Building€¦ · 15 Management Discussion & Analysis 25 Corporate Diary 27 Financial Highlights corPorate governance ... AXA AFFIN Life Insurance Berhad AXA AFFIN General Insurance

Building AFFINITY

A N N U A LR E P O R T

2 0 1 6

Our VisionA premier partner for Financial Growth and Innovative Services.

Cover RationaleSeeking AFFINITY with our customers,

partners, employees and the community we

serve marks the way forward for AFFINBANK.

It drives a new phase of evolution where

we go beyond the conventional to reshape

our existing portfolio and introduce new

possibilities.

Table ofContents

Our MissionTo 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.

organisation

02 Corporate Information

03 Corporate Structure

04 Board of Directors

05 Profile of Directors

09 Management Team

10 Profile of Management Team

executive summary

15 Management Discussion & Analysis

25 Corporate Diary

27 Financial Highlights

corPorate governance

28 Statement on Corporate Governance

41 Statement on Risk Management & Internal Control

45 Board Audit Committee Report

other information

51 Network of Branches

56 Notice of Annual General Meeting

financial statements

57 Financial Statements

Corporate Information

BoarD of Directors

chairman

yBhg. Jen tan sri Dato’ seri ismail Bin hj. omar (Bersara)(Non-Independent Non-Executive Director)

Directors

mr. aubrey li Kwok-sing(Non-Independent Non-Executive Director)

en. mohd suffian Bin haji haron(Non-Independent Non-Executive Director)

(Redesignated w.e.f. 1 June 2016)

yBhg. tan sri Dato’ seri mohamed Jawhar(Non-Independent Non-Executive Director)

(Redesignated w.e.f. 1 June 2016)

yBhg. tan sri mohd ghazali Bin mohd yusoff(Independent Non-Executive Director)

en. abd malik Bin a rahman(Independent Non-Executive Director)

mr. tang Peng Wah(Alternate Director to

Mr. Aubrey Li Kwok-Sing)

yBhg. tan sri Dato’ seri lodin Bin Wok Kamaruddin(Non-Independent Non-Executive Director)

(Completed his tenure of directorship w.e.f. 4 October 2016)

managing Director/ chief executive officer

en. Kamarul ariffin Bin mohd Jamil

secretary

nimma safira Binti Khalid

registereD office

17th Floor, Menara AFFIN80, Jalan Raja Chulan50200 Kuala LumpurTel : 03-2055 9000Fax : 03-2026 1415

authoriseD share caPital

no. of shares

2,000,000,000

Par value

RM1.00

total

RM2,000,000,000

name

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

Date of incorPoration

23 October 1975

PrinciPal activities

Affin Bank Berhad is principally involved in the carrying out of banking and finance related services. Other subsidiary companies and associate companies are primarily engaged in property management services, nominees services, trustee management services and factoring services.

issueD anD PaiD-uP share caPital

no. of shares

1,688,769,616

Par value

RM1.00

total

RM1,688,769,616

suBstantial shareholDer

no. of shares

Affin Holdings Berhad

1,688,769,616

external auDitors

PricewaterhouseCoopers

(No. AF: 1146)

AFFIN BANK BERHAD (25046-T)

2

AFFIN MoneyBrokers Sdn Bhd

AFFIN-ACF Holdings Sdn Bhd

100%

100%

OTHERS

AFFIN HOLDINGS BERHAD

AFFIN Bank Berhad

AFFIN Islamic Bank Berhad

Lembaga Tabung Angkatan Tentera

AXA AFFIN Life Insurance Berhad

AXA AFFIN General Insurance Berhad

AFFIN Hwang Investment Bank Berhad

Boustead Holdings Berhad Bank of East Asia Limited

100%

100%

50%

30%

100%

AFFIN Investment Berhad(formerly known as AFFIN Investment Bank Berhad)

