and Continuation of Hedge Accounting’

• Amendments to MFRS 10, MFRS 12 and MFRS 127 ‘Investment entities’

• IC Interpretation 21 ‘Levies’

The adoption of the above accounting standards, amendments and improvements to published standards and interpretations did not have any significant impact to the results of the Group and the Bank.

Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group and the Bank but not yet effective

The new accounting standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2015 are as follows:

• Amendment to MFRS 11 ‘Joint arrangements’ (effective from 1 January 2016) requires an investor to apply the principles of MFRS 3 ‘Business Combination’ when it acquires an interest in a joint operation that constitutes a business. The amendments are applicable to both the acquisition of the initial interest in a joint operation and the acquisition of additional interest in the same joint operation. However, a previously held interest is not re-measured when the acquisition of an additional interest in the same joint operation results in retaining joint control.


(A) BASIS OF PREPARATION

Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group and the Bank but not yet effective (continued)

• Amendments to MFRS 116 ‘Property, plant and equipment’ and MFRS 138 ‘Intangible assets’ (effective from 1 January 2016) clarify that the use of revenue-based methods to calculate the depreciation and amortisation of an item of property, plant and equipment and intangible are not appropriate. This is because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset.

The amendments to MFRS 138 also clarify that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption can be overcome only in the limited circumstances where the intangible asset is expressed as a measure of revenue or where it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated.

• Amendments to MFRS 10 and MFRS 128 regarding sale or contribution of assets between an investor and its associate or joint venture (effective from 1 January 2016) resolve a current inconsistency between MFRS 10 and MFRS 128. The accounting treatment depends on whether the non-monetary assets sold or contributed to an associate or joint venture constitute a ‘business’. Full gain or loss shall be recognised by the investor where the non-monetary assets constitute a ‘business’. If the assets do not meet the definition of a business, the gain or loss is recognised by the investor to the extent of the other investors’ interests. The amendments will only apply when an investor sells or contributes assets to its associate or joint venture. They are not intended to address accounting for the sale or contribution of assets by an investor in a joint operation.

• MFRS 9 ‘Financial Instruments’ (effective from 1 January 2018) will replace MFRS 139 “Financial Instruments: Recognition and Measurement”. The complete version of MFRS 9 was issued in November 2014.

MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income (“OCI”). The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with a irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest.

For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch.

There is now a new expected credit losses model on impairment for all financial assets that replaces the incurred loss impairment model used in MFRS 139. The expected credit losses model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised.

• MFRS 15 ‘Revenue from contracts with customers’ (effective from 1 Jan 2017) deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces MFRS 118 ‘Revenue’ and MFRS 111 ‘Construction contracts’ and related interpretations.

The Group and the Bank will apply these standards when effective. The adoption of the above standards, amendments to published standards and interpretations to existing standards are not expected to have any significant impact on the financial statements of the Group and the Bank except for MFRS 9. The financial effect of adoption of MFRS 9 is still being assessed by the Group and the Bank.



(B) CONSOLIDATION The consolidated financial statements include the financial statements of the Bank, subsidiaries and a joint venture, made

up to the end of the financial year.

(i) Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on the acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identified net assets acquired is recorded as goodwill. If the total of the consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.

Acquisition related cost are expensed as incurred.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date, any gains or losses arising from such re-measurement are recognised in profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with MFRS 139 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

The Group applies predecessor accounting to account for business combinations under common control. Under the predecessor accounting, assets and liabilities acquired are not restated to their respective fair values but at the carrying amounts from the consolidated financial statements of the ultimate holding company of the Group and adjusted to ensure uniform accounting policies of the Group. The difference between any consideration given and the aggregate carrying amounts of the assets and liabilities (as of the date of the transaction) of the acquired entity is recorded as an adjustment to retained earnings. No additional goodwill is recognised.

The acquired entity’s results, assets and liabilities are consolidated from the date on which the business combination between entities under common control occurred. Consequently, the consolidated financial statements do not reflect the results of the acquired entity for the period before the transaction occurred. The corresponding amounts for the previous year are not restated.

Inter-company transactions, balances, unrealised gains and losses on transactions between group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.



(B) CONSOLIDATION

(ii) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions, that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(iii) Disposal of subsidiaries

When the Group ceases to have control over a subsidiary, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

(iv) Joint arrangements

A joint arrangement is an arrangement of which there is contractually agreed sharing of control by the Group with one or more parties, where decisions about the relevant activities relating to the joint arrangement require unanimous consent of the parties sharing control. The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement. A joint venture is a joint arrangement whereby the joint venturers have rights to the net assets of the arrangement. A joint operation is a joint arrangement whereby the joint operators have rights to the assets and obligations for the liabilities, relating to the arrangement.

The Group’s interest in joint ventures are accounted for in the financial statements by the equity method of accounting. Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. When the Group’s share of losses in a jointly controlled entities equals or exceeds its interests in the joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

(C) INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES

In the Bank’s separate financial statements, investments in subsidiaries and joint ventures are carried at cost less accumulated impairment losses. On disposal of investments in subsidiaries and joint ventures, the difference between disposal proceeds and carrying amounts of the investments are recognised in profit or loss.




(D) INTANGIBLE ASSETS

Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the aggregate of the acquisition date fair value of consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the net of the acquisition date fair value of the identifiable assets acquired and liabilities assumed. If the fair value of consideration transferred, the amount of non-controlling interest and the fair value of previously held interest in the acquiree are less than the fair value of the net identifiable assets of the acquiree, the resulting gain is recognised in the profit or loss.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units (“CGUs”), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed.

Computer software

Acquired computer software are capitalised on the basis of the cost incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives of five years. Computer software classified as intangible asset are stated at cost less accumulated amortisation and accumulated impairment losses, if any.

(E) IMPAIRMENT OF NON-FINANCIAL ASSETS

Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged to the revaluation surplus. Impairment losses on goodwill are not reversed. In respect of other assets, any subsequent increase in recoverable amount is recognised in the income statement unless it reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus reserve.


(F) RECOGNITION OF INTEREST AND FINANCING INCOME AND EXPENSE

Interest and financing income and expense for all interest/profit-bearing financial instruments are recognised within “interest income”, “interest expense” and “income from Islamic banking business” respectively in the income statement using the effective interest/profit method.

The effective interest/profit method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest and financing income or expense over the relevant period. The effective interest/profit rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest/profit rate, the Group and the Bank take into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses.

Interest or income on impaired financial assets is recognised using the rate of interest/profit used to discount the future cash flows for the purpose of measuring the impairment loss. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

When a loan/financing receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest/profit rate of the instrument, and continues unwinding the discount as interest/profit income. Interest/profit income on impaired loans/financing and receivables are recognised using the original effective interest/profit rate.

(G) RECOGNITION OF FEES AND OTHER INCOME

Fees and commissions are recognised as income when all conditions precedent are fulfilled. Commitment fees for loans, advances and financing that are likely to be drawn down are deferred (together with related direct costs) and income which forms an integral part of the effective interest/profit rate of a financial instrument is recognised as an adjustment to the effective interest/profit rate on the financial instrument.

Commitment fees and guarantee fees which are material are recognised as income based on a time apportionment method.

Dividends are recognised when the right to receive payment is established.

Net profit from financial assets held at fair value through profit or loss and financial investments available-for-sale are recognised upon disposal of the assets, as the difference between net disposal proceeds and the carrying amount of the assets.

(H) FINANCIAL ASSETS Classification The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables,

available-for-sale and held-to-maturity. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition.




(H) FINANCIAL ASSETS Classification (continued)

(i) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held-for-trading. A financial asset is classified in this category if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term. Derivatives are also categorised as held for trading unless they are designated as hedges (see Note O)

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

(iii) Financial investments available-for-sale

Financial investments available-for-sale are non-derivatives that are either designated in this category or not classified in any of the other categories.

(iv) Financial investments held-to-maturity

Financial investments held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s and the Bank’s management has the positive intention and ability to hold to maturity. If the Group and the Bank were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as available for sale.

Recognition and initial measurement

Regular purchases and sales of financial assets are recognised on the settlement date, the date that an asset is delivered to or by the Group and the Bank.

Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss. Subsequent measurement – gains and losses

Financial investments available-for-sale and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity financial assets are subsequently carried at amortised cost using the effective interest/profit method.

Changes in the fair values of financial assets at fair value through profit or loss, including the effects of currency translation, interest and dividend income are recognised in income statement in the period in which the changes arise.

Changes in the fair value financial investments available-for-sale are recognised in other comprehensive income, except for impairment losses (see accounting policy Note I) and foreign exchange gains and losses on monetary assets (Note N).

Interest and dividend income on financial investments available-for-sale are recognised separately in income statements. Interest on financial investments available-for-sale calculated using the effective interest/ profit method is recognised in income statements. Dividend income on available-for-sale equity instruments are recognised in income statements when the Group’s right to receive payments is established.


(H) FINANCIAL ASSETS

De-recognition Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been

transferred and the Group has transferred substantially all risks and rewards of ownership.

Loans and receivables that are factored out to banks and other financial institutions with recourse to the Group are not derecognised until the recourse period has expired and the risks and rewards of the receivables have been fully transferred. The corresponding cash received from the financial institutions is recorded as borrowings.

When financial investments available-for-sale are sold, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to profit or loss.

Reclassification of financial assets The Group and the Bank may choose to reclassify non-derivative financial assets held-for-trading out of the held-for-

trading category where: • in rare circumstances, it is no longer held for the purpose of selling or repurchasing in the near term; or

• it is no longer held for purpose of trading, it would have met the definition of a loan and receivable on initial classification and the Group and the Bank have the intention and ability to hold it for the foreseeable future or until maturity at the date of reclassification.

Reclassifications are made at the fair value at the date of reclassification.

(I) IMPAIRMENT OF FINANCIAL ASSETS Assets carried at amortised cost The Group assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of

financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Group and the Bank use to determine that there is objective evidence of an impairment loss include among others:

• past due contractual payments; • significant financial difficulties of the borrower; • probability of bankruptcy or other financial re-organisation; • default of related borrower; • measurable decrease in estimated future cashflow than was originally envisaged; and • significant deterioration in issuer’s credit rating.




(I) IMPAIRMENT OF FINANCIAL ASSETS Assets carried at amortised cost (continued)

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest/profit rate. The asset’s carrying amount of the asset is reduced and the amount of the loss is recognised in income statements. If ‘loans and receivables’ or a ‘held-to-maturity investment’ has a variable interest/profit rate, the discount rate for measuring any impairment loss is the current effective interest/profit rate determined under the contract.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in income statements.

When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined.

For loans, advances and financing, the Group and the Bank first assess whether objective evidence of impairment exists individually for loans, advances and financing that are individually significant, and individually or collectively for loans, advances and financing that are not individually significant. If the Group and the Bank determine that no objective evidence of impairment exists for individually assessed loans, advances and financing, whether significant or not, it includes the asset in a group of loans, advances and financing with similar credit risk characteristics and collectively assesses them for impairment.

(i) Individual impairment allowance

Loans, advances and financing that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. Loans/financings that are individually assessed for impairment and for which no impairment loss is required (over-collateralised loans) are collectively assessed as a separate segment.

The amount of the loss is measured as the difference between the loan/financing’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the loan/financing’s original effective interest/profit rate. The carrying amount of the loan/financing is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If a loan/financing has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest/profit rate determined under the contract.

The calculation of the present value of the estimated future cash flows of a collateralised loan reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.


(I) IMPAIRMENT OF FINANCIAL ASSETS

(ii) Collective impairment allowance

For the purposes of a collective evaluation of impairment, loans, advances and financing are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such loans, advances and financing by being indicative of the borrowers’ ability to pay all amounts due according to the contractual terms of the loans being evaluated.

Future cash flows in a group of loans that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the loans in the Bank and historical loss experience for loans with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of loans should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Group and the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group and the Bank to reduce any differences between loss estimates and actual loss experience.

Pursuant to Paragraph 13 of the Guideline on Classification and Impairment Provisions for Loans/Financing, Bank Negara Malaysia (‘BNM’) had issued a letter on 4 February 2014, which require banking institutions to maintain, in aggregate collective impairment provisions and regulatory reserves of no less than 1.2% of total outstanding loans/financing (excluding loans/financing with an explicit guarantee from the Federal Government of Malaysia), net of individual impairment provisions. Banking institutions are required to comply with the requirement by 31 December 2015.

As at reporting date, the Group and the Bank have maintained the collective impairment provisions and regulatory reserves of no less than 1.2% in the books by transferring from retained profits to regulatory reserves (Group: RM184.4 million, Bank: RM135.3 million).

Assets classified as available-for-sale

The Group and the Bank assess at the end of the reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired.

For debt securities, the Group and the Bank assess at each date of the statement of financial position whether there is any objective evidence that a financial investment or group of financial investments is impaired. The criteria the Group and the Bank use to determine whether there is objective evidence of impairment include non-payment of coupon or principal redemption, significant financial difficulty of issuer or obligor and significant drop in rating. In the case of equity securities classified as available-for-sale, in addition to the criteria above, a significant or prolonged decline in the fair value of the security below its cost is also considered as an indicator that the assets are impaired.

If any such evidence exists for available-for-sale financial assets, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in income statements. The amount of cumulative loss reclassified to profit or loss is the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in income statements. Impairment losses recognised in income statements on equity instruments classified as available-for-sale are not reversed through income statements.

If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in income statements, the impairment loss is reversed through income statements.




(J) FINANCIAL LIABILITIES All financial liabilities which include derivative financial instruments have to be recognised in the statement of financial

position and measured in accordance with their assigned category.

The Group and the Bank’s holding in financial liabilities are in financial liabilities at fair value through profit or loss (including financial liabilities held-for-trading and those that designated at fair value) and financial liabilities at amortised cost. Financial liabilities are initially recognised at fair value plus transaction costs for all financial liabilities not carried at fair value through profit or loss.

Financial liabilities at fair value through profit or loss This category comprises two sub-categories: financial liabilities classified as held-for-trading, and financial liabilities

designated by the Group and the Bank as at fair value through profit or loss upon initial recognition. The Group and the Bank do not have any non-derivative financial liabilities designated at fair value through profit or loss.

A financial liability is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless they are designated and effective as hedging instruments.

Financial liabilities classified as held-for-trading are initially recognised at fair value, and transaction costs are expensed in profit or loss. Gains and losses arising from changes in fair value of financial liabilities classified held-for-trading are included in the income statement.

Other liabilities measured at amortised cost Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are measured at

amortised cost. De-recognition

Financial liabilities are de-recognised when they have been redeemed or otherwise extinguished.

(K) OFFSETTING FINANCIAL INSTRUMENTS Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is

a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets and settle the liability simultaneously.

The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy.


(L) PROPERTY AND EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost

includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is de-recognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Freehold land is not depreciated as it has an infinite life. Other property and equipment are depreciated on the straight-line

basis to write off the cost of the assets or their revalued amounts, to their residual values over their estimated useful lives, summarised as follows:

Buildings 50 years

Leasehold buildings 50 years or over the remaining lease period, whichever is shorter

Renovation and leasehold premises 5 years or the period of the lease whichever is greater

Office equipment and furniture 10 years

Computer equipment and software 5 years

Motor vehicles 5 years

Depreciation on capital work in progress commences when the assets are ready for their intended use.

Residual value and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date.

At each reporting date, the Group assesses whether there is any indication of impairment or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. A write down is made if the carrying amount exceeds the recoverable amount. Any subsequent increase in the recoverable amount is recognised in the income statement (refer to accounting policy E on impairment of non-financial assets).

Gains and losses on disposal are determined by comparing proceeds with carrying amount and are recognised within other operating income in the income statement.

(M) LEASES Accounting by lessee

Finance leases

Leases of property and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments.

Each lease payment is allocated between the liability and finance charges so as to achieve a periodic constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance charge is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property and equipment acquired under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.

Initial direct costs incurred by the Group in negotiating and arranging finance leases are added to the carrying amount of the leased assets and recognised as an expense in income statement over the lease term on the same basis as the lease expense.




(M) LEASES Accounting by lessee (continued) Operating leases

Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on the straight-line basis over the lease period.

Initial direct costs incurred by the Group in negotiating and arranging operating leases are recognised in income statement when incurred.

(N) FOREIGN CURRENCY TRANSLATIONS

Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The financial statements are presented in Ringgit Malaysia, which is the Bank’s functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchanges rate prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.

Changes in the fair value of monetary financial assets denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the financial asset and other changes in the carrying amount of the financial asset. Translation differences related to changes in the amortised cost are recognised in income statement, and other changes in the carrying amount are recognised in other comprehensive income.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit and loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in other comprehensive income.


(O) DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives are initially recognised at fair values on the date on which derivative contracts are entered into and are subsequently remeasured at their fair values. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. All derivatives are carried as assets when fair values are positive and as liabilities when fair values are negative.

The best evidence of fair value of a derivative at initial recognition is the transaction price (i.e the fair value of the consideration given or received) unless fair value of the instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.

The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

As at reporting date, the Group and the Bank have not designated any derivative as hedging instruments.

Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement.

Gains and losses on interest rate swaps, futures, forward and option contracts that do not qualify as hedges are recognised in the current financial year using the mark-to-market method and are included in the income statement.

(P) CURRENT AND DEFERRED INCOME TAXES

Current tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period where the Group’s subsidiaries and branch operate and generate taxable income.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. This liability is measured using the single best estimate of the most likely outcome.

Deferred tax

Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unused tax losses can be utilised.

Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially substantively enacted by the end of the reporting period and are expected to apply when the related deferred tax assets is realised or the deferred tax liability is settled.




(P) CURRENT AND DEFERRED INCOME TAXES

Deferred tax (continued)

Deferred tax is recognised on temporary differences arising on investment in subsidiaries and joint venture except where the timing of the reversal of the temporary difference can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax amounts are recognised on deductible temporary differences arising from investment in subsidiaries and joint arrangements only to the extent that it is probable the temporary difference will reverse in future and there is sufficient taxable profit available against which the deductible temporary difference can be utilised.

Deferred and income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on net basis.

(Q) ZAKAT Zakat represents business zakat payable by the Group to comply with the principles of Shariah and as approved by the

Shariah Committee. The Bank’s subsidiary, AFFIN Islamic Bank Berhad only pays zakat on its business and does not pay zakat on behalf of depositors. Zakat provision is calculated based on 2.5775% of the prior year’s net asset method.

(R) CASH AND CASH EQUIVALENTS Cash and cash equivalents consists of cash in hand, bank balances and deposits and placements maturing within one

month which are held for the purpose of meeting short term commitments and are readily convertible to cash without significant risk of changes in value.

(S) FORECLOSED PROPERTIES

Foreclosed properties are stated at the lower of their carrying amount and fair value less cost to sell.

(T) CONTINGENT LIABILITIES AND CONTINGENT ASSETS The Group and the Bank do not recognise contingent assets and liabilities other than those arising from business

combination, but disclose its existence in the financial statements. A contingent liability is possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably. However, contingent liabilities do not include financial guarantee contracts.

A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank. The Group and the Bank do not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain.


(U) BILLS AND ACCEPTANCES PAYABLE Bills and acceptances payable, which are financial liabilities, represent the Bank’s own bills and acceptances rediscounted

and outstanding in the market. (See Note J)

(V) PROVISIONS

Provisions are recognised by the Group and the Bank when all of the following conditions have been met:

• the Group and the Bank have a present legal or constructive obligation as a result of past events;

• it is probable that an outflow of resources to settle the obligation will be required; and

• a reliable estimate of the amount of obligation can be made.

Where the Group and the Bank expect a provision to be reimbursed (for example, under an insurance contract), the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance cost expense.

(W) EMPLOYEE BENEFITS

Short-term employee benefits

Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group.

Defined contribution plan

The defined contribution plan is a pension plan under which the Group pays fixed contributions to the National Pension Scheme, the Employees’ Provident Fund (‘EPF’) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.

The Group’s contribution to defined contribution plans are charged to the income statement in the period to which they relate. Once the contributions have been paid, the Group has no further payment obligations.

Termination benefits

Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without any possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.




(X) FINANCIAL GUARANTEE CONTRACTS

Financial guarantee contracts are contracts that require the Group or Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The fair value of a financial guarantee at the time of signature is zero because all guarantees are agreed on arm’s length terms and the value of the premium agreed corresponds to the value of the guarantee obligation. No receivable for the future premiums is recognised.

The liability is subsequently recognised at the higher of the amount determined in accordance with MFRS 137 “Provisions, contingent liabilities and contingent assets” and the amount initially recognised less cumulative amortisation, where appropriate.

The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

Where financial guarantees in relation to loans or payables of subsidiaries are provided by the Group for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of investment in subsidiaries.

(Y) SALE AND REPURCHASE AGREEMENTS

Securities purchased under resale agreements are securities which the Group and the Bank have purchased with a commitment to resell at future dates. The commitment to resell the securities is reflected as an asset on the statements of financial position.

Conversely, obligations on securities sold under repurchase agreements are securities which the Group and the Bank have sold from its portfolio, with a commitment to repurchase at future dates. Such financing and the obligation to repurchase the securities is reflected as a liability on the statement of financial position.

The difference between sale and repurchase price as well as purchase and resale price are amortised as interest income and interest expense respectively on an effective yield method.

(Z) SHARE CAPITAL Classification Ordinary shares are classified as equity. Other shares are classified as equity and/or liability according to the economic

substance of the particular instrument.

Share issue costs Incremental costs directly attributable to the issue of new shares or options are deducted against share premium account. Dividend distribution

Distributions to holders of an equity instrument is recognised directly in equity and the corresponding liability is recognised in the period in which the dividends are approved.

85Affin Bank BerhadAnnual Report 2014

NOTES TO THE FINANCIAL STATEMENTSfor the financial year ended 31 December 2014

1 GENERAL INFORMATION The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the

Bank’s subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been no significant changes in these principal activities during the financial year.

The number of employees in the Group and the Bank as at 31 December 2014 was 3,499 (2013: 3,417) and 3,250 (2013: 3,187) employees respectively.

The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan Tentera Act, 1973.

The Bank is a limited liability company, incorporated and domiciled in Malaysia.

