Annual Report 2015 - Affin Bank · Affin Bank Berhad 250 Annual Report 2015 ... and Terengganu as well as the Board of Directors of Bank Pembangunan Malaysia Berhad, ... Kewangan

Annual Report 2015

COVER RATIONALE

Identifying and converting potential can be challenging, especially in volatile markets. It requires conviction, discipline and a focus on the long term.

At AFFINBANK, we understand the value of potential.

With expertise across a wide array of disciplines, backed by our focus on results, we constantly think ahead and strive to anticipate change before it happens.

This forward thinking approach helps our customers look to the future with confidence.

TABLE OF CONTENTS

FINANCIAL STATEmENTS

45 Financial Statements

ORgANISATION

02 Corporate Information03 Corporate Structure04 Board of Directors05 Profile of Board of Directors09 Management Team10 Profile of Management Team

ExECuTIVE SummARy

14 Chairman’s Statement17 MD/CEO’s Performance Review20 Corporate Diary22 Financial Highlights

CORPORATE gOVERNANCE

23 Statement on Corporate Governance30 Statement on Risk Management & Internal Control34 Audit & Examination Committee

OThER INFORmATION

39 Network of Branches44 Notice of Annual General Meeting

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.

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CORPORATE INFORmATION

ChairmanyBhg. Jen. Tan Sri Dato’ Seri Ismail Bin haji Omar (Bersara)(Non-Independent Non-Executive Director)

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

yBhg. Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman(Independent Non-Executive Director) (Retired w.e.f. 27.1.2015)

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

mr. Tang Peng Wah (Alternate Director to Mr. Aubrey Li Kwok-Sing)

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)

En. Abd malik Bin A Rahman(Independent Non-Executive Director)(Appointed w.e.f. 3.3.2015)

BOARD OF DIRECTORS

NAmE

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

DATE OF INCORPORATION

23 October 1975

AuThORISED ShARE CAPITAL

No. of shares2,000,000,000

Par valueRM1.00

TotalRM2,000,000,000

PRINCIPAL ACTIVITIES

Affin 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 services, nominees’

services, trustee management services and factoring services.

ISSuED AND PAID-uP ShARE CAPITAL

No. of shares1,688,769,616

Par valueRM1.00

TotalRM1,688,769,616

mANAgINg DIRECTOR/ChIEF ExECuTIVE

OFFICER

YBhg. Dato’ Zulkiflee Abbas Bin Abdul Hamid(Retired w.e.f. 1.4.2015)

En. Kamarul Ariffin Bin Mohd Jamil

(Appointed w.e.f. 1.4.2015)

SuBSTANTIAL ShAREhOLDER

No. of sharesAffin Holdings Berhad

1,688,769,616

SECRETARy

Nimma Safira Binti Khalid

REgISTEREDOFFICE

17th FloorMenara AFFIN

80, Jalan Raja Chulan50200 Kuala LumpurTel.: 03-2055 9000 Fax: 03-2026 1415

ExTERNAL AuDITORS

PricewaterhouseCoopers (AF 1146)

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Affin Bank Berhad (25046-T) | Annual Report 2015

CORPORATE STRuCTuRE

as at 31 December 2015

1 Dormant companies – inactive but company currently holding asset.2 Associate companies.3 Companies where application to strike-off has been filed by the Bank.

OThERS

AFFIN hOLDINgS BERhAD

AFFIN Bank BerhadAFFIN Islamic Bank Berhad

Lembaga Tabung Angkatan Tentera

AxA AFFIN Life Insurance Berhad

AxA AFFIN general Insurance Berhad

AFFIN moneyBrokers Sdn Bhd

AFFIN-ACF holdings Sdn Bhd

AFFIN hwang Investment Bank Berhad

AFFIN Investment Berhad(formerly known as 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

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)

AFFIN hwang Nominees (Tempatan) Sdn Bhd

AFFIN hwang FuturesSdn Bhd

AFFIN hwang Nominees (Asing) Sdn Bhd

AFFIN Nominees (Tempatan) Sdn Bhd

AFFIN hwang Asset management Berhad

AFFIN Nominees (Asing) Sdn Bhd

Asian Islamic Investmentmanagement Sdn Bhd

AFFIN Capital Services Berhad(formerly known as AFFIN Fund Management Berhad)

PAB Properties Sdn Bhd

ABB Trustee Berhad 2

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

AFFIN Futures Sdn Bhd 1

ABB IT & Services Sdn Bhd 1

BSNCB Nominees (Tempatan) Sdn Bhd 1

AFFIN Recoveries Berhad 1

ABB Nominee (Tempatan) Sdn Bhd AFFIN-ACF Nominees (Tempatan) Sdn Bhd 3

AFFIN Factors Sdn Bhd 1

ABB Nominee (Asing) Sdn Bhd 1

PAB Property Development Sdn Bhd 3

BSNC Nominees (Tempatan) Sdn Bhd 3

59.98%

20.69%

100%

100%

100%

51%

34.5%

100%

100%

100% 100%

100% 100%

70% 100%

100%

100%

100%

100% 100%

100%

100% 100%

100%

100%

100%

100%

100%

100%

100%

50%

30%

23.52% 20.51%

35.28%

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BOARD OF DIRECTORS

EN. mOhD SuFFIAN BIN hAJI hARON

Independent Non-Executive Director

yBhg. TAN SRI DATO’ SERI LODIN BIN WOK KAmARuDDIN

Non-Independent Non-Executive Director

EN. ABD mALIK BIN A RAhmANIndependent

Non-Executive Director (Appointed w.e.f. 3.3.2015)

yBhg. TAN SRI DATO’ SERI mOhAmED JAWhAR


yBhg. TAN SRI mOhD ghAzALIBIN mOhD yuSOFF


yBhg. TAN SRI DATO’ SRI ABDuL AzIz BIN ABDuL RAhmAN


(Retired w.e.f. 27.1.2015)

mR. AuBREy LI KWOK-SINg Non-Independent

Non-Executive Director

yBhg. JEN. TAN SRI DATO’ SERI ISmAIL BIN hAJI OmAR (BERSARA)

Chairman/ Non-Independent Non-Executive Director

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PROFILE OF DIRECTORS

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 KAmARuDDINNon-Independent Non-Executive Director

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara), aged 74, 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 the 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 Nations International Peace Academy, Vienna; the National Defence College, India and the National Institute of Public Administration (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, ABB Trustee Berhad, EP Engineering Sdn Bhd and Global Medical Alliance Sdn Bhd.

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) attended all 11 scheduled monthly Board Meetings and all 10 Special Board Meetings held during the financial year ended 31 December 2015.

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin, aged 66, 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.

Tan Sri Dato’ Seri Lodin 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 and Boustead Petroleum Marketing Sdn Bhd. He sits on the Board of The University of Nottingham in Malaysia, Minority Shareholder Watchdog Group, FIDE Forum, AFFIN ISLAMIC, Affin Hwang Investment Bank Berhad, AXA Affin Life Insurance Berhad and Boustead Plantations Berhad.

Tan Sri Dato’ Seri Lodin graduated from the University of Toledo, Ohio, USA with a Bachelor of Business Administration and a Master of Business Administration. Among the many awards he received to date include the Chevalier De La Legion D’Honneur from the French Government, the Malaysian Outstanding Entrepreneurship Award, the Degree of Doctor of Laws (honoris causa) (LLD) 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. He is also a Chartered Banker, AICB.

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin attended all 11 scheduled monthly Board Meetings and 2 out of 10 Special Board Meetings held during the financial year ended 31 December 2015.

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mR. AuBREy LI KWOK-SINgNon-Independent Non-Executive Director

Mr. Aubrey Li Kwok-Sing, aged 65, was appointed to the Board of Directors of AFFINBANK on 17 March 2008. He is also 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 5 out of 11 scheduled monthly Board Meetings held during the financial year ended 31 December 2015.

Mr. Aubrey Li Kwok-Sing’s Alternate Director, Mr. Tang Peng Wah was appointed on 23 June 2014. He attended 5 out of 11 scheduled monthly Board Meetings and 4 out of 10 Special Board Meetings held during the financial year ended 31 December 2015.

EN. mOhD SuFFIAN BIN hAJI hARONIndependent Non-Executive Director

En. Mohd Suffian Bin Haji Haron, aged 70, was appointed to the Board of Directors of AFFINBANK on 15 August 2009.

He graduated from the University of Malaya (1970) with a Bachelor of Economics 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 the Ministry of Public Enterprises. Whilst at the Prime Minister’s Department, he was also assigned as Assistant to the Special Economic Adviser to the Government. He served the Board of Directors of Fraser’s Hill Development Corporation, the State Development Corporations of Perak, Pahang and Terengganu as well as the Board of Directors of Bank Pembangunan Malaysia Berhad, Kompleks Kewangan Malaysia Berhad, HICOM and the Council of Majlis Amanah Rakyat (MARA). After thirteen years of service, he left the Government Service to serve a GLC involved in international business, after which he ventured on his own to be the Managing Director of Insurance Broking Company. Amongst his other involvements after that were in the securities industry and asset management activities. He has also served as a Director of Hitachi Sales (Malaysia) Sdn Bhd, Meiden Electric Engineering Sdn Bhd, Far East Computers (India) and Affin Discount Berhad. He also brings with him vast experience in general trading, power generation and transmission, aircraft maintenance as well as the oil and gas services sectors.

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

En. Mohd Suffian Bin Haji Haron attended all 11 scheduled monthly Board Meetings and all 10 Special Board Meetings held during the financial year ended 31 December 2015.


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yBhg. TAN SRI DATO’ SERI mOhAmED JAWhARIndependent Non-Executive Director

Tan Sri Dato’ Seri Mohamed Jawhar, aged 71, was appointed to the Board of Directors of AFFINBANK on 1 November 2011.

His other positions include: Independent Non-Executive Director, AFFIN ISLAMIC; Non-Executive Chairman, New Straits Times Press (Malaysia) Berhad; Member of Securities Commission Malaysia; Member, Operations Review Panel, 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); and Member, Laureate Advisory Board, INTI International University and Colleges. He is also the Expert and Eminent Person from Malaysia 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 he joined Institute of Strategic & International Studies (ISIS) Malaysia as Deputy Director-General in 1990. He was appointed Director-General in March 1997 and was subsequently appointed Chairman and CEO in 2006. He was appointed Chairman ISIS Malaysia on 9 January 2010 and relinquished the position on 8 January 2015.

During his government service, his positions include 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 11 scheduled monthly Board Meetings and all 10 Special Board Meetings held during the financial year ended 31 December 2015.

yBhg. TAN SRI mOhD ghAzALI BIN mOhD yuSOFFIndependent Non-Executive Director

Tan Sri Mohd Ghazali Bin Mohd Yusoff, aged 69, 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 and 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 later to the Federal Court. He retired in January 2012.

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

Tan Sri Mohd Ghazali Bin Mohd Yusoff attended all 11 scheduled monthly Board Meetings and all 10 Special Board Meetings held during the financial year ended 31 December 2015.

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EN. ABD mALIK BIN A RAhmANIndependent Non-Executive Director (Appointed w.e.f. 3.3.2015)

En. Abd Malik Bin A Rahman, aged 67, was appointed to the Board of Directors of AFFINBANK on 3 March 2015.

En. Malik is currently an Independent Non-Executive Director of AFFIN Holdings Berhad, Boustead Heavy Industries Corporation Berhad, CYL Corporation Berhad, Lee Swee Kiat Group Berhad and Innity Corporation Berhad as well as Director of several private limited companies including Boustead Penang Shipyard Sdn Bhd. He is also a Director of the subsidiaries of AFFIN Holdings Berhad, namely AFFIN Hwang Investment Bank Berhad (formerly known as HwangDBS Investment Bank Berhad) and AFFIN Hwang Asset Management Berhad (formerly known as Hwang Investment Management Berhad).

He is a Chartered Accountant member of the Malaysian Institute of Accountants, a member of the Malaysian Institute of Certified Public Accountants, a member of Certified Financial Planners (USA), a member of Chartered Management Institute (UK), a member of the Malaysian Institute of Management and Fellow of the Association of Chartered Certified Accountants (UK).

En. Malik has held various senior management positions in Peat Marwick Mitchell & Company (currently known as KPMG), Esso Group of Companies, Colgate-Palmolive (M) Sdn Bhd, Amway (Malaysia) Sdn Bhd, Fima Metal Box Berhad and Guinness Anchor Berhad. He was the General Manager, Corporate Services of Kelang Multi Terminal Sdn Bhd (currently known as Westports Malaysia) from 1994 until 2003.

En. Abd Malik Bin A Rahman attended all 9 scheduled monthly Board Meetings and 8 out of 10 Special Board Meetings held for the period from March to December 2015.


yBhg. TAN SRI DATO’ SRI ABDuL AzIz BIN ABDuL RAhmANIndependent Non-Executive Director (Retired w.e.f. 27.1.2015)

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman, aged 69, 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 and the International Islamic University Malaysia.

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman retired as Director with effect from 27 January 2015.

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mANAgEmENT TEAm

PN. NImmA SAFIRA BINTI KhALIDChief Compliance Officer & Company Secretary

PN. NORhAzLIzAWATI BINTI mOhD RAzALIGroup Chief Credit Officer

(Appointed w.e.f. 1 August 2015)

mR. KASINAThAN T. KASIPILLAIGroup Chief Risk Officer

(Retired w.e.f. 1 August 2015)

mR. TAN KOK TOONDirector, Group Treasury

mR. RAmANAThAN RAJOOChief Financial Officer

PN. NOR ROzITA BINTI NORDINChief Human Resource Officer

EN. AmIRuDIN BIN ABDuL hALImExecutive Director, Business Banking

EN. IDRIS BIN ABD hAmIDDirector, Consumer Banking

EN. KAmARuL ARIFFIN BIN mOhD JAmIL Managing Director/ Chief Executive Officer,

Affin Bank Berhad (Appointed w.e.f. 1.4.2015)

yBhg. DATO’ zuLKIFLEE ABBAS BIN ABDuL hAmIDManaging Director/ Chief Executive Officer

(Retired w.e.f. 1.4.2015)

EN. NAzLEE BIN KhALIFAhChief Executive Officer, Affin Islamic Bank Berhad

EN. ShARIFFuDIN BIN mOhAmADExecutive Director, Operations & Strategic Services

PN. KhATImAh BINTI mAhADIGroup Chief Internal Auditor

mR. WONg KOK LEONgGroup Chief Risk Officer

(Appointed w.e.f. 1 August 2015)

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PROFILE OF mANAgEmENT TEAm

EN. KAmARuL ARIFFIN BIN mOhD JAmIL Managing Director/Chief Executive Officer, Affin Bank Berhad (Appointed w.e.f. 1.4.2015)

En. Kamarul Ariffin Bin Mohd Jamil was appointed as the Managing Director/Chief Executive Officer of Affin Bank Berhad on April 2014 and is currently also holding the position Group Chief Executive Officer of Affin Holdings Berhad.

Kamarul 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 in 2006.

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.

yBhg. DATO’ zuLKIFLEE ABBAS BIN ABDuL hAmIDManaging Director/Chief Executive Officer (Retired w.e.f. 1.4.2015)

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

Dato’ Zulkiflee retired as Managing Director/Chief Executive Officer with effect from 1 April 2015.

EN. NAzLEE BIN KhALIFAhChief Executive Officer, Affin Islamic Bank Berhad

En. Nazlee Bin Khalifah was appointed as the Chief Executive Officer of Affin Islamic Bank Berhad on June 2015. Prior to AFFIN ISLAMIC, Nazlee held the position as Head of Business Strategy and Support, Business Banking Division for Affin Bank Berhad in 2009 and 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’s degree in Business Administration, majoring in Accounting and Finance.

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PROFILE OF MANAGEMENT TEAM

mR. RAmANAThAN RAJOOChief Financial Officer

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 more than 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’s degree in Accounting from Universiti Kebangsaan Malaysia (UKM) and a Master in Business Administration (MBA) (Finance) from Universiti Putra Malaysia (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. ShARIFFuDIN BIN mOhAmADExecutive Director, Operations & Strategic Services

En. Shariffudin Bin Mohamad joined Affin Bank Berhad in 2007 as Director of Operations and was appointed as Executive Director, Operations in 2009.

Shariffudin has more than 25 years of 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. AmIRuDIN BIN ABDuL hALImExecutive Director, Business Banking

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.

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PN. KhATImAh BINTI mAhADIGroup Chief Internal Auditor

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 holds a Diploma in Accountancy from UiTM in 1978 and was awarded as one of the first 45 Chartered Bankers in Malaysia in 2015.

EN. IDRIS BIN ABD hAmIDDirector, Consumer Banking

PN. NOR ROzITA BINTI NORDINChief Human Resource Officer

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 Corporate and Consumer Loans Management.

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

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 the 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 in 1984, a Bachelor of Science in Education and a Bachelor of Arts in Linguistics, both in 1982.

mR. TAN KOK TOONDirector, Group Treasury

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 of 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 Universiti Malaya (UM) in 1987 with a Bachelor of Science (honours) in Mathematics.

PROFILE OF mANAgEmENT TEAm

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PN. NORhAzLIzAWATI BINTI mOhD RAzALIGroup Chief Credit Officer (Appointed w.e.f.1 August 2015)

Puan Norhazlizawati (Liza) Binti Mohd Razali joined Affin Bank Berhad as Group Chief Credit Officer, on 1 August 2015.

Liza has more than 24 years of banking experience, primarily in credit risk management and business lending. She has been a member of senior management for many years, holding key positions in both business and credit risk management. Her areas of strength include Credit and Risk Management, Commercial & SME Lending, Relationship Management, and Project Management.

Liza holds a Bachelor of Arts (Hons) in Business Studies from Leeds Metropolitan University, United Kingdom. She also holds a Certified Credit Professional (Business) qualification from the Asian Institute of Chartered Bankers.

mR. WONg KOK LEONgGroup Chief Risk Officer (Appointed w.e.f.1 August 2015)

mR. KASINAThAN T. KASIPILLAIGroup Chief Risk Officer (Retired w.e.f. 1 August 2015)

Mr. Wong Kok Leong joined Affin Group in 2000 as Head, Risk Management at Affin Investment Bank. Prior to his appointment as Group Chief Risk Officer on 1 August 2015, he held the positions of Group Chief Credit Officer and Head, Group Market Risk.

His previous career stints include a law firm, regulatory body and stock exchange. Wong holds a Master of Law from Cambridge University, UK, Bachelor of Laws from Buckingham University, UK and Bachelor of Economics (Accounting) from Monash University, Australia. He is a Fellow of CPA Australia as well as the Financial Services Institute of Australasia (FINSIA).

He also holds professional certifications in risk management, project management, financial planning, training, coaching and mentoring.

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

Kasinathan retired as Group Chief Risk Officer with effect from 1 August 2015.

PN. NImmA SAFIRA BINTI KhALIDChief Compliance Officer & Company Secretary

Pn. Nimma Safira Binti Khalid is the Chief Compliance Officer & Company Secretary of Affin Bank Berhad. Nimma joined AFFINBANK in 2001 as Manager, Legal & Secretarial. She 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. She 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.

PROFILE OF MANAGEMENT TEAM

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ChAIRmAN’S STATEmENT

JEN. TAN SRI DATO’ SERI ISmAIL BIN hAJI OmAR (BERSARA)

Chairman

Rm42.1billion

NET LOANS &ADVANCES/ FINANCING Rm59.8

billion

TOTAL ASSETS

“Our net loans, advances & financing grew 6.7% to RM42.1 billion; and total assets increased by 0.5% to RM59.8 billion.”

DEAR ShAREhOLDERS,

Given a challenging macro-economic environment, the year 2015 was tough for almost every industry in the country, including finance. Amid falling oil prices and value of the Ringgit, increased costs due to the Goods and Services Tax (GST) and continuing restrictions on personal and home financing, as well as regulatory requirements regarding capital, liquidity and risk management, AFFINBANK performed relatively well. Our net loans, advances & financing grew 6.7% to RM42.1 billion; and total assets increased by 0.5% to RM59.8 billion. Although the Bank’s profit before zakat and tax (PBZT) dipped to RM461.2 million, this was due to one-off provisioning for few large accounts, and does not in any way reflect the strength of our fundamentals, which continue to remain robust.

If anything, actions taken during the year under review serve to further enhance the Bank’s core values. Efforts were made to diversify and increase the quality of our loans portfolio while attracting more deposits from a wider range of customers. We also created more avenues for income growth through strategic product bundling and cross-selling of our cards, wealth management and Bancassurance businesses. These initiatives were supported by heightened operational efficiencies backed by increased investments in IT, as well as a more productive and energised workforce, who have been the recipients of enhanced training and professional development. One of the key focus areas in our professional development programmes is to build a strong internal knowledge base of the increasingly complex web of regulatory requirements, thus ensuring the Bank adheres to all edicts on capital adequacy, liquidity coverage, risk management and corporate governance. I’m pleased to note that these efforts have not been in vain, as the Bank is making good progress in meeting the various deadlines set by Bank Negara Malaysia (BNM) to meet Basel II and III requirements as well as those contained in the Financial Services Act 2013 and Islamic Financial Services Act 2013.

BuILDINg INTANgIBLE VALuE

While building the value of the Bank via financial performance and regulatory compliance, we are also creating a stronger brand and market reputation by playing a key role in community development.

The Bank has over the years taken great interest in serving pockets of the community that are underprivileged. This we do via a well-oiled corporate responsibility (CR) machinery that focuses on providing aid either directly to charitable organisations, or indirectly to deserving bodies or individuals through donations or sponsorships via third parties.

Given that the Lembaga Tabung Angkatan Tentera (LTAT, or the Armed Forces Fund Board) is a major shareholder of the Bank, we are supportive of initiatives driven by LTAT, especially those that target retired Armed Forces personnel or their children. We continue to make a yearly contribution of RM1 million to Yayasan Warisan Perajurit, a foundation established by LTAT to provide educational assistance to the children of current and retired Malaysian Armed Forces personnel. We also sponsored advertising activities during the three-month Tabung Pahlawan Campaign from August to October 2015 which provides a platform for the general public to contribute to and show their support for the Malaysian Armed Forces. In conjunction with Hari Raya, we contributed RM100,000 worth of gifts to the Welfare Fund of the Malaysian Armed Forces.

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CHAIRMAN’S STATEMENT

In conjunction with Hari Raya, we organised our annual ‘Majlis Berbuka Puasa Bersama Anak-anak Yatim’ breaking of fast with orphans. Organised together with AFFIN ISLAMIC, the event this year saw us treat about 160 children from three orphanages in the Klang Valley to a scrumptious dinner at our Head Office, Menara AFFIN.

To celebrate Chinese New Year, we visited the Old Folks Home at Jalan Ampang, where we distributed ‘ang pow’ (red packets of token cash), gifts and dry food to the residents.

Firm in the belief that education is one of the most effective enablers of social empowerment, one of our flagship CR initiatives is the AFFINBANK Education Excellence Award, implemented since 2003.

In 2015, the Bank presented to 39 children of Bank staff who excelled in their SPM and STPM examinations with Education Excellence Awards totalling RM58,850.

Under the same programme, the Bank also awarded scholarships to children of Bank staff who are pursuing Diploma/Degree programmes in universities in Malaysia. To date, we have disbursed a total of RM1.09 million in tertiary education scholarships, benefitting 35 children of staff.

We also contribute readily to efforts aimed at bridging the education gap. This year, we channelled RM100,000 towards Tabung Pendidikan 1 Billion, a fund for the advancement of education of the nation. Together with AFFIN ISLAMIC, we sponsored the distribution of Utusan Malaysia’s Tutor Pull-out to primary and secondary school students, to supplement reference materials used by the schools.

AFFINBANK also took 69 underprivileged children on educational trips to the National Museum, Petrosains and Aquaria KLCC.

Children having fun exploring Aquaria KLCC.

‘Buka Puasa’ for orphans from selected orphanages.

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CHAIRMAN’S STATEMENT

Since 2011, we have been sponsoring various CR efforts of BHPetrol, one of our sister companies. This includes opening savings account for underprivileged individuals featured on its TV programme Di Celah-celah Kehidupan, with an initial sum of RM1,000 as a gift from the Bank. We also sponsor the BHPetrol Orange Run organised to raise funds for selected charities. This year, proceeds were donated to Damai Disabled Person Association Malaysia, The National Autism Society of Malaysia and Pusat Harian Kanak-kanak Spastik Bandar Ipoh.

Providing another platform for staff to participate in CR activity, the Bank sent teams to participate in The Edge KL Rat Race and The Bursa Bull Run. Both runs are held in aid of charities selected by the organisers.

OuTLOOK

From all indications, the year 2016 looks set to continue to be challenging to the financial and banking sectors. Some of these challenges are due to external headwinds that are beyond our control, yet others are to do with regulatory compliance which actually serve to enhance the robustness of individual banks and, collectively, that of the entire industry. Seen in this light, we positively embrace the opportunity to strengthen our fundamentals by meeting the new requirements set upon us.

We shall take this opportunity of great change to review and enhance our entire operational framework – encompassing our customer interfaces and distribution channels, to our products and solutions, operations, technology, people and organisation and performance management. Our aim is to safeguard our sustainability by ensuring we remain relevant in the marketplace. A Strategic Transformation Programme led by our Managing Director/CEO with the participation of every single member of the Management team, and support of the Board of Directors has been put in place. With such strong endorsement, I have every reason to believe that it will unfold to reveal a stronger, more resilient Bank which will provide even greater value to our stakeholders.

ACKNOWLEDgEmENTS

AFFINBANK has been growing steadily in strength and stature over the last few years. For this, we have many stakeholders to thank. On behalf of our Board of Directors, I would like to acknowledge our shareholders for your belief in us. Rest assured that we are committed to growing the value of your assets. I would also like to express my appreciation to our numerous business partners, whose support has been crucial to our successes, as well as our customers who motivate us to keep innovating and producing even better, more effective products and solutions to serve their needs.

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. My sincere appreciation goes to this team for their astute and 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 ambitions as well as those of our stakeholders.

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

Contribution of RM100,000 worth of gifts to the Malaysian Armed Forces in conjunction with Hari Raya.

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mD/CEO’S PERFORmANCE REVIEW

KAmARuL ARIFFIN BIN mOhD JAmILManaging Director/ Chief Executive Officer

GROWTH IN NET LOANS &ADVANCES/ FINANCING

6.7%

As we welcome a new chapter, let me do a quick recap of 2015 - we were embroiled in the decline of our currency, collapse in oil prices, capital outflows, slowdown in China and other countries, bearish outlook for sectors such as oil & gas, property, plantation, automobile, consumer and banking.

To say that AFFIN sailed through 2015 unscathed is an understatement. It was indeed a tough year for us; nonetheless we charted a series of milestones that we can be proud of. AFFINBANK continued to grow both our retail and business banking segments in a prudent manner. We also placed greater emphasis on enhancing our fee income via transactional banking, and on increasing our brand recognition and visibility by expanding our domestic footprint.

FINANCIAL PERFORmANCE

During the year, AFFINBANK grew our net loans, advances and financing by 6.7% year-on-year from RM39.5 billion in 2014 to RM42.1 billion. Although this was accompanied by an increase in our net impaired loans ratio from 0.84% to 0.95%, much of this increase was due to a new Bank Negara Malaysia (BNM) regulation which reclassifies restructured and rescheduled (R&R) loans as ‘impaired’. Our gross impaired loans ratio similarly increased, from 1.78% to 1.80%.

The intense competition as well as less disposable income of consumers across the board due to rising costs contributing to a marginal decrease in deposits of 0.5%. However, the bank’s total assets continue to grow by 0.5%, from RM59.5 billion to RM59.8 billion.