100%

51%

36.9%

AFFIN Hwang Nominees(Tempatan) Sdn Bhd

100%

AFFIN Hwang Nominees (Asing) Sdn Bhd

100%

AFFIN Hwang Futures Sdn Bhd100%

AFFIN Nominees (Tempatan) Sdn Bhd100%

AFFIN Nominees (Asing) Sdn Bhd100%

AFFIN Hwang Asset ManagementBerhad

70%

Asian Islamic InvestmentManagement Sdn Bhd

100%

AFFIN Capital Services Berhad(formerly known as AFFIN FundManagement Berhad)

100%

100%PAB Properties Sdn Bhd

100%

100%AFFIN Futures Sdn Bhd 3

100%ABB IT & Services Sdn Bhd 3

100%BSNCB Nominees (Tempatan) Sdn Bhd 3

100%

100%ABB Nominee (Tempatan) Sdn Bhd

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

100%AFFIN Factors Sdn Bhd 3

100%ABB Nominee (Asing) Sdn Bhd

100%PAB Property Development Sdn Bhd 3

100%BSNC Nominees (Tempatan) Sdn Bhd 3

35.42%

58.48%

20.69% 23.52% 20.37%

AFFIN-i Nadayu Sdn Bhd 1

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

16.7%Raeed Holdings Sdn Bhd 5

ABB Trustee Berhad 2

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

AFFIN Recoveries Berhad 4

KL South Development Sdn Bhd 1

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

1 Associate companies.2 Acquired by Affin Investment Bank Berhad on 25 January 2017.3 Under members voluntary winding-up.4 Dormant companies – inactive but company currently holding asset.5 Equally owned by Affin Islamic Bank Berhad, Bank Kerjasama Rakyat Malaysia Berhad, Bank Islam Malaysia Berhad, Bank Muamalat Malaysia Berhad, Maybank Islamic Berhad and Bank SImpanan Nasional.

Corporate Structure as at 31 December 2016

ANNUAL REPORT 2016

3

LEFT TO RIGHT:

MR. AUBREY LI KWOK-SING Non-Independent Non-Executive Director

EN. MOHD SUFFIAN BIN HAJI HARON Non-Independent Non-Executive Director(Redesignated w.e.f. 1 June 2016)

YBHG. TAN SRI DATO’ SERI MOHAMED JAWHAR Non-Independent Non-Executive Director(Redesignated w.e.f. 1 June 2016)

LEFT TO RIGHT:

YBHG. TAN SRI MOHD GHAzALI BIN MOHD YUSOFF Independent Non-Executive Director

EN. ABD MALIK BIN A RAHMAN Independent Non-Executive Director

LEFT TO RIGHT:

YBHG. JEN. TAN SRI DATO’ SERI ISMAIL BIN HAJI OMAR (BERSARA)Chairman/ Non-Independent Non-Executive Director

YBHG. TAN SRI DATO’ SERI LODIN BIN WOK KAMARUDDIN Non-Independent Non-Executive Director(Completed his tenure of directorship w.e.f. 4 October 2016)

Board of Directors


4

YBhg. Jen. Tan Sri DaTo’ Seri iSmail Bin haJi omar (BerSara)Chairman / Non-Independent Non-Executive Director

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar, aged 75, was appointed as the Director and Chairman of AFFINBANK on 21 May 2002. He is also the Chairman of Board Loan Review and Recovery Committee.

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 the Issuer. 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 10 scheduled monthly Board Meetings and all 14 Special Board Meetings held during the financial year ended 31 December 2016.

YBhg. Tan Sri DaTo’ Seri loDin Bin Wok kamaruDDinNon-Independent Non-Executive Director(Completed his tenure of directorship with the Bank w.e.f. 4 October 2016)

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin, aged 67, 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 Lembaga Tabung Angkatan Tentera (LTAT) and the Deputy Chairman/ Group Managing Director of Boustead Holdings Berhad. Prior to joining LTAT, he was the General Manager of Fraser’s Hill Development Corporation 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 todate include the Chevalier De La Legion D’Honneur from the French Government, the Malaysian Outstanding Entrepreneurship Award, the Degree of Laws honoris causa from the University of Nottingham, United Kingdom, the UiTM Alumnus of the Year 2010 Award and The BrandLaureate Most Eminent Brand ICON Leadership Award 2012 by Asia Pacific Brands Foundation. He is also a Chartered Banker, AICB.