2 CASH AND SHORT-TERM FUNDS

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Cash and bank balances with banks

and other financial institutions 265,430 207,501 258,390 202,529

Money at call and deposit placements

maturing within one month 6,673,482 9,194,200 3,518,652 4,785,167

6,938,912 9,401,701 3,777,042 4,987,696

3 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Licensed banks 238,222 359,040 962,050 983,199

Licensed investment banks - 123,557 - 123,557

238,222 482,597 962,050 1,106,756

4 FINANCIAL ASSETS HELD-FOR-TRADING

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

At fair value

Bank Negara Malaysia Monetary Notes 149,904 149,544 149,904 149,544

149,904 149,544 149,904 149,544



5 DERIVATIVE FINANCIAL ASSETS

The Group 2014

The Group 2013

Contract/ notional amount RM’000


Assets RM’000

Assets RM’000

At fair value

Foreign exchange derivatives:

Currency forwards 911,475 41,850 312,991 6,979

Cross currency swaps 1,670,492 24,710 1,230,649 19,660

Interest rate derivatives:

Interest rate swaps 2,461,000 22,098 1,920,713 29,635

5,042,967 88,658 3,464,353 56,274

The Bank 2014

The Bank 2013



Assets RM’000

Assets RM’000

At fair value





Interest rate swaps 2,461,000 22,098 1,920,713 29,635

5,052,497 88,672 3,464,353 56,274



6 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

At fair value

Money market instruments:

Malaysian Government treasury bills 225,782 - 200,778 -

Malaysian Government securities 50,663 - 50,663 -

Malaysian Government investment issues 2,180,038 1,759,211 1,678,503 1,142,371

Sukuk Perumahan Kerajaan 351,735 337,661 272,595 269,361

Bank Negara Malaysia Monetary Notes 1,387,284 629,674 1,102,406 571,160

Negotiable Instruments of Deposit and

Islamic Debt Certificates 1,331,452 882,314 1,331,452 882,314

Bankers’ acceptances and Islamic accepted bills - 196,522 - 196,522

Khazanah Bonds/Sukuk 353,165 237,441 232,996 207,756

5,880,119 4,042,823 4,869,393 3,269,484

Quoted securities:

Shares in Malaysia 13,487 13,604 13,005 13,122

Private debt securities in Malaysia 2,167 2,167 2,167 2,167

Unquoted securities:

Shares in Malaysia 160,379 148,155 159,804 148,086

Private debt securities

- in Malaysia 3,406,335 2,947,839 2,884,586 2,438,124

- outside Malaysia 530,746 504,721 530,746 504,721

9,993,233 7,659,309 8,459,701 6,375,704

Allowance for impairment losses (45,322) (44,772) (44,290) (44,290)

9,947,911 7,614,537 8,415,411 6,331,414

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Movement in allowance for impairment losses

At beginning of the financial year 44,772 48,031 44,290 45,781

Transfer from allowance for impairment losses

on loans, advances and financing 6,157 - 6,157 -

Allowance made during the financial year 550 499 - 499

Amount written-off (6,505) (3,758) (6,505) (1,990)

Exchange differences 348 - 348 -

At end of the financial year 45,322 44,772 44,290 44,290



7 FINANCIAL INVESTMENTS HELD-TO-MATURITY

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

At amortised cost

Quoted securities:


Unquoted securities:


520,433 556,700 437,679 471,635

Allowance for impairment losses (44,278) (56,364) (44,278) (56,364)

476,155 500,336 393,401 415,271

Movement in allowance for impairment losses

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000






8 LOANS, ADVANCES AND FINANCING

(i) By type

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Overdrafts 1,943,124 1,752,882 1,739,162 1,569,936

Term loans/financing

- Housing loans/financing 5,777,114 5,510,534 3,944,934 3,797,843

- Hire purchase receivables 10,963,715 10,524,044 8,919,007 8,728,354

- Syndicated financing 1,488,044 1,520,412 1,226,013 1,252,340

- Business term loans/financing 13,424,503 12,540,363 11,505,061 10,929,608

Bills receivables 1,194,884 318,677 1,182,694 286,417

Trust receipts 244,117 435,591 224,268 409,889

Claims on customers under

acceptances credits 1,120,038 986,666 998,621 919,192

Staff loans/financing (of which

RM Nil to Directors) 133,166 138,769 123,537 127,888

Credit cards 81,870 82,137 81,870 82,137

Revolving credits 3,612,801 2,934,652 2,805,676 2,523,945

Factoring 4,674 7,073 4,674 7,073

Gross loans, advances and financing 39,988,050 36,751,800 32,755,517 30,634,622

Less:

Allowance for impairment losses

- Individual (239,259) (223,701) (207,740) (189,117)

- Collective (292,619) (300,314) (255,226) (266,595)

Total net loans, advances and financing 39,456,172 36,227,785 32,292,551 30,178,910

- Included in the Group and the Bank’s term loans are housing loans sold to Cagamas Berhad with recourse amounting to RM139,147,000 (2013: RM397,790,000).

- Included in the Group’s business term loans/financing as at reporting date is RM53.7 million (2013: RM47.4 million) and RM62.9 million (2013: RM68.9 million) of term financing disbursed by AFFIN Islamic Bank Berhad to joint ventures AFFIN-i Nadayu Sdn Bhd and KL South Development Sdn Bhd respectively.




(ii) By maturity structure

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Maturing within one year 9,259,050 7,183,104 8,051,792 6,433,997

One year to three years 4,439,970 4,955,354 3,923,647 4,394,607

Three years to five years 6,508,671 6,498,822 5,573,588 5,727,883

Over five years 19,780,359 18,114,520 15,206,490 14,078,135

39,988,050 36,751,800 32,755,517 30,634,622

(iii) By type of customer

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Domestic non-banking institutions

- Stockbroking companies 231 241 231 241

- Others 1,304,372 1,622,525 1,092,416 1,449,099

Domestic business enterprises

- Small medium enterprises 7,706,811 5,900,985 7,068,567 5,421,258

- Others 13,952,430 13,234,095 11,608,972 11,649,365

Government and statutory bodies 92,725 162,591 33,298 108,756

Individuals 15,521,321 14,939,353 11,671,052 11,475,917

Other domestic entities 13,634 251,166 9,442 8,567

Foreign entities 1,396,526 640,844 1,271,539 521,419

39,988,050 36,751,800 32,755,517 30,634,622

(iv) By interest/profit rate sensitivity

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Fixed rate

- Housing loans/financing 357,709 309,977 295,427 237,886

- Hire purchase receivables 10,963,715 10,524,043 8,919,007 8,728,354

- Other fixed rate loans/financing 3,823,161 4,178,246 3,180,638 3,556,430

Variable rate

- BLR plus 16,064,029 14,098,831 12,972,290 11,458,345

- Cost plus 8,779,436 7,640,703 7,388,155 6,653,607

39,988,050 36,751,800 32,755,517 30,634,622




(v) By economic sectors

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Primary agriculture 684,340 478,281 417,288 470,268

Mining and quarrying 622,359 649,621 621,563 648,488

Manufacturing 2,049,476 2,516,273 1,814,510 2,297,207

Electricity, gas and water supply 254,771 290,994 201,658 253,405

Construction 3,990,973 3,277,346 3,411,861 2,772,575

Real estate 6,045,231 4,623,807 5,441,854 4,192,630

Wholesale & retail trade and

restaurants & hotels 2,117,173 2,140,392 1,915,945 1,993,533

Transport, storage and communication 2,037,263 1,965,627 1,902,028 1,858,700

Finance, insurance and business services 4,853,095 4,360,854 4,099,442 3,837,340

Education, health and others 1,663,541 1,358,801 1,140,497 711,807

Household 15,659,678 15,082,264 11,781,844 11,593,915

Others 10,150 7,540 7,027 4,754

39,988,050 36,751,800 32,755,517 30,634,622

(vi) By economic purpose

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Purchase of securities 290,047 326,463 287,098 326,450

Purchase of transport vehicles 11,444,211 11,232,452 9,391,932 9,438,264

Purchase of landed property of which:

- Residential 5,733,144 5,948,524 3,890,037 4,219,088

- Non-residential 5,771,894 5,009,095 4,864,336 4,161,066

Fixed assets other than land and building 326,163 238,059 259,089 158,411

Personal use 886,926 933,727 852,043 899,671

Credit card 81,870 82,137 81,870 82,137

Consumer durable 803 868 803 860

Construction 3,117,428 1,996,832 2,434,105 1,417,340

Merger and acquisition 340,771 312,667 340,771 312,667

Working capital 11,478,251 9,945,383 9,981,580 8,928,713

Others 516,542 725,593 371,853 689,955

39,988,050 36,751,800 32,755,517 30,634,622




(vii) By geographical distribution

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Perlis 130,950 85,125 32,923 33,470

Kedah 1,216,316 1,088,305 791,638 754,925

Pulau Pinang 1,985,420 1,825,875 1,828,526 1,698,009

Perak 1,169,769 1,163,213 835,636 848,478

Selangor 12,530,054 11,281,264 9,927,910 9,140,199

Wilayah Persekutuan 11,127,076 10,529,110 9,201,666 8,901,544

Negeri Sembilan 894,089 813,316 674,051 676,394

Melaka 982,343 869,233 879,071 782,055

Johor 3,145,860 3,207,965 2,825,710 2,946,869

Pahang 824,164 755,143 549,200 504,854

Terengganu 989,058 989,295 589,445 609,267

Kelantan 230,819 244,022 63,553 49,906

Sarawak 1,270,558 1,117,347 1,246,449 1,088,646

Sabah 1,704,712 1,692,677 1,620,334 1,604,644

Labuan 520,747 553,770 520,677 553,682

Outside Malaysia 1,266,115 536,140 1,168,728 441,680

39,988,050 36,751,800 32,755,517 30,634,622

(viii) Movements of impaired loans

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000


Amount converted to financial investments available-for-sale (16,865) - (16,865) -

Classified as impaired 543,093 432,629 452,130 363,583

Reclassified as non-impaired (289,556) (298,268) (234,726) (252,304)

Amount recovered (134,856) (130,527) (100,780) (110,745)



Ratio of gross impaired loans, advances and financing to gross loans, advances and financing 1.78% 1.92% 1.78% 1.88%




(ix) Movements in allowance for impairment on loans, advances and financing

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Individual impairment


Amount converted to financial investments

available-for-sale (6,157) - (6,157) -

Transfer from collective impairment 12,314 - 12,314 -

Allowance made during the financial year 75,297 47,903 73,788 47,213

Amount recovered (4,386) (4,031) (604) (3,598)


Unwinding of income (12,432) (17,825) (11,669) (16,780)

Exchange differences 1,792 256 8 (21)


The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Collective impairment


Transfer to individual impairment (12,314) - (12,314) -

Net allowance made during the financial year 47,980 15,253 41,597 15,011






(x) Impaired loans by economic sectors

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000


Manufacturing 31,450 40,414 28,747 18,373

Electricity, gas and water supply 246 118 246 118

Construction 258,070 193,447 187,791 127,471

Real estate 323 190 323 190

Wholesale & retail trade and

restaurants & hotels 30,344 31,222 29,986 29,213

Transport, storage and communication 5,099 9,542 4,805 9,477

Finance, insurance and business services 38,442 60,065 37,816 59,483

Education, health and others 1,607 1,868 1,607 1,868

Household 330,511 362,984 275,731 322,140

713,648 706,185 584,491 574,555

(xi) Impaired loans by economic purpose

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Purchase of securities 10,298 11,641 10,298 11,641

Purchase of transport vehicles 86,409 75,350 74,189 66,780

Purchase of landed property of which:

- Residential 231,048 272,103 188,967 241,357

- Non-residential 31,278 23,707 30,192 21,762

Fixed assets other than land and building 282 282 282 282

Personal use 7,826 7,937 7,346 7,742

Credit card 326 476 326 476

Consumer durable 13 14 13 14

Construction 77,071 65,797 7,041 141

Working capital 252,663 234,766 249,403 210,248

Others 16,434 14,112 16,434 14,112

713,648 706,185 584,491 574,555




(xii) Impaired loans by geographical distribution

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Perlis 901 472 649 460

Kedah 22,141 23,005 20,841 21,182

Pulau Pinang 35,458 18,781 33,462 17,309

Perak 15,193 14,081 11,156 11,015

Selangor 277,204 318,270 248,105 276,443

Wilayah Persekutuan 105,792 117,805 100,721 114,492

Negeri Sembilan 24,258 28,827 21,392 26,196

Melaka 8,575 8,368 8,401 8,011

Johor 49,319 46,552 46,620 43,939

Pahang 48,236 12,038 44,789 8,670

Terengganu 17,139 5,465 12,830 2,985

Kelantan 5,152 4,124 1,790 1,803

Sarawak 14,407 6,290 14,082 5,794

Sabah 12,384 11,298 12,195 11,100

Outside Malaysia 77,489 90,809 7,458 25,156

713,648 706,185 584,491 574,555 9 OTHER ASSETS

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Other debtors, deposits and prepayments 34,596 35,131 33,456 34,288

Cheque clearing accounts 179,711 169,141 132,691 127,621

Foreclosed properties (a) 9,099 15,825 8,508 14,646

223,406 220,097 174,655 176,555

(a) Foreclosed properties


Disposal during the financial year (6,726) (10,920) (6,138) (10,920)




10 AMOUNT DUE FROM SUBSIDIARIES

The Bank

2014 RM’000

2013 RM’000

Advances to AFFIN Islamic Bank Berhad - 60,115

Advances to other subsidiaries 438 608

438 60,723

The advances to subsidiaries are unsecured, bear no interest rate (2013: 3.00%) and repayable on demand.

11 DEFERRED TAX ASSETS / (LIABILITIES) Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against

current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts determined after appropriate offsetting, are shown in the statement of financial position:

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Deferred tax assets:

- settled more than 12 months - - - -

- settled within 12 months 17,904 20,730 14,479 17,062

17,904 20,730 14,479 17,062

Deferred tax liabilities:

- settled more than 12 months (4,188) (5,531) (3,968) (5,263)

- settled within 12 months (10,598) (5,254) (10,293) (4,814)

(14,786) (10,785) (14,261) (10,077)

Deferred tax assets/(liabilities) 3,118 9,945 218 6,985

At beginning of the financial year 9,945 (13,365) 6,985 (13,099)

(Charged)/credited to income

statement (Note 34) (649) (1,501) (920) (1,674)

- property and equipment 809 471 813 532

- intangible assets 1,036 (703) 850 (917)

- provision for other liabilities (2,494) (1,269) (2,583) (1,289)

(Charged)/credited to equity

- financial investments available-for-sale (6,178) 24,811 (5,847) 21,758

At end of the financial year 3,118 9,945 218 6,985



11 DEFERRED TAX ASSETS / (LIABILITIES)

The movements in deferred tax assets and liabilities during the financial year are as follows:

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Subject to income tax

Deferred tax assets (before offsetting)

AFS revaluation reserves 1,855 2,187 - -

Provision for other liabilities 16,049 18,543 14,479 17,062

17,904 20,730 14,479 17,062

Offsetting (14,786) (10,785) (14,261) (10,077)

Deferred tax assets (after offsetting) 3,118 9,945 218 6,985

Deferred tax liabilities (before offsetting)

Property and equipment (3,950) (4,759) (3,638) (4,451)

Intangible assets (3,422) (4,458) (3,208) (4,058)

AFS revaluation reserves (7,414) (1,568) (7,415) (1,568)

(14,786) (10,785) (14,261) (10,077)

Offsetting 14,786 10,785 14,261 10,077

Deferred tax liabilities (after offsetting) - - - -

The amount of unused tax losses for which no deferred tax asset is recognised in the statement of financial position are as follows:

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Tax losses 98,860 99,209 - -

12 STATUTORY DEPOSIT WITH BANK NEGARA MALAYSIA

A non-interest bearing statutory deposit is maintained with Bank Negara Malaysia in compliance with requirements of Section 26(2)(c) of the Central Bank of Malaysia Act 2009, the amounts of which is determined at a set percentages of total eligible liabilities.



13 INVESTMENT IN SUBSIDIARIES

The Bank

2014 RM’000

2013 RM’000

Unquoted shares, at cost 419,509 419,549

Less: Allowance for impairment losses (30,435) (30,461)

389,074 389,088 The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows:

Percentage of equity held

Name Principal Activities 2014 %

2013 %

AFFIN Islamic Bank Bhd Islamic banking business 100 100

PAB Properties Sdn Bhd Property management services 100 100

ABB Nominee (Tempatan) Sdn Bhd Share nominee services 100 100

ABB Trustee Berhad * Trustee management services 100 100

AFFIN Recoveries Bhd Recovery of impaired loans 100 100

AFFIN Factors Sdn Bhd Dormant 100 100

AFFIN Futures Sdn Bhd Dormant 100 100

ABB Nominee (Asing) Sdn Bhd Dormant 100 100

ABB IT & Services Sdn Bhd Dormant 100 100

BSNCB Nominees (Tempatan) Sdn Bhd Dormant 100 100

BSNC Nominees (Tempatan) Sdn Bhd (#) Dormant 100 100

PAB Property Development Sdn Bhd (#) Dormant 100 100

AFFIN-ACF Nominees (Tempatan) Sdn Bhd (#) Dormant 100 100

ABB Venture Capital Sdn Bhd (@) Dormant - 100

PAB Property Management Services Sdn Bhd (@) Dormant - 100

* 80% held by Directors of the Bank, in trust for the Bank. # The Bank has filed application to strike-off company at Suruhjaya Syarikat Malaysia (‘SSM’). @ Struck off and gazetted on 2 September 2014.



14 INVESTMENT IN JOINT VENTURES

The Group

2014 RM’000

2013 RM’000

Unquoted shares at cost 650 650

Group’s share of post acquisition retained losses (650) (650)

- -

The summarised financial information of joint ventures are as follows:

Revenue 4,920 16,781

Loss after tax (3,515) (3,050)

Total assets 216,417 181,084

Total liabilities 222,420 183,572

AFFIN-i KLSD

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Net liabilities

At beginning of the financial year (1,142) (880) (2,789) -

Loss for the financial year (1,572) (262) (1,943) (2,789)

At end of the financial year (2,714) (1,142) (4,732) (2,789)

Issued and paid up share capital 1,000 1000 500 500

Interest in joint venture (%) 50 50 30 30

Interest in joint venture (RM’000) (1,357) (571) (1,420) (837) Both the joint ventures’ principal activities are property development. As the Group’s share of cumulative losses of RM2.1 million (2013: RM0.8 million) as at 31 December 2014 has exceeded

its interest in the joint ventures, the Group does not recognise further losses in its financial statements.



14 INVESTMENT IN JOINT VENTURES

AFFIN-i Nadayu Sdn Bhd (‘AFFIN-i’)

On 1 April 2008, AFFIN Islamic Bank Berhad (‘AiBB’) and Jurus Positif Sdn Bhd, a subsidiary of Nadayu Properties Berhad entered into a Musharakah Joint Venture Agreement under the Shariah principles (‘Musharakah Agreement’) to joint develop a land into a housing scheme at Bukit Gambir, Pulau Pinang.

The Musharakah Agreement also includes an arrangement whereby Jurus Positif Sdn Bhd may acquire the AiBB’s shares upon the completion of the project at a mutually agreed price, unless if both shareholders decide to continue the joint venture for subsequent projects.

Major strategic operation and financial decisions relating to the activities of AFFIN-i Nadayu requires unanimous consent by both joint venture parties. The Group’s interest in AFFIN-i Nadayu Sdn Bhd has been treated as investment in joint venture, which has been accounted for in the consolidated financial statements using the equity method of accounting.

KL South Development Sdn Bhd (‘KLSD’)

On 2 January 2013, AiBB entered into a Musharakah Joint Venture Agreement (‘Musharakah Agreement’) with Albatha Bukit Kiara Holdings Sdn Bhd (‘Albatha’), a subsidiary of Bukit Kiara Capital Sdn Bhd, to joint develop a property project namely “VERVE Suites KL South” at Jalan Klang Lama, Kuala Lumpur.

Pursuant to the Musharakah Agreement, AiBB acquired 30% stake in the joint venture company namely KL South Development Sdn Bhd (‘KL South’) by way of subscription of 150,000 shares of RM1.00 each in KL South at par. The remaining stake of 70% in KL South is held by Albatha.

Under the Musharakah structure, AiBB would be the sole banker to KL South, providing financing using the Islamic concept such as Ijarah for the purchase of building and Istisna’ for the bridging financing.

Major strategic operation and financial decisions relating to the activities of KL South requires consent by both joint venture parties. The Group’s interest in KL South has been treated as investment in joint venture, which has been accounted for in the consolidated financial statements using the equity method of accounting.

KL South has commenced operations and the project is scheduled for completion by mid 2016.