For the year under review, AFFINBANK’s profit before zakat and taxation (PBZT) dropped 36.0% to RM461.2 million. This was due to one-off provisioning on few large accounts. We are confident of restoring our profitability to previous levels in the coming year as Management places more emphasis on diversifying our asset and liability portfolio, concentrating on areas where we can excel.

BuSINESS INITIATIVES

Throughout the year, the Bank continued to focus on building our deposit base via various exciting campaigns. In conjunction with Chinese New Year, we launched a “G.O.A.T.S” Campaign offering customers higher fixed deposit promotional rates, exclusive gifts and an additional 0.39% per annum Current/Savings Account interest rate to tie in with our 39th Anniversary.

From March to June 2015, we ran a campaign that bundled our unit trust and fixed deposit (FD) accounts. Customers who invested a minimum of RM50,000, with an equal amount placed in the unit trust and FD account, were eligible to 5.50% interest in the FD over a three-month period. Subsequently, a promotion was held to grow the Bank’s company and individual current account base. This was followed by the AffinGOLD Home Sweet Home campaign offering special rates to new subscribers to the AffinGOLD account, which is a savings/current account designed for senior citizens.

Meanwhile, we relaunched the AFFINBANK BHPetrol ‘Touch and Fuel’ MasterCard® Contactless with enhanced benefits and privileges, such as cash rebates for petrol of up to 10% on weekends at BHPetrol stations nationwide, and savings up to 0.8% with AFFIN Bonus cash rebate on overall monthly retail spending (excluding petrol and government related transactions), finance charges of only 9.99% per annum as well as personal accident insurance coverage up to RM30,000 a year.

TOTAL CAPITAL RATIO

14.5%

NET IMPAIRED LOANS/ FINANCING RATIO

0.95%

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MD/CEO’S PERFORMANCE REVIEW

The relaunch of AFFINBANK BHPetrol ‘Touch & Fuel’ MasterCard® Contactless.

As part of efforts to increase customer convenience, hence their experience, AFFINBANK signed an agreement with Bursa Malaysia Berhad to launch an electronic subscription and payment service for those applying for our rights issue. We are only the second financial institution to provide investors such convenience. Leveraging on IT, we have also provided a channel for customers to apply for eSaver or eSaver-i account via the internet.

In the more conventional space, we continued to extend our reach by expanding our branch network and ensuring banks are located in areas that will best serve our customers. During the year, we opened one new branch in Kota Damansara, Selangor and relocated the Kulai branch. We also installed three new off-site Self-Service Machines, bringing the total of such facilities to 119.

IT & OPERATIONAL hIghLIghTS

As part of efforts to create greater operational efficiencies, the Bank is investing substantially in various IT systems and upgrades to support our day-to-day functions as well as to comply with regulatory requirements.

In line with BNM’s directive for all debit cards to employ the Chip & Pin system (as opposed to necessitating the owner’s signature for transactions), we are migrating to the Europay-Mastercard-Visa (EMV) chip and the Malaysian Chip Card Specification (MCCS). We are also implementing eSDMS, a Software Distribution and Management System, to improve the security of our ATMs, while ensuring our ATM Operating System runs on a supported version such as Windows 7 and above.

Meanwhile, to support our Human Resources (HR) function, we are upgrading our existing HR Management System to the latest version of PeopleSoft. In addition, we are installing a new system to support the migration of our cash rebate scheme for the Bank’s customers into a point-based loyalty programme.

RISK mANAgEmENT

To address Basel III capital adequacy requirement, AFFIN Holdings Berhad is issuing a Basel III-compliant RM1.0 billion subordinated loan to AFFINBANK in three stages. The first drawdown of RM400 million was executed in December 2015, the second and third drawdowns, of RM300 million each, will be issued in May 2016 and January 2017. These will replace existing sub-loans that are not Basel III-compliant. At the same time, AFFINBANK increased our capital in our wholly-owned subsidiary AFFIN ISLAMIC by RM100 million in December 2015.

To strengthen our risk management capabilities, the Asset Liability Management System which incorporates a Large Exposure module is at its final stages of implementation. This will enable the Bank to better manage large exposures, quantify and manage interest rates as well as liquidity risk.

At the same time, an internal Foreign Exchange Administration (FEA) Working Group is coordinating activities to enhance AFFINBANK’s internal compliance structure in respect of the FEA Notices.

DEVELOPINg OuR humAN CAPITAL

To become a premier Banking institution in the country, it is crucial to have people who are able to support our ambitions. The Bank has continued to invest in Human Capital Development programmes in 2015, with new and enhanced professional training and development programmes for employees. These programmes focussed on 4 main areas: Compliance, Leadership Proficiency, Functional Capabilities, Nurturing Young Talent.

The Bank implemented Compliance related programmes and related initiatives to instill and strengthen knowledge so as to ensure adherence to regulatory and statutory requirements, which among others included Anti-Money Laundering, Personal Data Protection, Responsible Lending, Foreign Exchange Act, and the FSA/IFSA.

19


MD/CEO’S PERFORMANCE REVIEW

Kota Damansara branch opening.

The Bank strived to strengthen human capital capabilities through professional and leadership programmes at all levels, so as to enhance productivity, efficiency and performance. New programmes included Leading at the Next Level: Building Leadership Influence for Middle and Senior Leaders in the Bank.

The Bank continued to provide opportunities for all levels of staff to enhance skills and meet their career aspirations. These initiatives include the Bank’s Upward Mobility Scheme, which saw more than 15% of employees filling in higher-level positions in the Bank.

The Bank introduced new technical/functional training programmes to support business and operational demand for competent human capital in the Bank, which included among others, enhancement of the Relationship Management Programme, e-Shariah programmes, Tele-Collectors Training, and Professional Selling Skills Programme.

The Bank also continued to build on its aspiration of nurturing young talent in the Bank. A total of 96 fresh graduates were hired in 2015, to fill various roles in the Bank, particularly in the areas of Sales and Analytics. These young talent were provided with a myriad of training programmes, which included both classroom and experiential learning interventions, to nurture and develop their competencies.

As the Bank grows and expands, it will continue to review existing programmes and strengthen them, as well as identify new ones to complement existing initiatives, so as to ensure AFFIN bankers are given every opportunity to grow and develop their careers with the Bank.

OuTLOOK & ACKNOWLEDgEmENTS

This year will likely be more challenging than 2015 in the face of continued economic headwinds. However, we are confident of maintaining steady performance as we build our customer and stakeholder value while intensifying all efforts to institutionalise best practices in corporate governance, capital, liquidity and risk control. The Bank will continue to target/focus on the domestic retail banking segments such as consumer deposits, digitalisation of consumer banking and cash management services, and grow our loans portfolio with a particular focus on high-end auto financing and mortgage.

We began the year 2016 by launching our Affinity Group Strategic Transformation Programme which seeks to enhance every aspect of our operations to enable AFFINBANK to become a formidable Bank for our employees and customers. In order to create a discernable impact through this transformation programme, much effort will be required and with the unwavering support from our various stakeholders, this goal is within our reach.

At this juncture I would like to thank all our stakeholders for their steadfast support to AFFINBANK. My heartfelt thanks to our regulators, shareholders and customers, as well as our Board of Directors, my colleagues in the Management Team and, most of all, our more than 3,500 dedicated employees.

Kamarul Ariffin Bin mohd JamilManaging Director/ Chief Executive Officer

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CORPORATE DIARy

JANOpening Branch -

Kota Damansara, Selangor

JANLImA 2015

mARChinese New year Charity Activity - Visit to Old Folks

home

AuguSTParticipation -

Bursa Bull Charge 2015

JuNeRights - Bursa malaysia & AFFINBANK

Bursa Malaysia Berhad signed an agreement with AFFINBANK to offer electronic subscription

and payment services for the application of rights issue (eRights).

JuLContribution - Rm100,000 worth of hari

Raya gifts to the Welfare Fund of the malaysian Armed Forces

NOVAFFINBANK BhPetrol ‘Touch and Fuel’

masterCard® Contactless Relaunch

AFFINBANK relaunched its AFFINBANK BHPetrol

‘Touch and Fuel’ MasterCard® Contactless credit card today with improvement to

its benefits and privileges.

DECJalinan mesra AFFINBANK Bersama Anak-Anak yatim dan Fakir miskin Pertubuhan Kebajikan Baitul Barokah Wal mahabbah

A Corporate Social Responsibility activity where a total of 69 underprivileged children were brought to visit three fun and educational places such as

the National Museum, Petrosains and Aquaria KLCC.

SEPTSponsorship - BhP Orange Run 2015

AFFINBANK collaborated with BHPetrol in support for their BHP Orange Run 2015, a 12-km long run organised to raise funds

for selected charities.

JuLContribution - malaysian Armed Forces

FEBBlood Donation Drive

JuL“majlis Berbuka Puasa Bersama

Anak-anak yatim”

AFFINBANK Group hosted a ‘Buka Puasa’ event for a total of 160 children from four orphanages at its corporate head office,

Menara AFFIN.

21


CORPORATE DIARY

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FINANCIAL hIghLIghTS

Earnings Per Share (EPS)Sen

Profit Before zakat And TaxationRM’million

Total AssetsRM’billion

Net Loans, Advances & FinancingRM’billion

Deposits From CustomersRM’billion

Shareholders’ EquityRM’billion

AFFINBANK’s EPS for the financial year ended 31 December 2015 stood at 20.5 sen compared to 33.3 sen the year before.

‘15 20.5

‘14 33.3

‘13 37.5

‘12 35.0

AFFINBANK recorded profit before zakat and taxation of RM461.2 million for the financial year ended 31 December 2015 compared to RM720.1 million in the same period of 2014.

‘15 461.2

‘14 720.1

‘13 762.2

‘12 703.2

AFFINBANK’s financial position as at 31 December 2015 continued to remain strong with total assets of RM59.8 billion, an increase of 0.5% compared to RM59.5 billion as at 31 December 2014.

‘15 59.8

‘14 59.5

‘13 56.4

‘12 52.1

AFFINBANK’s net loans, advances and financing grew by 6.7% to RM42.1 billion compared to RM39.5 billion in 2014.

‘15 42.1

‘14 39.5

‘13 36.2

‘12 33.5

Total deposits as at 31 December 2015 are RM47.8 billion compared to RM48.0 billion in the year before.

‘15 47.8

‘14 48.0

‘13 46.1

‘12 41.3

Total shareholders’ equity of AFFINBANK is RM5.5 billion as at 31 December 2015 compared to RM5.2 billion in 2014.

‘15 5.5

‘14 5.2

‘13 4.4

‘12 4.1

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STATEmENT ONCORPORATE 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; towards enhancing business prosperity and corporate integrity, having the ultimate objective of safeguarding shareholder’s value, interests of the stakeholders and depositors. The Board also continuously review its governance model to ensure its relevance, effectiveness and ability to meet the challenges of the future.

The Board and Management are fully committed and constantly strive in ensuring AFFINBANK 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 safety and soundness of AFFINBANK as a financial institution; where risks and business prudence are appropriately balanced. Throughout 2015 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 remain dedicated in ensuring adherence to BNM’s Guidelines on Code of Ethics (COE) (BNM/GP7), which aims at instilling the five values namely discipline, integrity, humility, caring and creativity in AFFINBANK. The Board and Management set a high ethical business standards and practices for business conduct and the code of behaviour for employees. 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 rest 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. AFFINBANK has complied with the principles and recommendations of MCCG throughout the financial year under review, except for the recommendation on the tenure of Independent Director which should not exceed cumulative term of nine (9) years. The Board adopts AFFIN Holdings Group’s 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 Board comprises majority Independent Directors in compliance with the Revised BNM/GP1 where no individual or small group of individuals should be allowed to dominate the Board decision making and with Principle 3, Recommendation 3.5 of the MCCG where more than one-third of its Directors are Independent Directors. This provides an effective check and balance in the function of the Board. It consists of representatives from the private sectors with suitable qualifications fulfilling the fit and proper criteria, mix of skills, competencies, experience and personalities. Directors’ profiles which appear on page 5 to 8 reflect clearly the depth and diversity of 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 short medium and long term strategies, 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 operates under approved terms of reference, primarily to assist the Board in execution of its duties. The Board Committees shall report the outcome of their meetings to the Board for deliberation at the Board’s 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 current composition of the BRC is in compliance with Revised BNM/GP1. 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 current composition of the BNC is in compliance with Revised BNM/GP1 and is in line with Principle 2, Recommendation 2.1 of the MCCG. The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors, 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.

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STATEMENT ONCORPORATE GOVERNANCE

The BNC also review and recommend the process for successions planning for the Board, Managing Director/Chief Executive Officer and key responsible persons; making appropriate recommendations to the Board.

Board Risk management Committee (BRmC)

The current composition of the BRMC is in compliance with Revised BNM/GP1. The BRMC is responsible for overseeing Management’s activities in managing credit, market, liquidity, operational, legal reputational and other risks so as to ensure that the risk management process is adequately in placed and effectively functioned.

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 Credit Management Division 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 current composition of the AEC is in compliance with Revised BNM/GP1. 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 of 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.

On an annual basis, the Board considers the list of Independent Directors who have served in that capacity for a cumulative term of more than nine (9) years to justify and seek shareholder’s approval in Annual General Meeting in the event it decided to retain any of its Independent Directors who have served in that capacity for a cumulative term of more than nine (9) years.

The role of these Independent Non-Executive Directors are particularly important in ensuring that the strategies proposed by Management are fully deliberated and evaluated impartially, 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 within 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.

25



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.

Appointment and Re-appointment to the Board

The proposed appointment of new Board members, as well as re-appointment of the Board members are recommended by the BNC to ensure that the level and make-up of its members are of the necessary credibility, integrity and calibre with the required skills and knowledge.

The re-appointment of a Director would be subject to the BNM guidelines on fit and proper criteria and is in line with Principle 2, Recommendation 2.2 of MCCG.

All appointment and re-appointment of Directors are subject to the approval of BNM.

Re-election of Directors

In accordance with the Company’s Memorandum and Articles of Association, at least one-third (1/3) of the Directors for the time being, 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 are kept 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 2015 are set out below:-

yBhg. Jen. Tan Sri Dato’ Seri Ismail bin haji Omar (Bersara)Organiser Course Title Date1. FIDE Financial Services in Turbulent Times: A Dialogue with Tan Sri Lin See-Yan 5 February 2015

2. BNM/ FIDE Dialogue with the Governor of BNM – Economic and Financial Services Sector: Trends and Challenges Moving Forward

23 March 2015

3. MEA Financial Governance and Economic Growth 28 - 29 September 2015

4. FIDE 6th Distinguished Board Leadership Series – “Digital Transformation & Its Impact on Financial Services – Role of the Board in Maximising Potential” by Joydeep Sangupta

4 November 2015

5. AHB Economy And Financial Market Post Global Financial Crisis, Economic Outlook, Issues and Prospects and Addressing Concerns on Trans-Pacific Partnership Agreement (TPPA)

11 November 2015

6. AHB Budget 2016 and GST Updates, Cybercrime in Financial Services Sector, Anti Money Laundering Act, South East Asia Banking

3 December 2015

yBhg. Tan Sri Dato’ Seri Lodin Bin Wok KamaruddinOrganiser Course Title Date1. FIDE Financial Services in Turbulent Times: A Dialogue with Tan Sri Lin See-Yan 5 February 2015

2. AFFIN Hwang AFFIN Hwang Conference Series 2015: Navigating Through Turbulent Times 10 February 2015

3. BNM/ FIDE Dialogue with the Governor of BNM – Economic and Financial Services Sector: Trends and Challenges Moving Forward

23 March 2015

4. FIDE 2nd Distinguished Board Leadership Series – Board’s Strategic Leadership Innovation & Growth In Uncertain Times by Ram Charan

21 May 2015

5. SC The World Capital Markets Symposium 2015 – Markets and Technology: Driving Future Growth Through Innovation

3 September 2015

6. Bursa Malaysia Corporate Governance Breakfast Series with Directors: Future of Auditor Reporting – The Game Changer for Boardroom

21 September 2015

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7. SC/ SIDC Capital Market Director’s Training Program (CMDP) 2015 – Module 2A: Business Challenges and Regulatory Expectations: What Directors Need to Know (Equities & Future Broking)

29 September 2015

8. SC/ SIDC CMDP 2015 – Module 4: Current and Emerging Regulatory Issues In The Capital Market 2 October 2015

9. SC/ SIDC CMDP 2015 – Module 1: Directors As Gatekeepers of Market Participants 5 October 2015

10. SC/ SIDC CMDP 2015 – Module 2B: Business Challenges and Regulatory Expectations – What Directors Need to Know (Fund Management)

7 October 2015

11. SC/ SIDC CMDP 2015 – Module 3: Risk & Compliance Oversight – Action Plan For Board Directors 20 October 2015

12. AHB Economy And Financial Market Post Global Financial Crisis, Economic Outlook, Issues and Prospects and Addressing Concerns on TPPA

11 November 2015

13. FIDE Directors’ Remuneration Report 2015 7 December 2015

yBhg. Tan Sri Dato’ Sri Abdul Aziz bin Abdul RahmanOrganiser Course Title Date1. FIDE 3rd Distinguished Board Leadership Series – “Impact of the New Accounting Standard on

Bank – What Directors should be aware of”5 June 2015

2. Bursa Malaysia/ ICLIF Corporate Governance Breakfast Series: The Board’s Response in light of Rising Shareholder Engagements

4 August 2015

3. The Asian Institute of Finance 7th International Conference on Financial Crime and Terrorism Financing 7 - 8 October 2015

4. MeLearn Global 2nd Annual Malaysia’s War on Corruption Symposium 2015 11 - 12 November 2015


En. mohd Suffian bin haji haronOrganiser Course Title Date1. FIDE 3rd Distinguished Board Leadership Series – “Impact of the New Accounting Standard on

Bank – What Directors should be aware of”5 June 2015

2. ICLIF/ FIDE Focus Group on Islamic Banking 7 September 2015


11 November 2015

4. AHB Budget 2016 and GST Updates, Cybercrime in Financial Services Sector, Anti Money Laundering Act, South East Asian Banking

3 December 2015


mr. Aubrey Li Kwok-Sing Organiser Course Title Date1. KPMG/ Kowloon

DevelopmentRisk Management and Internal Control 28 April 2015

2. KPMG KPMG Independent Non-Independent Director Forum 8 June 2015

3. Deloitte Deloitte Independent Non-Executive Director Forum Workshop (INED)- Corporate Governance: roles and responsibilities of INEDs

24 September 2015

4. Hong Kong Institute of Bankers

Hong Kong Institute of Bankers Annual Banking Conference 2015- Reshaping Banking for the New Normal

25 September 2015

5. KPMG/ BEA Market disruption in the financial sector – date and analytics 26 November 2015

6. PwC PwC Non-executive Director Programme- Smart Data – is your Board ready to drive greater value from data to create and sustain a

competitive?

11 December 2015

7. Ernst & Young/ China Everbright International

Environmental, safety, health and social management system - introduction 17 December 2015

8. Chinese University of HK/ Café de Coral

Big Business powered by Big Data by Prof K N Lau 18 December 2015(1.5 hours)

9. PwC/ Café de Coral Accounting standards update- HKFRS9 Financial Instruments- New auditor’s report

18 December 2015(0.5 hours)

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yBhg. Tan Sri Dato’ Seri mohamed Jawhar Organiser Course Title Date1. The National Institute for

Defence Studies, Japan6th NIDS Workshop on Asia Pacific Security 21 - 22 January 2015

2. Ministry of Foreign Affairs ASEAN Regional Forum (ARF) – Experts & Eminent Person 12 - 12 March 2015

3. SEARCT ASEAN Malaysia National Secretariat & Ministry of Foreign Affairs

ARF – Workshop on Counter Redicalisation 25 - 26 March 2015

4. ASLI 12th ASEAN Leadership 26 - 27 April 2015

5. FIDE 2nd Distinguished Board Leadership Series – Board’s Strategic Leadership Innovation & Growth In Uncertain Times by Ram Charan

21 May 2015

6. ISIS 29th Asia-Pacific Roundtable 2 - 3 June 2015

7. FIDE 3rd Distinguished Board Leadership Series – “Impact of the New Accounting Standard on Bank – What Directors should be aware of”

5 June 2015

8. Asian World Summit 7th Annual Corporate Governance summit 8 June 2015

9. Asian World Summit Board Risk Intelligence 2015 – Risk Governance Into Practice 11 June 2015

10. SC The SC Synergy and Crowdfounding Forum 2015 12 June 2015

11. Institute of Chinese Studies, University Malaya

Workshop ASEAN & China: A Mutual Socialization Contest 15 June 2015

12. Bursa Malaysia/ ICLIF Corporate Governance Breakfast Series: The Board’s Response in light of Rising Shareholder Engagements

4 August 2015

13. Center for ASEAN Studies – Thammasat University (TU)

TU-ASEAN International Conference 2015 7 August 2015

14. SC World Capital Markets Symposium 2015 3 - 4 September 2015

15. MIDAS MIDAS Conference – Militant Ideologies and Radicalism in Malaysia 22 September 2015

16. MEA Malaysian Economic Convention 2015 – Financial Governance and Economic Growth 28 September 2015

17. USIM World Islamic Countries University Leaders Summit 2015 29 September 2015

18. WIEF 11th WIEF Forum – Building Resilience for Equitable Growth 3 - 4 November 2015

19. SIIS SIIS Annual Conference: Transformation of World Order : China’s Roles and Challenges 14 - 15 November 2015

yBhg. Tan Sri mohd ghazali bin mohd yusoffOrganiser Course Title Date1. ICLIF Insuring the Future: Improving the Corporate Governance of Major Asia-Pacific Insurance

Companies27 January 2015

2. FIDE Economic and Financial Services Sector: Trends and Challenges Moving Forward for the Banking Industry

4 March 2015

3. FIDE/ BNM Dialogue with the Governor of BNM – Economic and Financial Services Sector: Trends and Challenges Moving Forward

23 March 2015

4. FIDE Industry Consultation Session – Director’s Remuneration Study 6 May 2015

5. FIDE 3rd Distinguished Board Leadership Series – “Impact of the New Accounting Standard on Bank – What Directors should be aware of”

5 June 2015

6. FIDE Director Register Project – Focus Group Session “Discussion on Competencies for Board Talent”

26 October 2015

7. FIDE 6th Distinguished Board Leadership Series – “Digital Transformation & Its Impact on Financial Services – Role of the Board in Maximising Potential” by Joydeep Sangupta

4 November 2015


11 November 2015

9. AHB Budget 2016 and GST Updates, Cybercrime in Financial Services Sector, Anti Money Laundering Act, South East Asia Banking

3 December 2015


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En. Abd malik bin A RahmanOrganiser Course Title Date1. AFFIN Hwang Affin Hwang Conference Series 2015: Navigating Through Turbulent Times 10 February 2015

2. FIDE Industry Consultation Session – Director’s Remuneration Study 6 May 2015

3. FIDE 3rd distinguished Board Leadership Series – “Impact of the New Accounting Standard on Bank – What Directors should be aware of”

5 June 2015

4. Asian World Summit 7th Annual Corporate Governance Summit 8 June 2015

5. SC/ SIDC CMDP 2015 – Module 1: Directors as Gate Keepers of Market Participants 15 June 2015

6. SC/ SIDC CMDP 2015 – Module 2A:- Business Challenges and Regulatory Expectations – What Directors need to know (Equities & Future Broking)

16 June 2015

7. SC/ SIDC CMDP 2015 – Module 2B:- Business Challenges and Regulatory Expectations – What Directors need to know (Fund Management)

17 June 2015

8. SC/ SIDC CMDP 2015 – Module 3 – Risk Oversight and Compliance – Action Plan Board of Directors 2 July 2015

9. SC/ SIDC CMDP 2015 – Module 4: Current and Amerging Regulatory Issues in the Capital Market 3 July 2015

10. Bursa Malaysia/ CLSA/ ICLIF Corporate Governance Breakfast Series: The Board’s Response in light of Rising Shareholder Engagements

4 August 2015

11. AFFIN Hwang/ Sheila Hussain Vijay & Partners

AMLATFPUAA 2001: Complexity & its impact on Investment Banking 24 August 2015

12. Bursa Malaysia/ ICLIF Board Chairman Series Part 2: Leadership Excellence from The Chair 3 September 2015

13. Bursa Malaysia/ IIAM Corporate Governance: How to Maximise Internal Audit 9 September 2015

14. Bursa Malaysia/ SIDC The Interplay between CG, NFI and Investment Decision 22 September 2015


11 November 2015

mr. Tang Peng Wah (Alternate Director to mr. Aubrey Li Kwok-Sing)Organiser Course Title Date1. ICLIF FIDE Core Program –

Module A Module B

10 - 13 March 20155 - 7 October 2015


11 November 2015

Abbreviation

Affin Hwang - Affin Hwang Investment Bank Berhad

AHB - Affin Holdings Berhad

AIBIM - Association of Islamic Banking Institutions Malaysia

ASLI - Asian Strategy & Leadership Institute

BNM - Bank Negara Malaysia

FIDE - Financial Institutions Directors’ Education

ICLIF - The Iclif Leadership and Governance Centre

IISS - The International Institute for Strategic Studies

IPSOM - Institut Keselamatan Awam Malaysia

ISIS - Institute of Strategy & International Studies Malaysia

MEA - Malaysian Economic Association

MICG - Malaysia Institute of Corporate Governance

MIDAS - Malaysia Institute of Defence Security

MIMA - Maritime Institute of Malaysia

MSWG - Minority Shareholder Watchdog Group

SC - Securities Commission

SC/ SIDC - Securities Commission/ Securities Industries Development Corporation

SIIS - Shanghai Institute for International Studies

SPRM - Suruhanjaya Pencegahan Rasuah Malaysia

UiTM - Universiti Teknologi MARA

USIM - Universiti Sains Islam Malaysia

WIEF - World Islamic Economic Forum Foundation

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Board meetings and Access to Information

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 2015, twenty one (21) 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 via board portal software as papers are uploaded 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 papers 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, operation, 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 direct access to timely and accurate information and access to the advice and service of the Company Secretary in order for the Board members to discharge their duties and specific responsibilities effectively. Procedures are in place for Directors to seek independent professional advice at AFFINBANK’s expense.

Directors’ Remuneration

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

AFFINBANK emphasizes in the setting of a fair and comprehensive remuneration package of the Board that commensurate with their 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 in such a way 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 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 Directors’ remuneration, the existing remuneration framework to be in line with AFFIN Holdings Group’s overall practice on compensation and benefits. The 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’ remunerations 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 2014 were tabled at the 39th AGM on 24 March 2015. Likewise the Annual Report and financial statements for the year ended 31 December 2015 will be tabled at the 40th AGM on Tuesday, 22 March 2016.

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STATEmENT ON RISK mANAgEmENT AND INTERNAL CONTROL

1. CORPORATE gOVERNANCE & BOARD’S OVERSIghT

a. The Board recognises and exercises overall responsibilities in promoting good corporate governance and ensuring sound system of internal controls and risk management practices are maintained throughout AFFIN Bank Group.

b. The Board is of the view that the system of internal controls instituted by the Group’s operating units for the year under review and up to the date of annual report is sound and sufficient to safeguard shareholders’ investment, customers’ interests and the Group’s assets.

c. Notwithstanding this, there are ongoing reviews to ensure the effectiveness, adequacy and integrity of the system. The control procedures are designed to manage rather than to eliminate completely all risks of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material errors, losses, fraud or the occurrence of unforeseeable circumstances.

d. The Board meets regularly to discuss matters related to system of internal controls which cover inter alia financial, liquidity, capital, operational, compliance, controls and risk management procedures.

e. The Board extended the responsibilities of the Audit and Examination Committee (“AEC”) and Board Risk Management Committee (“BRMC”) to include the role of oversight on internal controls and risk management strategies, policies and other risk related matters.

f. AEC and BRMC comprised of Independent Non-Executive Directors.

g. Regular reports received from the Group’s management on financial performance, key operating statistics, legal and regulatory compliance, breach of law or regulations, unauthorized activities and fraud are reviewed by the Board.