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin attended all 8 scheduled monthly Board Meetings and 6 out of 11 Special Board Meetings held from January 2016 until completion of his tenure of directorship w.e.f. 4 October 2016.

LEFT TO RIGHT:

yBhg. Jen. tan sri Dato’ seri ismail Bin haJi omar (Bersara)

yBhg. tan sri Dato’ seri loDin Bin WoK KamaruDDin

Profile of Directors

ANNUAL REPORT 2016

5

LEFT TO RIGHT:

mr. auBrey li KWoK-sing

en. mohD suffian Bin haJi haron

mr. auBreY li kWok-SingNon-Independent Non-Executive Director

Mr. Aubrey Li Kwok-Sing, a Hong Kong national, aged 66, 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, Aurora Technologies Limited, Dragon Sea Investment Limited, IAM Holdings Limited, Argyle Street Management Limited, Pocket Solution Limited, K H Optical Company Limited, W Haking Enterprise Limited, Golden Chance Limited, Silver Park Holdings Limited, MCL-AUTH Limited, MCL Holdings Limited Mix Creation Limited, Power House Investment Holding Limited, Delta Link Limited, Good Motive Limited, Keen General Limited, Noble Point Limited, Rich Delta Limited, TienShing Limited and New Dragon Asia Food Limited.

Mr. Aubrey Li Kwok-Sing attended 4 out of 10 scheduled monthly Board Meetings and 5 out of 14 Special Board Meetings held during the financial year ended 31 December 2016.

Mr. Aubrey Li Kwok-Sing’s Alternate Director, Mr. Tang Peng Wah was appointed on 23 June 2014.

Mr Tang Peng Wah attended 5 out of 10 scheduled monthly Board Meetings and 8 out of 14 Special Board Meetings held during the financial year ended 31 December 2016.

en. mohD Suffian Bin haJi haronNon-Independent Non-Executive Director

En. Mohd Suffian Bin Haji Haron, a Malaysian, aged 71, was appointed to the Board of Directors of AFFINBANK on 15 August 2009 and was subsequently redesignated to Non-Independent Non-Executive Director w.e.f. 1 June 2016. He is currently a member of Board Nomination and Remuneration Committee of AFFINBANK and AFFIN ISLAMIC, Board Loan Review and Recovery Committee, Board Risk Management Committee and Board Oversight Transformation Committee of AFFINBANK.

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 as 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 10 scheduled monthly Board Meetings and all 14 Special Board Meetings held during the financial year ended 31 December 2016.



6

yBhg. tan sri Dato’ seri mohameD JaWhar

YBhg. Tan Sri DaTo’ Seri mohameD JaWharNon-Independent Non-Executive Director

Tan Sri Dato’ Seri Mohamed Jawhar, a Malaysian, aged 72, was appointed to the Board of Directors of AFFINBANK on 1 November 2011 and was subsequently redesignated to Non-Independent Non-Executive Director w.e.f. 1 June 2016. He is currently a member of Board of Nomination and Remuneration Committee of AFFINBANK and AFFIN ISLAMIC, Board Audit Committee, Board Risk Management Committee and Board Oversight Transformation Committee of AFFINBANK.

His other positions include: Non-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.

He currently holds directorships AFFIN ISLAMIC, Sistem Televisyen Malaysia Berhad, Ekuiti Nasional Berhad and the Securities Commission.

Tan Sri Dato’ Seri Mohamed Jawhar attended all 10 scheduled monthly Board Meetings and 13 out of 14 Special Board Meetings held during the financial year ended 31 December 2016.