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Co

st

At

beg

inni

ng o

f the

fina

ncia

l yea

r 1

9,67

6 1

2,86

2 5

,380

2

6,80

3 8

9,06

9 1

14,0

84

59,

427

70,

560

5,3

54

2,6

98

405

,913

Ad

diti

ons

-

-

-

-

-

2,3

54

1,5

61

1,7

57

9

8,2

17

13,

898

Dis

pos

als

(440

) (5

20)

-

(435

) (8

,087

) (2

,408

) (4

0) -

(1

,713

) -

(1

3,64

3)

Writ

e-of

f -

-

-

-

-

(1

,890

) (1

,910

) (4

) -

-

(3

,804

)

Rec

lass

ifica

tion

to in

tang

ible

ass

ets

(Not

e 16

) -

-

-

-

-

-

-

-

-

(1

,751

) (1

,751

)

At

end

of

the

fina

ncia

l yea

r 1

9,23

6 1

2,34

2 5

,380

2

6,36

8 8

0,98

2 1

12,1

40

59,

038

72,

313

3,6

50

9,1

64

400

,613

Acc

umul

ated

dep

reci

atio

n an

d

imp

airm

ent

loss

es

At

beg

inni

ng o

f the

fina

ncia

l yea

r 1

40

2,1

46

1,6

93

12,

273

25,

160

98,

526

41,

001

63,

037

3,1

97

-

247

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Cha

rge

for

the

finan

cial

yea

r -

1

06

120

4

38

1,4

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5,7

07

3,3

86

3,1

10

593

-

1

4,95

1

Dis

pos

al -

(1

10)

-

(326

) (2

,369

) (2

,407

) (2

7) -

(1

,713

) -

(6

,952

)

Writ

e-of

f -

-

-

-

-

(1

,884

) (1

,802

) (4

) -

-

(3

,690

)

At

end

of

the

fina

ncia

l yea

r 1

40

2,1

42

1,8

13

12,

385

24,

282

99,

942

42,

558

66,

143

2,0

77

-

251

,482

Net

bo

ok

valu

e at

end

of t

he fi

nanc

ial y

ear

19,

096

10,

200

3,5

67

13,

983

56,

700

12,

198

16,

480

6,1

70

1,5

73

9,1

64

149

,131


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

014

15

PR

OP

ER

TY

AN

D E

QU

IPM

EN

T

Bui

ldin

gs on

free

hold

land

RM

’000

Bui

ldin

gs on

leas

ehol

dla

ndR

M’0

00

Offi

ceeq

uip

men

tan

dfu

rnitu

reR

M’0

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Com

put

ereq

uip

men

tan

d s

oftw

are

RM

’000

<--

-Lea

seho

ld la

nd--

>C

apita

lw

ork

inp

rogr

ess

RM

’000

Free

hold

land

RM

’000

50 y

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or m

ore

RM

’000

Less

tha

n50

yea

rsR

M’0

00

Mot

orve

hicl

esR

M’0

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The

Gro

upR

enov

atio

nR

M’0

00To

tal

RM

’000

2013

Cos

t

At

beg

inni

ng o

f the

fina

ncia

l yea

r 2

1,12

6 1

2,86

2 5

,380

2

9,95

0 8

9,06

9 1

10,8

42

57,

561

68,

775

3,6

09

7,8

39

407

,013

Ad

diti

ons

-

-

-

-

-

5,1

46

2,4

38

1,7

85

2,0

77

5,9

97

17,

443

Dis

pos

als

(1,4

50)

-

-

(3,1

47)

-

(1,2

38)

(1)

-

(332

) -

(6

,168

)

Writ

e-of

f -

-

-

-

-

(7

55)

(572

) -

-

-

(1

,327

)

Rec

lass

ifica

tion

to in

tang

ible

ass

ets

(Not

e 16

) -

-

-

-

-

8

9 1

-

-

(1

1,13

8) (1

1,04

8)

At

end

of t

he fi

nanc

ial y

ear

19,

676

12,

862

5,3

80

26,

803

89,

069

114

,084

5

9,42

7 7

0,56

0 5

,354

2

,698

4

05,9

13

Acc

umul

ated

dep

reci

atio

n an

d

imp

airm

ent

loss

es

At

beg

inni

ng o

f the

fina

ncia

l yea

r 1

40

2,0

34

1,5

72

12,

962

23,

371

94,

065

38,

232

59,

630

3,0

85

-

235

,091

Cha

rge

for

the

finan

cial

yea

r -

1

12

121

4

42

1,7

89

6,4

49

3,2

56

3,4

07

443

-

1

6,01

9

Dis

pos

al -

-

-

(1

,131

) -

(1

,238

) (1

) -

(3

31)

-

(2,7

01)

Writ

e-of

f -

-

-

-

-

(7

50)

(486

) -

-

-

(1

,236

)

At

end

of t

he fi

nanc

ial y

ear

140

2

,146

1

,693

1

2,27

3 2

5,16

0 9

8,52

6 4

1,00

1 6

3,03

7 3

,197

-

2

47,1

73

Net

boo

k va

lue

at e

nd o

f the

fina

ncia

l yea

r 1

9,53

6 1

0,71

6 3

,687

1

4,53

0 6

3,90

9 1

5,55

8 1

8,42

6 7

,523

2

,157

2

,698

1

58,7

40


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

014

15

PR

OP

ER

TY

AN

D E

QU

IPM

EN

T

Bui

ldin

gs

on

free

hold

land

RM

’000

Bui

ldin

gs

on

leas

eho

ld

land

RM

’000

Offi

ce

equi

pm

ent

and

furn

itur

e

RM

’000

Co

mp

uter

equi

pm

ent

and

so

ftw

are

RM

’000

<--

-Lea

seho

ld la

nd--

>C

apit

al

wo

rk in

pro

gre

ss

RM

’000

Free

hold

land

RM

’000

50 y

ears

or

mo

re

RM

’000

Less

tha

n

50 y

ears

RM

’000

Mo

tor

vehi

cles

RM

’000

The

Ban

kR

enov

atio

n

RM

’000

Tota

l

RM

’000

2014

Co

st

At

beg

inni

ng o

f the

fina

ncia

l yea

r 1

7,16

8 1

0,97

2 5

,380

2

5,50

4 8

8,16

1 1

10,1

84

57,

280

68,

044

4,3

97

2,6

98

389

,788

Ad

diti

ons

-

-

-

-

-

1,7

87

1,2

19

1,5

01

10

8,2

17

12,

734

Dis

pos

als

(440

) (5

20)

-

(435

) (8

,087

) (2

,408

) (4

0) -

(1

,255

) -

(1

3,18

5)

Writ

e-of

f -

-

-

-

-

(1

,889

) (1

,894

) (4

) -

-

(3

,787

)

Rec

lass

ifica

tion

to in

tang

ible

ass

ets

(Not

e 16

) -

-

-

-

-

-

-

-

-

(1

,751

) (1

,751

)

At

end

of

the

fina

ncia

l yea

r 1

6,72

8 1

0,45

2 5

,380

2

5,06

9 8

0,07

4 1

07,6

74

56,

565

69,

541

3,1

52

9,1

64

383

,799

Acc

umul

ated

dep

reci

atio

n an

d

imp

airm

ent

loss

es

At

beg

inni

ng o

f the

fina

ncia

l yea

r -

1

,903

1

,693

1

1,48

1 2

4,62

1 9

5,48

5 4

0,03

4 6

1,08

2 2

,686

-

2

38,9

85

Cha

rge

for

the

finan

cial

yea

r -

9

8 1

20

412

1

,473

5

,331

3

,164

2

,861

4

95

-

13,

954

Dis

pos

al -

(1

10)

-

(326

) (2

,369

) (2

,408

) (2

6) -

(1

,255

) -

(6

,494

)

Writ

e-of

f -

-

-

-

-

(1

,883

) (1

,790

) (4

) -

-

(3

,677

)

At

end

of

the

fina

ncia

l yea

r -

1

,891

1

,813

1

1,56

7 2

3,72

5 9

6,52

5 4

1,38

2 6

3,93

9 1

,926

-

2

42,7

68

Net

bo

ok

valu

e at

end

of t

he fi

nanc

ial y

ear

16,

728

8,5

61

3,5

67

13,

502

56,

349

11,

149

15,

183

5,6

02

1,2

26

9,1

64

141

,031


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

014

15

PR

OP

ER

TY

AN

D E

QU

IPM

EN

T

Bui

ldin

gs on

free

hold

land

RM

’000

Bui

ldin

gs on

leas

ehol

d

land

RM

’000

Offi

ce

equi

pm

ent

and

furn

iture

RM

’000

Com

put

er

equi

pm

ent

and

sof

twar

e

RM

’000

<--

-Lea

seho

ld la

nd--

>C

apita

l

wor

k in

pro

gres

s

RM

’000

Free

hold

land

RM

’000

50 y

ears

or m

ore

RM

’000

Less

tha

n

50 y

ears

RM

’000

Mot

or

vehi

cles

RM

’000

The

Ban

kR

enov

atio

n

RM

’000

Tota

l

RM

’000

2013

Cos

t

At

beg

inni

ng o

f the

fina

ncia

l yea

r 1

8,61

8 1

0,97

2 5

,380

2

8,65

1 8

8,16

1 1

07,0

89

55,

482

66,

364

3,1

48

7,8

39

391

,704

Ad

diti

ons

-

-

-

-

-

4,9

99

2,3

67

1,6

80

1,5

81

5,9

97

16,

624

Dis

pos

als

(1,4

50)

-

-

(3,1

47)

-

(1,2

38)

(1)

-

(332

) -

(6

,168

)

Writ

e-of

f -

-

-

-

-

(7

55)

(571

) -

-

-

(1

,326

)

Rec

lass

ifica

tion

to in

tang

ible

ass

ets

(Not

e 16

) -

-

-

-

-

8

9 1

-

-

(1

1,13

8) (1

1,04

8)

Tran

sfer

from

sub

sid

iary

-

-

-

-

-

-

2

-

-

-

2

At

end

of t

he fi

nanc

ial y

ear

17,

168

10,

972

5,3

80

25,

504

88,

161

110

,184

5

7,28

0 6

8,04

4 4

,397

2

,698

3

89,7

88

Acc

umul

ated

dep

reci

atio

n an

d

imp

airm

ent

loss

es

At

beg

inni

ng o

f the

fina

ncia

l yea

r -

1

,800

1

,572

1

2,19

6 2

2,85

0 9

1,32

9 3

7,45

6 5

7,91

1 2

,639

-

2

27,7

53

Cha

rge

for

the

finan

cial

yea

r -

1

03

121

4

16

1,7

71

6,1

44

3,0

62

3,1

71

378

-

1

5,16

6

Dis

pos

al -

-

-

(1

,131

) -

(1

,238

) (1

) -

(3

31)

-

(2,7

01)

Writ

e-of

f -

-

-

-

-

(7

50)

(485

) -

-

-

(1

,235

)

Tran

sfer

from

sub

sid

iary

-

-

-

-

-

-

2

-

-

-

2

At

end

of t

he fi

nanc

ial y

ear

-

1,9

03

1,6

93

11,

481

24,

621

95,

485

40,

034

61,

082

2,6

86

-

238

,985

Net

boo

k va

lue

at e

nd o

f the

fina

ncia

l yea

r 1

7,16

8 9

,069

3

,687

1

4,02

3 6

3,54

0 1

4,69

9 1

7,24

6 6

,962

1

,711

2

,698

1

50,8

03



16 INTANGIBLE ASSETS

ComputerSoftware RM’000

The Group Goodwill RM’000

Total RM’000 2014

Cost

At beginning of the financial year 133,430 132,492 265,922

Additions - 236 236

Reclassification from property and equipment (Note 15) - 1,751 1,751

At end of the financial year 133,430 134,479 267,909

Less: Accumulated amortisation

At beginning of the financial year - (113,917) (113,917)

Amortised during the financial year - (6,304) (6,304)

At end of the financial year - (120,221) (120,221)

Net book value at end of the financial year 133,430 14,258 147,688

2013

Cost


Additions - 1,236 1,236

Write-off - (9) (9)


Adjustment - (742) (742)





Write-off - 9 9






ComputerSoftware RM’000

The Bank Goodwill RM’000

Total RM’000 2014

Cost


Additions - 236 236








2013

Cost


Additions - 1,236 1,236

Write-off - (9) (9)


Adjustment - (742) (742)





Write-off - 9 9






Goodwill The carrying amount of the Group’s and the Bank’s goodwill has been allocated to the following business segments, which

represent the Bank’s cash-generating units (‘CGUs’):

2014 RM’000

2013 RM’000

Business banking 123,591 123,591

Consumer banking 13,732 13,732

137,323 137,323 Goodwill is allocated to the Bank’s CGU which are expected to benefit from the synergies of the acquisitions. For annual

impairment testing purposes, the recoverable amount of the CGUs are determined based on value-in-use calculations using the cash flow projections based on the 2015 financial budgets approved by the Directors, covering a period of 5 years based on the historical internal growth rate, revised for current economic conditions. The cash flow beyond the fifth year are projected based on the assumption that the Year 5 operating cash flow will be generated by the respective CGUs at a growth rate of 5% (2013: 5%), based on historical Gross Domestic Product (‘GDP’) growth rate of Malaysia, on perpetual basis.

The cash flow projections are derived based on a number of key factors including past performance and management’s expectations of the market developments. The discount rates used are based on the pre-tax weighted average cost of capital plus an appropriate risk premium where applicable, at the date of assessment of the CGUs. The pre-tax discount rates below reflect the specific risks relating to the CGUs.

2014 Businessbanking

%

2014 Consumer

banking %

2013 Businessbanking

%

2013 Consumer

banking %

Pre-tax discount rate 11.44 11.44 9.90 9.82 No impairment charge was required for goodwill arising from all the business segments. Management views that any

reasonable possible change to the assumptions applied is not likely to cause the recoverable amount of all the business segments to be lower than its carrying amount.



17 DEPOSITS FROM CUSTOMERS

The Group The Bank(i) By type of deposit 2014

RM’000 2013

RM’000 2014

RM’000 2013

RM’000

Demand deposits 8,096,462 8,202,749 5,434,453 5,449,295

Savings deposits 2,047,242 2,004,242 1,651,904 1,639,656

Fixed deposits 28,592,534 27,693,589 23,063,094 22,098,467

Special investment deposits - 574,192 - -

Commodity Murabahah 1,030,814 - - -

Money market deposits 1,177,702 1,050,233 1,177,703 1,050,233

Negotiable instruments of deposit (‘NID’) 7,102,470 6,563,077 6,853,058 6,563,077

48,047,224 46,088,082 38,180,212 36,800,728

The Group The Bank

(ii) Maturity structure of fixed deposits and NID

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Due within six months 29,384,792 27,809,157 24,816,632 23,574,338

Six months to one year 5,641,216 6,287,140 4,667,425 4,929,588

One year to three years 621,587 118,705 385,335 116,227

Three years to five years 37,090 31,344 36,441 31,071

Five years and above 10,319 10,320 10,319 10,320

35,695,004 34,256,666 29,916,152 28,661,544

The Group The Bank(i) By type of customer 2014

RM’000 2013

RM’000 2014

RM’000 2013

RM’000

Government and statutory bodies 8,715,204 8,747,406 5,315,859 5,438,276

Business enterprise 13,771,604 14,007,892 9,993,760 10,327,724

Individuals 13,062,614 11,660,423 11,869,711 10,603,679

Domestic banking institutions 6,903,478 5,792,563 6,654,065 5,792,553

Domestic non-banking financial institutions 4,347,937 4,485,465 3,370,981 3,608,966

Foreign entities 381,967 328,666 321,512 279,382

Other entities 864,420 1,065,667 654,324 750,148

48,047,224 46,088,082 38,180,212 36,800,728



18 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS

The Group The Bank 2014

RM’000 2013

RM’000 2014

RM’000 2013

RM’000

Licensed banks 2,018,521 3,042,849 1,467,113 1,847,213

Licensed investment banks 401,518 597,792 401,518 567,761

Bank Negara Malaysia 47,898 - 47,898 -

Other financial institutions 2,381,739 424,903 1,782,857 244,561

4,849,676 4,065,544 3,699,386 2,659,535

Maturity structure of deposits

Due within six months 4,801,778 4,057,599 3,651,488 2,651,590

Six months to one year 47,898 7,945 47,898 7,945

4,849,676 4,065,544 3,699,386 2,659,535

19 DERIVATIVE FINANCIAL LIABILITIES

The Group 2014

The Group 2013


Liabilities RM’000

Contract/ notional amountRM’000


At fair value





Interest rate swaps 966,552 20,312 2,033,725 38,405

4,042,922 237,426 4,816,536 94,522

The Bank 2014

The Bank 2013



Contract/ notional amountRM’000


At fair value





Interest rate swaps 966,552 20,312 2,033,725 38,405

4,054,335 237,419 4,816,536 94,522



20 RECOURSE OBLIGATION ON LOANS SOLD TO CAGAMAS BERHAD

In the normal course of banking operations, the Bank sells loans to Cagamas Berhad with recourse at values equivalent to the unpaid principal balances of loans and advances due from the borrowers.

The Bank is liable in respect of housing loans and hire purchase portfolio sold directly and indirectly to Cagamas Berhad, under the condition that the Bank undertakes to administer these loans on behalf of Cagamas Berhad and to buy back any loans which are regarded as defective based on an agreed prudential criteria. Such financing transactions and the obligations to buy back the loans are reflected as a liability on the statement of financial position.

21 OTHER LIABILITIES


RM’000 2013

RM’000 2014

RM’000 2013

RM’000

Bank Negara Malaysia and Credit

Guarantee Corporation Funding programmes 33,602 27,897 33,602 27,897

Margin and collateral deposits 145,430 108,258 134,435 103,428

Other creditors and accruals 74,325 88,341 65,889 80,457

Sundry creditors 89,430 143,282 82,046 132,608

Provision for zakat 4,040 10,152 - 2,134

Defined contribution plan (a) 12,588 13,818 11,885 13,107

Accrued employee benefits (b) 229 229 206 206

359,644 391,977 328,063 359,837

(a) The Group and the Bank contributes to the Employee Provident Fund (‘EPF’), the national defined contribution plan. Once the contributions have been paid, the Group and the Bank has no further payment obligations.

(b) This refers to the accruals for short-term employee benefits for leave entitlement. Under employment contract, employees earn their leave entitlement which they are entitled to carry forward and will lapse if not utilised in the following accounting period. Accruals are made for the estimated liability for unutilised annual leave.

22 AMOUNT DUE TO SUBSIDIARIES The amount due to subsidiaries is unsecured, interest-free and repayable on demand.



23 SUBORDINATED TERM LOAN On 10 March 2009, the Bank has taken the first 10 year subordinated loan (‘Subordinated loan I’) amounting to RM300

million. The first subordinated loan was constituted by agreement date 6 March 2009 and were issued on 10 March 2009. On 10 March 2014, the Bank prepaid the 10 year subordinated loan with the Bank’s holding company.

On 26 May 2011, the Bank has taken the second 10 year subordinated loan (‘Subordinated loan II’) amounting to RM300 million. The second subordinated loan was constituted by agreement date 20 May 2011 and were issued on 26 May 2011.

On 16 January 2012, the Bank has taken the third 10 year subordinated loan (‘Subordinated loan III’) amounting to RM300 million. The third subordinated loan was constituted by agreement date 3 January 2012 and were issued on 16 January 2012.

All the subordinated loans were taken with the Bank’s holding company.

The subordinated loans have a prepayment option on the first prepayment date or any interest payment date subsequent to the first prepayment date, giving the Bank the right, subject to Bank Negara Malaysia (‘BNM’) approval, to prepay the loans in whole or in part.

Interest on subordinated loans payable by quarterly.

Subordinated loan II and Subordinated loan III Value : RM300 million each

Interest rate : Cost of Fund (‘COF’) plus 1.00% per annum for the 10 years.

Maturity date : 26 May 2021 (Subordinated loan II) 16 January 2022 (Subordinated loan III)

COF refers to rate determined by the lender on an interest determination date falling within the interest duration.

Both subordinated loans are unsecured and also qualify for tier 2 capital for the purposes of determine the risk-weighted capital ratio of the Bank.

24 SHARE CAPITAL

Number of ordinary shares of RM1 each The Group and The Bank

2014 ‘000

2013 ‘000

2014 RM’000

2013 RM’000

AuthorisedAt beginning/end of the financial year 2,000,000 2,000,000 2,000,000 2,000,000

Issued and fully paidAt beginning of the financial year 1,518,337 1,518,337 1,518,337 1,518,337 Issued during the financial year 170,433 - 170,433 - At end of the financial year 1,688,770 1,518,337 1,688,770 1,518,337

During the financial year, the Bank’s issued and paid-up capital increased from RM1,518,337,000 to RM1,688,770,000 by

way of issuance of non-renounceable rights issue to the Bank’s holding company via:

(i) Issuance of 103,092,784 of new ordinary shares of RM1.00 each at an issue price of RM2.91 each amounting to RM300 million; and

(ii) Issuance of 67,340,067 of new ordinary shares of RM1.00 each at an issue price of RM2.97 each amounting to RM200 million.



25 RESERVES


RM’000 2013

RM’000 2014

RM’000 2013

RM’000

Retained profits 951,500 1,004,534 760,153 798,118

Share premium 858,904 529,337 858,904 529,337

AFS revaluation reserves 17,604 (1,960) 23,478 4,965

Statutory reserves 1,469,794 1,317,376 1,263,470 1,144,350

Regulatory reserves 184,366 - 135,347 -

3,482,168 2,849,287 3,041,352 2,476,770

Statutory reserves

At beginning of the financial year 1,317,376 1,160,651 1,144,350 1,017,200

Transfer from retained profits 152,418 156,725 119,120 127,150

At end of the financial year 1,469,794 1,317,376 1,263,470 1,144,350

(a) As at 31 December 2014, the Bank has a tax exempt account balance of RM10,931,988 (2013: RM10, 931,988) under Section 12 of the Income Tax (Amendment) Act 1999, subject to agreement by the Inland Revenue Board.

(b) The statutory reserves of the Group and the Bank are maintained in compliance with Section 47(2)(f) of the Financial

Services Act 2013 and Section 57(2)(f) of the Islamic Financial Services Act 2013 and is not distributable as cash dividends.

(c) AFS revaluation reserves represent the unrealised gains or losses arising from the change in fair value of investments

classified as financial investment available-for-sale. The gains or losses are transferred in the income statement upon disposal or when the securities become impaired.

(d) The Group and the Bank are required to maintain in aggregate collective impairment allowances and regulatory reserves of no less than 1.2% of total outstanding loans, advances and financing, net of individual impairment allowances.