2. BuSINESS AND CAPITAL PLAN INCLuDINg BuDgET

a. The annual business plan and financial budget of AFFIN Bank Group are tabled and approved by the Board.

b. A structured framework and processes with regard to capital expenditure and revenue is in place.

c. The internal capital targets are being set on a yearly basis.

d. The variances between the actual and targeted results are presented to the Boards on a periodic basis to allow for timely responses and corrective actions to be taken to mitigate risks.

3. AuDIT & ExAmINATION COmmITTEE AND gROuP INTERNAL AuDIT (“gIA”)

a. Group Internal Audit carry out regular reviews of the business processes and activities to assess the effectiveness of internal control and highlight significant risks impacting the Group. The AEC conducts annual reviews on the adequacy of the scope of work and resources of Group Internal Audit Division.

b. The AEC regularly review and hold discussions with management on the action taken on internal control issues identified by Group Internal Audit, external auditors and regulatory authorities.

c. All significant and material findings by GIA, external auditors and regulators are reported to AEC for reviews and deliberation and subsequently escalated to the Board.

d. The AEC, through GIA, follow up and monitor the status of actions on recommendations made by Group Internal Audit, the external auditors and regulatory authorities. In addition, it can direct investigations in respect of any specific instances or events, which are deemed to have violated internal policies pertaining to confidentiality or financial impropriety which have material impact on the Group.

e. Shariah related findings are escalated to the Shariah Committee.

f. GIA continuously conduct awareness programs/training on controls and compliance including controls certification programs to further strengthen staff knowledge (inter & intra department) in creating a robust control and compliance environment.

g. The management of business and support departments that are rated “Needs Improvement” and “Unsatisfactory” by GIA are counseled by AEC.

h. All related party transactions and audit and non-audit related fees proposed by external auditors or Chief Financial Officer (“CFO”) are reviewed by AEC.

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STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL

4. RISK mANAgEmENT FRAmEWORK

a. Board Risk management Committee (“BRmC”)• GBRMChasbeenestablishedandtheirresponsibilities,amongstothers,includeoverseeingtheeffectiveimplementationoftheEnterprise-WideRisk

Management framework.

b. Risk Assessment • RiskAssessmentisinplacetoprovidetheprocessfortheidentificationoftheGroup’smaterialrisks,fromtheperspectiveofimpactontheGroup’s

financial standing and reputation.• Consistentandwell-acceptedmethodologiesofriskmeasurementintroducedtoassessLiquidity,CapitalPosition,AssetandLiabilityManagement

and other relevant metrics.

c. Risk governance Structure • TheRiskGovernanceStructureisalignedacrossallthebusinessunitsandsubsidiariesoftheGroup.Thesearealignedthroughthestreamliningof

the Risk Frameworks, Policies and Organisational Structures in order to embed and enhance risk management and risk culture.

d. Risk governance Policies and Procedures• RiskManagementpoliciesandproceduresarereviewedandupdatedregularlytoensurerelevancetothecurrentbusinessneedsandcurrent/

applicable regulatory requirements.

e. Whistle Blowing Policy• Thispolicyprovidesavenueforemployeestoreportactualandsuspectedmalpractice,misconductandviolationsoftheGrouppoliciesinasafeand

confidential manner.

f. Operational Risk management • ProcessfacilitatedbyGroupRisk.• RiskControlSelfAssessment(RCSA)hasbeenimplementedtoenablemanagementtoidentifyandassesstherisksundertheirareasofsupervision

and control on a continual basis. • ThisservesasatriggerpointtodetermineKeyRiskIndicators(KRIs)toadoptandmonitoroperationalriskexposures.

g. Concerns and breaches, if any, will be escalated to the Group CEO and Board Risk Management Committee (BRMC). The same will then be escalated to the Board.

h. The operational risk are being reviewed and monitored by Group Risk Management. Discrepancies, if any, are escalated to Group Operational Risk Management Committee (GORMC), BRMC, AEC and Shariah Committee (SC) on Shariah related matters. Relevant trainings relating to Operational Risk such as Anti-Money Laundering Act (AMLA), Whistle Blowing Policy, Business Continuity Plan etc. are being provided by Group Risk Management Division (“GRMD”).

5. COmPLIANCE FRAmEWORK

a. AFFIN Bank Group has put in place a Compliance Framework. The compliance main function is to facilitate advice, monitor and educate the business and support units/entities to act in accordance with laws, regulations and guidelines. In line with good governance, Compliance Department reports independently to the Board.

• ComplianceFramework:PoliciesandProcedures- Policies and Procedures are reviewed on a periodic basis or as and when required to reflect current practices and the applicable legal/

regulatory requirements. • Training

- Scheduled trainings are regularly conducted to create compliance awareness amongst the staff.• ComplianceMatrix

- Compliance Matrix has been established. It is a document that encompasses relevant laws, regulations and guidelines that apply to the business and support units/entities.

• CompliancePlan- The respective Compliance Department has drawn-up the plan which was tabled and approved by the Board.

• Anti-MoneyLaundering/CounterFinancingTerrorism(AML/CFT)- The Group AMLA office function, a unit within Group Risk Management Division maintains Group AML/CFT policies and procedures, duly

approved by BRMC.

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6. ShARIAh gOVERNANCE FRAmEWORK

a. The Shariah Committee is responsible for overseeing all Shariah matters of the Group. The Shariah Committee, amongst others, ensures that the Shariah rulings relating to Islamic banking and capital market products and services comply with the fundamental Shariah percepts and resolutions by the relevant Shariah authorities.

b. Shariah Committee acts as an adviser on Shariah matters to all business and support units within the group in carrying out their Islamic financial activities.

c. The Shariah Governance Framework (SGF) is the enterprise-wide Shariah management plan consisting of Shariah governance mechanisms to be undertaken by relevant sections across the Group. The implementation of the SGF is inline with BNM’s requirements effected through the following functions at the subsidiaries:

• ShariahResearch- The Shariah Research Unit comprises qualified Shariah officers who conduct the pre-product approval process, research, vetting of issues for

submission and undertake administrative duties relating to the Shariah Committee.

• ShariahReview- The Shariah Compliance Review comprising qualified Shariah officers, is responsible for conducting the Shariah compliance review function.- The Shariah Compliance Review has established the Policy and Procedures Manual which sets out the Shariah compliance review function,

encompassing regular assessment on Shariah compliance in the activities and operations of the subsidiaries, including examining and evaluating the level of compliance to the Shariah, remedial rectification measures to resolve non-compliances and control mechanisms to avoid recurrences.

• ShariahRiskManagement- Shariah Non-Compliance (“SNC”) risk is identified as one of the material risks under its Islamic banking business. In this regard, AFFIN Bank

Group has established a dedicated Shariah Risk Management team to facilitate a systematic and consistent approach in managing SNC.

• ShariahAudit- Group Internal Audit Division provides independent assurance on the efficiency and effectiveness of the internal control systems and related

policies and procedures implemented by management governing Islamic products and services. Findings related to Shariah products and services are reported to the Shariah Committee of the respective subsidiaries and AEC.

7. ESCALATION PROCESS

a. The channels of communication and procedures have been established for reporting immediately to the Board and appropriate levels of management any significant control failings or weaknesses that are identified together with details of corrective action being undertaken.

b. Corrective Action Tracking on resolution of issues/findings highlighted by external audit, Group Internal Audit and regulators, if any, have also been escalated to Group Management Committee Meeting (“MCM”), AEC and Board.

8. humAN RESOuRCES

a. The Group acknowledges that people development is critical in ensuring that employees have the right competencies for the tasks they are entrusted with, and are able to exercise sound judgment when fulfilling those responsibilities.

b. HR Policies and Procedures (“HRPP”)• HRPPisinplaceandprovideclarityfortheorganisationinallaspectsofhumanresourcemanagementintheGroup.• Periodically,theHRPPisreviewedtoensurepoliciesandproceduresremainrelevantandappropriatecontrolsareinplacetomanageoperational

risks. Changes, if any, are communicated to all employees via intranet.

c. Human Resources has in place various initiatives and training programs to address the human capital requirement, including knowledge management.

d. A performance-based appraisal system to evaluate and compensate/reward its employees accordingly is in place. Staff performance assessment is done annually.

e. The recruitment process including screening process is in place.

f. The e-learning facilities at subsidiaries provides staff the freedom of time and space to learn and update their knowledge at their convenience while meeting the organisation’s needs for its employees who are spread across geography to be competent in key areas.

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9. POLICIES/PROCEDuRES INCLuDINg EmPOWERmENT AND APPROVINg AuThORITy POLICIES

a. Policies and Procedures covering all functions have been developed throughout the Group and approvals have been obtained from the relevant committees and Board. The policies and procedures are updated timely to incorporate changes to systems, work environment and guidelines issued by regulators.

b. Empowerment and Approving Authority Policies There is a clearly defined framework and empowerment approved by the main operating subsidiaries’ respective Board for acquisitions and disposals of

property, plant and equipment, awarding tenders, applications for capital expenditure, writing off operational and credit items, approving general expenses including donations, etc.

10. CONCLuSION

a. The Statement on Risk Management and Internal Control is reviewed by the external auditors in line with Recommended Practice Guide (“RPG”) 5 (Revised) by Malaysian Institute of Internal Auditors (“MIA”).

b. The Board, through the AEC, BRMC and Shariah Committee reviewed the effectiveness of the Shariah Governance Framework (“SGF”), Risk Management and Internal Control Framework and are operating adequately and effectively in all material aspects during the financial year under review based on the Shariah requirements, Risk Management and Internal Control system adopted by the Group.

c. Taking into consideration the assurance from the management and input from the relevant assurance providers, it is viewed that the Group’s Risk Management and Internal Control System are operating adequately and effectively to safeguard shareholders’ investment and AFFIN Bank Group’s assets.

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AuDIT & ExAmINATION COmmITTEE REPORT

The Board is pleased to present the Report on Audit and Examination Committee (AEC) for the Financial Year ended 31 December 2015.

AuDIT & ExAmINATION COmmITTEE

The AEC comprises of the following Directors:

TERmS OF REFERENCE1. OBJECTIVE

Audit & Examination Committee (AEC) is established as a Committee of the Board of Directors. The primary objectives of AEC are to:

a. Establish the framework and oversee the audit function of AFFIN Bank Group;

b. Provide assistance to the Board in fulfilling its statutory and fiduciary responsibilities in ensuring that good Corporate Governance, system of internal controls, codes of conduct and compliance with regulatory and statutory requirements are maintained by the AFFIN Bank Group;

c. Implement and support the function of the Board by reinforcing the independence and objectivity of the Group Internal Audit Division (GIA); and

d. Ensure that Internal and External Audit functions are properly conducted and audit recommendations are implemented effectively.

2. COmPOSITION AND APPOINTmENT

a. AEC shall have at least three (3) members of whom all must be Non-Executive Directors with a majority of them being Independent Directors. The Chairman of the Committee shall be an Independent Non-Executive Director. No Alternate Director shall be appointed to the AEC.

b. At least one (1) member of the Committee must be a qualified accountant.

c. AEC members and the Chairman shall be appointed by the Board of Directors based on the recommendations of the Nomination Committee.

d. The Board shall review the Terms of Reference and performance of the AEC and each of its members at least once every three (3) years to determine whether the AEC has carried out its duties in accordance with its Terms of Reference.

e. If a member of the Committee resigns or for any reason ceases to be member in the AEC resulting in non-compliance with the requirements, then the Board shall, within three (3) months of the events, appoint such number of new members as may be required.

f. The AEC shall have no executive powers.

3. QuORum

The quorum for a meeting of the Committee shall be two thirds (2/3) of the Committee with the majority present being Independent Non-Executive Directors. If the Chairman is unable to attend any meeting, any other Independent Non-Executive member present shall act as Chairman. All resolutions of the Committee shall be adopted by a simple majority vote, each member having one (1) vote. In case of equality of votes, the Chairman shall have a second or casting vote.

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

Chairman/ Independent Non-Executive Director

yBhg. Tan Sri Dato’ Seri mohamed Jawhar

Member/ Independent Non-Executive Director

yBhg. Tan Sri mohd ghazali Bin mohd yusoff

Member/ Independent Non-Executive Director

Assoc. Prof. Dr. Said BouheraouaMember/


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AUDIT & EXAMINATION COMMITTEE REPORT

4. ATTENDANCE OF mEETINgS

a. The notice of meeting should be served to the AEC members at least seven (7) days before the meeting. The agenda and AEC papers are to be circulated at least five (5) days before each meeting.

b. The Group Chief Internal Auditor is invited to attend all meetings of the Audit & Examination Committee.

c. The Committee may invite members of Management, External Auditors or any employees as applicable to participate in the AEC meetings as necessary to carry out the Committee’s responsibilities.

d. All the original Minutes of AEC meetings are in the custody of the Company Secretary and shall be signed by the Chairman of the meeting at which the proceedings are held or by the Chairman of the next succeeding meeting. The signed minutes shall be conclusive evidence without any further proof of the facts thereon stated. Minutes of each meeting shall be distributed to the AEC members and all other members of the Board.

5. FREQuENCy OF mEETINgS

a. The AEC shall meet at least four (4) times in a financial year with the objective of reviewing the internal audit reports and AFFIN Bank Group’s financial reporting. The AEC complements this through regular meetings with the Senior Management and both the Internal and External Auditors to review the AFFIN Bank Group’s overall state of governance and internal controls. To ensure that critical issues are highlighted to all Board members in a timely manner, where possible, the AEC meetings are convened before the Board meetings. The AEC, through its Chairman, shall report to the Board after each meeting where issues can be further deliberated, if necessary.

b. Besides the minimum of four (4) AEC meetings in a year, additional meetings shall be scheduled whenever deemed necessary by the AEC’s Chairman or the majority of the Committee members.

6. AuThORITy

The AEC is authorised by the Board to :-

a. Investigate any activity or matter within its Terms of Reference;

b. Be able to obtain external legal or other independent professional advice or other necessary resources to perform its duties;

c. Have full and unrestricted Access to any information pertaining to the AFFIN Bank Group;

d. Maintain direct communication channels with the External Auditors, Internal Auditors and all employees of the AFFIN Bank Group;

e. Be able to convene meetings with the External and Internal Auditors; excluding the attendance of the members of Management Committee at least twice a year; and

f. Report to the Regulatory Bodies on matters duly reported by it to the Board which have not been satisfactorily resolved resulting in a breach of any regulatory requirements.

7. FuNCTIONS AND DuTIES

The functions and duties of AEC shall include, but not limited to the following:

a. To review the Quarterly Financial Results and Year-End Financial Statement prior to the approval by the Board focusing on the following:• ChangesinorimplementationofmajorAccountingpolicy;• Significantandunusualeventsoranygoingconcernassumption;• Significantadjustmentsarisingfromtheaudit;and• CompliancewithAccountingstandards,disclosurerequirementsandotherlegalrequirements.

b. To act upon any request from the Board to investigate and report on any issue of concern as regard to the Management of the Group.

c. To obtain external professional advice and to invite outsiders with relevant experience to attend meetings, subject to the approval of the relevant regulatory body, where necessary.

d. To recommend to the Board the appointment of External Auditors and their audit fee.

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e. To review with the External Auditors the scope of the audit plan, system of internal controls, the audit reports (including Management letter and Management response), the assistance given by the Management and any findings or action to be taken.

f. To meet with the External Auditors without the presence of members of management at least twice a year.

g. To review the proposals for non-audit services rendered by the External Auditors or 3rd parties. If the External Auditors are engaged, the AEC is responsible for ensuring that such engagement does not compromise the independence of the External Auditors in their roles as Statutory Auditors of AFFIN Bank Group.

h. To review the adequacy and effectiveness of AFFIN Bank Group’s control environment.

i. To consider the major findings of internal investigations and Management response.

j. To review the findings of any examination by regulatory authorities and the Management response.

k. To review existing policies and practices within AFFIN Bank Group in order to regulate and streamline the same to ensure uniformity.

l. To ensure that the Accounts are prepared in a timely and accurate manner with frequent reviews of the adequacy of provisions against contingencies, bad and doubtful debts.

m. To review any related party transactions that may arise within the AFFIN Bank Group.

n. To review the adequacy of the scope, functions, competency and resources of the Group Internal Audit Division and the necessary authority to carry its work. The review may cover the planned audit work, internal audit programmes, the results of completed work and Management implementation of agreed actions as recommended by Group Chief Internal Auditor (GCIA). Where appropriate, the Committee may direct the Management to rectify and improve the system of internal controls and procedures based on the Group Internal Auditors’ recommendations and suggestions for improvements.

8. AuDIT COmmITTEE mEETINgS hELD IN ThE FINANCIAL yEAR ENDED 31 DECEmBER 2015

During the Financial Year Ended 31 December 2015, a total of eight (8) AEC meetings were held. The AEC members and details of the attendance of each member at the meetings are as follows:

Name of Committee member Attendance

YBhg. Tan Sri Dato’ Sri Abdul Aziz Abdul RahmanChairman/Independent Non-Executive Director

8/8

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

8/8

YBhg. Tan Sri Mohd Ghazali Mohd YusoffMember/Independent Non-Executive Director

8/8

Assoc. Prof. Dr. Said BouheraouaMember/Independent Non-Executive Director

8/8

The AEC is in compliance with the principles and best practices set out in the Malaysian Code on Corporate Governance. The AEC members comprise individuals with a diversity of skills, knowledge and caliber in providing independent, objectivity and effective oversight.

The AEC meetings’ agenda, relevant AEC papers and audit reports were distributed to the AEC members five (5) days prior to the date of the meetings.

AFFIN Bank Group External Auditors attended three (3) AEC meetings during the period. There were discussions between the AEC and the External Auditors with regard to significant audit issues, changes in the implementation of major Accounting policies, compliance with Accounting standards and other legal requirements including regulatory requirement and business issues highlighted by them for Financial Year Ended 31 December 2015. The AEC had also reviewed the External Auditors’ Audit Plan for the Financial Year Ending 31 December 2015.

The AEC had two (2) private meetings with the External Auditors without the presence of Management and Internal Auditors in year 2015. In addition, the External Auditors were invited to attend the annual general meeting to respond to shareholders’ questions on audit related issues. The AEC also had direct and unrestricted Access to the Internal Auditors and had ad-hoc discussions with the Internal Auditor without the presence of Management.

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As the Board is ultimately responsible for the financial reporting and overall management of AFFIN Bank Group, the Chairman of the Audit & Examination Committee had consistently briefed the Board of Directors on issues discussed at the AEC meetings and the minutes of the AEC meetings are tabled to the Board for information and action by the Board where appropriate.

AEC members had attended trainings in the Financial Year Ended 2015 for continuous improvements.

9. SummARy OF ACTIVITIES OF ThE AuDIT & ExAmINATION COmmITTEE

The Audit Committee has carried out the following activities in discharging its duties and responsibilities for the Financial Year Ended 31 December 2015:

9.1 ExTERNAL AuDIT

a. Reviewed the 2015 Audit Plan to ensure the scope of work adequately covered the activities of Affin Bank Group;

b. Reviewed the significant audit findings, accounting, taxation and other matters raised by the external auditors; and

c. Reviewed and evaluated the External Audit performance, objectivity and independence during the year before recommending to the Board for their reappointment.

9.2. NON-AuDIT SERVICES

Reviewed the non-audit services rendered by the External Auditors or 3rd parties.

9.3. gROuP INTERNAL AuDIT

a. Reviewed and approved the Group Internal Audit Annual Plan (proposed by Group Chief Internal Auditor) and Training Budget for Year 2015 in ensuring that adequate scope and comprehensive coverage on the audit activities and critical risk areas are adequately identified and covered;

b. Reviewed and evaluated the adequacy of resources and the competencies of staff within the Group Internal Audit Division (GIAD) to execute the plan as well as the audit programmes used in the execution of Internal Auditors’ job to ensure satisfactory performance of GIAD;

c. Reviewed the internal control issues identified by GIAD, External and Regulatory Auditors as well as Management response to audit recommendations and implementation of agreed action plans with particular attention on the following:• Controlenvironment(integrity,ethicalvaluesandcompetencyofthepersonnel);• Controlactivities(policiesandprocedures),• Riskassessment(identifiedandassessedrelevantrisksanditspreventivemeasure);and• MonitorthestatusofcorrectiveactionstakenbyManagementtorectifyanydeficienciesidentifiedbyInternalAuditaswellasensuringthatall

issues are adequately resolved on a timely basis;

d. Reviewed the status report of Group Internal Audit activities for the Financial Year Ended 31 December 2015 to ensure all the planned activities were satisfactorily carried out;

e. Reviewed the summary of audit findings by significant operating entities’ Internal Auditors to ensure their significant audit findings especially on the investigations, fraud and non-compliances with regulatory and statutory requirements were promptly resolved; and

f. Reviewed the Audit Committee Terms of Reference and Group Internal Audit Manual.

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9.4 gROuP INTERNAL AuDIT FuNCTION

a. Group Internal Audit is guided by its Group Internal Audit Charter. Its primary role is to assist the Group Audit Committee to discharge its duties and responsibilities by independently reviewing and reporting on the adequacy and integrity of the Group’s risk management, internal control and governance processes;

b. Group Internal Audit adopt a risk-based approach towards the planning and conduct of audits, which is consistent with the Group’s framework in designing, implementing and monitoring its internal control system;

c. The group internal auditors closely monitored the implementation of the audit recommendations in order to obtain assurance that all major risk and control concerns have been duly addressed. Audit reports were presented to the management and Group Audit Committee;

d. Group Internal Audit worked closely with the external auditors to ensure that significant issues are duly addressed and resolved on a timely basis; and

e. The total Group Internal Audit cost for year 2015 was RM2.9 million.

9.5 FINANCIAL RESuLTS

a. Reviewed with the senior Management the quarterly and half yearly unaudited financial results before recommending to the Board for their approval.

b. Reviewed with the senior Management and External Auditors the annual audited financial statements of the Company before recommending to the Board for their approval. The review is focusing on matters set out in the following Requirements, Acts and Standards:• ProvisionsoftheCompaniesAct;• FinancialServicesActandIslamicFinancialServicesAct;• ApplicableapprovedAccountingstandardsinMalaysia;and• Otherrelevantlegalandregulatoryrequirements.

9.6 RELATED PARTy TRANSACTIONS

Reviewed related party transactions and recurrent related party transactions and the appropriateness of such transactions to avoid potential or actual conflict of interest. This is also to ensure that decisions are based on the best interest of the company and its shareholders.

9.7 OThERS

Reviewed the Statement on Internal Control and Audit Committee Report for inclusion in the Year 2015 Annual Report before recommending to the Board for approval.


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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

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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 Nos. 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

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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 199 & 200, Jalan Kenanga 29/4, Indahpura, 81000 Kulai, Johor. Tel : 07-660 8495 Fax : 07-660 8363

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

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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

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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

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NOTICE OF ANNuAL gENERAL mEETINg

NOTICE IS HEREBY GIVEN THAT THE 40Th

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,

22 mARCh 2016 AT 9.00 A.m. FOR

THE TRANSACTION OF THE FOLLOWING

BUSINESSES:-

AgENDA

1. To receive the Statutory Statements of Accounts for the year ended 31 December 2015 together with the Directors’ and Auditors’ Reports thereon.

2. To declare a final single tier dividend of 6.18 sen amounting to RM104,366,000.00 for the financial year ended 31 December 2015.

3. To re-elect Mr. Aubrey Li Kwok-Sing who retire pursuant to Article 91(a) of the Company’s Articles of Association and who, being eligible, offer himself for re-election.

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

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

(b) That En. Mohd Suffian bin Haji Haron, retiring in accordance with Section 129(6) of the Companies Act, 1965, be and is hereby re-appointed as a Director of the Company to hold office until the conclusion of the next Annual General Meeting.

(c) That YBhg. Tan Sri Dato’ Seri Mohamed Jawhar, retiring in accordance with Section 129(6) of the Companies Act, 1965, be and is hereby re-appointed as a Director of the Company to hold office until the conclusion of the next Annual General Meeting.

(d) That YBhg. Tan Sri Mohd Ghazali bin Mohd Yusoff, retiring in accordance with Section 129(6) of the Companies Act, 1965, be and is hereby re-appointed as a Director of the Company to hold office until the conclusion of the next Annual General Meeting.

5. To re-elect En. Abd Malik bin A Rahman who retire pursuant to Article 91(e) of the Company’s Article of Association and who being eligible, offers himself for re-election.

6. To approve the payment of Directors’ fees and Committees’ fees for financial year ended 31 December 2015.

7. To re-appoint Messrs PricewaterhouseCoopers as Auditors for the financial year ending 31 December 2016 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:1. 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 StatementS46 Directors’ Report

62 Statements of Financial Position

63 Income Statements

64 Statements of Comprehensive Income

65 Statements of Changes in Equity

67 Statements of Cash Flows

70 Summary of Significant Accounting Policies

86 Notes to the Financial Statements

184 Statement by Directors

184 Statutory Declaration

185 Independent Auditors’ Report

186 Basel II Pillar 3 Disclosures

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diRectoRs’ RepoRtfor the financial year ended 31 December 2015

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 2015.

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 461,235 344,229

Zakat (3,779) -

Profit before taxation 457,456 344,229

Taxation (111,874) (82,939)

Net profit for the financial year 345,582 261,290

DIVIDENDS

The dividends on ordinary shares paid or declared by the Bank since 31 December 2014 were as follows:

In respect of the financial year ended 31 December 2014 as shown in the Directors’ report for that financial year:

RM’000

Final single-tier dividend of 3.91 sen per share paid on 31 March 2015 66,031

The Directors now recommend the payment of a final single-tier dividend of 6.18 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 RM104,366,000 for the financial year ended 31 December 2015 which is subject to the approval of members at the forthcoming Annual General Meeting of the Bank.

47



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.

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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

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul RahmanIndependent Non-Executive Director(Retired w.e.f. 27.1.2015)

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

En. Mohd Suffian Bin Haji HaronIndependent Non-Executive Director

Tan Sri Dato’ Seri Mohamed JawharIndependent Non-Executive Director

Tan Sri Mohd Ghazali Bin Mohd YusoffIndependent Non-Executive Director

En. Abd. Malik Bin A RahmanIndependent Non-Executive Director(Appointment w.e.f. 3.3.2015)

Mr Tang Peng WahNon-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing)

49



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 2015 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.

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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 is as follows:

Ordinary shares of RM1 each

As at As at1.1.2015 Bought Sold 31.12.2015

AFFIN Holdings BerhadTan Sri Dato’ Seri Lodin Bin Wok Kamaruddin * 1,051,328 - - *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

* Shares held in trust by nominee company

Ordinary shares of RM10 each; RM5 uncalled


ABB Trustee Berhad **Jen.Ô11 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 each


Boustead Holdings Berhad^

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 28,192,758 - - 28,192,758

Pharmaniaga Berhad^^


Boustead Plantations Berhad^^^


^ Shares held in trust by nominee company - 25,992,758

Shares held under own name - 2,200,000^^ Shares held in trust by nominee company - 3,117,311

Shares held under own name - 9,382,837^^^ 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.

51



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 32 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.

CORPORATE GOVERNANCE

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 21 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 2015, 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.