ANNUAL REPORT 2016

7

YBhg. Tan Sri mohD ghazali Bin mohD YuSoffIndependent Non-Executive Director

Tan Sri Mohd Ghazali Bin Mohd Yusoff, a Malaysian, aged 70, was appointed to the Board of Directors of AFFINBANK on 20 June 2014. He is currently the Chairman of Board Audit Committee and a member of Board Nomination and Remuneration Committee and Board Risk Management Committee.

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 10 scheduled monthly Board Meetings and all 14 Special Board Meetings held during the financial year ended 31 December 2016.

en. aBD malik Bin a rahmanIndependent Non-Executive Director

En. Abd Malik Bin A Rahman, a Malaysian, aged 68, was appointed to the Board of Directors of AFFINBANK on 3 March 2015. He is currently the Chairman of the Board Nomination and Remuneration Committee, Board Risk Management Committee and Board Oversight Transformation Committee.

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, World Courier (M) Sdn Bhd, Gyrodata Services Sdn Bhd, Modifin Malaysia Sdn Bhd, HTC Malaysia Sdn Bhd, Hilti (M) Sdn Bhd, Lionex (M) Sdn Bhd, BHIC Shipbuilding & Engineering Sdn Bhd. He is also a Director of the subsidiaries of AFFIN Holdings Berhad, namely AFFIN Hwang Investment Bank Berhad and AFFIN Hwang Asset 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 Sdn Bhd) from 1994 until 2003.

En. Abd Malik Bin A Rahman attended all 10 scheduled monthly Board Meetings and all 14 Special Board Meetings held during the financial year ended 31 December 2016.

LEFT TO RIGHT:

yBhg. tan sri mohD ghazali Bin mohD yusoff

en. aBD maliK Bin a rahman



8

Management Team

11. PN. KHATIMAH BINTI MAHADI Group Chief Internal Auditor

12. PN. NOR ROzITA BINTI NORDIN Chief Human Resource Officer

13. PN. NIMMA SAFIRA BINTI DATO’ KHALID

Chief Legal Officer and Company Secretary

14. EN. SHARIFFUDIN BIN MOHAMAD Executive Director, Operations and

Strategic Services (Retired w.e.f. 31.10.2016)

15. EN. AMIRUDIN BIN ABDUL HALIM Executive Director, Banking (Retired w.e.f. 1.08.2016)

01. EN. KAMARUL ARIFFIN BIN MOHD JAMIL

Group Chief Executive Officer Affin Holdings Berhad

Managing Director / Chief Executive Officer Affin Bank Berhad

02. EN. NAzLEE BIN KHALIFAH Chief Executive Officer

Affin Islamic Bank Berhad

03. EN. zULKANAIN BIN KASSIM Chief Operating Officer (Appointed w.e.f. 1.10.2016)

04. EN. MOHAMMED NIzAR BIN FAISAL

Director, Corporate & Public Sector Business (Appointed w.e.f. 1.10.2016)

05. MR. LIM KEE YEONG Director, SME & Commercial Business (Appointed w.e.f. 1.9.2016)

06. EN. IDRIS BIN ABD HAMID Director, Consumer Banking

07. MR. TAN KOK TOON Director, Group Treasury

08. MR. RAMANATHAN RAJOO Chief Financial Officer

09. MR. WONG KOK LEONG Group Chief Risk Officer

10. PN. NORHAzLIzAWATI BINTI MOHD RAzALI

Group Chief Credit Officer

01

06

11

04

09

14

02

07

12

03

08

13

05

10

15

ANNUAL REPORT 2016

9

en. kamarul ariffin Bin mohD JamilGroup Chief Executive Officer, Affin Holdings BerhadManaging Director / Chief Executive Officer, Affin Bank Berhad

En. Kamarul Ariffin Bin Mohd Jamil was appointed as the Managing Director/Chief Executive Officer of Affin Bank Berhad on April 2015 and is also Group Chief Executive 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 Cambridge University with a Bachelor of Arts in Economics.

en. nazlee Bin khalifahChief Executive Officer, Affin Islamic Bank Berhad

En. Nazlee Bin Khalifah, a Malaysian aged 49, was appointed as Chief Executive Officer, Affin Islamic Bank Berhad on June 2015.