26 INTEREST INCOME


RM’000 2013

RM’000 2014

RM’000 2013

RM’000

Loans, advances and financing 1,681,044 1,612,728 1,681,044 1,612,728

Money at call and deposit placements

with financial institutions 142,913 178,906 171,320 204,769

Reverse repurchase agreements with financial institutions - 234 - 234

Financial assets

- Held-for-trading 155,606 94,163 155,606 94,163

- Available-for-sale 234,629 202,084 234,629 201,936

- Held-to-maturity 20,062 19,984 20,062 19,984

Others - - 391 4,003

2,234,254 2,108,099 2,263,052 2,137,817

Accretion of discount less amortisation of premium 36,734 13,028 36,734 13,028

2,270,988 2,121,127 2,299,786 2,150,845

of which:

Interest income earned on impaired loans, advances and financing 7,933 10,957 7,933 10,957

27 INTEREST EXPENSE


RM’000 2013

RM’000 2014

RM’000 2013

RM’000

Deposits and placements of banks

and other financial institutions 92,204 119,487 92,235 119,498

Deposits from customers 1,163,362 1,025,610 1,163,398 1,025,644

Subordinated term loan 29,879 41,473 29,879 41,473

Loan sold to Cagamas Berhad 13,263 19,164 13,263 19,164

Interest rate derivatives 148,395 99,226 148,395 99,226

Others 4,425 3,108 4,425 3,108

1,451,528 1,308,068 1,451,595 1,308,113 28 INCOME FROM ISLAMIC BANKING BUSINESS

The Group 2014

RM’000 2013

RM’000

Income derived from investment of depositors’ funds and others 472,995 428,386

Income derived from investment of shareholders’ funds 33,586 29,781

Total distributable income 506,581 458,167

Income attributable to depositors (262,358) (237,422)

244,223 220,745

of which:

Financing income earned on impaired financing, advances and other financing 1,345 549



29 OTHER OPERATING INCOME

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Fee income

Commission 16,428 14,046 16,428 14,046

Service charges and fees 59,267 62,785 59,267 62,785

Guarantee fees 22,673 20,615 22,673 20,615

98,368 97,446 98,368 97,446

Income from financial instruments

Gain arising on financial assets

held-for-trading:

- net gain on disposal 347 366 347 366

- unrealised gains 219 455 219 455

566 821 566 821

Gains on derivatives:

- realised 6,789 3,156 6,789 3,156

- unrealised 7,302 5,282 7,302 5,282

14,091 8,438 14,091 8,438

Gain arising on financial investments

available-for-sale:

- net gain on disposal 9,743 22,369 9,743 18,894

- gross dividend income 2,589 4,058 2,589 4,058

12,332 26,427 12,332 22,952

Gain arising on financial investments

held-to-maturity:

- net gain on redemption 3,500 6,144 3,500 6,144

3,500 6,144 3,500 6,144

Other income

Foreign exchange gains 63,968 66,975 63,968 66,975

Rental income 1,646 1,673 1,635 1,631

Gain on sale of property and equipment 6,319 3,910 6,319 3,910

Gain on disposal of foreclosed properties 3,329 11,041 2,937 11,041

Other non-operating income 19,103 14,491 18,828 13,788

Subsidiaries - writeback of allowances for impairment losses - - - 1,707

94,365 98,090 93,687 99,052

223,222 237,366 222,544 234,853



30 OTHER OPERATING EXPENSES

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Personnel costs (a) 341,999 335,200 266,659 269,727

Establishment costs (b) 179,066 169,429 147,167 142,300

Marketing expenses (c) 16,843 16,485 14,068 13,332

Administrative and general expenses (d) 46,785 44,072 37,334 35,774

584,693 565,186 465,228 461,133

(a) Personnel costs

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Wages, salaries and bonuses 264,862 259,313 205,763 208,440

Defined contribution plan (‘EPF’) 43,298 42,198 33,669 33,929

Other personnel costs 33,839 33,689 27,227 27,358

341,999 335,200 266,659 269,727

(b) Establishment costs

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Rental of premises 23,430 21,496 18,933 17,723

Equipment rental 1,099 898 974 782

Repair and maintenance 31,228 26,337 25,517 21,942

Depreciation of property and equipment 14,951 16,019 13,954 15,166

Amortisation of intangible assets 6,304 7,989 5,529 7,197

IT Consultancy fees 61,746 61,893 51,989 53,231

Dataline rental 4,523 3,890 3,799 3,372

Security services 17,652 13,566 13,867 10,899

Electricity, water and sewerage 10,521 9,566 8,597 7,994

Insurance and indemnities 3,890 3,853 3,870 3,731

Other establishment costs 3,722 3,922 138 263

179,066 169,429 147,167 142,300



30 OTHER OPERATING EXPENSES (c) Marketing expenses

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Business promotion and advertisement 8,551 7,860 7,532 6,660

Entertainment 2,984 2,628 2,559 2,244

Traveling and accommodation 3,641 4,494 2,802 3,328

Other marketing expenses 1,667 1,503 1,175 1,100

16,843 16,485 14,068 13,332

(d) Administration and general expenses

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Telecommunication expenses 5,522 5,558 4,353 4,655

Auditors’ remuneration 1,778 1,433 1,285 1,036

Professional fees 6,686 6,142 5,640 5,154

Property and equipment written-off 114 91 110 91

Mail and courier charges 3,432 2,777 2,716 2,310

Stationery and consumables 8,569 8,902 6,126 6,566

Commissions expenses 3,110 3,215 2,851 2,996

Brokerage expenses 1,662 1,368 974 1,242

Directors’ fees and allowances 1,927 1,873 1,472 1,480

Donations 3,662 1,706 3,430 1,619

Settlement, clearing and bank charges 7,388 7,131 6,816 6,779

Stamp duties 177 198 173 196

Operational and litigation write-off expenses 19 - 19 -

Other administration and general expenses 2,739 3,678 1,369 1,650

46,785 44,072 37,334 35,774

The expenditure includes the following statutory disclosure:

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Directors’ remuneration (Note 31) 8,621 8,281 8,166 7,888

Auditors’ remuneration

- statutory audit fees 926 850 729 682

- audit related fees 391 465 245 297

- non audit fees 461 118 311 57



31 CEO AND DIRECTORS’ REMUNERATION

The MD/CEO and Directors of the Bank who have held office during the financial year are as follows: Managing Director/Chief Executive Officer Dato’ Zulkiflee Abbas Bin Abdul Hamid

Non-Executive Directors Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) (Chairman) Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin Dr Raja Abdul Malek Bin Raja Jallaludin (Retired w.e.f. 29.3.2014) Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman Tan Sri Dato’ Seri Mohamed Jawhar Tan Sri Mohd Ghazali bin Mohd Yusoff (Appointment w.e.f. 20.6.2014) En. Mohd Suffian Bin Haji Haron Mr Aubrey Li Kwok-Sing Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing) (Resigned w.e.f. 17.3.2014) Mr Tang Peng Wah (Alternate Director to Mr Aubrey Li Kwok-Sing) (Appointment w.e.f. 23.6.2014)

The aggregate amount of remuneration for the Directors of the Bank for the financial year were as follows:

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Managing Director/Chief Executive Officer

Salaries 1,980 1,935 1,980 1,935

Bonuses 3,418 3,315 3,418 3,315

Defined contribution plan (‘EPF’) 1,044 907 1,044 907

Other employee benefits 99 99 99 99

Benefits-in-kind 153 152 153 152

Non-Executive Directors

Fees 1,899 1,844 1,444 1,451

Benefits-in-kind 28 29 28 29

Directors’ remuneration (Note 30) 8,621 8,281 8,166 7,888



31 CEO AND DIRECTORS’ REMUNERATION A summary of the total remuneration of the MD/CEO and Directors, distingushing between Executive and Non-Executive

Directors.

Directors’Fees

RM’000

* Otheremoluments

RM’000

Benefits-in-kind

RM’000The Group2014

SalariesRM’000

BonusesRM’000

TotalRM’000

Managing Director/ Chief Executive Officer

Dato’ Zulkiflee Abbas Bin Abdul Hamid 1,980 3,418 - 1,143 153 6,694

Total 1,980 3,418 - 1,143 153 6,694

Non-executive Directors

Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) - - 338 96 26 460

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin - - 355 - - 355

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman - - 363 - 2 365

Tan Sri Dato’ Seri Mohamed Jawhar - - 378 - - 378

En. Mohd Suffian Bin Haji Haron - - 369 - - 369

Total - - 1,803 96 28 1,927

Grand total 1,980 3,418 1,803 1,239 181 8,621

2013



Total 1,935 3,315 - 1,006 152 6,408


Jen Tan Sri Dato’ Seri Ismail Bin HajiOmar (Bersara) - - 338 96 29 463


Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman - - 351 - - 351



Total - - 1,748 96 29 1,873

Grand total 1,935 3,315 1,748 1,102 181 8,281

* Executive Director’s other emoluments include allowance and EPF.




Directors’Fees

RM’000

* Otheremoluments

RM’000

Benefits-in-kind

RM’000The Bank2014

SalariesRM’000

BonusesRM’000

TotalRM’000

Managing Director/Chief Executive Officer


Total 1,980 3,418 - 1,143 153 6,694




Dr. Raja Abdul Malek Bin Raja Jallaludin - - 59 - - 59

Tan Sri Mohd Ghazali Bin Mohd Yusoff - - 124 - - 124

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman - - 218 - 2 220



Mr Aubrey Li Kwok-Sing - - 125 - - 125

Mr Tang Peng Wah - - 3 - - 3

Total - - 1,348 96 28 1,472

Grand total 1,980 3,418 1,348 1,239 181 8,166





Directors’Fees

RM’000

* Otheremoluments

RM’000

Benefits-in-kind

RM’000The Bank2013

SalariesRM’000

BonusesRM’000

TotalRM’000



Total 1,935 3,315 - 1,006 152 6,408




Dr. Raja Abdul Malek Bin Raja Jallaludin - - 226 - - 226

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman - - 212 - - 212



Mr Aubrey Li Kwok-Sing - - 112 - - 112

Mr Gary Cheng Shui Hee - - 7 - - 7

Total - - 1,355 96 29 1,480

Grand total 1,935 3,315 1,355 1,102 181 7,888




32 WRITE-BACK OF ALLOWANCES FOR LOSSES ON LOANS, ADVANCES AND FINANCING

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Individual impairment

- made during the financial year 87,611 47,903 86,102 47,213

- written-back (4,386) (4,031) (604) (3,598)

Collective impairment

- net allowance made during the financial year 35,666 15,253 29,283 15,011

Bad debts and financing

- recovered (141,739) (120,645) (141,344) (119,702)

- written-off 4,380 4,583 4,370 4,509

(18,468) (56,937) (22,193) (56,567) 33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES Related parties that have transactions and their relationship with the Bank are as follows:

Related parties Relationship

Lembaga Tabung Angkatan Tentera (‘LTAT’) Ultimate holding corporate body, which is Government-Linked Investment Company (‘GLIC’) of the Government of Malaysia

AFFIN Holdings Berhad (‘AHB’) Holding company

Subsidiaries and associates of LTAT Subsidiary and associate companies of the ultimate holding corporate body

Subsidiaries and associates of AHB as disclosed in its financial statements

Subsidiary and associate companies of the holding company

Subsidiaries of AFFIN Bank Berhad as disclosed in Note 13 Subsidiaries

Joint ventures as disclosed in Note 14 Joint ventures

Key management personnel The key management personnel of the Group and the Bank consist of:

- Directors - Managing Director/Chief Executive Officer - Members of Senior Management team and the company

secretary

Related parties of key management personnel (deemed as related to the Bank)

- Close family members and dependents of key management personnel

- Entities that are controlled, jointly controlled or for which significant voting power in such entity resides with, directly or indirectly by key management personnel or its close family members

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling

the activities of the Group and the Bank either directly or indirectly. Key management personnel includes the Managing Director/Chief Executive Officer of the Bank in office during the financial year and his remuneration for the financial year are disclosed in Note 31.


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33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

(a) Related parties transactions and balances (continued)

Ultimate holding corporate body

Holding company

Other related companies

The Group2014

RM’0002013

RM’0002014

RM’0002013

RM’0002014

RM’0002013

RM’000

Amount due fromPrivate debt securities - - - - 787,747 782,076

Loans, advances and financing - - - - 2,258,158 1,334,698

Deposits and placement with banks and other financial institutions - - - 3,852 56,000 213,447

Intercompany balances - - - - 14,855 4,185

Security deposits - - 7 - 2,993 2,992

- - 7 3,852 3,119,753 2,337,398

Amount due toDemand and saving deposits 97,771 160,122 4,218 3,328 272,486 410,447

Fixed deposits 22,114 201,452 117,684 133,184 522,394 393,664

Negotiable instruments of deposit - - - - 120,370 120,656

Deposits and placement of banks and other financial institutions - - - - 332,004 211,042

Special investment deposits - - - - - 68,726

Money market deposits 300,423 399,838 485 300 66,988 129,938

Subordinated term loan - - 604,310 904,964 - -

420,308 761,412 726,697 1,041,776 1,314,242 1,334,473

Commitments and contingencies - - - - 1,977,952 1,668,959

Companies in which certain Directors have

substantial interestKey management

personnel

The Group2014

RM’0002013

RM’0002014

RM’0002013

RM’000

Amount due fromLoans, advances and financing - - 2,540 2,812

- - 2,540 2,812

Amount due toDemand and saving deposits 145 45 6,519 6,002

Fixed deposits - - 4,520 11,123

145 45 11,039 17,125

Commitments and contingencies - - - -

No impairment allowances were required at the Group and the Bank in 2014 and 2013 for loans, advances and financing made to key management personnel.


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(a) Related parties transactions and balances (continued)

Ultimate holding corporate body Holding company Subsidiaries

The Bank2014

RM’0002013

RM’0002014

RM’0002013

RM’0002014

RM’0002013

RM’000

Amount due fromSpecial investment account - - - - 826,689 715,807 Deposits and placements with

banks and other financial institutions - - - 3,852 68,741 93,945

Intercompany balances - - - - 438 60,723 Security deposits - - 7 - - -

- - 7 3,852 895,868 870,475

Amount due toDemand and saving deposits 96,169 158,706 4,218 3,328 849 1,898Fixed deposits 22,114 156,545 117,684 133,184 390 1,826Deposits and placement of banks

and other financial institutions - - - - - 26,720 Money market deposits 300,423 399,838 485 300 - - Intercompany balances - - - - 296,781 53,559 Subordinated term loan - - 604,310 904,964 - -

418,706 715,089 726,697 1,041,776 298,020 84,003

Commitments and contingencies - - - - - -

Other related companies

Companies which certain Directors have

substantial interestKey management

personnel

The Bank2014

RM’0002013

RM’0002014

RM’0002013

RM’0002014

RM’0002013

RM’000

Amount due fromPrivate debt securities 787,747 782,076 - - - - Loans, advances and financing 1,824,678 1,235,568 - - 2,540 2,812 Deposits and placement of banks

and other financial institutions 56,000 213,447 - - - - Security deposits 2,993 2,992 - - - -

2,671,418 2,234,083 - - 2,540 2,812

Amount due toDemand and saving deposits 255,969 394,704 - - 4,656 4,531Fixed deposits 335,147 346,665 - - 1,626 9,436Negotiable instruments of deposit 120,370 120,656 - - - - Deposits and placement of banks

and other financial institutions 332,004 211,042 - - - - Money market deposits 66,988 129,938 - - - -

1,110,478 1,203,005 - - 6,282 13,967

Commitments and contingencies 1,910,887 1,550,779 - - - -

No impairment allowances were required at the Bank in 2014 and 2013 for loans, advances and financing made to key management.




(b) Key management personnel compensation The remuneration of key management personnel of the Group and the Bank during the year are as follows:

The Group The Bank2014

RM’0002013

RM’0002014

RM’0002013

RM’000

Directors’ fees and allowancesFees 1,899 1,844 1,444 1,451 Benefits-in-kind 28 29 28 29

1,927 1,873 1,472 1,480

Short-term employment benefitsSalaries 7,870 7,681 7,225 7,081 Bonuses 10,133 10,852 9,455 10,072 Defined contribution plan (‘EPF’) 3,197 3,177 2,979 2,949 Other employee benefits 1,111 1,168 1,068 1,125 Benefits-in-kind 428 512 340 442

22,739 23,390 21,067 21,669

Included in the above table is the CEO and directors’ remuneration as disclosed in Note 31. 34 TAXATION


RM’0002013

RM’0002014

RM’0002013

RM’000

The taxation charge arising in Malaysia for the financial year

Current tax 172,347 180,425 149,819 159,936 (Over)/under provision in prior year (1,365) 1,881 482 2,320 Deferred tax (Note 11) 649 1,501 920 1,674

Tax expense for the year 171,631 183,807 151,221 163,930



34 TAXATION


%2013

%2014

%2013

%

Statutory tax rate in Malaysia 25.00 25.00 25.00 25.00 Tax effect in respect of:Non allowable expenses 0.26 0.41 0.18 0.23 Non taxable income (0.31) (0.18) (0.35) (0.27)Utilisation of previously unrecognised tax losses (0.01) (0.12) - - Effect of different tax rate (0.71) (0.86) (0.81) (0.97)Tax savings arising from income exempt from tax

for International Currency Business Unit (‘ICBU’) (0.05) (0.17) - -

(Over)/under accrual in prior years (0.19) 0.25 0.08 0.34

Change in tax rate - 0.05 (0.01) 0.05

Average effective tax rate 23.99 24.38 24.09 24.38

Tax savings of the Group as a result of utilisation of tax losses brought forward from previous years from which the related credit is recognised during the financial year amounted to RM87,000 (2013: RM922,320).

35 EARNINGS PER SHARE

The basic earnings per ordinary share for the Group and the Bank have been calculated based on the net profit attributable to equity holders of the Group and the Bank of RM543,727,000 (2013: RM569,822,000) and RM476,479,000 (2013: RM508,599,000) respectively. The weighted average number of shares in issue during the financial year of 1,633,403,000 (2013: 1,518,337,000) is used for the computation.

36 DIVIDENDS Dividends recognised as distribution to ordinary equity holders of the Bank:

The Group and The Bank2014


Dividendper share

sen

Amount ofdividendRM’000

Dividendper share

sen

Amount ofdividendRM’000

Ordinary shares

Single tier dividend:

- Interim dividend 10.00 168,877 10.00 151,834

- Final dividend 6.00 91,100 6.00 91,100

16.00 259,977 16.00 242,934

At the forthcoming Annual General Meeting, a single-tier final dividend in respect of the current financial year of 3.91 sen per share amounting to RM66,030,892 will be proposed for shareholders’ approval. These financial statements do not reflect this final dividend which will be accounted for in the shareholder’s equity as an appropriation of retained profits in the financial year ending 31 December 2015 when approved by the shareholder.



37 COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Group and the Bank make various commitments and incurs certain contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of these transactions. These commitment and contingencies are not secured over the assets of the Group and the Bank.

The commitments and contingencies consist of:

The Group The Bank

2014 2013 2014 2013

PrincipalamountRM’000




Direct credit substitutes (*) 679,779 1,410,611 669,843 1,402,157

Transaction-related contingent items 2,043,704 1,974,804 1,891,540 1,849,237

Short-term self-liquidating trade-related contingencies 746,576 573,412 345,057 353,020

Irrevocable commitments to extend credit: 10,663,047 9,444,689 9,137,777 8,131,913

- maturity less than one year 8,641,021 7,263,403 7,428,229 6,285,251

- maturity more than one year 2,022,026 2,181,286 1,709,548 1,846,662

Foreign exchange related contracts (#): 5,658,337 4,326,451 5,679,280 4,326,451

- less than one year 5,110,352 3,636,267 5,131,295 3,636,267

- one year to less than five years 451,955 594,154 451,955 594,154

- more than five years 96,030 96,030 96,030 96,030

Interest rate related contracts (#): 3,427,552 3,954,438 3,427,552 3,954,438

- less than one year 1,256,279 809,068 1,256,279 809,068

- one year to less than five years 1,781,125 2,442,222 1,781,125 2,442,222

- more than five years 390,148 703,148 390,148 703,148

Unutilised credit card lines 208,865 179,201 208,865 179,201

23,427,860 21,863,606 21,359,914 20,196,417

* Included in direct credit substitutes as above are financial guarantee contracts of RM454.7 million and RM444.8 million at the Group and the Bank, respectively (2013: RM336.6 million and RM328.1 million at the Group and the Bank, respectively), of which fair value at the time of issuance is zero.

# The fair value of these derivatives have been recognised as “derivative financial assets” and “derivative financial liabilities” in the statement of financial position and disclosed in Note 5 and 19 to the financial statements.



38 FINANCIAL RISK MANAGEMENT

(i) Credit risk

Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial and contractual obligations to the Bank. Credit risk emanates mainly from loans, advances and financing, loan commitments arising from such lending activities, as well as through financial transactions with counterparties including interbank money market activities, derivative instruments used for hedging and debt securities.

The management of credit risk in the Bank is governed by a set of approved credit policies, guidelines and procedures. Approval authorities are delegated to Senior Management and Group Management Loan Committee (‘GMLC’) to implement the credit policies and ensure sound credit granting standards.

An independent Group Risk Management (‘GRM’) function, headed by Group Chief Risk Officer (‘GCRO’), with direct reporting line to Board Risk Management Committee (‘BRMC’) is in place to ensure adherence to risk standards and discipline. Portfolio management risk reports are submitted regularly to BRMC.

Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Annual Credit Plan. The Annual Credit Plan is reviewed at least annually and approved by the BRMC.

Credit risk measurement

Loans, advances and financing Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank’s

underwriting criteria and the ability of the Bank to make a return commensurate to the level of risk undertaken. A critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in the risk assessment and decision making process. The Bank has developed internal rating models to support the assessment and quantification of credit risk.

For consumer mass market products, statistically developed application scorecards are used by the Business to assess the risks associated with the credit application. The scorecards are used as a decision support tool at loan origination.

Over-the-Counter (‘OTC’) Derivatives

The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure method, computation of credit equivalent exposure for interest rate and exchange rate related contracts is derived from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to maturity).

Risk limit control and mitigation policies The Bank employs various policies and practices to control and mitigate credit risk. Lending limits

The Bank establishes internal limits and related lending guidelines to manage large exposures and avoid undue concentration of credit risk in its credit portfolio. The limits include single customer groupings, large exposures, connected parties, and geographical and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on changing market and economic conditions.

The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customers together with potential exposure from market movements.




(i) Credit risk (continued) Risk limit control and mitigation policies (continued) Collateral

Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:

- mortgage over residential properties; - charges over commercial real estate or vehicles financed; - charges over business assets such as business premises, inventory and accounts receivable; and - charges over financial instruments such as marketable equities.

Documentary and commercial letters of credit are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Credit related commitments Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees

or letters of credit. In terms of credit risk, the Bank is potentially exposed to loss in an amount equal to the total unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.

The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than short-term commitments.

Credit risk monitoring

Retail credits are actively monitored and managed on a portfolio basis by product type. A collection management system is in place to promptly identify, monitor and manage delinquent accounts at early stages of delinquency.

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against updated information. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses or deterioration in the credit quality. Remedial action is taken where evidence of deterioration exists.

Early Alert Process is in place as part of a means to pro-actively identify, report and manage deteriorating credit quality. Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.

Active portfolio monitoring enables the Bank to understand the overall risk profile and identify any adverse trends or areas of risk concentrations affecting asset quality so that appropriate actions are adopted to manage and mitigate risks.



38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued)

Credit risk culture

The Bank recognises that learning is a continuous journey and is committed to enhance the knowledge and required skills set of its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation.

For effective and efficient staff learning, an E-Learning Program is implemented with an online Learning Management System (‘LMS’). The LMS provides staff with a progressive self-learning alternative at own pace.

Group Risk Management implements an Internal Credit Certification (‘ICC’) Programme for both Business Banking and Consumer Credit.

The aim of the ICCs is to assist the core credit related group of personnel in the Bank achieve a minimum level of

knowledge and analytical skills required to make sound corporate and commercial loans to customers.

Maximum exposure to credit risk

For financial assets recognised on the statement of financial position, the exposure to credit risk equals their carrying amount. For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that the Group and the Bank would have to pay if guarantee were to be called upon. For loan commitments and other commitments, the maximum exposure to credit risk is the full amount of the undrawn credit facilities granted to customers.