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(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) 21 / 21

Chairman / Non-Independent Non-Executive Director

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 13 / 21

Member / Non-Independent Non-Executive Director

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman 1 / 1

Member / Independent Non-Executive Director

(Retired w.e.f. 27.1.2015)

Mr Aubrey Li Kwok-Sing 5 / 21


En. Mohd Suffian Bin Haji Haron 21 / 21


Tan Sri Dato’ Seri Mohamed Jawhar 21 / 21


Tan Sri Mohd Ghazali Bin Mohd Yusoff 21 / 21


En. Abd Malik Bin A Rahman 17 / 19


(Appointment w.e.f. 3.3.2015)

Mr Tang Peng Wah 9 / 21


(Alternate Director to Mr Aubrey Li Kwok-Sing)

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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 2015, a total of 7 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







En. Abd Malik Bin A Rahman 2 / 2



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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 2015, a total of 7 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:








55





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:

• ToadvisetheBoardonShariahmattersinordertoensurethatthebusinessoperationsoftheBankcomplywiththeShariahprinciplesatalltimes;

• ToendorseandvalidaterelevantdocumentationsoftheBank’sproductstoensurethattheproductscomplywithShariahprinciples;and

• ToadvisetheAFFINIslamicBankBerhadonmatterstobereferredtotheShariahAdvisoryCouncil.

The Shariah Committee was established in December 1995. During the year, a total of 11 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 11 / 11

Chairman

Assistant Professor Dr. Ahmad Azam Bin Othman 11 / 11

Member

Dr. Zulkifli Bin Hasan 11 / 11

Member

Ustaz Mohammad Mahbubi Bin Ali 11 / 11

Member

Ustaz Ahmad Alfisyahrin Jamilin 3 / 3

Member


Dr. Yasmin Hanani Binti Mohd Safian 4 / 5

Member

(Resigned w.e.f. 1.4.2015)

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(ii) Group Risk Management

The Group Risk Management function, operating in an independent capacity, is part of the Bank’s senior management structure 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’), Group Operational Risk Management Committee (‘GORMC’) and Group Early Alert Committee (‘GEAC’) assist the BRMC in managing credit, market, liquidity and operational risks.

Responsibilities of these committees include:• riskidentification• riskassessmentandmeasurement• riskcontrolandmitigation• riskmonitoring

Board Risk Management Committee (‘BRMC’)

The main function of Board Risk Management Committee (‘BRMC’) is to assist the Board in its oversight role of managing risk in the Bank. It has responsibility for approving and reviewing risk management policies of the Bank and 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. The Bank’s risk management framework is set out in Note 39 to the financial statements.

During the financial year ended 31 December 2015, a total of 6 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:






(Represent AFFIN Islamic Bank Berhad)





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(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 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 2015, 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

Chairman / Non-Independent Non-Executive Director





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



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(ii) Group Risk Management (continued)

Management Committee (‘MCM’)

MCM comprising the senior management team chaired by the MD/CEO, assists the Board in managing the day-to-day operations. MCM formulates tactical plans and business strategies, monitors the Bank’s overall performance, and ensures that activities are carried out in accordance with corporate objectives, strategies, policies and annual business plan and budget.

Group Management Loan Committee (‘GMLC’)

Group Management Loan Committee (‘GMLC’) approves complex and larger loans as well as 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 and liability position as well as oversees the Bank’s capital management to ensure that the Bank is adequately capitalised on an economic and regulatory basis.

Group Operational Risk Management Committee (‘GORMC’)

GORMC comprising the senior management team chaired by the MD/CEO, manages the Bank’s Operational Risk by reviewing and ensuring appropriate operational risk programme, process and framework are implemented in the Bank so as to reduce the original capital charge and manage operational risk losses to an acceptable level.

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 as well as review the actions taken to address 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 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.

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 anindependent 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.

• Performriskassessmentstoidentifyriskandevaluateactionstakentoprovidereasonableassurancethatproceduresandcontrolsexisttocontain those risks.

• Maintainstrongcontrolactivitiesincludingdocumentedprocessesandsystemincorporatingadequatecontrolstoproduceaccuratefinancialdata and provide for the safeguarding of assets, and a documented review of reported results.

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

• Ensureeffectiveinformationflowsandcommunication,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.

• Monitorcontrols,includingprocedurestoverifythatcontrolsareinplaceandfunctioning,followuponcorrectiveactiononcontrolfindinguntilits 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:

• Thereliabilityandintegrityofaccountingpoliciesandfinancialreportinganddisclosurepractices;

• TheprovisionofadvicetotheBoardwithregardstothefinancialstatementsandbusinessriskstoenabletheBoardtofulfillitsfiduciarydutiesand obligations; and

• Theestablishmentandmaintenanceofprocessestoensurethatthey:

- 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.

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 2015, a total of 8 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:







Tan Sri Mohd Ghazali bin Mohd Yusoff 8 / 8


Associate Professor Dr. Said Bouheraoua 8 / 8



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(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 2015

Taking into account the dynamically changing economic environment and its impacts, the Bank throughout 2015 continues to strive for business growth and withstand its position in the industry. The industry’s overall loan growth for 2015 was moderate as expected with domestic loan growth hovers in the range of 9.00% to 9.50%.

Despite the challenges faced, the Bank was able to preserve its asset quality and maintain its cost-toincome ratio at 50.09%. Net impaired loans ratio stood at 0.95%, ROE (before tax) at 9.10% and ROA (before tax) at 0.80%. Overall, the Bank’s key financial numbers are very much within the industry standard.

Recognising the intense competition and the need to differentiate ourselves in the marketplace, the Bank has formulated a medium to long-term transformation plans predicted upon the rapidly evolving economy as well as digitalisation and demographics.

BUSINESS OUTLOOK FOR 2016

Gross Domestics Product (‘GDP’) growth for Malaysia is projected to be remained from last year within the range of 4.5% to 5.0% in year 2016. This reflects the impact of plunge of crude oil price where the oil prices are estimated to stay low and recover the earliest by the second half of 2016. The decline in crude oil price together with the challenging external environment and US rate hikes; continues to poses headwinds to the Malaysian Government budget, trade balance and exchange rate.

Amid softer economic growth outlook and increasing regulated business environment, the Bank is confident that the domestic economy still holds much opportunity for business growth and intends to pursue these opportunities prudently. The Bank will continue to ensure that loans portfolio is well managed through proactive account management.

Our strategic focus for the business continues with the emphasis on both retail and business banking segments. The Bank will continuously pace up efforts to improve efficiency and productivity in delivering our products and services. We will retain our competitive edge and grow our business within the well-defined risk parameters and be guided by our strategic plans.

The Bank has put further emphasis on transactional banking as major source of fee income and further enhances our brand recognition and visibility by increasing our domestic footprint while exploring the potential of establishing a presence in ASEAN and beyond.

We believe that the strong relationship built with our customers will put us in good stead to further grow our business in targeted key segments.

The Bank will also continue to collaborate and leverage on Group synergy by exploring potential business opportunities with the LTAT/Boustead Group of Companies.

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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: 21 August 2015

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 meets 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 3 March 2016.

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

En. Mohd Suffian Bin Haji HaronDirector

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The Group The Bank

2015 2014 2015 2014

Note RM’000 RM’000 RM’000 RM’000

ASSETS

Cash and short-term funds 2 4,070,710 6,938,912 2,573,348 3,777,042

Deposits and placements with banks and

other financial institutions 3 351,687 238,222 1,310,764 962,050

Financial assets held-for-trading 4 150,121 149,904 150,121 149,904

Derivative financial assets 5 174,037 88,658 174,745 88,672

Financial investments available-for-sale 6 10,287,350 9,947,911 8,811,977 8,415,411

Financial investments held-to-maturity 7 380,654 476,155 304,372 393,401

Loans, advances and financing 8 42,104,597 39,456,172 32,902,688 32,292,551

Other assets 9 72,798 223,406 68,546 174,655

Amount due from subsidiaries 10 - - 61 438

Amount due from joint ventures 11 39,936 14,855 - -

Tax recoverable 46,206 20 46,179 -

Deferred tax assets 12 3,598 3,118 - 218

Statutory deposits with Bank Negara Malaysia 13 1,604,600 1,696,550 1,345,000 1,398,550

Investment in subsidiaries 14 - - 489,074 389,074

Property and equipment 16 407,313 149,131 399,913 141,031

Intangible assets 17 153,137 147,688 156,604 150,690

TOTAL ASSETS 59,846,744 59,530,702 48,733,392 48,333,687

LIABILITIES AND EQUITY

Deposits from customers 18 47,813,213 48,047,224 37,814,118 38,180,212

Deposits and placements of banks and

other financial institutions 19 2,735,596 4,849,676 1,778,206 3,699,386

Obligation on securities sold

under repurchase agreements 1,740,946 - 1,740,946 -

Derivative financial liabilities 20 414,140 237,426 413,944 237,419

Bills and acceptances payable 77,114 94,308 77,114 94,308

Recourse obligation on loans

sold to Cagamas Berhad 21 134,585 139,147 134,585 139,147

Other liabilities 22 399,718 359,644 354,008 328,063

Amount due to subsidiaries 23 - - 422,166 296,781

Provision for taxation 10,052 28,029 - 23,939

Deferred tax liabilities 12 15,104 - 15,104 -

Subordinated term loan 24 1,004,446 604,310 1,004,446 604,310

TOTAL LIABILITIES 54,344,914 54,359,764 43,754,637 43,603,565

Share capital 25 1,688,770 1,688,770 1,688,770 1,688,770

Reserves 26 3,813,060 3,482,168 3,289,985 3,041,352

TOTAL EQUITY 5,501,830 5,170,938 4,978,755 4,730,122

TOTAL LIABILITIES AND EQUITY 59,846,744 59,530,702 48,733,392 48,333,687

COMMITMENTS AND CONTINGENCIES 38 22,301,945 23,427,860 20,192,355 21,359,914

The accounting policies on pages 70 to 85 and the notes on pages 86 to 183 form an integral part of these financial statements.

STATEMENTS OF FINANCIAL POSITIONas at 31 December 2015

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The Group The Bank

2015 2014 2015 2014

Note RM’000 RM’000 RM’000 RM’000

Interest income 27 2,326,816 2,295,340 2,325,444 2,299,786

Interest expense 28 (1,495,771) (1,447,605) (1,495,791) (1,447,672)

Net interest income 831,045 847,735 829,653 852,114

Income from Islamic banking business 29 238,921 220,369 - -

1,069,966 1,068,104 829,653 852,114

Other operating income 30 184,577 223,222 185,068 222,544

Net income 1,254,543 1,291,326 1,014,721 1,074,658

Other operating expense 31 (628,358) (589,114) (514,054) (469,151)

Operating profit before allowances 626,185 702,212 500,667 605,507

(Allowances for)/write-back of impairment losses on loans, advances and financing 33 (186,987) 18,468 (178,475) 22,193

Write-back of/(allowances for) impairment losses on securities 6 & 7 22,037 (550) 22,037 -

Profit before zakat and taxation 461,235 720,130 344,229 627,700

Zakat (3,779) (4,772) - -

Profit before taxation 457,456 715,358 344,229 627,700

Taxation 35 (111,874) (171,631) (82,939) (151,221)

Net profit after zakat and taxation 345,582 543,727 261,290 476,479

Attributable to:

Equity holders of the Bank 345,582 543,727 261,290 476,479

Earnings per share (sen):

- Basic 36 20.5 33.3 15.5 29.2

INCOME STATEMENTSfor the financial year ended 31 December 2015

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The Group The Bank

2015 2014 2015 2014

Note RM’000 RM’000 RM’000 RM’000

Profit after zakat and taxation 345,582 543,727 261,290 476,479

Other comprehensive income:

Items that may be reclassified subsequently to

profit and loss:

Net fair value change in financial

investments available-for-sale 67,820 25,742 70,495 24,360

Deferred tax on financial investments

available-for-sale 12 (16,479) (6,178) (17,121) (5,847)

Other comprehensive income for the

financial year, net of tax 51,341 19,564 53,374 18,513

Total comprehensive income for the financial year 396,923 563,291 314,664 494,992

Attributable to equity holders of the Bank:

- Total comprehensive income 396,923 563,291 314,664 494,992


STATEMENTS OF COMPREHENSIVE INCOMEfor the financial year ended 31 December 2015

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STATEMENTS OF CHANGES IN EQUITYfor the financial year ended 31 December 2015

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 The Group Total

RM’000

At 1 January 2015 1,688,770 858,904 1,469,794 17,604 184,366 951,500 5,170,938

Net profit for the financial year - - - - - 345,582 345,582

Other comprehensive income (net of tax)

- Financial investmentsavailable-for-sale - - - 51,341 - - 51,341

Total comprehensive income - - - 51,341 - 345,582 396,923

Dividends paid (Note 37) - - - - - (66,031) (66,031)

Transfer to statutory reserves /

regulatory reserves - - 107,715 - 94,181 (201,896) -

At 31 December 2015 1,688,770 858,904 1,577,509 68,945 278,547 1,029,155 5,501,830

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


Other comprehensive income(net of tax)



Issued during the financial year (Note 25) 170,433 329,567 - - - - 500,000




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

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STATEMENTS OF CHANGES IN EQUITYfor the financial year ended 31 December 2015

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 2015 1,688,770 858,904 1,263,470 23,478 135,347 760,153 4,730,122


Other comprehensive income(net of tax)

- Financial investmentsavailable-for-sale - -

- 53,374 - - 53,374





At 31 December 2015 1,688,770 858,904 1,328,792 76,852 220,148 805,289 4,978,755

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


Other comprehensive income (net of tax)



Issued during the financial year (Note 25) 170,433 329,567 - - - - 500,000




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


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STATEMENTS OF CASH FLOwSfor the financial year ended 31 December 2015

The Group The Bank

2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

CASH FLOwS FROM OPERATING ACTIVITIES

Profit before taxation 457,456 715,358 344,229 627,700

Adjustments for items not involving the movement

of cash and cash equivalents:

Interest income:

- financial assets held-for-trading (123) (12) (123) (12)

- financial investments available-for-sale (286,316) (234,629) (286,316) (234,629)

- financial investments held-to-maturity (17,017) (20,062) (17,017) (20,062)

Dividend income:


Accretion of discount less amortisation of premium:


- financial investments held-to-maturity (250) (1,092) (250) (1,092)

Gain on sale:

- financial assets held-for-trading (498) (347) (498) (347)


Gain on redemption of financial investments

held-to-maturity - (3,500) - (3,500)

Unrealised loss/(gain) on revaluation:

- financial assets held-for-trading 232 (219) 232 (219)

- derivatives 3,750 (7,302) 3,750 (7,302)

- foreign exchange (45,358) 122,129 (45,358) 122,129

Allowance for impairment loss:

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

- financial investments held-to-maturity (22,037) - (22,037) -

Depreciation of property and equipment 15,044 14,951 13,960 13,954

Property and equipment written-off 84 114 76 110

Gain on sale of property and equipment (1) (6,319) (1) (6,319)

Amortisation of intangible assets 6,200 6,304 5,735 5,529

Gain on sale of foreclosed properties (684) (3,329) (684) (2,937)

Net individual impairment 250,352 83,225 246,840 85,498

Net collective impairment 17,224 35,666 11,265 29,283

Bad debt and financing written-off 3,603 4,380 3,596 4,370

Interest expense - subordinated term loan 28,189 29,879 28,189 29,879

Zakat 3,779 4,772 - -

Operating profit before changes in working capital 392,641 692,543 264,600 594,059

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The Group The Bank

2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

CASH FLOwS FROM OPERATING ACTIVITIES (continued)

(Increase)/decrease in operating assets:


other financial institutions (113,465) 244,375 (348,714) 144,706

Financial assets held-for-trading 172 218 172 218

Loans, advances and financing (2,919,604) (3,351,658) (871,838) (2,232,792)

Other assets (318,117) (166,316) (361,174) (158,609)

Derivative financial instruments 91,335 110,520 90,452 110,499

Statutory deposits with Bank Negara Malaysia 91,950 (237,200) 53,550 (172,200)

Amount due from subsidiaries - - 125,762 303,507

Amount due from joint ventures (25,081) (10,670) - -

(Decrease)/increase in operating liabilities:

Deposits from customers (234,011) 1,959,142 (366,094) 1,379,484

Deposits and placements of banks and

other financial institutions (2,114,080) 784,132 (1,921,180) 1,039,851

Obligation on securities sold

under repurchase agreements 1,740,946 - 1,740,946 -

Bills and acceptances payable (17,194) 4,100 (17,194) 4,100

Recourse obligation on loans sold to Cagamas Berhad (4,562) (258,643) (4,562) (258,643)

Other liabilities 41,808 (26,221) 25,944 (29,639)

Cash (used in)/generated from operations (3,387,262) (255,678) (1,589,330) 724,541

Zakat paid (5,511) (10,885) - (2,134)

Tax refund 1,364 2,016 1,350 -

Tax paid (179,258) (181,372) (156,206) (160,713)

Net cash (used in)/generated from operating activities (3,570,667) (445,919) (1,744,186) 561,694

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The Group The Bank

2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

CASH FLOwS FROM INVESTING ACTIVITIES

Interest received:

- financial investments available-for-sale 286,316 234,629 286,316 234,629

- financial investments held-to-maturity 17,017 20,062 17,017 20,062

Dividend income:

- financial investments available-for-sale 2,635 2,589 2,635 2,589

Redemption of financial investments

held-to-maturity net of purchase 117,788 28,773 111,316 26,464

Net purchase of financial investments

available-for-sale (253,265) (2,262,796) (307,717) (2,014,252)

Proceeds from disposal of

- property and equipment 2 13,009 2 13,009

- foreclosed properties 4,877 10,055 4,877 9,075

Purchase of property and equipment (285,117) (13,898) (284,710) (12,734)

Purchase of intangible assets (5) (236) (5) (236)

Net cash used in investing activities (109,752) (1,967,813) (170,269) (1,721,394)

CASH FLOwS FROM FINANCING ACTIVITIES

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

Investment in subsidiary - - (100,000) -

Repayment of subordinated term loan - (300,000) - (300,000)

Interest payment on subordinated term loan (28,053) (30,534) (28,053) (30,534)

Drawndown of subordinated term loan 400,000 - 400,000 -

Payment of dividend (66,031) (259,977) (66,031) (259,977)

Net cash generated from/(used in) financing activities 305,916 (90,511) 205,916 (90,511)

Net decrease in cash and cash equivalents (3,374,503) (2,504,243) (1,708,539) (1,250,211)

Net increase in foreign exchange 506,301 41,454 504,845 39,557

Cash and cash equivalents at beginning of

the financial year 6,938,912 9,401,701 3,777,042 4,987,696

CASH AND CASH EQUIVALENTS AT

END OF THE FINANCIAL YEAR (Note 2) 4,070,710 6,938,912 2,573,348 3,777,042


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summary of significant accounting policiesfor the financial year ended 31 December 2015

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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 45.

Standards, amendments to published standards and interpretations that are effective

The Group and the Bank have applied the following amendments for the first time for the financial year beginning on 1 January 2015:

• AnnualImprovementstoMFRSs2010-2012Cycle

• AnnualImprovementstoMFRSs2011-2013Cycle

• AmendmentstoMFRS119“DefinedBenefitPlans:EmployeesContributions”

The adoption of these amendments did not have any impact on the current or any prior year and are not likely to affect future periods.

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

A number of new standards and amendments to standards and interpretations are effective for financial year beginning on or after 1 January 2016. None of these is expected to have a significant effect on the consolidated financial statements of the Group and the Bank, except the following set out below:

• AmendmenttoMFRS11‘Jointarrangements’(effectivefrom1January2016)requiresaninvestortoapplytheprinciplesofMFRS3‘BusinessCombination’ 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 remeasured when the acquisition of an additional interest in the same joint operation results in retaining joint control.

• AmendmentstoMFRS116‘Property,plantandequipment’andMFRS138‘Intangibleassets’(effectivefrom1January2016)clarifythattheuseofrevenue-basedmethodstocalculatethedepreciationofanitemofproperty,plantandequipmentisnotappropriate.Thisisbecauserevenue 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.

TheamendmentstoMFRS138alsoclarifythatrevenueisgenerallypresumedtobeaninappropriatebasisformeasuringtheconsumptionof 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.

• MFRS9‘FinancialInstruments’(effectivefrom1January2018)willreplaceMFRS139“FinancialInstruments:RecognitionandMeasurement”. MFRS9 retains but simplifies themixedmeasurementmodel inMFRS139 and establishes three primarymeasurement categories for

financial assets: amortised cost, fair value throughprofit or loss and fair value throughother comprehensive income (“OCI”).Thebasisof classification depends on the entity’s business model and the cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI(providedtheinstrumentisnotheldfortrading).Adebtinstrumentismeasuredatamortisedcostonlyiftheentityisholdingittocollectcontractual cash flows and the cash flows represent principal and interest.

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(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)

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.

MFRS 9 introduces an expected credit loss model on impairment for all financial assets that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised.

• MFRS15‘Revenuefromcontractswithcustomers’(effectivefrom1January2018)replacesMFRS118‘Revenue’andMFRS111‘Constructioncontracts’ and related interpretations. The standard 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 core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

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 to direct relevant activities of 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 and fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions 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 identifiable net assets acquired is recognised 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 costs are expensed as incurred.

If the business combination is achieved in stages, the carrying 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.

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(B) CONSOLIDATION

(i) Subsidiaries (continued)

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 in profit or loss. 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 recognised as an adjustment to equity. 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 on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(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 transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in equity attributable to owners of the Group.

(iii) Disposal of subsidiaries

When the Group ceases to consolidate because of a loss of control, any retained interest in the entity is re-measured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes 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.

Gains or losses on the disposal of subsidiaries include the carrying amount of goodwill relating to the subsidiaries sold.

(iv) Joint arrangements

Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the consolidated statement of financial position. Under the equity method, the investment in a joint venture is initially recognised at cost, and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the joint venture in profit or loss, and the Group’s share of movements in other comprehensive income of the joint venture in other comprehensive income. Dividends received or receivable from a joint venture are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint venture, including any long-term interests that, in substance, form part of the Group’s net investment in the joint venture, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the joint venture.

The Group determines at each reporting date whether there is any objective evidence that the investment in the joint venture is impaired. An impairment loss is recognised for the amount by which the carrying amount of the joint venture exceeds its recoverable amount.

Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interests 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.

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(B) CONSOLIDATION

(iv) Joint arrangements (continued)

When the Group ceases to equity account its joint venture because of a loss of joint control, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate or financial asset. In addition, any amount previously recognised in other comprehensive income in respect of the entity is 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.

If the ownership interest in a joint venture is reduced but joint control is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

(C) INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES IN SEPARATE FINANCIAL STATEMENTS

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.

The amounts due from subsidiaries of which the Bank does not expect repayment in the foreseeable future are considered as part of the Bank’s investments in the subsidiaries.

(D) INTANGIBLE ASSETS

Goodwill

Goodwill arises from a business combination and represents the excess of the aggregate of fair value of consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired and liabilities assumed on the acquisition date. 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.

Goodwill is not amortised but it is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and carried at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combinationisallocatedtoeachofthecashgeneratingunits(“CGUs”),orgroupsofCGUs,thatareexpectedtobenefitfromthesynergiesofthecombination. 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.

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 of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.

Computer software

Costs associated with maintaining computer software programmes are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group and the Bank are recognised as intangible assets when the following criteria are met:

(i) it is technically feasible to complete the software product so that it will be available for use;

(ii) management intends to complete the software product and use or sell it;

(iii) there is an ability to use or sell the software product;

(iv) it can be demonstrated how the software product will generate probable future economic benefits;

(v) adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

(vi) the expenditure attributable to the software product during its development can be reliably measured.

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(D) INTANGIBLE ASSETS

Computer software (continued)

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Computer software development costs recognised as assets are amortised from the point at which the asset is ready for use over their estimated useful lives of five years.

(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 of disposal 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 which are largely independent of the cash inflows from other assets or groups of assets (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

Interestandfinancingincomeandexpenseforallinterest/profit-bearingfinancialinstrumentsarerecognisedwithin“interestincome”,“interestexpense”and“incomefromIslamicbankingbusiness”respectivelyintheincomestatementusingtheeffectiveinterest/profitmethod.

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.

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(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. This applies even if they are paid out of pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence.

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 and the Bank classify 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 and, in the case of assets classified as held-to-maturity, re-evaluate this designation at the end of each reporting period.

(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)

The Group and the Bank have not elected to designate any financial assets at fair value through profit or loss.

(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 have 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 that are directly attributable to the acquisition of the financial asset 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.

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(H) FINANCIAL ASSETS

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/profit 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/profit and dividend income on financial investments available-for-sale are recognised separately in income statements. Interest/profit 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.

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 and the Bank have 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 and the Bank 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 a non-derivative trading financial asset out of the held-for-trading category if the financial asset is no longer held for the purpose of selling it in the near term. Financial assets other than loans and receivables are permitted to be reclassified out of the held-for-trading category only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near term. In addition, the Group and the Bank may choose to reclassify financial assets that would meet the definition of loans and receivables out of the held-for-trading or available-for-sale categories if the Group and the Bank have the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification.

Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or amortised cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date are subsequently made. Effective interest/profit rates for financial assets reclassified to loans and receivables and held-to-maturity categories are determined at the reclassification date. Further increases in estimates of cash flows adjust the effective interest/profit rates prospectively.

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(I) IMPAIRMENT OF FINANCIAL ASSETS

Assets carried at amortised cost

The Group and the Bank assess 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:

• pastduecontractualpayments;• significantfinancialdifficultiesoftheborrower;• probabilityofbankruptcyorotherfinancialre-organisation;• defaultofrelatedborrower;• measurabledecreaseinestimatedfuturecashflowthanwasoriginallyenvisaged;and• significantdeteriorationinissuer’screditrating.

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/profit 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.

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(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/financing 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.

Based on the Guideline on Classification and Impairment Provisions for Loans/Financing, banking institutions are required 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.

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 in subsequent periods.

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(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. The cost of an item of property and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Cost also include borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset.

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 recognised as expenses in profit or loss during the financial period in which they are incurred.

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(L) PROPERTY AND EQUIPMENT AND DEPRECIATION

Freehold land is not depreciated as it has an infinite life. Other property and equipment are depreciated on the straight-line basis to allocate the cost, 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 the end of each reporting period.

At the end of the reporting period, 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.

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 if there is no reasonable certainty that the Group will obtain ownership at the end of 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.

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.

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(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 or valuation where items are remeasured. 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. However, exchange differences are deferred in other comprehensive income when they arose from qualifying cashflow or net investment hedge or are attributable to items that form part of the net investment in a foreign operation.

Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. 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.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. 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 at the end of each reporting period. 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 accounting for subsequent changes in fair value 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.

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(P) CURRENT AND DEFERRED INCOME TAXES

Current tax

Tax expense for the period comprises current and deferred income tax. The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. 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 in the countries 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 provided 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 liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred tax is also 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, unused tax losses or unused tax credits can be utilised.

Deferred tax is determined using tax rates (and tax laws) that have been enacted or 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.

Deferred tax liability is recognised for all temporary differences associated with 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. Generally, the joint venturer is unable to control the reversal of the temporary difference for joint ventures. Only where there is an agreement in place that gives the joint venturer the ability to control the reversal of the temporary difference, a deferred tax liability is not recognised.

Deferred income tax assets 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 known amount of cash without significant risk of changes in value.

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(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:

• theGroupandtheBankhaveapresentlegalorconstructiveobligationasaresultofpastevents;

• itisprobablethatanoutflowofresourcestosettletheobligationwillberequired;and

• areliableestimateoftheamountofobligationcanbemade.

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 not 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 management’s best estimate 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.