All financial assets of the Group and the Bank are subject to credit risk except for cash in hand, equity securities held as financial assets held-for-trading or financial investments available-for-sale, as well as non-financial assets.

The exposure to credit risk of the Group and the Bank equals their carrying amount in the statement of financial position as at reporting date, except for the followings:

The Group The Bank

2014 2014 2014 2014

Carrying

Value RM’000

Maximum Credit

Exposure RM’000

Carrying Value

RM’000

Maximum Credit

Exposure RM’000

Credit risk exposures of on-balance sheet assets:

Cash and short-term funds * 6,938,912 6,770,321 * 3,777,042 3,608,451

Financial investments available-for-sale # 9,947,911 9,817,200 # 8,415,411 8,284,726

Other assets @ 223,406 200,875 @ 174,655 153,014

Credit risk exposure of off-balance sheet items:

Financial guarantees ^ 454,742 454,742 ^ 444,806 444,806

Loan commitments and other credit related commitments ^ 13,887,229 4,177,194 ^ 11,808,276 3,622,011

Total maximum credit risk exposure 31,452,200 21,420,332 24,620,190 16,113,008




(i) Credit risk (continued)

Maximum exposure to credit risk (continued))

The Group The Bank

2013 2013 2013 2013

Carrying

Value RM’000

Maximum Credit

Exposure RM’000

Carrying Value

RM’000

Maximum Credit

Exposure RM’000

Credit risk exposures of on-balance sheet assets:

Cash and short-term funds * 9,401,701 9,234,368 * 4,987,696 4,820,362

Financial investments available-for-sale # 7,614,537 7,495,386 # 6,331,414 6,212,331

Other assets @ 220,097 191,679 @ 176,555 148,663

Credit risk exposure of off-balance sheet items:

Financial guarantees ^ 336,577 336,577 ^ 328,123 328,123

Loan commitments and other credit related commitments ^ 13,246,140 4,755,283 ^ 11,587,405 4,285,478

Total maximum credit risk exposure 30,819,052 22,013,293 23,411,193 15,794,957

The following have been excluded for the purpose of maximum credit risk exposure calculation:* cash in hand# investment in quoted and unquoted shares@ prepayment^ amount stated at notional value

Whilst the Group and the Bank’s maximum exposure to credit risk is the carrying value of the assets, or in the case of off-balance sheet items, the amount guaranteed, committed or accepted, in most cases the likely exposure is far less due to collateral, credit enhancements and other actions taken to mitigate the credit exposure.

The financial effect of collateral held for loans, advances and financing of the Group and the Bank are 67% (2013: 68%) and 66% (2013: 66%) respectively. The financial effects of collateral for the other financial assets are insignificant.


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1





Collaterals

The main types of collateral obtained by the Group and the Bank are as follows:- for personal housing loans, mortgages over residential properties;- for commercial property loans, charges over the properties being financed;- for hire purchase, charges over the vehicles or plant and machineries financed; and- for other loans, charges over business assets such as premises, inventories, trade receivables or deposits.

Total loans, advances and financing - credit quality

All loans, advances and financing are categorised into “neither past due nor impaired”, “past due but not impaired” and “impaired”. Past due loans refer to loans that are overdue by one day or more. Impaired loans are loans with months-in-arrears more than 3 months (i.e. 90 days) or with impairment allowances.

Distribution of loans, advances and financing by credit quality

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Neither past due nor impaired (a) 36,629,306 33,612,968 30,006,363 28,026,769

Past due but not impaired (b) 2,645,096 2,432,647 2,164,663 2,033,298

Impaired (c) 713,648 706,185 584,491 574,555

Gross loans, advances and financing 39,988,050 36,751,800 32,755,517 30,634,622

less: Allowance for impairment

- Individual (239,259) (223,701) (207,740) (189,117)

- Collective (292,619) (300,314) (255,226) (266,595)

Net loans, advances and financing 39,456,172 36,227,785 32,292,551 30,178,910





Total loans, advances and financing - credit quality (continued)

(a) Loans neither past due nor impaired Analysis of loans, advances and financing that are neither past due nor impaired analysed based on the Group

and the Bank’s internal credit grading system is as follows:

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Quality classification

Satisfactory 33,065,493 30,400,612 26,834,857 25,143,738

Special mention 3,563,813 3,212,356 3,171,506 2,883,031

36,629,306 33,612,968 30,006,363 28,026,769

Quality classification definitions Satisfactory: Exposures demonstrate a strong capacity to meet financial commitments, with negligible or low

probability of default and/or levels of expected loss.

Special mention: Exposures require varying degrees of special attention and default risk is of greater concern.

(b) Loans past due but not impaired

Certain loans, advances and financing are past due but not impaired as the collateral values of these loans are in excess of the principal and profit outstanding. Allowances for these loans may have been set aside on a portfolio basis. The Bank’s loans, advances and financing which are past due but not impaired are as follows:

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Past due up to 30 days 1,510,507 1,312,337 1,298,568 1,165,696

Past due 31-60 days 801,073 767,638 607,415 595,137

Past due 61-90 days 333,516 352,672 258,680 272,465

2,645,096 2,432,647 2,164,663 2,033,298





Total loans, advances and financing - credit quality (continued) (c) Loans impaired

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Analysis of impaired assets:

Gross impaired loans 713,648 706,185 584,491 574,555

Individually impaired loans 407,907 367,220 324,945 272,043

Collateral and other credit enhancements obtained

During the year, the Bank has obtained the following assets by taking possession of collateral held as security or calling upon other credit enhancements.

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Nature of assets

Industrial and residential properties 9,099 15,825 8,508 14,646

Deposits and short-term funds, private debt securities, treasury bills and derivatives - credit quality

Private debt securities, treasury bills and other eligible bills included in financial assets held-for-trading and financial investments available-for-sale are measured on a fair value basis. The fair value will reflect the credit risk of the issuer.

Most listed and some unlisted securities are rated by external rating agencies. The Group and the Bank mainly uses external credit ratings provided by RAM, MARC, Standard & Poors’ or Moody’s.

The table below presents the deposits and short-term funds, private debt securities, treasury bills and other eligible bills by that neither past due nor impaired, analysed by rating.


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Other financial assets - credit quality

Other financial assets of the Group and the Bank are neither past due nor impaired are summarised as below:

The Group The Bank

2014RM’000

2013RM’000

2014RM’000

2013RM’000

Other assets 200,875 191,679 153,014 148,663

Amount due from subsidiaries - - 438 60,723

Amount due from joint ventures 14,855 4,185 - -

Other financial assets that are past due but not impaired or impaired are not significant.

(ii) Market risk

Market risk is defined as the risk of losses to the Bank’s portfolio positions arising from movements in market factors such as interest rates, foreign exchange rates and changes in volatility. The Bank is exposed to market risks from its trading and investment activities. The Bank’s market risk management objective is to ensure that market risk is appropriately identified, measured, controlled, managed and reported.

The Bank’s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate risk arises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives. The Bank is also exposed to basis risk when there is a mismatch between the change in price of a hedge and the change in price of the assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers’ requirements and proprietary positions.

The Bank’s market risk management control strategy is established based on its risk appetite, market liquidity and business strategies as well as macroeconomic conditions. These limits are reviewed at least on an annual basis.

Market risk arising from the Bank’s trading book is primarily controlled through the imposition of Cut-loss and Value-at-Risk (‘VaR’) Limits.

The Bank quantifies interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate sensitive liabilities. It also conducts Net Interest Income simulations to assess the variation in earnings under various rates scenarios. The potential long term effects of the Bank’s overall exposure is also tracked by assessing the impact on economic value of equity (‘EVE’).

The Bank’s interest rate risk is managed through Earnings-at-Risk (‘EaR’) and Economic Value-at-Risk (‘EVaR’) limits.

In addition, the Bank conducts periodic stress test of its respective business portfolios to ascertain market risk under abnormal market conditions.

The Bank’s Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.




(ii) Market risk (continued) Value-at-risk (‘VaR’) Value-at-Risk (‘VaR’) is used to compute the maximum potential loss amount over a specified holding period of a

trading portfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign exchange rates that could affect values of financial instruments.

In May 2014, arising from the Bank’s Treasury Management System Upgrade project, the Bank changed its methodology of computing potential loss amount or Value-at-Risk (‘VaR’) to Historical Pricing Simulation Method (‘HPS’) from the current Variance Co-variance (‘VCV’) approach. HPS was chosen because it is a robust methodology able to cater for a spectrum of financial instruments.

The Historical Pricing Method uses the relative change of historical prices to estimate future potential changes in the market value of outstanding positions. The Bank currently adopts 250 simulated business days for its HPS VaR computation. After applying these price changes to the outstanding portfolios, 250 simulated market values for the portfolio are generated and the change in the day-to-day market value is taken as simulated Profit & Loss (‘P&L’) for the portfolio. Since VaR calculates the worst expected loss over a given day horizon and confidence level under normal market condition, simulated 250 values are sorted from the lowest to the highest simulated P&L. The VaR focuses on the tail of the distribution (i.e the loss figures).

The table below sets out a summary of the Bank’s VaR profile by financial instrument types for the trading portfolio:


Balance RM’000

Averagefor the

financial year RM’000

Minimum RM’000

Maximum RM’000

Instruments

FX swap 668 432 6 2,400

FX spot (Metro Desk) 138 222 31 776

FX option 5 206 5 550

Government securities 1 - - 3


Balance RM’000

Averagefor the

financial year RM’000

Minimum RM’000

Maximum RM’000

Instruments

FX swap 713 607 252 1,375

FX spot (Metro Desk) 88 150 6 678

Government securities 2 - - 2

Private debt securities - - - 60




(ii) Market risk (continued) Other risk measures

• Mark-to-market Mark-to-market valuation tracks the current market value of the outstanding financial instruments. • Stress testing Stress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market

movements. Stress tests measure the changes in values arising from extreme movements in interest rates and foreign exchange rates based on past experience and simulated stress scenarios.

Interest/profit rate sensitivity

The table below shows the sensitivity for the financial assets and financial liabilities held at reporting date.

Impact on profit after tax is measured using Repricing Gap Simulation Methodology based on 100 basis point parallel shifts in interest/profit rate.

Impact on equity represents the changes in fair values of fixed income instruments held in available-for-sale portfolio arising from the shift in interest/profit rate.

The Group The Bank2014 2014 2014 2014

+100 basis point RM million

-100 basis point RM million



Impact on profit after tax (18.8) 18.8 (26.4) 26.4

Impact on equity (206.8) 217.1 (176.2) 184.9

The Group The Bank2013 2013 2013 2013





Impact on profit after tax (13.9) 13.9 (16.1) 16.1

Impact on equity (186.7) 199.2 (163.2) 174.4




(ii) Market risk (continued) Foreign exchange risk sensitivity analysis An analysis of the exposure to assess the impact of a one per cent change in exchange rate to the profit after tax are

as follows:

The Group The Bank

2014RM’000

2013RM’000

2014RM’000

2013RM’000

+1%

Euro 1,206 1,966 886 1,551

United States Dollar 35,418 39,858 33,763 38,156

Great Britain Pound 33 1,165 36 1,155

Australian Dollar 211 1,173 217 1,167

Japanese Yen 45 14 42 16

Others 10,926 3,808 9,929 3,800

47,839 47,984 44,873 45,845

-1%

Euro (1,206) (1,966) (886) (1,551)

United States Dollar (35,418) (39,858) (33,763) (38,156)

Great Britain Pound (33) (1,165) (36) (1,155)

Australian Dollar (211) (1,173) (217) (1,167)

Japanese Yen (45) (14) (42) (16)

Others (10,926) (3,808) (9,929) (3,800)

(47,839) (47,984) (44,873) (45,845)

Foreign exchange risk

The Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Limits are set on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. The following table summarises the Bank’s exposure to foreign currency exchange rate risk at reporting date. Included in the table are the Bank’s financial instruments at carrying amounts, categorised by currency.


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isk

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)

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-

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8,08

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Dep

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cem

ents

of b

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nanc

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inst

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274

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9

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fin

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-

315

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Fina

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-

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149

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Fina

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17)

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21 3

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1,5

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TAT

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31

Dec

emb

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014

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii)

Mar

ket

risk

(co

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)

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(co

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)

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ook

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Up

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13,

043,

316

8,5

79,8

19

11,

940,

823

116

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-

3

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-

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Dep

osits

and

pla

cem

ents

of b

anks

and

oth

er fi

nanc

ial

inst

itutio

ns

955

,762

1

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1

79,3

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-

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6,9

66

-

2,6

59,5

35

Der

ivat

ive

finan

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liab

ilitie

s -

-

-

-

-

-

9

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-

-

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8 -

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8

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ours

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ans

sold

to

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Ber

had

-

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394

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-

3

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-

3

97,7

90

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ord

inat

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erm

loan

900

,000

-

-

-

-

4

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-

9

04,9

64

Oth

er li

abili

ties

-

-

-

-

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359,

837

-

359,

837

Am

ount

due

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sub

sid

iarie

s -

-

-

-

-

5

3,55

9 -

5

3,55

9

Tota

l lia

bili

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14,

899,

078

10,

097,

234

12,

120,

215

511

,479

-

3,

638,

615

94,

522

41,3

61,1

43

Net

inte

rest

sen

sivi

ty g

ap 6

,383

,327

(6

,701

,470

) (8

,047

,965

) 9

,539

,060

3

,679

,176




(iii) Liquidity risk

Liquidity risk is the current and prospective risk to earnings or capital arising from a bank’s inability to meet its obligations when they fall due. Liquidity risk includes the inability to manage sudden decreases or changes in funding sources. Liquidity risk also arises from the failure to recognise changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

Liquidity risk management is managed on Group basis. The objective of liquidity risk management is to ensure that there are sufficient funds to meet contractual and regulatory obligations without incurring unacceptable losses as well as to undertake new transactions. The Group’s liquidity management process involves establishing liquidity risk management policies and limits, liquidity risk limits monitoring, stress testing and establishing contingency funding plans. These building blocks of liquidity risk management are subject to regular reviews to ensure relevance in the context of prevailing market conditions.

Liquidity monitoring is performed via projection of contractual and behavioral cash flows, which are built upon from BNM’s Liquidity Framework (‘LF’). The LF ascertains the liquidity condition based on the contractual and behavioral cash-flow of assets, liabilities and off-balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets. The LF is also supported by indicative ratios on the Bank’s funding structure to monitor the reliance on particular funding sources. Liquid assets in excess of regulatory requirements are maintained for contingency in the event of a liquidity crisis.

The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. Liquidity risk is tracked using internal and external qualitative and quantitative indicators. Liquidity positions in the major currencies are being closely monitored by tracking the availability of medium to long term foreign currency funding and adhering to the guiding principles for foreign currency assets creations.

The Bank also conducts liquidity stress test to gauge its resilience in the event of a liquidity crisis. A Contingency Funding Plan is in place to alert and enable Management to act effectively and efficiently in handling liquidity disruption. The document encompasses early warning system, strategies, decision-making authorities, and courses of actions to be taken in the event of liquidity crisis and emergencies.

Basel III Liquidity Standards

The Basel Committee developed the Liquidity Coverage Ratio (‘LCR’) and Net Stable Funding Ratio (‘NSFR’) with the goal of strengthening the resilience of banking systems. The LCR and NSFR are tracked monthly to assess the short term and long term liquidity risk profile of the Bank, in line with BNM observation period reporting for Basel III liquidity ratios which commenced in June 2012.

The BRMC is responsible for the Bank’s liquidity policy although the strategic management of liquidity has been delegated to the ALCO. The BRMC is informed regularly on the liquidity situation in the Bank.




(iii) Liquidity risk (continued)

Liquidity risk disclosure table which is based on contractual undiscounted cash flow

The table below provides analysis of cash flow payables for financial liabilities based on remaining contractual maturities on undiscounted basis. The balances in the table below do not agree directly to the balances reported in the statement of financial position as the table incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments.

The Group2014

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

Deposits from customers 22,031,100 12,648,427 13,058,333 700,615 10,347 48,448,822

Deposits and placements of banks and other financial institutions 2,101,968 2,337,475 472,699 - - 4,912,142

Bills and acceptances payable 94,308 - - - - 94,308

Recourse obligation on loans sold to Cagamas Berhad - 2,572 7,729 139,712 - 150,013

Other liabilities 359,644 - - - - 359,644

Subordinated term loan 1,175 2,236 20,764 110,716 651,190 786,081

24,588,195 14,990,710 13,559,525 951,043 661,537 54,751,010

The Group2013

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000




Recourse obligation on loans sold to Cagamas Berhad 2,791 5,312 263,436 150,442 - 421,981


Subordinated term loan 3,526 305,835 19,777 105,072 671,474 1,105,684

24,121,389 11,947,708 15,459,184 423,061 682,507 52,633,849





Liquidity risk disclosure table which is based on contractual undiscounted cash flow (continued)

The Bank2014

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000




Recourse obligation on loans sold to Cagamas Berhad - 2,572 7,729 139,712 - 150,013


Amount due to subsidiaries 296,781 - - - - 296,781

Subordinated term loan 1,175 2,236 20,764 110,716 651,190 786,081

18,315,002 13,002,644 11,201,620 701,352 661,537 43,882,155

The Bank2013

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000


Deposits and placements of banks and other financial institutions 958,535 1,527,301 182,527 - - 2,668,363





Subordinated term loan 3,526 305,835 19,777 105,072 671,474 1,105,684

17,424,569 10,560,578 12,721,291 420,107 682,507 41,809,052





Derivative financial liabilities

Derivative financial liabilities based on contractual undiscounted cash flow:

The Group2014

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

Derivatives settled on net basis

Interest rate derivatives (118) (1,038) (1,679) (4,221) (1,400) (8,456)

Derivatives settled on gross basis


Outflow (954,124) (591,013) (1,391,627) 79,230 (105,145) (2,962,679)

Inflow 954,362 592,492 1,396,306 417,974 98,789 3,459,923

238 1,479 4,679 497,204 (6,356) 497,244

The Bank2014

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000


Interest rate derivatives (118) (1,038) (1,679) (4,221) (1,400) (8,456)



Outflow (943,045) (591,013) (1,391,627) 79,230 (105,145) (2,951,600)

Inflow 943,290 592,492 1,396,306 417,974 98,789 3,448,851

245 1,479 4,679 497,204 (6,356) 497,251





Derivative financial liabilities (continued)

Derivative financial liabilities based on contractual undiscounted cash flow:


Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000


Interest rate derivatives (1,204) (1,472) (3,275) 2,242 6,142 2,433



Outflow (509,833) (674,028) (911,963) (594,154) (96,030) (2,786,008)

Inflow 509,931 673,695 909,002 594,154 96,030 2,782,812

98 (333) (2,961) - - (3,196)





Liquidity risk for assets and liabilities based on remaining contractual maturities

The maturities of on-balance sheet assets and liabilities as well as other off-balance sheet assets and liabilities, commitments and counter-guarantees are important factors in assessing the liquidity of the Group and the Bank. The table below provides analysis of assets and liabilities into relevant maturity tenures based on remaining contractual maturities.

Maturities of assets and liabilities of the Group and the Bank by remaining contractual maturities profile are as follows:

The Group2014

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

Assets

Cash and short-term funds 6,938,912 - - - - 6,938,912

Deposits and placements with banks and other financial institutions - - - 196,937 41,285 238,222

Financial assets held-for-trading 149,904 - - - - 149,904

Derivative financial assets 13,892 22,322 44,429 5,040 2,975 88,658

Financial investments available-for-sale 795,662 838,305 1,518,997 4,474,538 2,320,409 9,947,911

Financial investments held-to-maturity 70,359 75,807 16,064 70,331 243,594 476,155

Loans, advances and financing 3,014,294 1,867,264 2,305,986 10,573,753 21,694,875 39,456,172

Other assets 194,602 - 13,467 5,363 9,974 223,406

Amount due from joint ventures 14,855 - - - - 14,855

Statutory deposits with Bank Negara Malaysia 1,696,550 - - - - 1,696,550

Other non-financial assets (1) 3,117 - 20 - 296,820 299,957

12,892,147 2,803,698 3,898,963 15,325,962 24,609,932 59,530,702

Liabilities



Derivative financial liabilities 35,500 42,356 100,581 45,569 13,420 237,426


Recourse obligation on loans sold to Cagamas Berhad - 834 - 138,313 - 139,147

Subordinated term loan 2,940 1,370 - - 600,000 604,310


Provision for taxation - - 28,029 - - 28,029

24,564,419 14,940,864 13,388,555 842,506 623,420 54,359,764

Net liquidity gap (11,672,272)(12,137,166) (9,489,592) 14,483,456 23,986,512 (1) Other non-financial assets include tax recoverable, deferred tax assets, property and equipment and intangible

assets.





Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)

The Group2013

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

Assets


Deposits and placements with banks and other financial institutions - 201,906 41,668 197,738 41,285 482,597






Other assets 186,368 - 12,277 5,341 16,111 220,097

Amount due from joint ventures 4,185 - - - - 4,185


Other non-financial assets (1) 9,944 - 17 - 310,746 320,707

13,113,111 2,513,539 3,523,365 11,301,104 25,985,994 56,437,113

Liabilities









24,019,942 11,904,489 15,072,103 445,025 627,930 52,069,489

Net liquidity gap (10,906,831) (9,390,950) (11,548,738) 10,856,079 25,358,064

(1) Other non-financial assets include tax recoverable, deferred tax assets, property and equipment and intangible assets.






The Bank2014

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

Assets

Cash and short-term funds financial institutions 3,777,042 - - - - 3,777,042

Deposits and placements with banks and other financial institutions - 321,335 67,503 531,927 41,285 962,050






Other assets 146,749 - 12,991 5,363 9,552 174,655

Amount due from subsidiaries 438 - - - - 438


Other non-financial assets (1) 218 - - - 680,795 681,013

8,833,714 2,828,233 3,332,145 13,503,625 19,835,970 48,333,687

Liabilities





Recourse obligation on loans sold to Cagamas Berhad - 834 - 138,313 - 139,147





18,336,430 12,966,429 11,071,681 605,605 623,420 43,603,565

Net liquidity gap (9,502,716) (10,138,196) (7,739,536) 12,898,020 19,212,550 (1) Other non-financial assets include deferred tax assets, investment in subsidiaries, property and equipment and

intangible assets.






The Bank2013

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

Assets


Deposits and placements with banks and other financial institutions - 441,606 104,090 417,622 143,438 1,106,756






Other assets 143,359 - 12,166 5,341 15,689 176,555

Amount due from subsidiaries 60,723 - - - - 60,723


Other non-financial assets (1) 6,985 - - - 694,123 701,108

8,288,489 2,556,493 2,928,793 9,496,895 22,119,931 45,390,601

Liabilities


Deposits and placements of banks and other financial institutions 957,882 1,521,311 180,342 - - 2,659,535








17,418,969 10,524,382 12,381,940 442,273 627,930 41,395,494

Net liquidity gap (9,130,480) (7,967,889) (9,453,147) 9,054,622 21,492,001 (1) Other non-financial assets include deferred tax assets, investment in subsidiaries, property and equipment and

intangible assets.




(iv) Operational risk management

Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people, infrastructure or technology or events which are beyond the Bank’s immediate control which have an operational impact, including natural disaster, fraudulent activities and money laundering/financing of terrorism.

The Bank manages operational risk through a control based environment in which policies and procedures are formulated after taking into account individual unit’s business activities, the market in which it is operating and regulatory requirement in force.

The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational risk. The capital requirement is calculated by taking 15% of the Bank’s average annual gross income over the previous three years.

Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix. Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational Risk Management process.

The Bank gathers, analyses and reports operational risk loss and ‘near miss’ events to Group Operational Risk Management Committee and Board Risk Management Committee. Appropriate preventive and remedial actions are reviewed for effectiveness and implemented to minimise the recurrence of such events.

As a matter of requirement, all Operational Risk Coordinators must satisfy an Internal Operational Risk (including anti-money laundering/counter financing of terrorism and business continuity management) Certification Program. These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training and development activities for the coordinators.




(v) Fair value of financial instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Group and the Bank measure fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are not based on observable market data.

Financial instruments are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted prices is readily available, and the price represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an on-going basis. These would include actively traded listed equities and actively exchange-traded derivatives.

Where fair value is determined using unquoted market prices in less active markets or quoted prices for similar assets and liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available, the Group and the Bank then determine fair value based upon valuation techniques that use as inputs, market parameters including but not limited to yield curves, volatilities and foreign exchange rates. The majority of valuation techniques employ only observable market data and so reliability of the fair value measurement is high.

Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). Such inputs are generally determined based on observable inputs of a similar nature, historical observations on the level of the input or other analytical techniques.

This category includes unquoted shares held for socio economic reasons. Fair values for shares held for socio economic reasons are based on the net tangible assets of the affected companies. The Group’s and the Bank’s exposure to financial instruments classified as Level 3 comprised a small number of financial instruments which constitute an insignificant component of the Group’s and the Bank’s portfolio of financial instruments. Hence, changing one or more of the inputs to reasonable alternative assumptions would not change the value significantly for the financial assets in Level 3 of the fair value hierarchy.

The Group and the Bank recognise transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfer has occurred. Transfers between fair value hierarchy primarily due to change in the level of trading activity, change in observable market activity related to an input, reassessment of available pricing information and change in the significance of the unobservable input. There were no transfers between Level 1, 2 and 3 of the fair value hierarchy during the financial year (2013: Nil).




(v) Fair value of financial instruments (continued)

The following table presents assets and liabilities measured at fair value and classified by level of the following fair value measurement hierarchy:

Level 1RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

The Group2014

Assets

Financial assets held-for-trading - 149,904 - 149,904

Derivative financial assets - 88,658 - 88,658

Financial investments available-for-sale *

- Money market instruments - 5,880,119 - 5,880,119

- Equity securities 33 - 130,678 130,711

- Private debt securities - 3,937,081 - 3,937,081

Total 33 10,055,762 130,678 10,186,473

Liabilities

Derivative financial liabilities - 237,426 - 237,426

Total - 237,426 - 237,426

Level 1RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

The Group2013

Assets







Total 150 7,701,202 119,003 7,820,355

Liabilities


Total - 94,522 - 94,522

* Net of allowance for impairment





Level 1RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

The Bank2014

Assets







Total 33 8,523,302 130,652 8,653,987

Liabilities


Total - 237,419 - 237,419

Level 1RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

The Bank2013

Assets







Total 150 6,418,148 118,934 6,537,232

Liabilities


Total - 94,522 - 94,522

* Net of allowance for impairment.





The following table present the changes in Level 3 instruments for the financial year ended:

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000


Purchases 9,674 - 9,674 -

Sales (10,221) - (10,221) -

Exchange differences 548 - 548 -

Total gains recognised in other comprehensive income 12,224 12,559 11,717 12,559

Allowance for impairment losses (550) - - -


Effect of changes in significant unobservable assumptions to reasonably possible alternatives

As at reporting date, financial instruments measured with valuation techniques using significant unobservable inputs (Level 3) mainly include unquoted shares held for socio economic purposes.

Qualitative information about the fair value measurements using significant unobservable inputs (Level 3):

Description Valuation

techniques Unobservable

inputs

Inter-relationshipbetween significant

unobservable inputs and fair value measurement

Fair value assets

2014 RM’000

2013 RM’000

Financial investments available-for-sale

The Group Unquoted shares 130,678 119,003

Net tangible assets

Net tangible assets

Higher net tangible assets results in higher fair value

The Bank Unquoted shares 130,652 118,934

Net tangible assets

Net tangible assets

Higher net tangible assets results in higher fair value

In estimating its significance, the Group and the Bank used an approach that is currently based on methodologies used for fair value adjustments. These adjustments reflects the values that the Group and the Bank estimate are appropriate to adjust from the valuations produced to reflect for uncertainties in the inputs used. The methodologies used can be a statistical or other relevant approved techniques.





The following tables analyse within the fair value hierarchy of the Group’s and the Bank’s assets and liabilities not measured at fair value as at reporting date but for which fair value is disclosed:

Carryingvalue

RM’000

Fair value

Level 1RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

The Group2014

Financial assets

Financial investments held-to-maturity 476,155 - 472,887 - 472,887

Loans, advances and financing 39,456,172 - 39,172,438 - 39,172,438

39,932,327 - 39,645,325 - 39,645,325

Financial liabilities

Deposits from customers 48,047,224 - 48,052,332 - 48,052,332

Deposits and placements of banks and other financial institutions 4,849,676 - 4,849,314 - 4,849,314

Recourse obligation on loans sold to Cagamas Berhad 139,147 - 140,764 - 140,764

53,036,047 - 53,042,410 - 53,042,410

Carryingvalue

RM’000

Fair value

Level 1RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

The Group2013

Financial assets



36,728,121 - 36,426,270 - 36,426,270





50,551,416 - 50,552,220 - 50,552,220





Carryingvalue

RM’000

Fair value

Level 1RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

The Bank2014

Financial assets

Deposits and placements with banks and other financial institutions 962,050 - 959,983 - 959,983



33,648,002 - 33,394,534 - 33,394,534





42,018,745 - 42,023,348 - 42,023,348

Carryingvalue

RM’000

Fair value

Level 1RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

The Bank2013

Financial assets

Deposits and placements with banks and other financial institutions 1,106,756 - 1,111,105 - 1,111,105



31,700,937 - 31,437,067 - 31,437,067





39,858,053 - 39,861,255 - 39,861,255





Other than as disclosed above, the total fair value of each financial assets and liabilities presented on the statements of financial position as at reporting date of the Group and the Bank approximates the total carrying amount.

The fair value estimates were determined by application of the methodologies and assumptions described below.

Short-term funds and placements with banks and other financial institutions

For short-term funds and placements with banks and other financial institutions with maturity of less than six months, the carrying amount is a reasonable estimate of fair value.

For amounts with maturities of six months or more, fair values have been estimated by reference to current rates at which similar deposits and placements would be made to banks with similar credit ratings and maturities.

Financial investments held-to-maturity

The fair values of financial investments held-to-maturity are reasonable estimates based on quoted market prices. In the absence of such quoted prices, the fair values are based on the expected cash flows of the instruments discounted by indicative market yields for the similar instruments as at reporting date or the audited net tangible asset of the invested company.

Loans, advances and financing

Loans, advances and financing of the Group comprise of floating rate loans and fixed rate loans. For performing floating rate loans, the carrying amount is a reasonable estimate of their fair values.

The fair values of performing fixed rate loans are arrived at using the discounted cash flows based on the prevailing market rates of loans, advances and financing with similar credit ratings and maturities.

The fair values of impaired loans, advances and financing, whether fixed or floating are represented by their carrying values, net of individual and collective allowances, being the reasonable estimate of recoverable amount.

Other assets and liabilities

The carrying value less any estimated allowance for financial assets and liabilities included in other assets and other liabilities are assumed to approximate their fair values.

Deposits from customers, banks and other financial institutions, bills and acceptances payable

The carrying values of deposits and liabilities with maturities of six months or less are assumed to be reasonable estimates of their fair values. Where the remaining maturities of deposits and liabilities are above six months, their estimated fair values are arrived at using the discounted cash flows based on prevailing market rates currently offered for similar remaining maturities.

The estimated fair value of deposits with no stated maturity, which include non-interest bearing deposits, approximates carrying amount which represents the amount repayable on demand.





Recourse obligation on loans sold to Cagamas Berhad

For floating rate loans sold to Cagamas Berhad, the carrying value is generally a reasonable estimate of their fair values.

The fair values of fixed rate loans sold to Cagamas Berhad are arrived at using the discounted cash flow methodology at prevailing market rates of similarly profiled loans.

Subordinated term loan

For fixed rate borrowings, the estimate of fair value is based on discounted cash flow model using prevailing lending rates for borrowings with similar risks and remaining term to maturity.

For floating rate borrowings, the carrying value is generally a reasonable estimate of their fair values.

39 OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES

In accordance with MFRS 132 “Financial Instruments: Presentation”, the Group and the Bank report financial assets and financial liabilities on a net basis on the statements of financial position only if there is a legally enforceable right to set off the recognised amounts and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. The following table shows the impact of netting arrangement on:

• All financial assets and liabilities that are reported net on statements of financial position; and • All derivative financial instruments and reverse repurchase and repurchased agreements and other similar secured

lending and borrowing agreements that are subject to enforceable master netting arrangements or similar agreements, but do not qualify for statements of financial position netting.

The table identifies the amounts that have been offset in the statements of financial position and also those amounts that are covered by enforeable netting arrangements (offsetting arrangements and financial collateral) but do not qualify for netting under the requirements of MFRS 132 described above.

The “Net amounts” presented below are not intended to represent the Group’s and the Bank’s actual exposure to credit risk, as a variety of credit mitigation strategies are employed in addition to netting and collateral arrangements.

Related amount not offset

Derivative financial assets and liabilities

The ‘Financial instruments’ column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be offset and close-out netting applied across all outstanding transaction covered by the agreements if an event of default or other predetermined events occur.

Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure

between counterparties by enabling the collateral to be realised in an event of default or if other predetermined events occur.




Effects of offsetting on the statements of financial position Related amounts not offset

The Group 2014

GrossamountRM’000

Amount offset

RM’000

Net amount reported on statement of financial

position RM’000

Financialinstruments

RM’000

Financial collateral

RM’000

Net amount RM’000

Financial assets

Derivative financial assets 88,658 - 88,658 (33,932) - 54,726

Total assets 88,658 - 88,658 (33,932) - 54,726


Derivative financial liabilities 237,426 - 237,426 (33,932) - 203,494

Total liabilities 237,426 - 237,426 (33,932) - 203,494


The Group 2013

GrossamountRM’000

Amount offset

RM’000

Net amount reported on

statement of financial

position RM’000


RM’000


RM’000

Net amount RM’000

Financial assets


Total assets 56,274 - 56,274 (42,186) - 14,088








The Bank 2014

GrossamountRM’000

Amount offset

RM’000

Net amount reported on statement of financial

position RM’000


RM’000


RM’000

Net amount RM’000

Financial assets


Total assets 88,672 - 88,672 (33,922) - 54,750





The Bank 2013

GrossamountRM’000

Amount offset

RM’000

Net amount reported on

statement of financial

position RM’000


RM’000


RM’000

Net amount RM’000

Financial assets


Total assets 56,274 - 56,274 (42,186) - 14,088






40 LEASE COMMITMENTS The Group and the Bank have lease commitments in respect of rented premises and hired equipment, all of which are

classified as operating leases. A summary of the future minimum lease payments under non-cancelable operating leases commitments are as follows:

The Group The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

Within one year 22,689 11,270 21,906 10,612

One year to five years 47,476 7,912 46,926 7,224

41 CAPITAL AND OPERATING COMMITMENTS Capital commitments Capital expenditure approved by the Directors but not provided for in the financial statements amounted to approximately:

The Bank

2014 RM’000

2013 RM’000

Authorised and contracted for 13,859 7,541

Analysed as follows:

Property and equipment 13,859 7,541

Operating commitments Operating expenditure approved by the Directors but not provided for in the financial statements amounted to approximately:

The Bank

2014 RM’000

2013 RM’000

Authorised and contracted for 138,051 201,823



42 CAPITAL MANAGEMENT With effect from 1 January 2013, the total capital and capital adequacy ratios of the Group and the Bank are computed in

accordance with Bank Negara Malaysia’s Capital Adequacy Framework (Capital Components) dated 28 November 2012.

The Group and the Bank are currently adopting Standardised Approach for Credit Risk and Market Risk, the Basic Indicator Approach for Operational Risk. In line with the transitional arrangements under the Bank Negara Malaysia’s Capital Adequacy Framework (Capital Components), the minimum capital adequacy requirement for Common Equity Tier 1 Capital Ratio (‘CET 1’) and Tier 1 Capital Ratio are 4.0% and 5.5% respectively for year 2014. The minimum regulatory capital adequacy requirement remains at 8.0% (2013: 8.0%) for total capital ratio.

The Group and the Bank’s objectives when managing capital are:

• To comply with the capital requirements set by the regulators of the banking markets where the entities within the Group and the Bank operates;

• To safeguard the Group and the Bank’s ability to continue as a going concern so that it can continue to provide returns

for shareholders and benefits for other stakeholders; and • To maintain a strong capital base to support the development of its business.

The Group and the Bank maintain a ratio of total regulatory capital to its risk-weighted assets above a minimum level

agreed with the management which takes into account the risk profile of the Group and the Bank.

The table in Note 43 below summarises the composition of regulatory capital and the ratios of the Group and the Bank for the financial year ended 31 December 2014.

43 CAPITAL ADEQUACY The capital adequacy ratios are as follows:

The Group (#) The Bank 2014

RM’000 2013

RM’000 2014

RM’000 2013

RM’000

Paid-up share capital 1,688,770 1,518,337 1,688,770 1,518,337

Share premium 858,904 529,337 858,904 529,337



Unrealised gains and losses on AFS 23,163 (2,579) 30,893 6,533

4,992,131 4,367,005 4,602,190 3,996,675

Less:

Goodwill and other intangibles (147,688) (133,430) (150,690) (137,323)

Deferred tax assets (3,118) (9,326) (218) (8,553)

55% of cumulative unrealised gains of AFS (12,739) - (16,991) (3,593)

Investment in subsidiaries/joint ventures - - (77,815) -

CET1 capital 4,828,586 4,224,249 4,356,476 3,847,206

Tier I capital 4,828,586 4,224,249 4,356,476 3,847,206



43 CAPITAL ADEQUACY

The Group (#) The Bank 2014

RM’000 2013

RM’000 2014

RM’000 2013

RM’000


Collective impairment @ 150,254 143,572 129,134 123,103

Regulatory adjustments 184,366 - 135,347 -

Less:

Investment in subsidiaries/joint ventures - (650) (311,259) (389,088)

Tier II capital 814,620 952,922 433,222 544,015

Total capital 5,643,206 5,177,171 4,789,698 4,391,221

CET1 capital ratio 11.936% 10.811% 12.510% 11.279%

Tier 1 capital ratio 11.936% 10.811% 12.510% 11.279%

Total capital ratio 13.950% 13.250% 13.754% 12.874%

CET1 capital ratio (net of proposed dividends)^ 11.773% 10.578% 12.320% 11.012%

Tier 1 capital ratio (net of proposed dividends)^ 11.773% 10.578% 12.320% 11.012%

Total capital ratio (net of proposed dividends)^ 13.786% 13.017% 13.564% 12.607%

Risk-weighted assets for:

Credit risk 37,845,580 36,529,227 32,586,612 31,911,266

Market risk 286,738 299,677 284,148 296,107

Operational risk 2,322,105 2,243,503 1,954,278 1,902,412

Total risk-weighted assets 40,454,423 39,072,407 34,825,038 34,109,785

@ Qualifying collective impairment is restricted to allowances on unimpaired portion of the loans, advances and financing.

# The Group comprises the banking and non-banking subsidiaries.^ Net proposed dividends of RM66,031,000 (2013: RM91,100,000).

The capital adequacy ratios of the AFFIN Islamic Bank Berhad is as follows:

Economic Entity The Bank

2014 RM’000

2013 RM’000

2014 RM’000

2013 RM’000

(Before and after deducting proposed dividend)






44 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The Group and the Bank make estimates and assumptions concerning the future. The resulting accounting estimates

will, by definition, seldom equal the related actual results. To enhance the information content of the estimates, certain variables that are anticipated to have material impact to the Group’s and the Bank’s results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

Allowance for impairment losses on loans, advances and financing

The accounting estimates and judgments related to the impairment of loans and provision for off-balance sheet positions is a critical accounting estimate because the underlying assumptions used for both the individually and collectively assessed impairment can change from period to period and may significantly affect the Group and the Bank’s results of operations.

In assessing assets for impairment, management judgment is required. The determination of the impairment allowance required for loans which are deemed to be individually significant often requires the use of considerable management judgment concerning such matters as local economic conditions, the financial performance of the counterparty and the value of any collateral held, for which there may not be a readily accessible market. The actual amount of the future cash flows and their timing may differ from the estimates used by management and consequently may cause actual losses to differ from the reported allowances.

The impairment allowance for portfolios of smaller-balance homogenous loans, such as those to individuals and small business customers of the private and retail business, and for those loans which are individually significant but for which no objective evidence of impairment exists, is determined on a collective basis. The collective impairment allowance is calculated on a portfolio basis using statistical models which incorporate numerous estimates and judgments, and therefore is subject to estimation uncertainty. The Group and the Bank perform a regular review of the models and underlying data and assumptions as far as possible to reflect the current economic circumstances. The probability of default, loss given defaults, and loss identification period, amongst other things, are all taken into account during this review.

Estimated impairment of goodwill The Group performs an impairment review on an annual basis to ensure that the carrying value of the goodwill does not

exceed its recoverable amounts from cash generating units to which the goodwill is allocated. The recoverable amount represents the present value of the estimated future cash flows expected to arise from continuing operations. Therefore, in arriving at the recoverable amount, management exercise judgment in estimating the future cash flows, growth rate and discount rate.

45 CREDIT EXPOSURES ARISING FROM TRANSACTIONS WITH CONNECTED PARTIES The following credit exposures are based on Bank Negara Malaysia’s revised Guidelines on Credit Transaction and

Exposures with Connected Parties, which are effective 1 January 2008.

The Bank

2014 2013

(i) The aggregate value of outstanding credit exposures with connected parties (RM’000) 2,660,459 3,013,895

(ii) The percentage of outstanding credit exposures to connected parties as a pro-portion of total credit exposures 5% 6%

(iii) The percentage of outstanding credit exposures with connected parties which is impaired or in default Nil Nil

46 APPROVAL OF FINANCIAL STATEMENTS The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on

6 March 2015.


STATEMENT BY DIRECTORSPURSUANT TO SECTION 169 (15) OF THE COMPANIES ACT, 1965

STATUTORY DECLARATIONPURSUANT TO SECTION 169 (16) OF THE COMPANIES ACT, 1965

We, JEN TAN SRI DATO’ SERI ISMAIL BIN HAJI OMAR (BERSARA) and EN. MOHD SUFFIAN BIN HAJI HARON, two of the Directors of AFFIN BANK BERHAD, state that, in the opinion of the Directors, the accompanying financial statements set out on pages 60 to 183 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Bank as at 31 December 2014 and of the results and cash flows of the Group and the Bank for the financial year ended on the date in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

In accordance with a resolution of the Board of Directors dated 6 March 2015.

JEN TAN SRI DATO’ SERI ISMAIL BIN HAJI OMAR (BERSARA)Chairman

EN. MOHD SUFFIAN BIN HAJI HARON Director

I, RAMANATHAN RAJOO, the officer of AFFIN BANK BERHAD primarily responsible for the financial management of the Group and the Bank, do solemnly and sincerely declare that, in my opinion, the accompanying financial statements set out on pages 60 to 183, are correct and I make this solemn declaration conscientiously believing the same to be true, by virtue of the provisions of the Statutory Declarations Act, 1960.

RAMANATHAN RAJOO

Subscribed and solemnly declared by the abovenamed RAMANATHAN RAJOO at Kuala Lumpur in Malaysia on 6 March 2015, before me.

Commissioner for Oaths


INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF AFFIN BANK BERHAD (Incorporated in Malaysia)

REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of AFFIN Bank Berhad on pages 60 to 183 which comprise the statements of financial position as at 31 December 2014 of the Group and of the Bank, and the statements of income, comprehensive income, changes in equity and cash flows of the Group and of the Bank for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on Notes 1 to 46.

Directors’ Responsibility for the Financial Statements

The directors of the Bank are responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The directors are also responsible for such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the Group and of the Bank as of 31 December 2014 and of their financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.


INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF AFFIN BANK BERHAD (Incorporated in Malaysia)

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:

a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Bank and its subsidiaries have been properly kept in accordance with the provisions of the Act.

b) We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Bank’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes.

c) Our audit reports on the financial statements of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act.