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(w) EMPLOYEE BENEFITS

Short-term employee benefits

Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled.

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. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

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 liability is initially measured at fair value andsubsequentlyatthehigheroftheamountdeterminedinaccordancewithMFRS137“Provisions,contingentliabilitiesandcontingentassets”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 Bank 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.

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(Z) RESTRICTED INVESTMENT ACCOUNTS (‘RIA’)

These deposits are used to fund specific financing. The RIA is a contract based on the Shariah concept of Mudharabah between two parties, i.e. investor and entrepreneur to finance a business venture where the investor provides capital and the business venture is managed solely by the entrepreneur. The profit of the business venture will be shared based on pre-agreed ratios with the Bank as Mudarib (manager or manager of funds), and losses shall be borne solely by capital provider.

(AA) 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

Liability is recognised for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Group, on or before the end of the reporting period but not distributed at the end of the reporting period.

Distributions to holders of an equity instrument are recognised directly in equity.

Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing:

• theprofitattributabletoownersoftheBank,excludinganycostsofservicingequityotherthanordinaryshares

• bytheweightedaveragenumberofordinarysharesoutstandingduringthefinancialyear,adjustedforbonuselementsinordinarysharesissued during the year and excluding treasury shares.

Diluted earnings per share

Diluted earnings per share adjusts the figures in the determination of basic earnings per share to take into account:

• theafterincometaxeffectofinterestandotherfinancingcostsassociatedwithdilutivepotentialordinaryshares,and

• theweightedaveragenumberofadditionalordinarysharesthatwouldhavebeenoutstandingassumingtheconversionofalldilutivepotentialordinary shares.

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notes to the financial statementsfor the financial year ended 31 December 2015

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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 2015 was 3,620 (2014: 3,499) and 3,357 (2014: 3,250) 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 2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

Cash and bank balances with banks

and other financial institutions 837,705 265,430 830,099 258,390

Money at call and deposit placements

maturing within one month 3,233,005 6,673,482 1,743,249 3,518,652

4,070,710 6,938,912 2,573,348 3,777,042

3 DEPOSITS AND PLACEMENTS wITH BANKS AND OTHER FINANCIAL INSTITUTIONS


RM’000 RM’000 RM’000 RM’000

Licensed banks 316,653 238,222 1,310,764 962,050

Other financial institutions 35,034 - - -

351,687 238,222 1,310,764 962,050

4 FINANCIAL ASSETS HELD-FOR-TRADINGThe Group The Bank

2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

At fair value

Bank Negara Malaysia Monetary Notes - 149,904 - 149,904

Negotiable Instruments of Deposit 150,121 - 150,121 -

150,121 149,904 150,121 149,904

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5 DERIVATIVE FINANCIAL ASSETS

The Group 2015

The Group 2014

Contract/ notional amount

RM’000


RM’000 Assets

RM’000 Assets

RM’000

At fair value

Foreign exchange derivatives:

Currency forwards 966,652 76,445 911,475 41,850

Cross currency swaps 2,571,803 81,272 1,670,492 24,710

Currency options 39,130 (12) - -

Interest rate derivatives:

Interest rate swaps 1,610,148 16,332 2,461,000 22,098

5,187,733 174,037 5,042,967 88,658

The Bank 2015

The Bank 2014


RM’000


RM’000 Assets

RM’000 Assets

RM’000

At fair value


Currency forwards 1,099,793 77,153 921,005 41,864


Currency options 39,130 (12) - -


Interest rate swaps 1,610,148 16,332 2,461,000 22,098

5,320,874 174,745 5,052,497 88,672

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6 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE


RM’000 RM’000 RM’000 RM’000

At fair value

Money market instruments:

Malaysian Government treasury bills - 225,782 - 200,778

Malaysian Government securities 39,997 50,663 39,997 50,663

Malaysian Government investment issues 1,863,822 2,180,038 1,249,964 1,678,503

Sukuk Perumahan Kerajaan 655,690 351,735 468,472 272,595

Bank Negara Malaysia Monetary Notes - 1,387,284 - 1,102,406

Negotiable Instruments of Deposit and

Islamic Debt Certificates 2,134,612 1,331,452 2,134,612 1,331,452

Khazanah Bonds/Sukuk 437,819 353,165 272,538 232,996

5,131,940 5,880,119 4,165,583 4,869,393

Quoted securities:

Shares in Malaysia 714 13,487 232 13,005

Private debt securities in Malaysia - 2,167 - 2,167

Unquoted securities:

Shares in Malaysia 206,010 160,379 204,935 159,803

Private debt securities

- in Malaysia 4,446,167 3,406,335 3,937,676 2,884,587

- outside Malaysia 503,820 530,746 503,820 530,746

10,288,651 9,993,233 8,812,246 8,459,701

Allowance for impairment losses (1,301) (45,322) (269) (44,290)

10,287,350 9,947,911 8,811,977 8,415,411


RM’000 RM’000 RM’000 RM’000

Movement in allowance for impairment losses

At beginning of the financial year 45,322 44,772 44,290 44,290

Transfer from allowance for impairment losses on

loans, advances and financing - 6,157 - 6,157

Allowance made during the financial year - 550 - -

Amount written-off (44,021) (6,505) (44,021) (6,505)

Exchange differences - 348 - 348

At end of the financial year 1,301 45,322 269 44,290

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7 FINANCIAL INVESTMENTS HELD-TO-MATURITY


RM’000 RM’000 RM’000 RM’000

At amortised cost

Quoted securities:

Private debt securities in Malaysia 23,439 23,439 23,439 23,439

Unquoted securities:

Private debt securities in Malaysia 357,393 496,994 281,111 414,240

380,832 520,433 304,550 437,679

Allowance for impairment losses (178) (44,278) (178) (44,278)

380,654 476,155 304,372 393,401

Movement in allowance for impairment losses


RM’000 RM’000 RM’000 RM’000


Amount write-back (22,037) - (22,037) -


At end of the financial year 178 44,278 178 44,278

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8 LOANS, ADVANCES AND FINANCING

(i) By type


RM’000 RM’000 RM’000 RM’000

Overdrafts 1,960,022 1,943,124 1,645,595 1,739,162

Term loans/financing

- Housing loans/financing 6,172,180 5,777,114 4,075,922 3,944,934

- Hire purchase receivables 12,000,990 10,963,715 9,290,597 8,919,007

- Syndicated financing 1,810,209 1,488,044 1,319,486 1,226,013

- Business term loans/financing 13,416,080 13,424,503 10,555,927 11,505,061

Bills receivables 321,091 1,194,884 284,455 1,182,694

Trust receipts 298,417 244,117 285,817 224,268

Claims on customers under acceptances credits 1,016,613 1,120,038 892,716 998,621

Staff loans/financing (of which RM Nil to Directors) 146,494 133,166 136,958 123,537

Credit cards 83,769 81,870 83,769 81,870

Revolving credits 5,373,961 3,612,801 4,751,488 2,805,676

Factoring 4,369 4,674 4,369 4,674

Gross loans, advances and financing 42,604,195 39,988,050 33,327,099 32,755,517

Less:

Allowance for impairment losses

- Individual (270,137) (239,259) (231,621) (207,740)

- Collective (229,461) (292,619) (192,790) (255,226)

Total net loans, advances and financing 42,104,597 39,456,172 32,902,688 32,292,551

- Included in the Group and the Bank’s term loans are housing loans sold to Cagamas Berhad with recourse amounting to RM134,585,000 (2014: RM139,147,000).

- Included in the Group’s business term loans/financing as at reporting date is RM53.7 million (2014: RM53.7 million) and RM63.9 million (2014: RM62.9 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


RM’000 RM’000 RM’000 RM’000

Maturing within one year 9,755,365 9,259,050 8,329,031 8,051,792

One year to three years 4,455,462 4,439,970 3,913,159 3,923,647

Three years to five years 6,700,288 6,508,671 5,772,922 5,573,588

Over five years 21,693,080 19,780,359 15,311,987 15,206,490

42,604,195 39,988,050 33,327,099 32,755,517

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(iii) By type of customer


RM’000 RM’000 RM’000 RM’000

Domestic non-banking institutions

- Stockbroking companies 221 231 221 231

- Others 1,575,279 1,304,372 1,447,078 1,092,416

Domestic business enterprises

- Small medium enterprises 9,069,401 7,706,811 8,060,187 7,068,567

- Others 13,078,516 13,952,430 10,448,275 11,608,972

Government and statutory bodies 1,137,674 92,725 534,604 33,298

Individuals 16,799,087 15,521,321 12,067,560 11,671,052

Other domestic entities 109,263 13,634 83,478 9,442

Foreign entities 834,754 1,396,526 685,696 1,271,539

42,604,195 39,988,050 33,327,099 32,755,517

(iv) By interest/profit rate sensitivity


RM’000 RM’000 RM’000 RM’000

Fixed rate

- Housing loans/financing 400,386 357,709 347,831 295,427

- Hire purchase receivables 12,000,990 10,963,715 9,290,597 8,919,007

- Other fixed rate loans/financing 3,986,107 3,823,161 2,670,561 3,180,638

Variable rate

- BLR plus 16,014,700 16,064,029 12,228,698 12,972,290

- Cost plus 10,202,012 8,779,436 8,789,412 7,388,155

42,604,195 39,988,050 33,327,099 32,755,517

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(v) By economic sectors


RM’000 RM’000 RM’000 RM’000

Primary agriculture 692,126 684,340 413,218 417,288

Mining and quarrying 723,167 622,359 710,130 621,563

Manufacturing 2,254,941 2,049,476 2,029,121 1,814,510

Electricity, gas and water supply 173,888 254,771 116,517 201,658

Construction 3,521,131 3,990,973 2,966,971 3,411,861

Real estate 6,885,709 6,045,231 5,715,112 5,441,854

Wholesale & retail trade and restaurants & hotels 2,437,432 2,117,173 2,218,930 1,915,945

Transport, storage and communication 2,072,151 2,037,263 1,866,149 1,902,028

Finance, insurance and business services 4,285,232 4,853,095 3,718,355 4,099,442

Education, health and others 2,590,004 1,663,541 1,388,887 1,140,497

Household 16,925,393 15,659,678 12,164,391 11,781,844

Others 43,021 10,150 19,318 7,027

42,604,195 39,988,050 33,327,099 32,755,517

(vi) By economic purpose


RM’000 RM’000 RM’000 RM’000

Purchase of securities 299,011 290,047 296,578 287,098

Purchase of transport vehicles 12,438,031 11,444,211 9,702,193 9,391,932

Purchase of landed property of which:

- Residential 6,404,657 5,733,144 4,229,105 3,890,037

- Non-residential 5,891,022 5,771,894 4,911,687 4,864,336

Fixed assets other than land and building 240,609 326,163 164,273 259,089

Personal use 745,510 886,926 709,015 852,043

Credit card 83,769 81,870 83,769 81,870

Consumer durable 852 803 852 803

Construction 3,127,244 3,117,428 2,325,499 2,434,105

Merger and acquisition 247,706 340,771 247,706 340,771

Working capital 12,777,233 11,478,251 10,440,927 9,981,580

Others 348,551 516,542 215,495 371,853

42,604,195 39,988,050 33,327,099 32,755,517

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(vii) By geographical distribution


RM’000 RM’000 RM’000 RM’000

Perlis 155,914 130,950 34,185 32,923

Kedah 1,362,515 1,216,316 803,114 791,638

Pulau Pinang 2,142,594 1,985,420 1,911,468 1,828,526

Perak 1,302,338 1,169,769 914,655 835,636

Selangor 12,878,079 12,530,054 9,800,065 9,927,910

Wilayah Persekutuan 13,155,004 11,127,076 10,272,358 9,201,666

Negeri Sembilan 994,321 894,089 663,569 674,051

Melaka 1,003,701 982,343 854,858 879,071

Johor 3,449,496 3,145,860 3,004,105 2,825,710

Pahang 845,284 824,164 551,457 549,200

Terengganu 803,862 989,058 385,226 589,445

Kelantan 229,607 230,819 67,998 63,553

Sarawak 1,577,489 1,270,558 1,508,223 1,246,449

Sabah 1,621,746 1,704,712 1,593,194 1,620,334

Labuan 684,220 520,747 684,164 520,677

Outside Malaysia 398,025 1,266,115 278,460 1,168,728

42,604,195 39,988,050 33,327,099 32,755,517

(viii) Movements of impaired loans


RM’000 RM’000 RM’000 RM’000


Amount converted to financial investments

available-for-sale - (16,865) - (16,865)

Classified as impaired 872,231 543,093 763,856 452,130

Reclassified as non-impaired (394,738) (289,556) (326,841) (234,726)

Amount recovered (149,944) (134,856) (131,082) (100,780)


At end of the financial year 767,847 713,648 626,139 584,491

Ratio of gross impaired loans, advances and financing to gross loans, advances and financing 1.80% 1.78% 1.88% 1.78%

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(ix) Movements in allowance for impairment on loans, advances and financing


RM’000 RM’000 RM’000 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 257,645 75,297 254,086 73,788

Amount recovered (7,293) (4,386) (7,246) (604)


Unwinding of income (33,004) (12,432) (32,376) (11,669)

Exchange differences 6,495 1,792 - 8



RM’000 RM’000 RM’000 RM’000

Collective impairment


Transfer to individual impairment - (12,314) - (12,314)

Net allowance made during the financial year 17,224 47,980 11,265 41,597



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(x) Impaired loans by economic sectors


RM’000 RM’000 RM’000 RM’000


Mining and quarrying 15 - 15 -

Manufacturing 35,535 31,450 35,187 28,747

Electricity, gas and water supply 148 246 148 246

Construction 81,302 258,070 80,914 187,791

Real estate 89,268 323 3,401 323

Wholesale & retail trade and restaurants & hotels 37,463 30,344 35,563 29,986

Transport, storage and communication 3,314 5,099 3,013 4,805

Finance, insurance and business services 216,444 38,442 216,333 37,816

Education, health and others 2,602 1,607 2,460 1,607

Household 287,368 330,511 234,717 275,731

767,847 713,648 626,139 584,491

(xi) Impaired loans by economic purpose


RM’000 RM’000 RM’000 RM’000

Purchase of securities 804 10,298 804 10,298

Purchase of transport vehicles 82,026 86,409 69,400 74,189

Purchase of landed property of which:

- Residential 180,137 231,048 140,674 188,967

- Non-residential 24,010 31,278 22,634 30,192

Fixed assets other than land and building 164 282 164 282

Personal use 20,539 7,826 20,044 7,346

Credit card 389 326 389 326

Consumer durable 16 13 16 13

Construction 98,031 77,071 12,164 7,041

Working capital 338,087 252,663 336,206 249,403

Others 23,644 16,434 23,644 16,434

767,847 713,648 626,139 584,491

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(xii) Impaired loans by geographical distribution


RM’000 RM’000 RM’000 RM’000

Perlis 680 901 639 649

Kedah 19,972 22,141 18,964 20,841

Pulau Pinang 42,525 35,458 41,000 33,462

Perak 18,793 15,193 14,871 11,156

Selangor 417,971 277,204 389,349 248,105

Wilayah Persekutuan 89,094 105,792 83,164 100,721

Negeri Sembilan 13,949 24,258 11,230 21,392

Melaka 7,231 8,575 6,749 8,401

Johor 25,596 49,319 23,518 46,620

Pahang 8,262 48,236 6,917 44,789

Terengganu 5,307 17,139 1,389 12,830

Kelantan 5,068 5,152 1,435 1,790

Sarawak 6,918 14,407 6,666 14,082

Sabah 20,614 12,384 20,248 12,195

Outside Malaysia 85,867 77,489 - 7,458

767,847 713,648 626,139 584,491

9 OTHER ASSETS


RM’000 RM’000 RM’000 RM’000

Other debtors, deposits and prepayments 60,927 34,596 57,568 33,456

Cheque clearing accounts 6,803 179,711 6,501 132,691

Foreclosed properties (a) 4,906 9,099 4,315 8,508

Land held for sale (Note 16) 162 - 162 -

72,798 223,406 68,546 174,655

(a) Foreclosed properties


Disposal during the financial year (4,193) (6,726) (4,193) (6,138)


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10 AMOUNT DUE FROM SUBSIDIARIES

The Bank 2015 2014

RM’000 RM’000

Advances to other subsidiaries 61 438

61 438

The advances to subsidiaries are unsecured, bear no interest rate (2014: 0%) and repayable on demand.

11 AMOUNT DUE FROM JOINT VENTURES

The Group 2015 2014

RM’000 RM’000

Advances to joint ventures 39,936 14,855

39,936 14,855

The advances to joint ventures are unsecured, bear average interest rate 7.85% (2014: 7.74%) and repayable on demand.

12 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:


RM’000 RM’000 RM’000 RM’000

Deferred tax assets 3,598 3,118 - 218

Deferred tax liabilities (15,104) - (15,104) -

(11,506) 3,118 (15,104) 218

Deferred tax assets:

- settled within 12 months 20,517 17,904 16,549 14,479

Deferred tax liabilities:

- settled more than 12 months (4,219) (4,188) (4,012) (3,968)

- settled within 12 months (27,804) (10,598) (27,641) (10,293)

Deferred tax (liabilities)/assets (11,506) 3,118 (15,104) 218

At beginning of the financial year 3,118 9,945 218 6,985

Credited/(charged) to income statement (Note 35) 1,855 (649) 1,799 (920)

Charged to equity (16,479) (6,178) (17,121) (5,847)

At end of the financial year (11,506) 3,118 (15,104) 218

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12 DEFERRED TAX ASSETS / (LIABILITIES)

The movement in deferred tax assets and liabilities during the financial year are as follows (RM’000):

The Group Property Intangible Provision for Financial

2015 and equipment assets other liabilities instrument AFS Total

At beginning of the financial year (3,950) (3,422) 16,049 (5,559) 3,118

Credited/(charged) to income statements 665 (782) 1,972 - 1,855

Charged to equity - - - (16,479) (16,479)

At end of the financial year (3,285) (4,204) 18,021 (22,038) (11,506)

The Group Property Intangible Provision for Financial


At beginning of the financial year (4,759) (4,458) 18,543 619 9,945

Credited/(charged) to income statements 809 1,036 (2,494) - (649)


At end of the financial year (3,950) (3,422) 16,049 (5,559) 3,118

The Bank Property Intangible Provision for Financial


At beginning of the financial year (3,638) (3,208) 14,479 (7,415) 218

Credited/(charged) to income statements 620 (893) 2,072 - 1,799


At end of the financial year (3,018) (4,101) 16,551 (24,536) (15,104)

The Bank Property Intangible Provision for Financial


At beginning of the financial year (4,451) (4,058) 17,062 (1,568) 6,985

Credited/(charged) to income statements 813 850 (2,583) - (920)


At end of the financial year (3,638) (3,208) 14,479 (7,415) 218

The amount of unused tax losses for which no deferred tax asset is recognised in the statement of financial position are as follows:


RM’000 RM’000 RM’000 RM’000

Tax losses 98,865 98,860 - -

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13 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.

14 INVESTMENT IN SUBSIDIARIES

The Bank 2015 2014

RM’000 RM’000

Unquoted shares, at cost 519,509 419,509

Less: Allowance for impairment losses (30,435) (30,435)

489,074 389,074

The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows:

Percentage of equity held

Name Principal Activities 2015 2014

% %

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

* 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’).

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15 INVESTMENT IN JOINT VENTURES

The Group 2015 2014

RM’000 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 14,268 4,920

Loss after tax (268) (3,515)

Total assets 269,037 216,417

Total liabilities 275,307 222,420

AFFIN-i KLSD 2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

Net liabilities

At beginning of the financial year (2,714) (1,142) (4,732) (2,789)

Loss for the financial year (1,441) (1,572) 1,173 (1,943)

At end of the financial year (4,155) (2,714) (3,559) (4,732)

Issued and paid up share capital 1,000 1,000 500 500

Interest in joint venture (%) 50 50 30 30

Interest in joint venture (RM’000) (2,078) (1,357) (1,068) (1,420)

Both the joint ventures’ principal activities are property developments.

As the Group’s share of cumulative losses of RM2.5 million (2014: RM2.1 million) as at 31 December 2015 has exceeded its interest in the joint ventures, the Group does not recognise further losses in its financial statements.

Allowance for impairment of investment in joint ventures

The Bank determines at each reporting date whether there is any objective evidences that the investment in the joint ventures is impaired. When an objective evidence of impairment is identified, the investment in joint venture is tested for impairment. An impairment loss is recognised for the amount by which the carrying amount of the joint ventures exceed its recoverable amount. The recoverable amount is assessed based on higher of the fair value less costs to sell and value in use.

For the financial year ended 31 December 2015, the recoverable amount is assessed using the value in use calculations based on the cash flow projections of the property development projects covering a period of 4 to 7 years based on actual historical sales, revised for current economic and property market conditions.

The cash flow projections are derived based on a number of key factors including past performance and management’s expectations of the property market developments. For financial year ended 31 December 2015, the value in use calculation was based on discount rate of 10%.

Impairment was not required for investment in joint ventures. The impairment charge is most sensitive to discount rate. If the discount rate increased to 11.31% or selling price reduced by 8.27%, the estimated recoverable amount will be equal to the carrying value.

101



15 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’),asubsidiaryofBukitKiaraCapitalSdnBhd,tojointdevelopapropertyprojectnamely“VERVESuitesKLSouth”atJalanKlangLama, 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.

note

s to

the

fin

anci

al s

tate

men

tsfo

r th

e fin

anci

al y

ear

ende

d 31

Dec

embe

r 20

15

102

Affin

Ban

k Be

rhad

(250

46-T

) | A

nnua

l Rep

ort 2

015

16

PROP

ERTY

AND

EQU

IPM

ENT

<--

Leas

ehol

d la

nd--

>Bu

ildin

gsBu

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equi

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Free

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50 y

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land

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Reno

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19,

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12,

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5,3

80

26,

368

80,

982

112

,140

5

9,03

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3 3

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9

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4

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Addi

tions

-

-

-

-

-

2,3

54

1,4

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3,1

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6

278

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2

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-

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-

(3

) (9

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(7

) -

(1

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) (9

35)

(106

) -

-

(2

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)

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-

(520

) 5

20

-

-

-

-

-

-

-

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Recla

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catio

n to

oth

er a

sset

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9) (1

62)

-

-

-

-

-

-

-

-

-

(162

)

Recla

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catio

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inta

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ote

17)

259

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-

-

-

-

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39

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5

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(11,

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At e

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78,9

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11,

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26,

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80,

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113

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5

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7 7

5,45

5 3

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5,16

1 6

70,8

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dep

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d im

pairm

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osse

s

At b

egin

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of t

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nanc

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ear

140

2

,142

1

,813

1

2,38

5 2

4,28

2 9

9,94

2 4

2,55

8 6

6,14

3 2

,077

-

2

51,4

82

Char

ge fo

r the

fina

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9

7 1

28

439

1

,628

5

,646

3

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3

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15,

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Disp

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-

-

-

-

-

(3)

(93)

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(7)

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(103

)

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-

-

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(106

) -

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9,19

3 2

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-

2

63,5

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Net b

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end

of t

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nanc

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278

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9

,720

3

,822

1

3,54

4 5

5,07

2 9

,345

1

4,55

2 6

,262

1

,070

1

5,16

1 4

07,3

13

note

s to

the

fin

anci

al s

tate

men

tsfo

r th

e fin

anci

al y

ear

ende

d 31

Dec

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15

103


PROP

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AND

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19,

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12,

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5,3

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89,

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0,56

0 5

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Addi

tions

-

-

-

-

-

2,3

54

1,5

61

1,7

57

9

8,2

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(520

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(4

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(2,4

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(13,

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-

-

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-

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) (1

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) (4

) -

-

(3

,804

)

Recla

ssifi

catio

n to

inta

ngib

le a

sset

s (N

ote

17)

-

-

-

-

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-

-

-

-

(1,7

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(1,7

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At e

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fina

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9,23

6 1

2,34

2 5

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2

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0,98

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40

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3,6

50

9,1

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dep

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d

impa

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ses

At b

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of t

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140

2

,146

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2,27

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5,16

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8,52

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1 6

3,03

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-

2

47,1

73

Char

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fina

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l yea

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1

06

120

4

38

1,4

91

5,7

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3,3

86

3,1

10

593

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1

4,95

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-

(110

) -

(3

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(2,3

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(2,4

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(6,9

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f -

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2,1

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12,

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282

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251

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Net b

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19,

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3,5

67

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12,

198

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1,5

73

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note

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the

fin

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tate

men

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e fin

anci

al y

ear

ende

d 31

Dec

embe

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15

104

Affin

Ban

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rhad

(250

46-T

) | A

nnua

l Rep

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015

16

PROP

ERTY

AND

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Free

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16,

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10,

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5,3

80

25,

069

80,

074

107

,674

5

6,56

5 6

9,54

1 3

,152

9

,164

3

83,7

99

Addi

tions

-

-

-

-

-

2,2

68

1,4

35

2,8

94

5

278

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2

84,7

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Disp

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(3

) (9

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(8

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(1

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) (9

21)

(106

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-

(2

,931

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-

(520

) 5

20

-

-

-

-

-

-

-

-

Recl

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ficat

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to o

ther

ass

ets

(Not

e 9)

(162

) -

-

-

-

-

-

-

-

-

(1

62)

Recla

ssifi

catio

n to

inta

ngib

le a

sset

s (N

ote

17)

259

,831

-

-

-

-

4

39

141

5

6 -

(2

72,1

11)

(11,

644)

Recl

assi

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sub

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-

-

-

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1

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At e

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5,9

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25,

069

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074

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7,12

6 7

2,56

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5,16

1 6

53,8

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Accu

mul

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d im

pairm

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osse

s

At b

egin

ning

of t

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nanc

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-

1,8

91

1,8

13

11,

567

23,

725

96,

525

41,

382

63,

939

1,9

26

-

242

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Char

ge fo

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fina

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l yea

r -

8

9 1

28

413

1

,610

5

,229

3

,210

2

,872

4

09

-

13,

960

Disp

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-

-

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-

(3)

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(8)

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(103

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Writ

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-

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-

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(2

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-

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163

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1

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At e

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1

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1

1,98

0 2

5,33

5 9

9,84

7 4

3,65

5 6

6,86

8 2

,327

-

2

53,9

33

Net b

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valu

e at

end

of t

he fi

nanc

ial y

ear

276

,397

8

,089

3

,822

1

3,08

9 5

4,73

9 8

,627

1

3,47

1 5

,696

8

22

15,

161

399

,913

note

s to

the

fin

anci

al s

tate

men

tsfo

r th

e fin

anci

al y

ear

ende

d 31

Dec

embe

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15

105


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17,

168

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504

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161

110

,184

5

7,28

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8,04

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89,7

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Addi

tions

-

-

-

-

-

1,7

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1,2

19

1,5

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8,2

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(4

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(40)

-

(1,2

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(13,

185)

Writ

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f -

-

-

-

-

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) (4

) -

-

(3

,787

)

Recla

ssifi

catio

n to

inta

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le a

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-

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(1,7

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0,45

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5,06

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4 1

07,6

74

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565

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52

9,1

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383

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At b

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-

1,9

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11,

481

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621

95,

485

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034

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2,6

86

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238

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Char

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fina

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8 1

20

412

1

,473

5

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3

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2

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13,

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(3

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1

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3,72

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6,52

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1,38

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3,93

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2

42,7

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Net b

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valu

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end

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nanc

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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

106


affin

Ban

k Be

rhad

(250

46-T

) | a

nnua

l Rep

ort 2

015

17 INTANGIBLE ASSETS

Goodwill RM’000

ComputerSoftware RM’000

Total RM’000

The Group2015

Cost

At beginning of the financial year 133,430 134,479 267,909

Additions - 5 5

Write-off - (21) (21)

Reclassification from property and equipment (Note 16) - 11,644 11,644

At end of the financial year 133,430 146,107 279,537

Less: Accumulated amortisation

At beginning of the financial year - (120,221) (120,221)

Amortised during the financial year - (6,200) (6,200)

Write-off - 21 21

At end of the financial year - (126,400) (126,400)

Net book value at end of the financial year 133,430 19,707 153,137

The Group

2014

Cost


Additions - 236 236








107




Goodwill RM’000

ComputerSoftware RM’000

Total RM’000

The Bank2015

Cost


Additions - 5 5

Write-off - (21) (21)






Write-off - 21 21



The Bank

2014

Cost


Additions - 236 236








108


affin

Ban

k Be

rhad

(250

46-T

) | a

nnua

l Rep

ort 2

015


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’):

2015 2014

RM’000 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 2016 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 are assumed to grow on perpetual basis at a growth rate of 3.6% (2014: 4%), based on forecasted Gross Domestic Product (‘GDP’) growth rate of Malaysia adjusted for specific risk of the CGUs.

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.

2015 2015 2014 2014

Businessbanking

Consumer banking

Businessbanking

Consumer banking

% % % %

Pre-tax discount rate 8.91 8.91 8.62 8.62

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.

109



18 DEPOSITS FROM CUSTOMERS

The Group The Bank(i) By type of deposit 2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

Demand deposits 7,740,305 8,096,462 5,306,347 5,434,454

Savings deposits 1,951,353 2,047,242 1,538,959 1,651,904

Fixed deposits 28,952,441 28,592,534 22,429,816 23,063,094

Commodity Murabahah 630,118 1,030,814 - -

Money market deposits 1,637,103 1,177,702 1,637,103 1,177,702

Negotiable instruments of deposit (‘NID’) 6,901,893 7,102,470 6,901,893 6,853,058

47,813,213 48,047,224 37,814,118 38,180,212

The Group The Bank(ii) Maturity structure of fixed deposits and NID 2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

Due within six months 29,025,361 29,384,792 24,244,323 24,816,632

Six months to one year 5,640,983 5,641,216 4,010,758 4,667,425

One year to three years 1,172,330 621,587 1,061,114 385,335

Three years to five years 15,660 37,090 15,514 36,441

Five years and above - 10,319 - 10,319

35,854,334 35,695,004 29,331,709 29,916,152

The Group The Bank(iii) By type of customer 2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

Government and statutory bodies 8,103,704 8,715,204 5,158,224 5,315,859

Business enterprise 14,538,898 13,771,604 10,534,733 9,993,760

Individuals 12,209,520 13,062,614 10,931,299 11,869,711

Domestic banking institutions 6,944,295 6,903,478 6,943,481 6,654,065

Domestic non-banking financial institutions 4,609,745 4,347,937 3,296,595 3,370,981

Foreign entities 425,725 381,967 361,141 321,512

Other entities 981,326 864,420 588,645 654,324

47,813,213 48,047,224 37,814,118 38,180,212

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19 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS


RM’000 RM’000 RM’000 RM’000

Licensed banks 1,583,912 2,018,521 1,031,696 1,467,113

Licensed investment banks 103,689 401,518 103,689 401,518

Bank Negara Malaysia - 47,898 - 47,898

Other financial institutions 1,047,995 2,381,739 642,821 1,782,857

2,735,596 4,849,676 1,778,206 3,699,386

Maturity structure of deposits

Due within six months 2,735,596 4,801,778 1,778,206 3,651,488

Six months to one year - 47,898 - 47,898

2,735,596 4,849,676 1,778,206 3,699,386

20 DERIVATIVE FINANCIAL LIABILITIES

The Group 2015

The Group 2014


RM’000 Liabilities

RM’000



RM’000

At fair value





Interest rate swaps 1,250,991 17,705 966,552 20,312

4,592,245 414,140 4,042,922 237,426

The Bank 2015

The Bank 2014



RM’000



RM’000

At fair value





Interest rate swaps 1,250,991 17,705 966,552 20,312

4,626,491 413,944 4,054,335 237,419

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21 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.

22 OTHER LIABILITIES


RM’000 RM’000 RM’000 RM’000

Bank Negara Malaysia and Credit Guarantee Corporation Funding programmes 38,536 33,602 38,536 33,602

Margin and collateral deposits 131,678 145,430 118,678 134,435

Other creditors and accruals 62,438 74,325 56,678 65,889

Sundry creditors 97,639 89,430 87,783 82,046

Cheque clearing accounts 50,363 - 36,742 -

Provision for zakat 2,307 4,040 - -

Defined contribution plan (a) 16,528 12,588 15,385 11,885

Accrued employee benefits (b) 229 229 206 206

399,718 359,644 354,008 328,063

(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.

23 AMOUNT DUE TO SUBSIDIARIES

The amount due to subsidiaries is unsecured, interest-free and repayable on demand.

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24 SUBORDINATED TERM LOAN

The Bank has taken subordinated loans as follows:

• On26May2011,subordinatedloanIwasconsititutedbyagreementdated20May2011andwasissuedon26May2011amountingtoRM300 million;

• On 16 January 2012, subordinated loan IIwas consitituted by agreement dated 3 January 2012 andwas issued on 16 January 2012amounting to RM300 million and

• On30December2015,subordinatedloanIIIwasconsititutedbyagreementdated11December2015andwasissuedon30December2015amounting to RM400 million.

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 I and II are payable by quarterly and subordinated loan III is payable by monthly.

Subordinated loan I and Subordinated loan II

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 I)

16 January 2022 (Subordinated loan II)

Subordinated loan III

Value : RM400 million

Interest rate : Cost of Fund (‘COF’) plus 1.00% per annum for the 10 years.

Maturity date : 30 December 2025

COF refers to rate determined by the lender on an interest determination date falling within the interest duration.

All subordinated loans are unsecured and also qualify for tier 2 capital for the purpose of determining the risk-weighted capital ratio of the Bank. Subordinated loans I and II are subject to gradual phase-out treatment under Basel 3. The subordinated loan III may be written-off, either fully or partially, at the dicreation of BNM, at the point of non-viability as determined by BNM.

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25 SHARE CAPITAL

Number of ordinaryshares of RM1 each The Group and The Bank

2015 2014 2015 2014

‘000 ‘000 RM’000 RM’000

Authorised

At beginning/end of the financial year 2,000,000 2,000,000 2,000,000 2,000,000

Issued and fully paid

At beginning of the financial year 1,688,770 1,518,337 1,688,770 1,518,337

Issued during the financial year - 170,433 - 170,433

At end of the financial year 1,688,770 1,688,770 1,688,770 1,688,770

26 RESERVES


RM’000 RM’000 RM’000 RM’000

Retained profits 1,029,155 951,500 805,289 760,153

Share premium 858,904 858,904 858,904 858,904

AFS revaluation reserves 68,945 17,604 76,852 23,478

Statutory reserves 1,577,509 1,469,794 1,328,792 1,263,470

Regulatory reserves 278,547 184,366 220,148 135,347

3,813,060 3,482,168 3,289,985 3,041,352

Statutory reserves

At beginning of the financial year 1,469,794 1,317,376 1,263,470 1,144,350

Transfer from retained profits 107,715 152,418 65,322 119,120

At end of the financial year 1,577,509 1,469,794 1,328,792 1,263,470

(a) As at 31 December 2015, the Bank has a tax exempt account balance of RM10,931,988 (2014: 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.

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27 INTEREST INCOME


RM’000 RM’000 RM’000 RM’000

Loans, advances and financing 1,809,124 1,705,396 1,758,650 1,681,044 Money at call and deposit placements

with financial institutions 68,237 142,913 117,339 171,320 Financial assets- Held-for-trading 123 12 123 12- Available-for-sale 286,316 234,629 286,316 234,629 - Held-to-maturity 17,017 20,062 17,017 20,062 Interest rate derivatives 138,074 155,594 138,074 155,594Others - - - 391

2,318,891 2,258,606 2,317,519 2,263,052 Accretion of discount less amortisation of premium 7,925 36,734 7,925 36,734

2,326,816 2,295,340 2,325,444 2,299,786

of which:Interest income earned on impaired loans,

advances and financing

16,358

7,933 16,358

7,933

28 INTEREST EXPENSE

The Group The Bank

2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

Deposits from customers 1,215,168 1,163,362 1,215,188 1,163,398 Deposits and placements of banks and other financial

institutions 86,344 92,204 86,344 92,235

Securities sold under repurchase agreements 32,485 - 32,485 -

Interest rate derivatives 127,033 148,395 127,033 148,395

Loan sold to Cagamas Berhad 5,917 13,263 5,917 13,263

Subordinated term loan 28,189 29,879 28,189 29,879

Others 635 502 635 502

1,495,771 1,447,605 1,495,791 1,447,672

29 INCOME FROM ISLAMIC BANKING BUSINESS

The Group

2015 2014

RM’000 RM’000

Income derived from investment of depositors’ funds and others 509,434 450,257

Income derived from investment of shareholders’ funds 36,402 31,972

Total distributable income 545,836 482,229

Income attributable to depositors (306,915) (261,860)

238,921 220,369

of which:

Financing income earned on impaired financing, advances and other financing 310 1,345

115



30 OTHER OPERATING INCOME


RM’000 RM’000 RM’000 RM’000

Fee income

Commission 16,299 16,428 16,299 16,428

Service charges and fees 57,168 59,267 57,168 59,267

Guarantee fees 23,292 22,673 23,292 22,673

96,759 98,368 96,759 98,368

Income from financial instruments

Gain arising on financial assets held-for-trading:

- net gain on disposal 498 347 498 347

- unrealised gains (232) 219 (232) 219

266 566 266 566

Gains on derivatives:

- realised 4,576 6,789 4,576 6,789

- unrealised (3,750) 7,302 (3,750) 7,302

826 14,091 826 14,091

Gain arising on financial investments available-for-sale:

- net gain on disposal 10,678 9,743 10,678 9,743

- gross dividend income 2,635 2,589 2,635 2,589

13,313 12,332 13,313 12,332

Gain arising on financial investments held-to-maturity:

- net gain on redemption - 3,500 - 3,500

- 3,500 - 3,500

Other income

Foreign exchange gains/(losses):

- realised 17,053 186,097 17,053 186,097

- unrealised 45,358 (122,129) 45,358 (122,129)

Rental income 1,726 1,646 1,726 1,635

Gain on sale of property and equipment 1 6,319 1 6,319

Gain on disposal of foreclosed properties 684 3,329 684 2,937

Other non-operating income 8,591 19,103 8,282 18,828

Dividend from subsidiaries - - 800 -

73,413 94,365 73,904 93,687

184,577 223,222 185,068 222,544

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31 OTHER OPERATING EXPENSES


RM’000 RM’000 RM’000 RM’000

Personnel costs (a) 357,009 341,999 285,942 266,659

Establishment costs (b) 201,336 183,487 170,535 151,090

Marketing expenses (c) 14,418 16,843 12,128 14,068

Administrative and general expenses (d) 55,595 46,785 45,449 37,334

628,358 589,114 514,054 469,151

(a) Personnel costs


RM’000 RM’000 RM’000 RM’000

Wages, salaries and bonuses 272,500 264,862 218,043 205,763

Defined contribution plan (‘EPF’) 45,041 43,298 35,925 33,669

Other personnel costs 39,468 33,839 31,974 27,227

357,009 341,999 285,942 266,659

(b) Establishment costs


RM’000 RM’000 RM’000 RM’000

Rental of premises 24,183 23,430 19,986 18,933

Equipment rental 1,305 1,099 1,191 974

Repair and maintenance 36,007 31,228 30,478 25,517

Depreciation of property and equipment 15,044 14,951 13,960 13,954

Amortisation of intangible assets 6,200 6,304 5,735 5,529

IT Consultancy fees 64,245 61,746 55,292 51,989

Dataline rental 6,380 4,523 5,431 3,799

Security services 16,293 17,652 13,142 13,867

Electricity, water and sewerage 10,558 10,521 8,980 8,597

Insurance and indemnities 16,198 8,311 14,738 7,793

Other establishment costs 4,923 3,722 1,602 138

201,336 183,487 170,535 151,090

117



31 OTHER OPERATING EXPENSES

(c) Marketing expenses


RM’000 RM’000 RM’000 RM’000

Business promotion and advertisement 6,736 8,551 5,967 7,532

Entertainment 2,193 2,984 1,908 2,559

Traveling and accommodation 3,646 3,641 2,873 2,802

Other marketing expenses 1,843 1,667 1,380 1,175

14,418 16,843 12,128 14,068

(d) Administration and general expenses


RM’000 RM’000 RM’000 RM’000

Telecommunication expenses 4,587 5,522 3,741 4,353

Auditors’ remuneration 1,440 1,778 1,148 1,285

Professional fees 7,008 6,686 5,918 5,640

Property and equipment written-off 84 114 76 110

Mail and courier charges 3,246 3,432 2,744 2,716

Stationery and consumables 9,247 8,569 6,951 6,126

Commissions expenses 4,306 3,110 3,769 2,851

Brokerage expenses 2,160 1,662 955 974

Directors’ fees and allowances 1,573 1,927 1,445 1,472

Donations 1,586 3,662 1,473 3,430

Settlement, clearing and bank charges 8,751 7,388 7,938 6,816

Stamp duties 383 177 380 173

Operational and litigation write-off expenses 4,922 19 4,902 19

Other administration and general expenses 6,302 2,739 4,009 1,369

55,595 46,785 45,449 37,334

The expenditure includes the following statutory disclosure:


RM’000 RM’000 RM’000 RM’000

Directors’ remuneration (Note 32) 7,391 8,621 7,263 8,166

Auditors’ remuneration

- statutory audit fees 925 926 728 729

- over provision prior year (33) - (22) -

- audit related fees 391 391 245 245

- non audit fees 256 461 241 311

- over provision prior year (99) - (44) -

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32 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

Kamarul Ariffin Bin Mohd Jamil(Appointment w.e.f. 1.4.2015)Dato’ Zulkiflee Abbas Bin Abdul Hamid (Resigned w.e.f. 31.3.2015)

Non-Executive Directors

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) (Chairman)Tan Sri Dato’ Seri Lodin Bin Wok KamaruddinTan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman (Retired w.e.f. 27.1.2015)Mr Aubrey Li Kwok-SingEn. Mohd Suffian Bin Haji HaronTan Sri Dato’ Seri Mohamed Jawhar Tan Sri Mohd Ghazali Bin Mohd YusoffEn. Abd Malik Bin A Rahman (Appointment w.e.f. 3.3.2015)Mr Tang Peng Wah (Alternate Director to Mr Aubrey Li Kwok-Sing)

The aggregate amount of remuneration for the Directors of the Bank for the financial year was as follows:


RM’000 RM’000 RM’000 RM’000

Managing Director / Chief Executive Officer

Salaries 1,215 1,980 1,215 1,980

Bonuses 3,498 3,418 3,498 3,418

Defined contribution plan (‘EPF’) 883 1,044 883 1,044

Other employee benefits 70 99 70 99

Benefits-in-kind 152 153 152 153


Fees 1,547 1,899 1,419 1,444


Directors’ remuneration (Note 31) 7,391 8,621 7,263 8,166

119




A summary of the total remuneration of the MD/CEO and Directors, distinguishing between Executive and Non-Executive Directors:

Salaries BonusesDirectors’

Fees* Other

emoluments Benefits-

in-kind TotalThe Group

2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Managing Director/ Chief Executive Officer

Kamarul Ariffin Bin Mohd Jamil 720 80 - 181 57 1,038

Dato’ Zulkiflee Abbas Bin Abdul Hamid 495 3,418 - 772 95 4,780

Total 1,215 3,498 - 953 152 5,818


Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) - - 351 96 26 473

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin - - 348 - - 348

En. Mohd Suffian Bin Haji Haron - - 373 - - 373

Tan Sri Dato’ Seri Mohamed Jawhar - - 379 - - 379

Total - - 1,451 96 26 1,573

Grand total 1,215 3,498 1,451 1,049 178 7,391


Fees* Other


in-kind TotalThe Group

2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’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




Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman - - 363 - 2 365



Total - - 1,803 96 28 1,927

Grand total 1,980 3,418 1,803 1,239 181 8,621

* Executive Director’s other emoluments include allowance and EPF.

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Fees* Other


in-kind TotalThe Bank

2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Managing Director/Chief Executive Officer

Kamarul Ariffin Bin Mohd Jamil 720 80 - 181 57 1,038

Dato’ Zulkiflee Abbas Bin Abdul Hamid 495 3,418 - 772 95 4,780

Total 1,215 3,498 - 953 152 5,818




Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman - - 10 - - 10

Mr Aubrey Li Kwok-Sing - - 113 - - 113



Tan Sri Mohd Ghazali Bin Mohd Yusoff - - 236 - - 236

En. Abd Malik Bin A Rahman - - 116 - - 116

Mr Tang Peng Wah (Alternate Director to Mr Aubrey Li Kwok-Sing) - - 9 - - 9

Total - - 1,323 96 26 1,445

Grand total 1,215 3,498 1,323 1,049 178 7,263


121




A summary of the total remuneration of the MD/CEO and Directors, distinguishing between Executive and Non-Executive Directors:


Fees* Other


in-kind TotalThe Bank

2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’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




Dr. Raja Abdul Malek Bin Raja Jallaludin - - 59 - - 59

Tan Sri Mohd Ghazali Bin Mohd Yusoff - - 125 - - 125

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman - - 218 - 2 220



Mr Aubrey Li Kwok-Sing - - 124 - - 124

Mr Tan Peng Wah (Alternate Director to Mr Aubrey Li Kwok-Sing) - - 3 - - 3

Total - - 1,348 96 28 1,472

Grand total 1,980 3,418 1,348 1,239 181 8,166


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33 ALLOwANCES FOR/(wRITE-BACK OF) IMPAIRMENT LOSSES ON LOANS, ADVANCES AND FINANCING


RM’000 RM’000 RM’000 RM’000

Individual impairment

- made during the financial year 257,645 87,611 254,086 86,102

- written-back (7,293) (4,386) (7,246) (604)

Collective impairment

- net allowance made during the financial year 17,224 35,666 11,265 29,283

Bad debts and financing

- recovered (84,192) (141,739) (83,226) (141,344)

- written-off 3,603 4,380 3,596 4,370

186,987 (18,468) 178,475 (22,193)

34 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 14 Subsidiaries

Joint ventures as disclosed in Note 15 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 include 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 32.

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124


affin

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015


(a) Related perties transaction and balances (continued)

Ultimate holding corporate body

Holding company

Other related companies

2015 2014 2015 2014 2015 2014The Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Amount due fromPrivate debt securities - - - - 1,009,148 787,747

Loans, advances and financing - - - - 1,728,516 2,258,158


other financial institutions - - - - - 56,000

Intercompany balances - - - - 39,936 14,855

Security deposits - - 9 7 2,997 2,993

- - 9 7 2,780,597 3,119,753

Amount due toDemand and savings deposits 94,668 97,771 1,003 4,218 533,117 272,486

Fixed deposits - 22,114 44,856 117,684 876,379 522,394

Negotiable instruments of deposit - - - - 421,482 120,370

Deposits and placements of banks and other financial institutions - - - - 38,818 332,004

Money market deposits 43,506 300,423 470 485 115,315 66,988

Subordinated term loan - - 1,004,446 604,310 - -

138,174 420,308 1,050,775 726,697 1,985,111 1,314,242

Commitments and contingencies - - - - 1,844,586 1,668,959

Companies in which certain Directors have

substantial interestKey management

personnel2015 2014 2015 2014

The Group RM’000 RM’000 RM’000 RM’000

Amount due fromLoans, advances and financing - - 2,587 2,540

- - 2,587 2,540

Amount due to

Demand and saving deposits 596 145 6,781 6,519

Fixed deposits - - 7,849 4,520

596 145 14,630 11,039

Commitments and contingencies - - - -

No impairment allowances were required at the Group and the Bank in 2015 and 2014 for loans, advances and financing made to key management personnel.

125

note

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the

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126


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015


(a) Related perties transaction and balances (continued)

Ultimate holding corporate body

Holding company Subsidiaries

2015 2014 2015 2014 2015 2014The Bank RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Amount due fromSpecial investment account - - - - 1,331,318 826,689 Deposits and placements with banks and

other financial institutions - - - - 84,001 68,741 Intercompany balances - - - - 62 438 Security deposits - - 9 7 - -

- - 9 7 1,415,381 895,868

Amount due toDemand and savings deposits 93,496 96,169 1,003 4,218 923 849 Fixed deposits - 22,114 44,856 117,684 403 390 Deposits and placements of banks and

other financial institutions - - - - - - Money market deposits 43,506 300,423 470 485 - - Intercompany balances - - - - 422,166 296,781 Subordinated term loan - - 1,004,446 604,310 - -

137,002 418,706 1,050,775 726,697 423,492 298,020

Commitments and contingencies - - - - - -

Other related companies

Companies in which certain Directors have

substantial interestKey management

personnel2015 2014 2015 2014 2015 2014

The Bank RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Amount due fromPrivate debt securities 1,089,870 787,747 - - - - Loans, advances and financing 1,279,775 1,824,678 - - 2,212 2,540 Deposits and placements with banks

and other financial institutions - 56,000 - - - - Security deposits 2,997 2,993 - - - -

2,372,642 2,671,418 - - 2,212 2,540

Amount due toDemand and savings deposits 510,506 255,969 - - 4,153 4,656 Fixed deposits 671,636 335,147 - - 2,524 1,626 Negotiable instruments of deposit 421,482 120,370 - - - - Deposits and placements of banks

and other financial institutions 38,818 332,004 - - - - Money market deposits 115,315 66,988 - - - -

1,757,757 1,110,478 - - 6,677 6,282

Commitments and contingencies 1,797,375 1,910,887 - - - -

No impairment allowances were required at the Bank in 2015 and 2014 for loans, advances and financing made to key management personnel.

127




(b) Key management personnel compensation

The remuneration of key management personnel of the Group and the Bank during the year are as follows:


RM’000 RM’000 RM’000 RM’000

Directors’ fees and allowancesFees 1,547 1,899 1,419 1,444


1,573 1,927 1,445 1,472

Short-term employment benefitsSalaries 7,441 7,870 6,810 7,225

Bonuses 9,859 10,133 9,120 9,455

Defined contribution plan (‘EPF’) 3,038 3,197 2,801 2,979

Other employee benefits 1,176 1,111 1,043 1,068


21,955 22,739 20,202 21,067

Included in the above table is the CEO and directors’ remuneration as disclosed in Note 32.

35 TAXATION


RM’000 RM’000 RM’000 RM’000

The taxation charge arising inMalaysia for the financial year

Current tax 106,824 172,347 78,335 149,819

Under/(over) provision in prior year 6,905 (1,365) 6,403 482

Deferred tax (Note 12) (1,855) 649 (1,799) 920

Tax expense for the year 111,874 171,631 82,939 151,221

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35 TAXATION


% % % %

Statutory tax rate in Malaysia 25.00 25.00 25.00 25.00

Tax effect in respect of:

Non allowable expenses 0.42 0.34 0.47 0.18

Non taxable income (0.29) (0.39) (0.27) (0.35)

Utilisation of previously unrecognised tax losses - (0.01) - -

Effect of different tax rate (1.22) (0.71) (1.64) (0.81)

Tax savings arising from income exempt from tax for International Currency Business Unit (‘ICBU’) (0.10) (0.05) - -

Under/(over) accrual in prior years 1.50 (0.19) 1.86 0.08

Prior year deferred tax not recognised, now recognised (1.07) - (1.35) -

Change in tax rate 0.02 - 0.02 (0.01)

Average effective tax rate 24.26 23.99 24.09 24.09

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 nil balance (2014: RM87,000).

36 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 RM345,582,000 (2014: RM543,727,000) and RM261,290,000 (2014: RM476,479,000) respectively. The weighted average number of shares in issue during the financial year of 1,688,770,000 (2014: 1,633,403,000) is used for the computation.

37 DIVIDENDS

Dividends recognised as distribution to ordinary equity holders of the Bank:

The Group and The Bank2015


Dividendper share

sen

Amount ofdividendRM’000

Dividendper share

sen

Amount ofdividendRM’000

Ordinary shares

Single tier dividend:

- Interim dividend - - 10.00 168,877

- Final dividend 3.91 66,031 6.00 91,100

3.91 66,031 16.00 259,977

At the forthcoming Annual General Meeting, a single-tier final dividend in respect of the current financial year of 6.18 sen per share amounting to RM104,366,000 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 2016 when approved by the shareholder.

129



38 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

2015 2014 2015 2014

PrincipalamountRM’000




Direct credit substitutes (*) 408,318 679,779 398,935 669,843

Transaction-related contingent items 2,027,954 2,043,704 1,879,994 1,891,540

Short-term self-liquidating trade-related contingencies 470,476 746,576 101,909 345,057

Irrevocable commitments to extend credit: 9,211,778 10,663,047 7,476,032 9,137,777

- maturity less than one year 7,494,453 8,641,021 6,107,115 7,428,229

- maturity more than one year 1,717,325 2,022,026 1,368,917 1,709,548

Foreign exchange related contracts (#): 6,918,839 5,658,337 7,086,226 5,679,280

- less than one year 6,497,779 5,110,352 6,665,166 5,131,295

- one year to less than five years 421,060 451,955 421,060 451,955

- more than five years - 96,030 - 96,030

Interest rate related contracts (#): 2,861,139 3,427,552 2,861,139 3,427,552

- less than one year 652,116 1,256,279 652,116 1,256,279

- one year to less than five years 1,612,023 1,781,125 1,612,023 1,781,125

- more than five years 597,000 390,148 597,000 390,148

Any commitments that are unconditionally cancelled at any time by the bank without prior notice or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness 215,113 -

199,792 -

Unutilised credit card lines 188,328 208,865 188,328 208,865

22,301,945 23,427,860 20,192,355 21,359,914

* Included in direct credit substitutes as above are financial guarantee contracts of RM408.2 million and RM398.8 million at the Group and the Bank, respectively (2014: RM454.7 million and RM444.8 million at the Group and the Bank, respectively), of which fair value at the time of issuance is zero.

# Thefairvalueofthesederivativeshavebeenrecognisedas“derivativefinancialassets”and“derivativefinancialliabilities”inthestatementof financial position and disclosed in Note 5 and 20 to the financial statements.

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39 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 industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on 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.

131




(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 securities.

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 any signs of weaknesses or deterioration in the credit quality are detected. Remedial action is taken where evidence of deterioration emanates.

Early Alert Process is in place 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.

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 the guarantee was 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.