OTHER MATTERS This report is made solely to the members of the Bank, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

PRICEWATERHOUSECOOPERS SOO HOO KHOON YEAN(No. AF : 1146) (No. 2682/10/15 (J))Chartered Accountants Chartered Accountant Kuala Lumpur, Malaysia 6 March 2015


BASEL II PILLAR 3 DISCLOSURES

1. Introduction 1.1 Background 1.2 Scope of Application

2. Risk Governance Structure 2.1 Overview 2.2 Board Committees 2.3 Management Committees 2.4 Group Risk Management Function 2.5 Internal Audit and Internal Control Activities

3. Capital Management 3.1 Internal Capital Adequacy Assessment Process (‘ICAAP’) 3.2 Capital Structure 3.3 Capital Adequacy

4. Risk Management Objectives and Policies

5. Credit Risk 5.1 Credit Risk Management Objectives And Policies 5.2 Application Of Standardised Approach For Credit Risk 5.3 Credit Risk Measurement 5.4 Risk Limit Control And Mitigation Policies 5.5 Credit Risk Monitoring 5.6 Impairment Provisioning 5.7 Credit Risk Culture

6. Market Risk 6.1 Market Risk Management Objectives and Policies 6.2 Application of Standardised Approach for Market Risk 6.3 Market Risk Measurement, Control and Monitoring 6.4 Value-At-Risk (‘Var’) 6.5 Foreign Exchange Risk

7. Liquidity Risk 7.1 Liquidity Risk Management Objectives and Policies 7.2 Liquidity Risk Measurement, Control and Monitoring

8. Operational Risk 8.1 Operational Risk Management Objectives and Policies 8.2 Application af Basic Indicator Approach for Operational Risk 8.3 Operational Risk Measurement, Control and Monitoring 8.4 Operational Risk Culture

9. Shariah Compliance

Appendices

188188188

188188189190191192

192192192194

194

194194195195196197197203

203203203203204204

204204205

205205205206206

206

207


BASEL II PILLAR 3 DISCLOSURESfor the financial year ended 31 December 2014

1 Introduction

1.1 Background AFFIN Bank Berhad (‘the Bank’) adopts Basel II in January 2008 in line with the directive from Bank Negara Malaysia

(‘BNM’). The Basel II framework is structured around three fundamental Pillars.

- Pillar 1 defines the minimum capital requirement to ensure that financial institutions hold sufficient capital to cover their exposure to credit, market and operational risks.

- Pillar 2 requires financial institutions to have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.

- Pillar 3 requires financial institutions to establish and implement an appropriate disclosure policy that promotes transparency regarding their risk management practices and capital adequacy positions.

The Bank elected to adopt the following approaches under Pillar 1 requirements:

- Standardised Approach for Credit Risk- Basic Indicator Approach for Operational Risk- Standardised Approach for Market Risk

1.2 Scope of Application This document contains the disclosure requirements under Pillar 3 for the Bank for the year ended 31 December 2014.

The disclosures are made in line with the Pillar 3 disclosure requirements under the Basel II framework as laid out by BNM.

The disclosures should be read in conjunction with the Bank’s 2014 Annual Report for the year ended 31 December 2014.

The Group’s capital requirements are generally based on the principles of consolidation adopted in the preparation of its financial statements. The Group’s consolidated entities comprises the Bank and the Bank’s subsidiary, AFFIN Islamic Bank Berhad.

2 Risk Governance Structure

2.1 Overview

The Board of Directors of the Bank is ultimately responsible for the overall performance of the Bank. The Board’s responsibilities remain within the framework of BNM Guidelines. The Board also exercises great care to ensure that high ethical standards are upheld, and that the interests of stakeholders are not compromised. These include responsibility for determining the Bank’s general policies and strategies for the short, medium and long term, approving business plans, including targets and budgets, and approving major strategic decisions.

The Board has overall responsibility for maintaining the proper management and protection of the Bank’s interests by ensuring effective implementation of the risk management policy and process, as well as adherence to a sound system of internal control, and by seeking regular assurance on their effectiveness. The Board also recognises that risks cannot be eliminated completely. As such, the inherent system of internal control is designed to provide a reasonable though not absolute assurance against the risk of material errors, fraud or losses occurring. The system of internal controls encompasses controls relating to financial, operational, risk management and compliance with applicable laws, regulations, policies and guidelines.




2.1 Overview (continued)

The terms of reference of the Board Committees as disclosed in the Annual Report provide an outline of its role and functions. In carrying out its functions, the Board has delegated specific responsibilities to other Board Committees, which operate under approved terms of reference, to assist the Board in discharging their duties. The Chairmen of the various Committees report on the outcome of their Committee meetings to the Board and any further deliberation is made at Board level, if required. These reports and deliberations are incorporated into the Minutes of the Board meetings. The Board meets on a monthly basis.

The Board of the Bank has a balance composition with a strong independent element. It consists of representatives from the private sector with suitable qualifications fulfilling the fit and proper criteria as required by BNM/GP1, a mixture of different skills, competencies, experience and personalities.

2.2 Board Committees

Board Remuneration Committee (‘BRC’)

The BRC is responsible for providing a formal and transparent procedure for developing the remuneration policy for Directors, Managing Director/Chief Executive Officer and key senior management officers and ensuring that compensation is competitive and consistent with the Bank’s culture, objectives and strategy.

The Committee obtains advice from experts in compensation and benefits, both internally and externally.

Board Nominating Committee (‘BNC’)

The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors and Managing Director/Chief Executive Officer, assessing the effectiveness of individual Directors, the Board as a whole and the performance of the Managing Director/Chief Executive Officer and key senior management personnel.

Board Risk Management Committee (‘BRMC’)

The BRMC is responsible for overseeing management’s activities in managing credit, market, liquidity, operational, legal and other risks and to ensure that the risk management process is in place and functioning.

It has responsibility for reviewing and approving all risk management policies and risk management methodologies. BRMC also reviews guidelines and portfolio management reports including risk exposure information.

The Committee also ensures that the procedures and framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively.

Board Loan Review and Recovery Committee (‘BLRRC’)

The BLRRC is responsible in providing critical review of loans and other credit facilities with higher risk implications, after due process of checking, analysis, review and recommendation by the Credit Risk Management function, and if found necessary, exercise the power to veto loan applications that have been approved by the Group Management Loan Committee (‘GMLC’). BLRRC also reviews the impaired loans reports presented by the Management.




2.2 Board Committees (continued)

Audit and Examination Committee (‘AEC’)

The AEC is responsible for providing oversight on reviewing the adequacy and integrity of the internal control systems and oversees the work of the internal and external auditors.

Reliance is placed on the results of independent audits performed primarily by internal auditors, the outcome of statutory audits on financial statements conducted by external auditors and on representations by Management based on their control self-assessment of all areas of their responsibility.

Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to Board members for notation and discussion. The Bank has an established Group Internal Audit Division (GIA) which reports functionally to the Audit Committee and administratively to the Managing Director/Chief Executive Officer.

Shariah Committee

AFFIN Islamic Bank Berhad’s business activities are subject to Shariah compliance and conformation by the Shariah Committee. The Shariah Committee is formed as legislated under the Islamic Financial Services Act 2013 and as per Shariah Governance Framework for Islamic Financial Institutions.

The duties and responsibility of the Shariah Committee are as follows:

(i) To advise the Board on Shariah matters in order to ensure that the business operations of the Bank comply with the Shariah principles at all times;

(ii) To endorse and validate relevant documentations of the Bank’s products to ensure that the products comply with Shariah principles; and

(iii) To advise the AFFIN Islamic Bank Berhad on matters to be referred to the Shariah Advisory Council.

2.3 Management Committees

Management Committee (‘MCM’)

MCM comprising the senior management team chaired by the MD/CEO, assists the Board in managing the day-to-day operations and ensures its effectiveness. MCM formulates tactical plans and business strategies, monitors the Bank’s overall performance, and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual business plan and budget.

Group Management Loan Committee (‘GMLC’)

GMLC is established within senior management chaired by the MD/CEO to approve complex and larger loans and workout/recovery proposals beyond the delegated authority of the concerned individual senior management personnel of the Bank.

Asset and Liability Management Committee (‘ALCO’)

ALCO comprising the senior management team chaired by the MD/CEO, manages the Bank’s asset liability position and oversees the Bank’s capital management to ensure that the Bank is adequately capitalised on an economic and regulatory basis.




2.3 Management Committees (continued)

Liquidity Management Committee (‘LMC’)

LMC is a sub-committee of the ALCO and its role is to augment the functions of the ALCO by directing its focus specifically to liquidity issues.

Group Operational Risk Management Committee (‘GORMC’)

GORMC is established within senior management chaired by MD/CEO to deliberate and manage operational risks. Its responsibilities include:

(i) To evaluate operational risks issues of escalating importance/strategic risk exposure;

(ii) To review and recommend on broad operational risks management policies/best practices for adoption by the Bank’s operating units;

(iii) To review the effectiveness of broad internal controls and make recommendation/approve on changes, if

necessary; (iv) To review/approve recommendation of operational risk management groups set up to address specific area;

(v) To take the lead in inculcating an operational risks awareness culture;

(vi) To approve operational risk management methodologies/measurements tools; (vii) To review and approve the strategic operational risk management initiatives/plans and to endorse for BRMC’s

approval if necessary;

(viii) To update BRMC on loss events and relevant key issues that may adversely impact core processes, system defects and any changes to critical business or system related processes; and

(ix) To effectively manage reputational risk in relation to environmental, social, business and regulatory issues across the Bank.

Group Early Alert Committee (‘GEAC’)

GEAC is established within senior management to monitor credit quality through monthly review of the Early Alert, Watchlist and Exit Accounts and review the actions taken to address the emerging risks and issues in these accounts.

2.4 Group Risk Management Function

An integrated risk management framework is in place. The Group Risk Management (‘GRM’) function, headed by Group Chief Risk Officer (‘GCRO’) and operating in an independent capacity, is part of the Bank’s senior management structure which works closely as a team in managing risks to enhance stakeholders’ value.

GRM reports to BRMC. Committees namely BLRRC, MCM, GMLC, ALCO, LMC, GORMC and EAC assist BRMC in managing credit, market, liquidity and operational risks. The responsibilities of these Committees include risk identification, risk assessment and measurement, risk control and mitigation; and risk monitoring.




2.5 Internal Audit and Internal Control Activities

In accordance with BNM’s guidelines on Corporate Governance for Licensed Institutions, GIA conducts continuous reviews on auditable areas within the Bank. The continuous reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance to the audit plan approved by the AEC.

Based on GIA’s review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an opinion on the effectiveness of internal controls maintained by each entity. The risks highlighted on the respective auditable areas as well as recommendation made by the GIA are addressed at AEC and Management meetings on bi-monthly basis. The AEC also conduct annual reviews on the adequacy of internal audit function, scope of work, resources and budget of GIA.

3 Capital Management

3.1 Internal Capital Adequacy Assessment Process (‘ICAAP’)

In line with the BNM guideline on Risk-Weighted Capital Adequacy Framework - Internal Capital Adequacy Assessment Process (Pillar 2), the Bank has put in place the ICAAP Framework to assess the capital adequacy to ensure the level of capital maintained by the Bank is adequate at all times, taking into consideration the Bank’s risk profile and business strategies.

The Bank’s capital management approach is focused on maintaining an appropriate level of capital to meet its business needs and regulatory requirements as capital adequacy and risk management are closely aligned. The Bank operates within an agreed risk appetite whilst optimising the use of shareholders’ funds to deliver sustainable returns.

3.2 Capital Structure

With effect from 1 January 2013, the total capital and capital adequacy ratios of the Group and the Bank are computed in accordance with Bank Negara Malaysia’s Capital Adequacy Framework (Capital Components) dated 28 November 2012.

The Group and the Bank are currently adopting Standardised Approach for Credit Risk and Market Risk, the Basic Indicator Approach for Operational Risk. In line with the transitional arrangements under the Bank Negara Malaysia’s Capital Adequacy Framework (Capital Components), the minimum capital adequacy requirement for Common Equity Tier 1 Capital Ratio (‘CET 1’) and Tier 1 Capital Ratio are 4.0% and 5.5% respectively for year 2014. The minimum regulatory capital adequacy requirement remains at 8.0% (2013: 8.0%) for total capital ratio.

The following table sets forth details on the capital resources and capital adequacy ratios for the Group and the Bank as at 31 December 2014.




3.2 Capital structure (continued)

The Group The Bank

2014RM’000

2013RM’000

2014RM’000

2013RM’000

Paid-up share capital 1,688,770 1,518,337 1,688,770 1,518,337

Share premium 858,904 529,337 858,904 529,337



Unrealised gains and losses on AFS 23,163 (2,579) 30,893 6,533

4,992,131 4,367,005 4,602,190 3,996,675

Less:

Goodwill (147,688) (133,430) (150,690) (137,323)

Deferred tax assets (3,118) (9,326) (218) (8,553)

55% of cumulative unrealised gains of AFS (12,739) - (16,991) (3,593)

Investment in subsidiaries/joint ventures - - (77,815) -

CET1 capital 4,828,586 4,224,249 4,356,476 3,847,206

Tier I capital 4,828,586 4,224,249 4,356,476 3,847,206


Collective impairment 150,254 143,572 129,134 123,103

Regulatory adjustments 184,366 - 135,347 -

Less:

Investment in subsidiaries/joint ventures - (650) (311,259) (389,088)

Tier II capital 814,620 952,922 433,222 544,015

Total capital 5,643,206 5,177,171 4,789,698 4,391,221




CET1 capital ratio (net of proposed dividends) 11.773% 10.578% 12.320% 11.012%

Tier 1 capital ratio (net of proposed dividends) 11.773% 10.578% 12.320% 11.012%

Total capital ratio (net of proposed dividends) 13.786% 13.017% 13.564% 12.607%

Risk-weighted assets for:

Credit risk 37,845,580 36,529,227 32,586,612 31,911,266

Market risk 286,738 299,677 284,148 296,107

Operational risk 2,322,105 2,243,503 1,954,278 1,902,412

Total risk-weighted assets 40,454,423 39,072,407 34,825,038 34,109,785




3.3 Capital Adequacy The Group and the Bank have in place an internal limit for its CET1 capital ratio, Tier I capital ratio and Total capital

ratio, which is guided by the need to maintain a prudent relationship between available capital and the risks of its underlying businesses. The capital management process is monitored by senior management through periodic reviews.

Refer to Appendix I.

4 Risk Management Objectives and Policies

The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the Bank’s subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been no significant changes in these principal activities during the financial year.

The Bank’s business activities involve the analysis, measurement, acceptance, and management of risks but it operates within well defined risk acceptance criteria covering customer segments, industries and products. The Bank does not enter into risk it cannot administer, book, monitor or value, or deal with persons of questionable integrity.

The Bank’s risk management policies are established to identify all the key risks, assess and measure these risks, control and mitigate these risks, and manage and monitor the risk positions.

The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and best practice in risk management processes. The Bank’s aim is to achieve an appropriate balance between risk and return and minimise any potential adverse effects.

The key business risks to which the Bank is exposed are credit risk, liquidity risk, market risk and operational risk.

5 Credit Risk 5.1 Credit Risk Management Objectives and Policies Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial

and contractual obligations to the Bank. Credit risk emanates mainly from loans and advances, loan commitments arising from such lending activities, as well as through financial transactions with counterparties including interbank money market activities, derivative instruments used for hedging and debt securities.

The management of credit risk in the Bank is governed by a set of approved credit policies, guidelines and procedures. Approval authorities are delegated to Senior Management and GMLC to implement the credit policies and ensure sound credit granting standards.

An independent GRM function, headed by Group Chief Risk Officer (‘GCRO’) with direct reporting line to BRMC is in place to ensure adherence to risk standards and discipline.

Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Annual Credit Plan. The Annual Credit Plan is reviewed at least annually and approved by the BRMC.



5 Credit Risk 5.2 Application of Standardised Approach for Credit Risk The Bank uses the following External Credit Assessment Institutions (‘ECAIs’) to determine the risk weights for the

rated credit exposures:-

• RAM Rating Services Berhad• Malaysian Rating Corporation Berhad• Standard & Poor’s Rating Services• Moody’s Investors Service• Fitch Ratings

The external ratings of the ECAIs are used to determine the risk weights of the following types of exposure: sovereigns, banks, public sector entities and corporates.

The mapping of the rating categories of different ECAIs to the risk weights is in accordance with the guidelines provided by BNM. In cases where there is no issuer or issue rating, the exposures are treated as unrated and accorded a risk weight appropriate for unrated exposure in the respective category.

The external ratings are updated in the core banking system, and extracted and matched by the risk system according to the above rules to determine the appropriate risk weights.

Refer to Appendix II and Appendices III (i) to III (ii).

5.3 Credit Risk Measurement

Loans, advances and financing

Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank’s underwriting criteria and the ability of the Bank to make a return commensurate to the level of risk undertaken. A critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in the risk assessment and decision making process. The Bank has developed internal rating models to support the assessment and quantification of credit risk.

For consumer mass market products, statistically developed application scorecards are used by the Business to assess the risks associated with the credit application. The scorecards are used as a decision support tool at loan origination.

Over-the-Counter (‘OTC’) Derivatives

The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure Method, computation of credit equivalent exposure for interest rate and exchange rate related contracts is derived from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to maturity).



5 Credit Risk 5.4 Risk Limit Control and Mitigation Policies

The Bank employs various policies and practices to control and mitigate credit risk.

Lending limits

The Bank establishes internal limits and related lending guidelines to manage large exposures and avoid undue concentration of credit risk in its credit portfolio. The limits include single customer groupings, connected parties, and geographical and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on changing market and economic conditions.

The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customers together with potential exposure from market movements.

Collateral

Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:

• Mortgages over residential properties;• Charges over commercial real estate or vehicles financed;• Charges over business assets such as business premises, inventory and account receivables; and• Charges over financial instruments such as marketable securities

In order to be recognised as security, all items pledged must have value and the Bank must have physical control and/or legal title thereto, together with the necessary documentation to enable the Bank to realise the asset without the co-operation of the asset owner. Other items, such as personal or corporate guarantees, may be taken for comfort but will not be treated as security for approval purposes. Valuations are updated on a regular basis.

Prior to acceptance of any item as security, verification must be done to ensure that the security exists and an accurate and up-to-date valuation can be placed upon it. A pre-facility disbursement site visit must be undertaken in respect of landed security of significant value. Where third parties are used to undertake a valuation they must be taken from a list of approved valuers.

All assets which provide security to the Bank must be adequately insured with an insurer from the list of approved insurers.

The security documentation process is centralised in an independent Security Documentation Section at Head Office. The Bank adopts standardised Letter of Offer and Legal Documents. Variations/amendments require the approval from the relevant approving authority in the Bank.

Documentary and commercial letters of credit are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.



5 Credit Risk 5.4 Risk Limit Control and Mitigation Policies (continued)

Credit related commitments

Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees or letters of credit. In terms of credit risk, the Bank is potentially exposed to loss in an amount equal to the total unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.

The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than short-term commitments.

Refer to Appendix IV (a) to (b).

5.5 Credit Risk Monitoring

Retail credits are actively monitored and managed on a portfolio basis by product type. A collection management system is in place to promptly identify, monitor and manage delinquent accounts at early stages of delinquency.

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against updated information. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses or deterioration in the credit quality. Remedial action is taken where evidence of deterioration exists.

Early Alert Process is in place as part of a means to pro-actively identify, report and manage deteriorating credit quality. Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.

Active portfolio monitoring enables the Bank to understand the overall risk profile and identify any adverse trends or areas of risk concentrations affecting asset quality so that appropriate actions are adopted to manage and mitigate risks.

5.6 Impairment Provisioning

Individual impairment provisioning

Significant loans, with or without past due status, are subject to individual assessment for impairment when an evidence of impairment surfaces or at the very least once annually during the annual review process.

If impaired, the amount of loss is measured as the difference between the asset’s carrying value and the present value of estimated future cash flows discounted at the financial assets original effective interest rate. The level of impairment allowance on significant loans is reviewed regularly, at least quarterly or more often when circumstances require.

Significant loans that are deemed not impaired after individual assessment are included in a group of loans with similar characteristics and collectively assessed for impairment.



5 Credit Risk 5.6 Impairment Provisioning (continued)

Collective impairment provisioning

All loans are grouped in respective business segments according to similar credit risk characteristics and is generally based on industry, asset or collateral type, credit grade and past due status grouped based on business segments.

Portfolio provisioning is determined for each segment based on its respective loss probabilities and other information relevant to estimation of the future cash flows of each segment.

Collective provisioning is applicable to all loans not covered under individual assessment as well as significant loans that are deemed not impaired after individual assessment.

Total loans, advances and financing - credit quality

All loans, advances and financing are categorised into “neither past due nor impaired”, “past due but not impaired” and “impaired”. Past due loans refer to loans that are overdue by one day or more. Impaired loans are loans with months-in-arrears more than 90 days or with impaired allowances.