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Maximum exposure to credit risk (continued)

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 Bank2015

Carryingvalue

RM’000

2015Maximum

credit exposureRM’000

2015Carrying

valueRM’000

2015Maximum


Credit risk exposures of on-balance sheet assets:

Cash and short-term funds * 4,070,710 3,866,154 * 2,573,348 2,368,792Financial investments available-for-sale # 10,287,350 10,081,927 # 8,811,977 8,607,079Other assets @ 72,798 51,133 @ 68,546 47,792

Credit risk exposure of off-balance sheet items:

Financial guarantees ^ 408,168 408,168 ^ 398,785 398,785Loan commitments and other credit

related commitments ^ 12,113,799 3,503,442 ^ 9,846,205 2,904,077

Total maximum credit risk exposure 26,952,825 17,910,824 21,698,861 14,326,525

The Group The Bank

2014Carrying

valueRM’000

2014Maximum


2014Carrying

valueRM’000

2014Maximum


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

133





Maximum exposure to credit risk (continued)

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 69% (2014: 67%) and 67% (2014: 66%) respectively. The financial effects of collateral for the other financial assets are insignificant.

note

s to

the

fin

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134

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39

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affin

Ban

k Be

rhad

(250

46-T

) | a

nnua

l Rep

ort 2

015



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

Allloans,advancesandfinancingarecategorisedinto“neitherpastduenorimpaired”,“pastduebutnotimpaired”and“impaired”.Pastdueloans 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


RM’000 RM’000 RM’000 RM’000

Neither past due nor impaired (a) 39,181,976 36,629,306 30,574,217 30,006,363

Past due but not impaired (b) 2,654,372 2,645,096 2,126,743 2,164,663

Impaired (c) 767,847 713,648 626,139 584,491

Gross loans, advances and financing 42,604,195 39,988,050 33,327,099 32,755,517

less: Allowance for impairment

- Individual (270,137) (239,259) (231,621) (207,740)

- Collective (229,461) (292,619) (192,790) (255,226)

Net loans, advances and financing 42,104,597 39,456,172 32,902,688 32,292,551

139





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:


RM’000 RM’000 RM’000 RM’000

Quality classification

Satisfactory 38,594,431 32,282,000 30,022,816 29,659,256

Special mention 587,545 347,306 551,401 347,107

39,181,976 36,629,306 30,574,217 30,006,363

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 which are under the monitoring of alert and watchlist committee.

(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:


RM’000 RM’000 RM’000 RM’000

Past due up to 30 days 1,498,813 1,510,507 1,257,382 1,298,568

Past due 31-60 days 819,181 801,073 606,202 607,415

Past due 61-90 days 336,378 333,516 263,159 258,680

2,654,372 2,645,096 2,126,743 2,164,663

140


affin

Ban

k Be

rhad

(250

46-T

) | a

nnua

l Rep

ort 2

015



Total loans, advances and financing - credit quality (continued)

(c) Loans impaired


RM’000 RM’000 RM’000 RM’000

Analysis of impaired assets:

Gross impaired loans 767,847 713,648 626,139 584,491

Individually impaired loans 527,128 407,907 424,929 324,945

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.


RM’000 RM’000 RM’000 RM’000

Nature of assets

Industrial and residential properties 4,906 9,099 4,315 8,508

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 that neither past due nor impaired and impaired, analysed by rating.

141

note

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the

fin

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Dec

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FINA

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Nego

tiabl

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men

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f Dep

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and

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note

s to

the

fin

anci

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tate

men

tsfo

r th

e fin

anci

al y

ear

ende

d 31

Dec

embe

r 20

15

142

Affin

Ban

k Be

rhad

(250

46-T

) | A

nnua

l Rep

ort 2

015

39

FINA

NCIA

L RI

SK M

ANAG

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T

(i)

Cred

it ris

k (c

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The

tabl

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s th

at n

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naly

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ting:

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116

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t due

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ot s

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note

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the

fin

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al s

tate

men

tsfo

r th

e fin

anci

al y

ear

ende

d 31

Dec

embe

r 20

15

143


FINA

NCIA

L RI

SK M

ANAG

EMEN

T

(i)

Cred

it ris

k (c

ontin

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Bank

2015

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t-te

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nds

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895

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761,

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115

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-

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ncia

l ass

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held

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Nego

tiabl

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stru

men

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f Dep

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-

-

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150,

121

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150

,121

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ativ

e fin

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al a

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s -

3

4,17

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3 (6

) 2

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l inv

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280

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157

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144

note

s to

the

fin

anci

al s

tate

men

tsfo

r th

e fin

anci

al y

ear

ende

d 31

Dec

embe

r 20

15

affin

Ban

k Be

rhad

(250

46-T

) | a

nnua

l Rep

ort 2

015

39

FINA

NCIA

L RI

SK M

ANAG

EMEN

T

(i)

Cred

it ris

k (c

ontin

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tabl

e be

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naly

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by ra

ting:

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Bank

2014

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116

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s 1

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mic

Deb

t Cer

tifica

tes

-

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232

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ate

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sec

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1,0

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9

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304

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sec

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325

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6

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1

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67,

439

13,

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204

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t of a

llow

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for i

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tera

l is

not g

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d di

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t sec

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erta

in d

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ecur

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may

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tera

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ifica

lly id

entifi

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sset

s th

at w

ould

be

obta

inab

le in

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even

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efau

lt.De

posi

ts a

nd s

hort-

term

fund

s, p

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ired

is n

ot s

igni

fican

t.

145





Other financial assets - credit quality

Other financial assets of the Group and the Bank are neither past due nor impaired are summarised as below:


RM’000 RM’000 RM’000 RM’000

Short-term funds 3,866,154 6,770,321 2,368,792 3,608,451


other financial institutions 351,687 238,222 1,310,764 962,050

Other assets 51,133 200,875 47,792 153,014

Amount due from subsidiaries - - 61 438

Amount due from joint ventures 39,936 14,855 - -

Other financial assets that are past due but not impaired or impaired are not significant.

(ii) Market risk

Market risk is the potential loss arising from movements in market variables such as interest rates and foreign exchange rates. The exposure to market risk results largely from interest rate and foreign exchange rate risks.

The market risk management framework encompasses the following approaches:

• Riskcontrolparametersareestablishedbasedonriskappetite,market liquidityandbusinessstrategiesaswellasmacroeconomicconditions. These parameters are reviewed at least annually.

• MarketriskstemmingfromtheTradingbookisprimarilycontrolledthroughtheimpositionofStop-lossandValue-at-Risk(‘VaR’)RiskControl Parameters.

• Interestrateriskisquantifiedbyanalysingtherepricingmismatchbetweentheratesensitiveassetsandratesensitiveliabilities.Basedon the repricing mismatch, Earnings-at-Risk (‘EaR’) or Net Interest Income (‘NII’) simulation is conducted to assess the variation in short term earnings.

• Inaddition,thepotentiallongtermimpactarisingfromtheBank’sexposuresisalsotrackedbyassessingtheimpactonEconomicValueof Equity (‘EVE’), also known as Economic Value-at-Risk (‘EVaR’).

• Periodicstresstestsareconductedtoquantifymarketriskarisingfromabnormalmarketmovements.

146


affin

Ban

k Be

rhad

(250

46-T

) | a

nnua

l Rep

ort 2

015


(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.

The Bank adopts Historical Pricing Simulation Method (‘HPS’) to compute potential loss or Value-at-Risk (‘VaR’) amount. The HPS 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, the 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) at the 99th percentile.


Balance RM’000

Averagefor the

financial year RM’000

Minimum RM’000

Maximum RM’000

Instruments

FX swap 472 605 253 3,128

FX spot (Metro Desk) 466 330 48 3,240

FX option 77 362 5 932

Government securities 1 - - 17


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

Government securities 5 206 5 550

Private debt securities 1 - - 3

147





Other risk measures

• Mark-to-marketMark-to-market valuation tracks the current market value of the outstanding financial instruments.

• StresstestingStress tests are conducted to attempt to quantify market risk arising from 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 as at reporting date.

Impact on profit after tax is measured using Repricing Gap Simulation methodology based on 100 basis point parallel shifts in interest rate/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 Bank

2015+100

basis pointRM million

2015-100


2015+100


2015-100


Impact on profit after tax (49.9) 49.9 (36.1) 36.1

Impact on equity (261.0) 261.2 (215.8) 213.1

The Group The Bank

2014+100


2014-100


2014+100


2014-100


Impact on profit after tax (18.8) 18.8 (26.4) 26.4

Impact on equity (206.8) 217.1 (176.2) 184.9

148


affin

Ban

k Be

rhad

(250

46-T

) | a

nnua

l Rep

ort 2

015



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

2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

+1%

Euro 1,512 1,206 1,143 886

United States Dollar 39,731 35,418 37,697 33,763

Great Britain Pound 2,347 33 2,215 36

Australian Dollar (56) 211 3 217

Japanese Yen 184 45 178 42

Others 4,600 10,926 3,577 9,929

48,318 47,839 44,813 44,873

-1%

Euro (1,512) (1,206) (1,143) (886)

United States Dollar (39,731) (35,418) (37,697) (33,763 )

Great Britain Pound (2,347) (33) (2,215) (36)

Australian Dollar 56 (211) (3) (217)

Japanese Yen (184) (45) (178) (42)

Others (4,600) (10,926) (3,577) (9,929)

(48,318) (47,839) (44,813) (44,873)

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. Thresholds 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.

149

note

s to

the

fin

anci

al s

tate

men

tsfo

r th

e fin

anci

al y

ear

ende

d 31

Dec

embe

r 20

15


FINA

NCIA

L RI

SK M

ANAG

EMEN

T

(ii)

Mar

ket r

isk

(con

tinue

d)

Fore

ign

exch

ange

risk

(con

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roRM

’000

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d St

ates

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’000

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t Brit

ain

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dRM

’000

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ralia

nDo

llar

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00

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nese Yen

RM’0

00Ot

hers

RM’0

00To

tal

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00

Asse

ts

Cash

and

sho

rt-te

rm fu

nds

1,7

94

840

,080

4

,186

1,

293

572

10

,152

858,

077

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sits

and

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s 4

92

113

,475

3

1,53

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3 74

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l inv

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161




(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 prudential thresholds, liquidity risk threshold 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 risk monitoring is premised on BNM’s Liquidity Coverage Ratio (‘LCR’) final standards as well as BNM’s revised Basel III Observation Period reporting for Net Stable Funding Ratio (‘NSFR’).

The LCR is a quantitative requirement which seeks to ensure that the Bank holds sufficient high-quality liquid assets (‘HQLA’) to withstand an acute liquidity stress scenario over a 30-day horizon.

Long term liquidity risk profile is assessed via NSFR which promotes resilience over a longer time horizon for the Bank to fund its activities with more stable sources of funding on an ongoing basis.

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 internal guiding principles for foreign currency assets creations.

The Bank also conducts liquidity stress test to assess the Bank’s resilience to withstand short term liquidity shocks over a 30-day horizon. 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 has developed two minimum standards for funding liquidity to achieve two separate but complementary objectives:

• LCR–topromoteshort-termresilienceoftheBank’sliquidityriskprofilebyensuringthatithassufficienthigh-qualityliquidassetstosurvive a significant stress scenario lasting for one month.

• NSFR–topromoteresilienceoveralongertimehorizonfortheBanktofunditsactivitieswithmorestablesourcesoffundingonanongoing basis.

The LCR and NSFR are tracked to assess the short term and long term liquidity risk profile of the Bank, in line with BNM’s Liquidity Coverage Ratio (‘LCR’) final standards issued on 31st March 2015 as well as BNM’s revised Basel III Observation Period reporting for Net Stable Funding Ratio (‘NSFR’) and Leverage Ratio (‘LR’) issued on 7th August 2015.

The BRMC is responsible for the Bank’s liquidity policy and the strategic management of liquidity has been delegated to the ALCO. The BRMC is informed regularly on the liquidity position of the Bank.

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(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 Group2015

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

Deposits from customers 20,067,223 12,061,467 14,898,900 1,249,343 - 48,276,933

Deposits and placements of banks and other financial institutions 1,577,348 901,469 265,323 - - 2,744,140

Obligation on securities sold under repurchase agreements 95,424 1,652,019 - - - 1,747,443

Bills and acceptances payable 77,114 - - - - 77,114

Recourse obligation on loans sold to Cagamas Berhad - 2,560 136,965 - - 139,525

Other liabilities 399,718 - - - - 399,718

Subordinated term loan 2,870 5,458 35,531 188,969 1,119,574 1,352,402

22,219,697 14,622,973 15,336,719 1,438,312 1,119,574 54,737,275

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


Recourse obligation on loans sold to Cagamas Berhad - 2,572 7,729 139,712 - 150,013


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

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Liquidity risk disclosure table which is based on contractual undiscounted cash flow (continued)

The Bank2015

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

Deposits from customers 14,972,708 10,267,337 11,806,369 1,131,899 - 38,178,313

Deposits and placements of banks and other financial institutions 1,357,452 160,221 265,323 - - 1,782,996

Obligation on securities sold under repurchase agreements 95,424 1,652,019 - - - 1,747,443


Recourse obligation on loans sold to Cagamas Berhad - 2,560 136,965 - - 139,525


Amount due to subsidiaries 422,166 - - - - 422,166

Subordinated term loan 2,870 5,458 35,531 188,969 1,119,574 1,352,402

17,281,742 12,087,595 12,244,188 1,320,868 1,119,574 44,053,967

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



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

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Derivative financial liabilities

Derivative financial liabilities based on contractual undiscounted cash flow:

The Group2015

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 (200) (63) (663) (364) 948 (342)

Derivatives settled on gross basis


Outflow (842,774) (764,282) (1,913,243) (538,917) - (4,059,216)

Inflow 842,714 765,846 1,919,957 429,666 - 3,958,183

(60) 1,564 6,714 (109,251) - (101,033)

The Group2014

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 (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

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Derivative financial liabilities (continued)

Derivative financial liabilities based on contractual undiscounted cash flow:

The Bank2015

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000


Interest rate derivatives (200) (63) (663) (364) 948 (342)



Outflow (705,298) (763,215) (1,890,916) (538,917) - (3,898,346)

Inflow 705,298 764,779 1,897,630 429,666 - 3,797,373

- 1,564 6,714 (109,251) - (100,973)

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

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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 Group2015

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

AssetsCash and short-term funds 4,070,710 - - - - 4,070,710 Deposits and placements with banks and other

financial institutions - 35,034 - 286,619 30,034 351,687 Financial assets held-for-trading 150,121 - - - - 150,121 Derivative financial assets 17,925 75,530 72,929 4,911 2,742 174,037 Financial investments available-for-sale 88,162 966,699 1,094,769 4,092,884 4,044,836 10,287,350 Financial investments held-to-maturity 23,438 - 48,594 32,336 276,286 380,654 Loans, advances and financing 3,640,851 1,530,550 2,205,474 11,005,462 23,722,260 42,104,597 Other assets 42,357 2,091 16,595 5,769 5,986 72,798 Amount due from joint ventures 39,936 - - - - 39,936 Statutory deposits with Bank Negara Malaysia 1,604,600 - - - - 1,604,600 Other non-financial assets (1) 3,598 - 46,206 - 560,450 610,254

9,681,698 2,609,904 3,484,567 15,427,981 28,642,594 59,846,744

LiabilitiesDeposits from customers 20,053,169 11,973,746 14,598,308 1,187,990 - 47,813,213 Deposits and placements of banks and other

financial institutions 1,575,970 897,088 262,538 - - 2,735,596 Obligation on securities sold under repurchase

agreements 95,370 1,645,576 - - - 1,740,946 Derivative financial liabilities 57,860 87,441 125,110 138,835 4,894 414,140 Bills and acceptances payable 77,114 - - - - 77,114 Recourse obligation on loans sold to Cagamas

Berhad - 806 - 133,779 - 134,585 Other liabilities 399,718 - - - - 399,718 Subordinated term loan 3,065 1,381 - - 1,000,000 1,004,446 Other non-financial liabilities (2) 15,104 - 10,052 - - 25,156

22,277,370 14,606,038 14,996,008 1,460,604 1,004,894 54,344,914

Net liquidity gap (12,595,672) (11,996,134) (11,511,441) 13,967,377 27,637,700

(1) Other non-financial assets include tax recoverable, deferred tax assets, property and equipment and intangible assets.(2) Other non-financial liabilities include deferred tax liabilities and provision for taxation.

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Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)

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) 3,118 - 20 - 296,819 299,957

12,892,148 2,803,698 3,898,963 15,325,962 24,609,931 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

Other non-financial liabilities (2) - - 28,029 - - 28,029

24,564,419 14,940,864 13,388,555 842,506 623,420 54,359,764


(1) Other non-financial assets include tax recoverable, deferred tax assets, property and equipment and intangible assets.(2) Other non-financial liabilities include deferred tax liabilities and provision for taxation.

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The Bank2015

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

AssetsCash and short-term funds 2,573,348 - - - - 2,573,348 Deposits and placements with banks and other

financial institutions - 139,899 242,612 386,993 541,260 1,310,764 Financial assets held-for-trading 150,121 - - - - 150,121 Derivative financial assets 18,633 75,530 72,929 4,911 2,742 174,745 Financial investments available-for-sale 80,692 956,962 980,764 3,490,515 3,303,044 8,811,977 Financial investments held-to-maturity 23,439 - 44,376 - 236,557 304,372 Loans, advances and financing 3,182,982 1,331,179 1,844,673 9,555,493 16,988,361 32,902,688 Other assets 39,815 1,592 16,279 5,492 5,368 68,546 Amount due from subsidiaries 61 - - - - 61 Statutory deposits with Bank Negara Malaysia 1,345,000 - - - - 1,345,000 Other non-financial assets (1) - - 46,179 - 1,045,591 1,091,770

7,414,091 2,505,162 3,247,812 13,443,404 22,122,923 48,733,392

LiabilitiesDeposits from customers 14,961,225 10,201,186 11,575,079 1,076,628 - 37,814,118 Deposits and placements of banks and other

financial institutions 1,356,350 159,318 262,538 - - 1,778,206 Obligation on securities sold under repurchase

agreements 95,370 1,645,576 - - - 1,740,946 Derivative financial liabilities 57,862 87,432 124,921 138,835 4,894 413,944 Bills and acceptances payable 77,114 - - - - 77,114 Recourse obligation on loans sold to Cagamas

Berhad - 806 - 133,779 - 134,585 Other liabilities 354,008 - - - - 354,008 Amount due to subsidiaries 422,166 - - - - 422,166 Provision for taxation 15,104 - - - - 15,104 Subordinated term loan 3,065 1,381 - - 1,000,000 1,004,446

17,342,264 12,095,699 11,962,538 1,349,242 1,004,894 43,754,637


(1) Other non-financial assets include tax recoverable, investment in subsidiaries, property and equipment and intangible assets.

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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 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

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

Derivative financial assets 13,909 22,320 44,429 5,040 2,974 88,672

Financial investments available-for-sale 795,381 693,321 1,194,718 3,704,776 2,027,215 8,415,411

Financial investments held-to-maturity 70,359 75,807 16,000 44,000 187,235 393,401

Loans, advances and financing 2,481,164 1,715,450 1,996,504 9,212,519 16,886,914 32,292,551

Other assets 146,749 - 12,991 5,363 9,552 174,655

Amount due from subsidiaries 438 - - - - 438

Statutory deposits with Bank Negara Malaysia 1,398,550 - - - - 1,398,550

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



Derivative financial liabilities 35,493 42,356 100,581 45,569 13,420 237,419


Recourse obligation on loans sold to Cagamas Berhad - 834 - 138,313 - 139,147



Provision for taxation - - 23,939 - - 23,939

Subordinated term loan 2,940 1,370 - - 600,000 604,310

18,336,430 12,966,429 11,071,681 605,605 623,420 43,603,565


(1) Other non-financial assets include deferred tax assets, investment in subsidiaries, property and equipment and intangible assets.

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(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 operates 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 thresholds 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 an internal 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 undertakes 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.

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(v) Fair value of financial instruments (continued)

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 (2014: Nil).

The following table presents assets and liabilities measured at fair value and classified by level of the following fair value measurement hierarchy:

The Group Level 1 Level 2 Level 3 Total2015 RM’000 RM’000 RM’000 RM’000

AssetsFinancial assets held-for-trading - 150,121 - 150,121 Derivative financial assets - 174,037 - 174,037 Financial investments available-for-sale *

- Money market instruments - 5,131,940 - 5,131,940 - Equity securities - - 205,423 205,423 - Private debt securities - 4,949,987 - 4,949,987 Total - 10,406,085 205,423 10,611,508

LiabilitiesDerivative financial liabilities - 414,140 - 414,140 Total - 414,140 - 414,140

The Group Level 1 Level 2 Level 3 Total

2014 RM’000 RM’000 RM’000 RM’000

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

* Net of allowance for impairment

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The Bank Level 1 Level 2 Level 3 Total2015 RM’000 RM’000 RM’000 RM’000

AssetsFinancial assets held-for-trading - 150,121 - 150,121 Derivative financial assets - 174,745 - 174,745 Financial investments available-for-sale *

- Money market instruments - 4,165,583 - 4,165,583 - Equity securities - - 204,898 204,898 - Private debt securities - 4,441,496 - 4,441,496 Total - 8,931,945 204,898 9,136,843

LiabilitiesDerivative financial liabilities - 413,944 - 413,944 Total - 413,944 - 413,944

The Bank Level 1 Level 2 Level 3 Total

2014 RM’000 RM’000 RM’000 RM’000

Assets

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

Derivative financial assets - 88,672 - 88,672

Financial investments available-for-sale *

- Money market instruments - 4,869,393 - 4,869,393

- Equity securities 33 - 130,652 130,685

- Private debt securities - 3,415,333 - 3,415,333

Total 33 8,523,302 130,652 8,653,987

Liabilities

Derivative financial liabilities - 237,419 - 237,419

Total - 237,419 - 237,419

* Net of allowance for impairment.

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The following table present the changes in Level 3 instruments for the financial year ended:

The Group The Bank

2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000


Purchases 500 9,674 - 9,674

Sales - (10,221) - (10,221)

Exchange differences - 548 - 548

Total gains recognised in other comprehensive income 74,245 12,224 74,246 11,717

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

2015 RM’000

2014 RM’000

Financial investmentsavailable-for-sale

The GroupUnquoted shares 205,423 130,678

Net tangible assets

Net tangible assets

Higher net tangible assets results in higher fair value

The BankUnquoted shares

204,898

130,652

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.

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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:

The Group2015

Carryingvalue

RM’000

Fair value

Level 1RM’000

Level 2RM’000

Level 3RM’000

TotalRM’000

Financial assets

Financial investments held-to-maturity 380,654 - 363,590 - 363,590

Loans, advances and financing 42,104,597 - 41,821,977 - 41,821,977

42,485,251 - 42,185,567 - 42,185,567

Financial liabilities

Deposits from customers 47,813,213 - 47,832,486 - 47,832,486

Recourse obligation on loans sold to Cagamas Berhad 134,585 - 136,065 - 136,065

47,947,798 - 47,968,551 - 47,968,551

The Group2014

Carryingvalue

RM’000

Fair value

Level 1RM’000

Level 2RM’000

Level 3RM’000

TotalRM’000

Financial assets



39,932,327 - 39,645,325 - 39,645,325



Deposits and placements of banks andother financial institutions 4,849,676 - 4,849,314 - 4,849,314


53,036,047 - 53,042,410 - 53,042,410

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The Bank2015

Carryingvalue

RM’000

Fair value

Level 1RM’000

Level 2RM’000

Level 3RM’000

TotalRM’000

Financial assets

Deposits and placements with banks andother financial institutions 1,310,764 - 1,336,046 - 1,336,046



34,517,824 - 34,283,615 - 34,283,615




37,948,703 - 37,964,156 - 37,964,156

The Bank2014

Carryingvalue

RM’000

Fair value

Level 1RM’000

Level 2RM’000

Level 3RM’000

TotalRM’000

Financial assets

Deposits and placements with banks andother financial institutions 962,050 - 959,983 - 959,983



33,648,002 - 33,394,534 - 33,394,534



Deposits and placements of banks andother financial institutions 3,699,386 - 3,699,024 - 3,699,024


42,018,745 - 42,023,348 - 42,023,348

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.

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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 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.

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40 OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES

InaccordancewithMFRS132“FinancialInstruments:Presentation”,theGroupandtheBankreportfinancialassetsandfinancialliabilitiesonanet 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:

• Allfinancialassetsandliabilitiesthatarereportednetonstatementsoffinancialposition;and

• Allderivativefinancialinstrumentsandreverserepurchaseandrepurchasedagreementsandothersimilarsecuredlendingandborrowingagreements 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 enforceable netting arrangements (offsetting arrangements and financial collateral) but do not qualify for netting under the requirements of MFRS 132 described above.

The“Netamounts”presentedbelowarenotintendedtorepresenttheGroup’sandtheBank’sactualexposuretocreditrisk,asavarietyofcreditmitigation 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.

Obligation on securities sold under repurchase agreements The ‘Financial instruments’ column identifies financial assets and liabilities that are subject to set-off under netting agreements, such as global

master repurchase 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.

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Effects of offsetting on the statements of financial position Related amounts not offset

The Group 2015

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 174,037 - 174,037 (74,365) - 99,672

Total assets 174,037 - 174,037 (74,365) - 99,672


Obligation on securities sold underrepurchase agreement 1,740,946 - 1,740,946 (1,740,946) - -

Derivative financial liabilities 414,140 - 414,140 (74,365) - 339,775

Total liabilities 2,155,086 - 2,155,086 (1,815,311) - 339,775


The Group 2014

GrossamountRM’000

Amount offset

RM’000


position RM’000


RM’000


RM’000

Net amount RM’000

Financial assets


Total assets 88,658 - 88,658 (33,932) - 54,726



Total liabilities 237,426 - 237,426 (33,932) - 203,494

179





The Bank 2015

GrossamountRM’000

Amount offset

RM’000


position RM’000


RM’000


RM’000

Net amount RM’000

Financial assets


Total assets 174,745 - 174,745 (74,491) - 100,254


Obligation on securities sold underrepurchase agreement 1,740,946 - 1,740,946 (1,740,946) - -


Total liabilities 2,154,890 - 2,154,890 (1,815,437) - 339,453


The Bank 2014

GrossamountRM’000

Amount offset

RM’000


position RM’000


RM’000


RM’000

Net amount RM’000

Financial assets


Total assets 88,672 - 88,672 (33,922) - 54,750



Total liabilities 237,419 - 237,419 (33,922) - 203,497

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41 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-cancellable operating leases commitments are as follows:

The Group The Bank

2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

Within one year 22,745 22,689 22,056 21,906

One year to five years 33,468 47,476 33,219 46,926

42 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

2015 2014

RM’000 RM’000

Authorised and contracted for 24,251 13,859

Analysed as follows:

Property and equipment 24,251 13,859

Operating commitments

Operating expenditure approved by the Directors but not provided for in the financial statements amounted to approximately:

The Bank

2015 2014

RM’000 RM’000

Authorised and contracted for 79,263 138,051

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43 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).

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 4.5% and 6.0% respectively for year 2015. The minimum regulatory capital adequacy requirement remains at 8.0% (2014: 8.0%) for total capital ratio.

The Group and the Bank’s objectives when managing capital are:

• Tocomplywith thecapital requirementssetby theregulatorsof thebankingmarketswhere theentitieswithin theGroupand theBankoperates;

• TosafeguardtheGroupandtheBank’sabilitytocontinueasagoingconcernsothatitcancontinuetoprovidereturnsforshareholdersandbenefits for other stakeholders; and

• Tomaintainastrongcapitalbasetosupportthedevelopmentofitsbusiness.

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 44 below summarises the composition of regulatory capital and the ratios of the Group and the Bank for the financial year ended 31 December 2015.