Analysed by economic sectors

The Group The Bank

Past due loans2014

RM’0002013

RM’0002014

RM’0002013

RM’000



Manufacturing 43,019 26,317 40,237 24,935

Electricity, gas and water supply 1,100 606 588 476

Construction 141,821 108,384 132,880 100,862

Real estate 359,196 205,295 331,607 202,051

Wholesale & retail trade and restaurants & hotels 77,511 70,751 73,123 65,734




Household 1,800,031 1,792,753 1,380,662 1,417,953

2,645,096 2,432,647 2,164,663 2,033,298

The Group The Bank

Individual impairment2014

RM’0002013

RM’0002014

RM’0002013

RM’000


Manufacturing 18,663 15,925 16,305 10,052

Construction 180,242 133,186 151,749 106,396


Transport, storage and communication 540 3,958 540 3,958


Household 4,365 23,421 3,697 23,313

239,259 223,701 207,740 189,117




Analysed by economic sectors (continued)

The Group The Bank

Individual impairment charged2014

RM’0002013

RM’0002014

RM’0002013

RM’000

Primary agriculture 211 1,116 211 1,116

Mining and quarrying 8 - 8 -

Manufacturing 11,177 7,892 11,131 7,708

Electricity, gas and water supply - 4 - 4

Construction 66,730 19,610 66,730 19,447

Real estate - 555 - 555


Transport, storage and communication 640 797 640 797

Finance, insurance and business services 739 1,163 739 1,163

Household 3,110 13,110 1,647 12,960

87,611 47,903 86,102 47,213

The Group The Bank

Individual impairment written-off2014

RM’0002013

RM’0002014

RM’0002013

RM’000

Mining and quarrying 7,226 - 7,226 -

Manufacturing 4,011 3,620 4,011 3,620

Electricity, gas and water supply - 1,119 - 1,119

Construction 21,032 2,582 21,032 2,582

Wholesale & retail trade and restaurants & hotels 1,813 1,005 - 1,005

Transport, storage and communication 3,308 - 3,308 -


Household 9,971 - 9,971 -

50,870 12,974 49,057 12,974




Analysed by economic sectors (continued)

The Group The Bank

Collective impairment2014

RM’0002013

RM’0002014

RM’0002013

RM’000



Manufacturing 11,393 15,100 10,227 13,886

Electricity, gas and water supply 823 594 669 485

Construction 26,496 31,761 24,540 29,800

Real estate 17,722 14,164 16,620 13,161





Household 170,649 192,795 143,573 167,345

292,619 300,314 255,226 266,595

Analysed by geographical area

The Group The Bank

Past due loans2014

RM’0002013

RM’0002014

RM’0002013

RM’000

Perlis 4,455 4,680 3,750 4,143

Kedah 109,040 101,606 84,534 86,965

Pulau Pinang 87,424 93,554 75,049 81,663

Perak 117,262 115,654 65,279 67,837

Selangor 937,151 585,105 794,410 454,868


Negeri Sembilan 82,301 98,615 67,935 84,127

Melaka 95,668 106,888 86,980 101,945

Johor 254,439 353,076 227,871 333,469

Pahang 64,691 65,105 41,614 43,859

Terengganu 61,163 59,488 5,791 8,303

Kelantan 45,729 40,920 6,465 4,535

Sarawak 135,361 142,309 133,311 139,579

Sabah 234,956 275,810 228,143 269,326

Labuan 18 59 18 54

Outside Malaysia 27,372 246 98 246

2,645,096 2,432,647 2,164,663 2,033,298




Analysed by geographical area (continued)

The Group The Bank

Individual impairment2014

RM’0002013

RM’0002014

RM’0002013

RM’000

Kedah 884 6,114 884 6,114

Pulau Pinang 12,403 1,332 12,403 1,332

Selangor 97,494 114,281 94,494 107,167


Negeri Sembilan 2,245 2,560 2,245 2,560

Johor 10,368 15,051 10,368 15,051

Pahang 38,920 3,396 38,920 3,396

Terengganu 11,569 1,733 11,569 1,733

Kelantan - 18 - 18

Sarawak 101 - 101 -

Sabah - 82 - -

Outside Malaysia 35,369 39,692 6,876 12,984

239,259 223,701 207,740 189,117

The Group The Bank

Collective impairment2014

RM’0002013

RM’0002014

RM’0002013

RM’000

Perlis 833 487 413 320

Kedah 11,681 12,289 10,344 11,140

Pulau Pinang 11,735 11,565 10,890 10,744

Perak 13,706 12,545 9,907 9,562

Selangor 110,202 111,368 97,633 99,103


Negeri Sembilan 12,101 14,345 10,755 12,942

Melaka 8,879 8,337 8,555 8,006

Johor 23,967 28,347 22,364 26,828

Pahang 8,135 6,729 6,598 5,425

Terengganu 6,184 14,818 2,574 12,094

Kelantan 4,210 3,517 906 898

Sarawak 9,277 8,236 9,006 7,928

Sabah 15,219 14,598 14,815 14,126

Labuan 1,273 1,144 1,272 1,144

Outside Malaysia 2,434 - 2,379 -

292,619 300,314 255,226 266,595



5 Credit Risk 5.7 Credit Risk Culture

The Bank recognises that learning is a continuous journey and is committed to enhance the knowledge and required skills set of its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation.

For effective and efficient staff learning, the Bank has implemented an E–Learning Program with an online Learning Management System (‘LMS’). The LMS provides staff with a progressive self-learning alternative at own pace.

GRM implements an Internal Credit Certification (‘ICC’) Programme for both Business Banking and Consumer Credit.

The aim of the ICCs is to assist the core credit related group of personnel in the Bank achieve a minimum level of knowledge and analytical skills required to make sound corporate and commercial loans to customers.

6 Market Risk

6.1 Market Risk Management Objectives and Policies

Market risk is defined as the risk of losses to the Bank’s portfolio positions arising from movements in market factors such as interest rates, foreign exchange rates and changes in volatility. The Bank is exposed to market risks from its trading and investment activities. The Bank’s market risk management objective is to ensure that market risk is appropriately identified, measured, controlled, managed and reported.

The Bank’s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate risk arises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives. The Bank is also exposed to basis risk when there is a mismatch between the change in price of a hedge and the change in price of the assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers’ requirements and proprietary positions.

6.2 Application of Standardised Approach for Market Risk

The Bank adopts the Standardised Approach for the purpose of calculating the capital requirement for market risk.

Refer to Appendix I.

6.3 Market Risk Measurement, Control and Monitoring

The Bank’s market risk management control strategy is established based on its risk appetite, market liquidity and business strategies as well as macroeconomic conditions. These limits are reviewed at least on an annual basis.

Market risk arising from the Bank’s trading book is primarily controlled through the imposition of Cut-loss and Value-at-Risk (‘VaR’) Limits.

The Bank quantifies interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate sensitive liabilities. It also conducts Net Interest Income simulations to assess the variation in earnings under various rates scenarios. The potential long term effects of the Bank’s overall exposure is also tracked by assessing the impact on economic value of equity (‘EVE’).

The Bank’s interest rate risk is managed through Earnings-at-Risk (‘EaR’) and Economic Value-at-Risk (‘EVaR’) limits.

In addition, the Bank conducts periodic stress test of its respective business portfolios to ascertain market risk under abnormal market conditions.

The Bank’s Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.



6 Market Risk

6.4 Value-at-Risk (‘VaR’)

Value-at-Risk (‘VaR’) is used to compute the maximum potential loss amount over a specified holding period of a trading portfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign exchange rates that could affect values of financial instruments.

In May 2014, arising from the Bank’s Treasury Management System Upgrade project, the Bank changed its methodology to compute potential loss amount or Value-at-Risk (VaR) to Historical Pricing Simulation Method (HPS) from the current Variance Co-variance (VCV) approach. HPS was chosen because it is a robust methodology able to cater for a spectrum of financial instruments.

The Historical Pricing Method uses the relative change of historical prices to estimate future potential changes in the market value of outstanding positions. The Bank currently adopts 250 simulated business days for its HPS VaR computation. After applying these price changes to the outstanding portfolios, 250 simulated market values for the portfolio are generated and the change in the day-to-day market value is taken as simulated Profit & Loss (P&L) for the portfolio. Since VaR calculates the worst expected loss over a given day horizon and confidence level under normal market condition, simulated 250 values are sorted from the lowest to the highest simulated P&L. The VaR focuses on the tail of the distribution (i.e the loss figures).

Other risk measures include the following:

(i) Mark-to-Market valuation tracks the current market value of the outstanding financial instruments.

(ii) Stress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market movements. Stress tests measure the changes in values arising from extreme movements in interest rates and foreign exchange rates based on past experience and simulated stress scenarios.

6.5 Foreign Exchange Risk

The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily.

7 Liquidity Risk 7.1 Liquidity Risk Management Objectives and Policies

Liquidity risk is the current and prospective risk to earnings or capital arising from a bank’s inability to meet its obligations when they fall due. Liquidity risk includes the inability to manage sudden decreases or changes in funding sources. Liquidity risk also arises from the failure to recognise changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

Liquidity risk management is managed on Group basis. The objective of liquidity risk management is to ensure that there are sufficient funds to meet contractual and regulatory obligations without incurring unacceptable losses as well as to undertake new transactions. The Group’s liquidity management process involves establishing liquidity risk management policies and limits, liquidity risk limits monitoring, stress testing and establishing contingency funding plans. These building blocks of liquidity risk management are subject to regular reviews to ensure relevance in the context of prevailing market conditions.



7 Liquidity Risk 7.2 Liquidity Risk Measurement, Control and Monitoring

Liquidity monitoring is performed via projection of contractual and behavioral cash flows, which are built upon from BNM’s Liquidity Framework (‘LF’). The LF ascertains the liquidity condition based on the contractual and behavioral cash-flow of assets, liabilities and off-balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets. The LF is also supported by indicative ratios on the Bank’s funding structure to monitor the reliance on particular funding sources. Liquid assets in excess of regulatory requirements are maintained for contingency in the event of a liquidity crisis.

The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. Liquidity risk is tracked using internal and external qualitative and quantitative indicators. Liquidity positions in the major currencies are being closely monitored by tracking the availability of medium to long term foreign currency funding and adhering to the guiding principles for foreign currency assets creations

The Bank also conducts liquidity stress test to gauge its resilience in the event of a liquidity crisis. A Contingency Funding Plan is in place to alert and enable Management to act effectively and efficiently in handling liquidity disruption. The document encompasses early warning system, strategies, decision-making authorities, and courses of actions to be taken in the event of liquidity crisis and emergencies.

Basel III Liquidity Standards

The Basel Committee developed the Liquidity Coverage Ratio (‘LCR’) and Net Stable Funding Ratio (‘NSFR’) with the goal of strengthening the resilience of banking systems. The LCR and NSFR are tracked monthly to assess the short term and long term liquidity risk profile of the Bank, in line with BNM observation period reporting for Basel III liquidity ratios which commenced in June 2012.

The BRMC is responsible for the Bank’s liquidity policy although the strategic management of liquidity has been delegated to the ALCO. The BRMC is informed regularly on the liquidity situation in the Bank.

8 Operational Risk

8.1 Operational Risk Management Objectives and Policies

Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people, infrastructure or technology or events which are beyond the Bank’s immediate control which have an operational impact, including natural disaster, fraudulent activities and money laundering/financing of terrorism.

The Bank manages operational risk through a control based environment in which policies and procedures are formulated after taking into account individual unit’s business activities, the market in which it is operating and regulatory requirement in force.

8.2 Application of Basic Indicator Approach for Operational Risk

The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational risk. The capital requirement is calculated by taking 15% of the Bank’s average annual gross income over the previous three years.



8 Operational Risk

8.3 Operational Risk Measurement, Control and Monitoring

Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix. Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational Risk Management process.

The Bank gathers, analyses and reports operational risk loss and ‘near miss’ events to Group Operational Risk Management Committee and Board Risk Management Committee. Appropriate preventive and remedial actions are reviewed for effectiveness and implemented to minimize the recurrence of such events.

8.4 Operational Risk Culture

As a matter of requirement, all Operational Risk Coordinators must satisfy an Internal Operational Risk (including anti-money laundering/counter financing of terrorism and business continuity management) Certification Program. These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training and development activities for the coordinators.

9 Shariah Compliance

Shariah compliance is the fundamental of Islamic banking and finance. It gives legitimacy to the practices and business operations of the Islamic financial institutions (‘IFIs’) concerned. Comprehensive compliance with Shariah principles would also boosts confidence of shareholders and public that all the practices and activities by the IFIs are in compliance with the Shariah principles at all times.

Shariah Governance Framework for Islamic Financial Institutions (the ‘Framework’) issued by Bank Negara Malaysia becomes the main reference to oversee the Shariah governance process within AFFIN Islamic Bank Berhad. In order to comply with all the requirements in the Framework, Board of Directors of the Bank are very committed to ensure among others all the required Shariah compliance and research functions include Shariah Risk Management, Shariah Review, Shariah Research and Shariah Audit are properly established to effectively perform its respective functions.

Continuous training programs are provided to Shariah Committee members to equip them with better understanding and exposure on banking operations and to Board of Directors, management members and staff for fundamental and advanced knowledge on Shariah and Islamic commercial law matters.


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ISC

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for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

014

Ap

pen

dix

I


Dis

clo

sure

on

Cap

ital

Ad

equa

cy u

nder

the

Sta

ndar

dis

ed A

pp

roac

h (R

M’0

00)

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k20

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osur

e C

lass

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ss

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osur

es/E

AD

bef

ore

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M

Net

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es/

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D a

fter

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M

Ris

kW

eigh

ted

Ass

ets

Tot

al R

isk

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ghte

dA

sset

s af

ter

Effe

cts

of P

SIA

Min

imum

Cap

ital

Req

uire

men

tsat

8%

1

CR

ED

IT R

ISK

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por

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SE

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PIL

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3 D

ISC

LOS

UR

ES

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

014

Ap

pen

dix

I



Disclosure on Capital Adequacy under the Standardised Approach

Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. The Bank’s Capital-at-Risk (‘CaR’) is defined as the amount of the Bank’s capital that is exposed to the risk of unexpected losses arising particularly from movements in interest and foreign exchange rates. A CaR Limit is set as a management trigger to ensure that the Bank’s exposure to such movements do not compromise the Bank’s capital adequacy. The Bank is currently adopting BNM’s Standardised Approach for the computation of market risk capital charges. The market risk capital charges addresses among others, capital requirement for market risk which includes the interest rate risk pertaining to the Bank’s exposure in the trading book as well as foreign exchange risk in the trading and banking books.

The computation of market risk capital charge covers the following outstanding financial instruments:

a) Foreign Exchange b) Interest Rate Swap (‘IRS’)c) Cross Currency Swap (‘CCS’)d) Fixed Income Instruments (i.e. Private Debt and Government Securities)

Appendix I


Dis

clo

sure

on

Cre

dit

Ris

k: D

iscl

osu

res

on

Ris

k W

eig

hts

und

er t

he S

tand

ard

ised

Ap

pro

ach

(RM

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The

Gro

up20

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osu

res

afte

r N

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nd C

red

it R

isk

Mit

igat

ion

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tal

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ter

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ting

& C

red

it

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k M

itig

atio

n

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tal R

isk

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ght

ed

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ets

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k W

eig

hts

So

vere

igns

&

Cen

tral

B

anks

P

SE

s

Ban

ks,

MD

Bs

and

FD

Is

Insu

ranc

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om

pan

ies,

S

ecur

itie

s Fi

rms

&

Fund

M

anag

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Cor

pora

tes

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ulat

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ail

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gag

es

Hig

her

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kA

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ther

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ets

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nanc

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0% 1

0,52

8,15

4 -

7

9,01

7 -

1

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-

-

-

2

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-

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1

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6,55

7 -

10%

-

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64,

896

2,7

59

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44

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1,0

16

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357

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6

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1

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3

71,9

07

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-

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35

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-

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-

-

12,

466,

131

12,

503

-

-

-

-

-

12,

478,

634

9,3

58,9

76

90%

-

-

-

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-

-

-

-

-

-

-

-

100%

-

-

6,5

92

370

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2

1,48

0,88

8 4

1,58

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19,5

97

-

404

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-

-

2

3,47

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2,64

6,62

0 2

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6,62

0

110%

-

-

-

-

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-

-

-

-

-

-

-

125%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

135%

-

-

-

-

-

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-

-

-

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-

-

-

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150%

-

-

-

-

471

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2

10,0

38

139

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2

63,2

72

-

-

-

-

1,0

84,8

72

1,6

27,3

08

270%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

350%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

400%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

625%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

938%

-

-

-

-

-

-

-

-

-

-

-

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1250

% -

-

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UR

ES

for

the

finan

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yea

r en

ded

31

Dec

emb

er 2

014

Ap

pen

dix

II


Dis

clo

sure

on

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dit

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k: D

iscl

osu

res

on

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k W

eig

hts

und

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pro

ach

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13

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es a

fter

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ting

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dit

Ris

k M

itiga

tion

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al

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eaf

ter

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ting

& C

red

it R

isk

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gatio

n

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al R

isk

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ghte

d

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ets

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k W

eigh

ts

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& C

entr

al

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PS

Es

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and

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omp

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s,

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Firm

s &

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nd

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ager

s C

orpo

rate

s R

egul

ator

y R

etai

l R

esid

entia

l M

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ages

Hig

her

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kA

sset

s O

ther

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ets

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cial

ised

Fi

nanc

ing

/In

vest

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t S

ecur

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tion

Eq

uity

0% 1

0,97

3,02

5 -

3

4,31

4 1

5,03

9 1

,135

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-

-

-

1

,810

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-

-

-

1

3,96

8,61

4 -

10%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

20%

38,

677

31,

954

2,5

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95

29,

583

2,5

31,8

60

1,7

15

-

-

90,

753

-

-

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5,2

33,0

37

1,0

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07

35%

-

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-

-

-

3,6

76,4

31

-

-

-

-

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3,6

76,4

31

1,2

86,7

51

50%

-

-

1,5

31,4

49

-

641

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7

57

481

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-

-

-

-

-

2

,654

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1

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75%

-

-

-

-

-

12,

027,

148

26,

692

-

-

-

-

-

12,

053,

840

9,0

40,3

80

90%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

100%

-

-

15,

819

498

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2

0,33

5,46

8 5

0,33

6 4

06,7

23

3,6

40

416

,100

-

-

2

4,05

7 2

1,75

0,16

0 2

1,75

0,16

0

110%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

125%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

135%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

150%

-

-

-

-

791

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2

16,1

64

74,

565

302

,847

-

-

-

-

1

,385

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2

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,925

270%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

350%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

400%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

625%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

938%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

1250

% -

-

-

-

-

-

-

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-

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rage

R

isk

Wei

ght

-

-

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uctio

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om C

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l B

ase

-

-

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-

-

-

-

-

-

-

-

PS

E “

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lic S

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r E

ntiti

es”

MD

B “

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tilat

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elop

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anks

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BA

SE

L II

PIL

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3 D

ISC

LOS

UR

ES

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

014

Ap

pen

dix

II


Dis

clo

sure

on

Cre

dit

Ris

k: D

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osu

res

on

Ris

k W

eig

hts

und

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he S

tand

ard

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Ap

pro

ach

(RM

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)

The

Ban

k20

14

Exp

osu

res

afte

r N

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red

it R

isk

Mit

igat

ion

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tal

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osu

reaf

ter

Net

ting

& C

red

it

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k M

itig

atio

n

To

tal R

isk

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ght

ed

Ass

ets

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k W

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vere

igns

&

Cen

tral

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t 12

mon

ths’

Ear

ning

s -

Inte

rest

rat

e ris

k fr

om t

he e

arni

ngs

per

spec

tive

is t

he im

pac

t b

ased

on

chan

ges

to t

he n

et in

tere

st in

com

e ov

er t

he n

ext

12 m

onth

s. T

his

risk

is m

easu

red

m

onth

ly t

hrou

gh s

ensi

tivity

ana

lysi

s in

clud

ing

the

app

licat

ion

of a

n in

stan

tane

ous

100

bas

is p

oint

par

alle

l sho

ck in

inte

rest

rat

es a

cros

s th

e yi

eld

cur

ve.

The

pro

spec

tive

chan

ge t

o th

e ne

t in

tere

st in

com

e is

mea

sure

d u

sing

an

Ass

et L

iab

ility

Man

agem

ent

sim

ulat

ion

mod

el w

hich

inco

rpor

ates

the

ass

essm

ent

of b

oth

exis

ting

and

new

bus

ines

s.

(2

) Eco

nom

ic V

alue

- M

easu

ring

the

chan

ge in

the

eco

nom

ic v

alue

of e

qui

ty is

an

asse

ssm

ent

of t

he lo

ng t

erm

imp

act

to t

he e

arni

ngs

pot

entia

l. Th

is is

ass

esse

d t

hrou

gh t

he a

pp

licat

ion

of r

elev

ant

dur

atio

n fa

ctor

s to

cap

ture

the

net

eco

nom

ic v

alue

imp

act

over

the

long

ter

m o

r to

tal l

ife o

f all

bal

ance

she

et a

sset

s an

d li

abili

ties

to a

dve

rse

chan

ges

in in

tere

st r

ates

.

Th

e ab

ove

calc

ulat

ions

do

not

take

into

acc

ount

loan

pre

pay

men

ts.

20

14

Typ

e o

f C

urre

ncy

(RM

mill

ion)

The

Gro

upT

he B

ank

Imp

act

on

Po

siti

ons

(100

bas

is p

oin

ts) P

aral

lel S

hift

Imp

act

on

Po

siti

ons

(100

bas

is p

oin

ts) P

aral

lel S

hift

Incr

ease

/(D

eclin

e)in

Ear

ning

sIn

crea

se/(

Dec

line)

in E

cono

mic

Val

ueIn

crea

se/(

Dec

line)

in E

arni

ngs

Incr

ease

/(D

eclin

e)in

Eco

nom

ic V

alue

Rin

ggit

Mal

aysi

a (4

0.7)

292

.8

(51.

3) 2

48.1

US

Dol

lar

8.0

7

.1

8.4

7

.1

Eur

o (0

.4)

-

(0.4

) -

Gre

at B

ritai

n P

ound

(0.1

) -

(0

.1)

-

Aus

tral

ian

Dol

lar

(0.1

) 2

.0

(0.1

) 1

.9

Sin

gap

ore

Dol

lar

0.8

(0

.6)

0.8

(0

.6)

Jap

anes

e Ye

n -

-

-

-

Oth

ers

(#)

7.5

7

.7

7.5

7

.7

Tota

l (2

5.0)

309

.0

(35.

2) 2

64.2

# O

ther

s co

mp

rise

of C

NH

, NZ

D, H

KD

and

AE

D c

urre

ncie

s w

here

the

am

ount

of e

ach

curr

ency

is r

elat

ivel

y sm

all.

Ap

pen

dix

IVB

AS

EL

II P

ILLA

R 3

DIS

CLO

SU

RE

Sfo

r th

e fin

anci

al y

ear

end

ed 3

1 D

ecem

ber

201

4


c)

Dis

clo

sure

s o

n M

arke

t R

isk

- In

tere

st R

ate

Ris

k/R

ate

of

Ret

urn

Ris

k in

the

Ban

king

Bo

ok

20

13

Typ

e of

Cur

renc

y (R

M m

illio

n)

The

Gro

upTh

e B

ank

Imp

act

on P

ositi

ons

(100

bas

is p

oint

s) P

aral

lel S

hift

Imp

act

on P

ositi

ons

(100

bas

is p

oint

s) P

aral

lel S

hift

Incr

ease

/(D

eclin

e)in

Ear

ning

sIn

crea

se/(

Dec

line)

in E

cono

mic

Val

ueIn

crea

se/(

Dec

line)

in E

arni

ngs

Incr

ease

/(D

eclin

e)in

Eco

nom

ic V

alue

Rin

ggit

Mal

aysi

a (3

2.7)

488

.0

(36.

2) 3

86.4

US

Dol

lar

12.

3 1

0.7

12.

7 1

0.7

Eur

o (0

.4)

-

(0.4

) -

Gre

at B

ritai

n P

ound

0.8

0

.2

0.8

0

.2

Aus

tral

ian

Dol

lar

0.1

2

.4

0.1

2

.4

Sin

gap

ore

Dol

lar

0.5

0

.8

0.5

0

.8

Jap

anes

e Ye

n (0

.1)

-

(0.1

) -

Oth

ers

(#)

1.0

1

.5

1.1

1

.5

Tota

l (1

8.5)

503

.6

(21.

5) 4

02.0

# O

ther

s co

mp

rise

of C

NH

, NZ

D, H

KD

and

AE

D c

urre

ncie

s w

here

the

am

ount

of e

ach

curr

ency

is r

elat

ivel

y sm

all.

Ap

pen

dix

IVB

AS

EL

II P

ILLA

R 3

DIS

CLO

SU

RE

Sfo

r th

e fin

anci

al y

ear

end

ed 3

1 D

ecem

ber

201

4

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