44 CAPITAL ADEQUACY

The capital adequacy ratios are as follows:

The Group (#) The Bank

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Paid-up share capital 1,688,770 1,688,770 1,688,770 1,688,770

Share premium 858,904 858,904 858,904 858,904



Unrealised gains and losses on AFS 90,983 23,163 101,388 30,893

5,245,321 4,992,131 4,783,143 4,602,190

Less:

Goodwill and other intangibles (153,137) (147,688) (156,604) (150,690)

Deferred tax assets - (3,118) - (218)

55% of cumulative unrealised gains of AFS (50,041) (12,739) (55,763) (16,991)

Investment in subsidiaries/joint ventures - - (195,630) (77,815)

CET 1 capital 5,042,143 4,828,586 4,375,146 4,356,476

Tier I capital 5,042,143 4,828,586 4,375,146 4,356,476

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44 CAPITAL ADEQUACY

The Group (#) The Bank

2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000


Collective impairment @ 133,809 150,254 110,058 129,134

Regulatory adjustments 278,547 184,366 220,148 135,347

Less:


Tier II capital 1,232,356 814,620 856,762 433,222

Total capital 6,274,499 5,643,206 5,231,908 4,789,698

CET 1 capital ratio 11.878% 11.936% 12.230% 12.510%

Tier 1 capital ratio 11.878% 11.936% 12.230% 12.510%

Total capital ratio 14.781% 13.950% 14.625% 13.754%

CET 1 capital ratio (net of proposed dividends)^ 11.632% 11.773% 11.938% 12.320%

Tier 1 capital ratio (net of proposed dividends)^ 11.632% 11.773% 11.938% 12.320%

Total capital ratio (net of proposed dividends)^ 14.535% 13.786% 14.333% 13.564%

Risk-weighted assets for:

Credit risk 39,766,072 37,845,580 33,498,227 32,586,612

Market risk 327,504 286,738 323,855 284,148

Operational risk 2,355,261 2,322,105 1,951,219 1,954,278

Total risk-weighted assets 42,448,837 40,454,423 35,773,301 34,825,038

@ 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 RM104,366,000 (2014: RM66,030,892).

In accordance with BNM’s Guidelines on Investment Account, the credit and market risk weighted on the assets funded by the RIA are included in calculation of capital adequacy for the Bank. As at 31 December 2015, RIA assets included in the Total Capital ratio calculation amounted to RM1,316,026,354 (2014: RM608,590,486).

The capital adequacy ratios of the AFFIN Islamic Bank Berhad is as follows:

Economic Entity The Bank

2015 2014 2015 2014

(Before and after deducting proposed dividend)




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45 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 are 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.

Impairment of investment in subsidiaries and joint ventures

Investment in subsidiaries and joint ventures are reviewed for impairment annually or whenever events or changes in cirsumstances indicate that the carrying value may not be recoverable. Significant judgment is required in the estimation of the present value of future cash flows generated by the subsidiairies and joint ventures, which uncertainties are significantly affected by assumptions used and judgments made regarding estimates of future cash flows and discount rates. Changes in assumptions could significantly affect the results of the Group’s test for impairment of investments.

46 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 2015 2014

(i) The aggregate value of outstanding credit exposures with connected parties (RM’000) 2,319,413 2,660,459

(ii) The percentage of outstanding credit exposures to connected parties as a proportion of total creditexposures

5% 5%

(iii) The percentage of outstanding credit exposures with connected parties which is impaired or in default Nil Nil

47 APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 3 March 2016.

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STATUTORY DECLARATIONPURSUANT TO SECTION 169 (16) OF THE COMPANIES ACT, 1965

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 62 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 RAJOOSubscribed and solemnly declared by the above named RAMANATHAN RAJOO at Kuala Lumpur in Malaysia on 3 March 2016, before me.

Commissioner for Oaths

STATEMENT BY DIRECTORSPURSUANT TO SECTION 169 (15) 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 62 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 2015 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 3 March 2016.

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

EN. MOHD SUFFIAN BIN HAJI HARONDirector

185


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 62 to 183 which comprise the statements of financial position as at 31 December 2015 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 2015 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.

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 member 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. 2682/10/17 (J))Chartered Accountants Chartered Accountant Kuala Lumpur, Malaysia3 March 2016

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

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 of Basic Indicator Approach for Operational Risk 8.3 Operational Risk Measurement, Control and Monitoring 8.4 Certification

9. Shariah Compliance

Appendices

187187187

187187188189189190

190190190192

192

192192193193193194195

200200200200201201

201201201

202202202202203

203

204

187

basel II pIllar 3 dIsclosuresas at 31 December 2015

affin bank berhad (25046-T) | annual report 2015

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 2015. 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 2015 Annual Report for the year ended 31 December 2015.

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 comprise 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 are congruent with 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. 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.

The terms of reference of the Board Committees as disclosed in the Annual Report provide an outline of respective roles 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 balanced composition with a strong independent element. It consists of members with suitable qualifications fulfilling the fit and proper criteria as required by BNM/GP1, a mixture of different skills, competencies and experience.

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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 as well as 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.

It has responsibility for approving and reviewing risk management policies and 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 for 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.

Audit and Examination Committee (‘AEC’)

The AEC is responsible for providing oversight and reviewing the adequacy and integrity of the internal control systems as well as 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.

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2.2 Board Committees (continued)

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 to ensure that the business operations of AFFIN Islamic Bank comply with the Shariah principles at all times;

(ii) To endorse and validate relevant documentations of AFFIN Islamic Bank’s products to ensure that the products comply with Shariah principles; and

(iii) To advise AFFIN Islamic Bank 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. MCM formulates tactical plans and business strategies, monitors the Bank’s overall performance, and ensures that activities are carried out 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 as well as 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 and liability position as well as oversees the Bank’s capital management to ensure that the Bank is adequately capitalised on an economic and regulatory basis.

Group Operational Risk Management Committee (‘GORMC’)

GORMC comprising the senior management team chaired by the MD/CEO, manages the Bank’s Operational Risk by reviewing and ensuring appropriate operational risk programme, process and framework are implemented in the Bank so as to reduce the original capital charge and manage operational risk losses to an acceptable level.

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 as well as review the actions taken to address 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, GORMC and GEAC 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.

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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 reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance with 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 conducts 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 guidelines 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 that 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).

The Group and the Bank are currently adopting Standardised Approach for Credit Risk and Market Risk and 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 4.5% and 6.0% respectively for year 2015. The minimum regulatory capital adequacy requirement remains at 8.0% (2014: 8.0%) for Total Capital ratio.

The following table sets forth further details on the capital resources and capital adequacy ratios for the Group and the Bank as at 31 December 2015.

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3.2 Capital Structure (continued)

The Group The Bank

2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

Paid-up share capital 1,688,770 1,688,770 1,688,770 1,688,770

Share premium 858,904 858,904 858,904 858,904



Unrealised gains and losses on AFS 90,983 23,163 101,388 30,893

5,245,321 4,992,131 4,783,143 4,602,190

Less:

Goodwill (153,137) (147,688) (156,604) (150,690)

Deferred tax assets - (3,118) - (218)

55% of cumulative unrealised gains of AFS (50,041) (12,739) (55,763) (16,991)


CET 1 capital 5,042,143 4,828,586 4,375,146 4,356,476

Tier I capital 5,042,143 4,828,586 4,375,146 4,356,476


Collective impairment 133,809 150,254 110,058 129,134

Regulatory adjustments 278,547 184,366 220,148 135,347

Less:


Tier II capital 1,232,356 814,620 856,762 433,222

Total capital 6,274,499 5,643,206 5,231,908 4,789,698




CET 1 capital ratio (net of proposed dividends) 11.632% 11.773% 11.938% 12.320%

Tier 1 capital ratio (net of proposed dividends) 11.632% 11.773% 11.938% 12.320%

Total capital ratio (net of proposed dividends) 14.535% 13.786% 14.333% 13.564%

Risk-weighted assets for:

Credit risk 39,766,072 37,845,580 33,498,227 32,586,612

Market risk 327,504 286,738 323,855 284,148

Operational risk 2,355,261 2,322,105 1,951,219 1,954,278

Total risk-weighted assets 42,448,837 40,454,423 35,773,301 34,825,038

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3.3 Capital Adequacy

The Group and the Bank have in place an internal limit for its CET 1 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 and which 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, assess, measure, control and mitigate all key risks as well as 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 as well as minimise any potential adverse effects.

The key business risks to which the Bank is exposed to 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.

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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:-

• RAMRatingServicesBerhad• MalaysianRatingCorporationBerhad• Standard&Poor’sRatingServices• Moody’sInvestorsService• FitchRatings

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 BNM guidelines. 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.

Refer to Appendix II and Appendices III (i) to III (ii).

5.3 Credit Risk Measurement


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 with 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).

5.4 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 industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on 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.

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5 Credit Risk

5.4 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:

• Mortgagesoverresidentialproperties;• Chargesovercommercialrealestateorvehiclesfinanced;• Chargesoverbusinessassetssuchasbusinesspremises,inventoryandaccountreceivables;and• Chargesoverfinancialinstrumentssuchasmarketablesecurities

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 any signs of weaknesses or deterioration in the credit quality are detected. Remedial action is taken where evidence of deterioration emanates.

Early Alert Process is in place 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.

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5 Credit Risk

5.6 Impairment Provisioning

Individual impairment provisioning

Significant loans, with or without past due status, are subject to individual assessment for impairment when 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.

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

Allloans,advancesandfinancingarecategorisedinto“neitherpastduenorimpaired”,“pastduebutnotimpaired”and“impaired”.Pastdue 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.

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5 Credit Risk

5.6 Impairment Provisioning (continued)

Analysed by economic sectors

The Group The Bank

2015 2014 2015 2014

Past due loans RM’000 RM’000 RM’000 RM’000



Manufacturing 45,369 43,019 43,470 40,237

Electricity, gas and water supply 1,140 1,100 497 588

Construction 168,155 141,821 142,659 132,880

Real estate 276,752 359,196 275,737 331,607





Household 1,828,209 1,800,031 1,361,693 1,380,662

2,654,372 2,645,096 2,126,743 2,164,663

The Group The Bank

2015 2014 2015 2014

Individual impairment RM’000 RM’000 RM’000 RM’000

Primary agriculture 426 2,435 426 2,435

Manufacturing 13,821 18,663 13,821 16,305

Construction 45,659 180,242 45,659 151,749

Real estate 35,032 - 43 -


Transport, storage and communication 610 540 610 540


Education, health and others 1,926 - 1,926 -

Household 9,420 4,365 6,969 3,697

270,137 239,259 231,621 207,740

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Analysed by economic sectors (continued)

The Group The Bank

2015 2014 2015 2014

Individual impairment charged RM’000 RM’000 RM’000 RM’000

Primary agriculture 321 211 321 211

Mining and quarrying - 8 - 8

Manufacturing 8,267 11,177 8,242 11,131

Construction 54,171 66,730 54,171 66,730

Real estate 768 - 768 -


Transport, storage and communication 104 640 104 640

Finance, insurance and business services 168,289 739 168,289 739

Education, health and others 2,922 - 2,922 -

Household 11,389 3,110 9,016 1,647

257,645 87,611 254,086 86,102

The Group The Bank

2015 2014 2015 2014

Individual impairment written-off RM’000 RM’000 RM’000 RM’000

Primary agriculture 2,227 - 2,227 -

Mining and quarrying - 7,226 - 7,226

Manufacturing 11,793 4,011 9,411 4,011

Construction 148,771 21,032 148,771 21,032

Wholesale & retail trade and restaurants & hotels 2,938 1,813 2,938 -

Transport, storage and communication - 3,308 - 3,308


Household 850 9,971 850 9,971

192,965 50,870 190,583 49,057

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5 Credit Risk


Analysed by economic sectors (continued)

The Group The Bank

2015 2014 2015 2014

Collective impairment RM’000 RM’000 RM’000 RM’000



Manufacturing 9,406 11,393 8,312 10,227

Electricity, gas and water supply 545 823 379 669

Construction 23,183 26,496 20,718 24,540

Real estate 20,165 17,722 18,524 16,620





Household 133,132 170,649 107,469 143,573

229,461 292,619 192,790 255,226

Analysed by geographical area

The Group The Bank

2015 2014 2015 2014

Past due loans RM’000 RM’000 RM’000 RM’000

Perlis 4,178 4,455 3,335 3,750

Kedah 122,883 109,040 80,482 84,534

Pulau Pinang 97,462 87,424 82,776 75,049

Perak 127,279 117,262 70,476 65,279

Selangor 768,553 937,151 614,302 794,410


Negeri Sembilan 104,328 82,301 77,869 67,935

Melaka 96,081 95,668 83,208 86,980

Johor 262,571 254,439 230,486 227,871

Pahang 69,963 64,691 48,519 41,614

Terengganu 60,213 61,163 4,617 5,791

Kelantan 32,780 45,729 7,053 6,465

Sarawak 155,101 135,361 152,260 133,311

Sabah 297,380 234,956 291,889 228,143

Labuan 73 18 73 18

Outside Malaysia - 27,372 - 98

2,654,372 2,645,096 2,126,743 2,164,663

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5 Credit Risk


Analysed by geographical area (continued)

The Group The Bank

2015 2014 2015 2014

Individual impairment RM’000 RM’000 RM’000 RM’000

Kedah 1,484 884 1,484 884

Pulau Pinang 12,386 12,403 12,386 12,403

Perak 59 - 59 -

Selangor 181,327 97,494 178,904 94,494


Negeri Sembilan - 2,245 - 2,245

Johor 1,533 10,368 1,533 10,368

Pahang 38 38,920 38 38,920

Terengganu - 11,569 - 11,569

Sarawak - 101 - 101

Sabah 9,944 - 9,944 -

Outside Malaysia 34,988 35,369 - 6,876

270,137 239,259 231,621 207,740

The Group The Bank

2015 2014 2015 2014

Collective impairment RM’000 RM’000 RM’000 RM’000

Perlis 901 833 492 413

Kedah 10,201 11,681 8,315 10,344

Pulau Pinang 9,670 11,735 8,722 10,890

Perak 12,685 13,706 8,976 9,907

Selangor 70,220 110,202 58,436 97,633


Negeri Sembilan 7,814 12,101 6,570 10,755

Melaka 7,594 8,879 7,093 8,555

Johor 21,283 23,967 19,524 22,364

Pahang 6,352 8,135 4,830 6,598

Terengganu 4,718 6,184 1,652 2,574

Kelantan 3,733 4,210 642 906

Sarawak 9,280 9,277 9,009 9,006

Sabah 15,966 15,219 15,689 14,815

Labuan 1,504 1,273 1,504 1,272

Outside Malaysia 556 2,434 496 2,379

229,461 292,619 192,790 255,226

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6 Market Risk

6.1 Market Risk Management Objectives and Policies

Market risk is the potential loss arising from movements in market variables such as interest rates and foreign exchange rates. The exposure to market risk results largely from interest rate and foreign exchange rate risks. The market risk management framework encompasses the following approaches:

• Riskcontrolparametersareestablishedbasedonriskappetite,market liquidityandbusinessstrategiesaswellasmacroeconomicconditions. These parameters are reviewed at least annually.

• MarketriskstemmingfromtheTradingbookisprimarilycontrolledthroughtheimpositionofStop-lossandValue-at-Risk(‘VaR’)RiskControl Parameters.

• Interestrateriskisquantifiedbyanalysingtherepricingmismatchbetweentheratesensitiveassetsandratesensitiveliabilities.Basedon the repricing mismatch, Earnings-at-Risk (‘EaR’) or Net Interest Income (‘NII’) simulation is conducted to assess the variation in short term earnings.

• Inaddition,thepotentiallongtermimpactarisingfromtheBank’sexposuresisalsotrackedbyassessingtheimpactonEconomicValueof Equity (‘EVE’), also known as Economic Value-at-Risk (‘EVaR’).

• Periodicstresstestsareconductedtoquantifymarketriskarisingfromabnormalmarketmovements.

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

Bank’s market risk management control parameters are established based on its risk appetite, market liquidity and business strategies as well as macroeconomic conditions. These parameters are reviewed at least on an annual basis.

Market risk arising from the Bank’s Trading book is primarily controlled through the imposition of Stop-loss and Value-at-Risk (‘VaR’) risk control parameters.

The Bank quantifies interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate sensitive liabilities. Based on the repricing mismatch, Net Interest Income simulation is conducted to assess the variation in short-term earnings. The potential long term impact of the Bank’s exposures is also tracked by assessing the impact on economic value of equity (‘EVE’), also known as Economic Value-at-Risk (‘EVaR’).

Thresholds are set for Earnings-at-Risk (‘EaR’) and Economic Value-at-Risk (‘EVaR’) respectively.

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.

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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.

The Bank adopts Historical Pricing Simulation Method (‘HPS’) to compute potential loss or Value-at-Risk (‘VaR’) amount. The HPS 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, the 250 simulated 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) at the 99th percentile.

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 quantify market risk arising from 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 is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Thresholds are set on the level of exposure by currency as well as in aggregate for both overnight and intra-day positions and these 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 thresholds, liquidity risk thresholds 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.

7.2 Liquidity Risk Measurement, Control and Monitoring

Liquidity risk monitoring is premised on BNM’s Liquidity Coverage Ratio (‘LCR’) final standards as well as BNM’s revised Basel III Observation Period reporting for Net Stable Funding Ratio (‘NSFR’).

The LCR is a quantitative requirement which seeks to ensure that the Bank holds sufficient high-quality liquid assets (‘HQLA’) to withstand an acute liquidity stress scenario over a 30-day horizon.

Long term liquidity risk profile is assessed via NSFR which promotes resilience over a longer time horizon for the Bank to fund its activities with more stable sources of funding on an ongoing basis.

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 internal guiding principles for foreign currency assets creations.

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7.2 Liquidity Risk Measurement, Control and Monitoring (continued)

The Bank also conducts liquidity stress test to assess the Bank’s resilience to withstand short term liquidity shocks over a 30-day horizon. 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 has developed two minimum standards for funding liquidity to achieve two separate but complementary objectives:

• LCR-topromoteshort-termresilienceoftheBank’sliquidityriskprofilebyensuringthatithassufficienthigh-qualityliquidassetstosurvive a significant stress scenario lasting for one month.

• NSFR-topromoteresilienceoveralongertimehorizonfortheBanktofunditsactivitieswithmorestablesourcesoffundingonanongoing basis.

The LCR and NSFR are tracked to assess the short term and long term liquidity risk profile of the Bank, in line with BNM’s Liquidity Coverage Ratio (‘LCR’) final standards issued on 31st March 2015 as well as BNM’s revised Basel III Observation Period reporting for Net Stable Funding Ratio (‘NSFR’) and Leverage Ratio (‘LR’) issued on 7th August 2015.

The BRMC is responsible for the Bank’s liquidity policy and the strategic management of liquidity has been delegated to the ALCO. The BRMC is informed regularly on the liquidity position of 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.

8.3 Operational Risk Measurement, Control and Monitoring

Risk is identified through the use of assessment tools and measured using thresholds 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.

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8 Operational Risk

8.4 Certification

As an internal 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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Disclosure on Capital Adequacy under the Standardised Approach (continued)

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 reference threshold is set as a management trigger to ensure that the Bank’s capital adequacy is not impinged upon in the event of adverse market movements. The Bank currently adopts BNM’s Standardised Approach for the computation of market risk capital charges. The market risk capital charge addresses among others, capital requirement for market risk which includes the interest rate risk in the Bank’s 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 (‘FX’)b) Interest Rate Swap (‘IRS’)c) Cross Currency Swap (‘CCS’)d) Fixed Income Instruments (i.e. Private Debt and Government Securities)

The Bank’s Trading Book Policy Statement stipulates the policies and procedures for including or excluding exposures from the Trading Book for the purpose of calculating regulatory market risk capital.

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l Rep

ort 2

015

b)

Disc

losu

re o

n Of

f-Ba

lanc

e Sh

eet a

nd C

ount

erpa

rty

Cred

it Ri

sk (R

M’0

00)

The

Bank

20

14 Desc

riptio

nPr

inci

pal A

mou

ntPo

sitiv

e Fa

ir Va

lue

ofDe

rivat

ive

Cont

ract

sCr

edit

Equi

vale

nt

Amou

ntRi

sk W

eigh

ted

Amou

nt

Dire

ct C

redi

t Sub

stitu

tes

669

,843

6

69,8

43

639

,188

Tran

sact

ion

rela

ted

cont

inge

nt it

ems

1,8

91,5

40

945

,770

8

56,8

62

Shor

t Ter

m S

elf L

iqui

datin

g tra

de re

late

d co

ntin

genc

ies

345

,057

6

9,01

1 6

7,46

4

Fore

ign

exch

ange

rela

ted

cont

ract

s

One

year

or l

ess

5,1

31,2

95

64,

970

151

,966

9

6,70

2

Over

one

yea

r to

five

year

s 4

51,9

55

1,2

44

41,

516

13,

374

Over

five

yea

rs 9

6,03

0 3

60

14,

405

7,2

02

Inte

rest

/Pro

fit ra

te re

late

d co

ntra

cts

One

year

or l

ess

1,2

56,2

79

6,0

41

4,6

41

1,3

50

Over

one

yea

r to

five

year

s 1

,781

,125

1

1,33

5 4

7,98

4 1

3,16

1

Over

five

yea

rs 3

90,1

48

4,7

22

33,

652

9,4

60

Othe

r com

mitm

ents

, suc

h as

form

al s

tand

by fa

cilit

ies

and

cred

it lin

es, w

ith a

n or

igin

al m

atur

ity o

f ove

r one

yea

r 1

,709

,548

8

54,7

74

779

,957

Othe

r com

mitm

ents

, suc

h as

form

al s

tand

by fa

cilit

ies

and

cred

it lin

es, w

ith a

n or

igin

al m

atur

ity o

f up

to o

ne y

ear

7,1

80,5

36

1,4

36,1

07

1,2

98,2

35

Any

com

mitm

ents

that

are

unc

ondi

tiona

lly c

ance

lled

at a

ny ti

me

by th

e ba

nk w

ithou

t prio

r not

ice

or th

at

effe

ctiv

ely

prov

ide

for a

utom

atic

can

cella

tion

due

to d

eter

iora

tion

in a

bor

row

er’s

cre

ditw

orth

ines

s 2

47,6

93

-

-

Unut

ilise

d cr

edit

card

line

s 2

08,8

65

41,

773

31,

073

Tota

l 2

1,35

9,91

4 8

8,67

2 4

,311

,442

3

,814

,028

Appe

ndix

IV

base

l II

pIll

ar 3

dIs

clos

ures

as a

t 31

Dec

embe

r 20

15

227

Affin Bank Berhad (25046-T) | Annual Report 2015c)

Disc

losu

res

on M

arke

t Ris

k -

Inte

rest

Rat

e Ri

sk/R

ate

of R

etur

n Ri

sk in

the

Bank

ing

Book

Inte

rest

rate

risk

is th

e cu

rren

t and

pro

spec

tive

impa

ct to

the

Bank

’s fi

nanc

ial c

ondi

tion

due

to a

dver

se c

hang

es in

the

inte

rest

rate

s to

whi

ch th

e ba

lanc

e sh

eet i

s ex

pose

d. T

he o

bjec

tive

of in

tere

st ra

te ri

sk m

anag

emen

t is

to a

chie

ve a

sta

ble

and

sust

aina

ble

net i

nter

est i

ncom

e fro

m th

e pe

rspe

ctiv

es o

f (1)

ear

ning

s in

the

next

12

mon

ths,

and

(2) e

cono

mic

val

ue.

(1) N

ext 1

2 m

onth

s’ E

arni

ngs

- In

tere

st ra

te ri

sk fr

om th

e ea

rnin

gs p

ersp

ectiv

e is

the

impa

ct b

ased

on

chan

ges

to th

e ne

t int

eres

t inc

ome

(‘NII’

) ove

r the

nex

t 12

mon

ths.

Thi

s ris

k is

mea

sure

d th

roug

h se

nsiti

vity

ana

lysi

s in

clud

ing

the

appl

icat

ion

of a

n in

stan

tane

ous

100

basi

s po

int p

aral

lel s

hock

in in

tere

st ra

tes

acro

ss th

e yi

eld

curv

e.

(2) E

cono

mic

Val

ue -

Mea

surin

g th

e ch

ange

in th

e ec

onom

ic v

alue

of e

quity

(‘EV

E’) i

s an

ass

essm

ent o

f the

long

term

impa

ct to

the

Bank

’s c

apita

l. Th

is is

ass

esse

d th

roug

h th

e ap

plic

atio

n of

rele

vant

dur

atio

n fa

ctor

s to

ca

ptur

e th

e ne

t eco

nom

ic v

alue

impa

ct o

ver t

he lo

ng te

rm o

r tot

al li

fe o

f all

bala

nce

shee

t ass

ets

and

liabi

litie

s to

adv

erse

cha

nges

in in

tere

st ra

tes.

2015 Type

of C

urre

ncy

(RM

mill

ion)

The

Grou

pTh

e Ba

nk

Impa

ct o

n Po

sitio

ns(1

00 b

asis

poi

nts)

Par

alle

l Shi

ftIm

pact

on

Posi

tions

(100

bas

is p

oint

s) P

aral

lel S

hift

Incr

ease

/(De

clin

e)in

Ear

ning

sIn

crea

se/(

Decl

ine)

in E

cono

mic

Val

ueIn

crea

se/(

Decl

ine)

in E

arni

ngs

Incr

ease

/(De

clin

e)in

Eco

nom

ic V

alue

Ring

git M

alay

sia

(71.

4) 4

05.0

(5

3.7)

332

.0

US D

olla

r 7

.8

14.

0 8

.4

14.

0

Euro

(4.6

) (0

.1)

(4.6

) (0

.1)

Grea

t Brit

ain

Poun

d (0

.1)

-

(0.1

) -

Aust

ralia

n Do

llar

(0.1

) -

(0

.1)

-

Sing

apor

e Do

llar

0.6

0

.6

0.6

0

.6

Othe

rs (#

) 1

.3

3.1

1

.4

3.1

Tota

l (6

6.5)

422

.6

(48.

1) 3

49.6

# Ot

hers

com

pris

e of

CNH

, NZD

, HKD

and

AED

cur

renc

ies

whe

re th

e am

ount

of e

ach

curr

ency

is re

lativ

ely

smal

l.

Appe

ndix

IV

base

l II

pIll

ar 3

dIs

clos

ures

as a

t 31

Dec

embe

r 20

15

228

Affin

Ban

k Be

rhad

(250

46-T

) | A

nnua

l Rep

ort 2

015

c)

Disc

losu

res

on M

arke

t Ris

k -

Inte

rest

Rat

e Ri

sk/R

ate

of R

etur

n Ri

sk in

the

Bank

ing

Book

2014 Type

of C

urre

ncy

(RM

mill

ion)

The

Grou

pTh

e Ba

nk

Impa

ct o

n Po

sitio

ns(1

00 b

asis

poi

nts)

Par

alle

l Shi

ftIm

pact

on

Posi

tions

(100

bas

is p

oint

s) P

aral

lel S

hift

Incr

ease

/(Dec

line)

in E

arni

ngs

Incr

ease

/(Dec

line)

in E

cono

mic

Val

ueIn

crea

se/(D

eclin

e)in

Ear

ning

sIn

crea

se/(D

eclin

e)in

Eco

nom

ic V

alue

Ring

git M

alay

sia

(40.

7) 2

92.8

(5

1.3)

248

.1

US D

olla

r 8

.0

7.1

8

.3

7.1

Euro

(0.4

) -

(0

.4)

-

Grea

t Brit

ain

Poun

d (0

.1)

-

(0.1

) -

Aust

ralia

n Do

llar

(0.1

) 2

.0

(0.1

) 1

.9

Sing

apor

e Do

llar

0.8

(0

.6)

0.8

(0

.6)

Othe

rs (#

) 7

.5

7.7

7

.6

7.7

Tota

l (2

5.0)

309

.0

(35.

2) 2

64.2

# Ot

hers

com

pris

e of

CNH

, NZD

, HKD

and

AED

cur

renc

ies

whe

re th

e am

ount

of e

ach

curr

ency

is re

lativ

ely

smal

l.

Appe

ndix

IV

AFFIN BANK BERHAD (25046-T)

17th Floor, Menara AFFIN, 80, Jalan Raja Chulan,50200 Kuala LumpurT : 03 2055 9000F : 03 2026 1415www.affinbank.com.my