Nazlee started his career in banking industry with Maybank for 17 years in various capacity especially in strategic management. Nazlee joined Affin Bank Berhad as Head, Business Strategy & Support, Business Banking Division on February 2009. Subsequently, in April 2011, Nazlee was appointed as Chief Corporate Strategist.

Nazlee graduated from the Simon Fraser University, Canada with a Bachelor of Business Administration degree, majoring in Accounting & Finance.

Presently Nazlee is the Alternate Director to Kamarul Ariffin Bin Mohd Jamil for IAP Integrated Sdn Bhd and Raeed Holdings Sdn Bhd and the Honorary Treasurer for The Association of Islamic Banking Institutions Malaysia (AIBIM). He was appointed to the Charter Governing Panel of Chartered Institute of Islamic Finance (CIIF) in 2016.

en. zulkanain Bin kaSSimChief Operating Officer(Appointed w.e.f. 1.10.2016)

En. zulkanain Bin Kassim joined Affin Bank Berhad on 1 October 2016 as Chief Operating Officer. He is responsible for planning, organizing and controlling of all operational activities of the Bank, which includes IT Services, Banking Operations, and Loan Administration and Documentation. Prior to AFFINBANK, zulkanain held the position as Group Managing Director of MEPS.

zulkanain holds a Bachelor of Science (Hons) degree in Computer Science, Universiti Teknologi Malaysia, and recipient of the coveted Leadership Award – Individual by CEPI Asia in modernising Malaysia’s payment infrastructure.

zulkanain brings with him more than 25 years of experience in financial services industry, primarily in Information Technology, Banking Operations, Customer Solutions, and Payments.

LEFT TO RIGHT:

en. Kamarul ariffin Bin mohD Jamil

en. nazlee Bin Khalifah

en. zulKanain Bin Kassim

Profile of Management Team


10

en. mohammeD nizar Bin faiSalDirector, Corporate & Public Sector Business(Appointed w.e.f. 1.10.2016)

En. Mohammed Nizar Bin Faisal joined Affin Bank Berhad on 1 October 2016 as Director, Corporate & Public Sector Business. He is responsible for developing and implementing strategies to drive the growth of Corporate & Public Sector Business for Affin Bank Group, which include among others, to drive revenue and growth, deepen business relationship with all stakeholders involved, to implement strategies aligned to new products, clients and markets, to bring best practice tools to enhance the existing model, to ensure good corporate governance and practices and lastly to build a sustainable and cohesive wholesale proposition within Affin Bank Berhad.

Nizar holds a Bachelor of Arts (Hons) in Marketing from Middlesex University, United Kingdom. Nizar brings with him more than 19 years of experience in the financial services industry, primarily in Wholesale Banking and Public Sector Banking. The last 17 years of his career have been mainly in foreign banks in Malaysia under Client Coverage for both Public Sector and Large Local Corporate names operating in Malaysia. As part of the wholesale proposition, Nizar has been involved in various dealings related to Credit Policy, Corporate Banking, Debt Capital Markets, Capital Markets and Advisory, Project and ECA Financing, Islamic Banking and Business Banking.

mr. lim kee YeongDirector, SME & Commercial Business(Appointed w.e.f. 1.9.2016)

Mr. Lim Kee Yeong joined Affin Bank Berhad on 1 September 2016 and is responsible for developing and implementing strategies to drive the growth of SME and Commercial Business for the Bank.

Lim brings with him more than 23 years of experience in banking and finance, primarily in Commercial & SME business at both local and foreign banks. Prior to joining AFFINBANK, he was the Vice-President of SME & Commercial Banking and a member of the Board of Directors of a Singapore-based Financial Holdings company, focusing on investments and financial services in the ASEAN region.

Lim also served as Senior Vice-President of SME Business at a local bank, where he was instrumental in the impressive growth of the Bank’s SME Business, resulting in several local and regional awards.

Lim holds a Master of Business Administration and Bachelor of Business Administration, both from Wichita State University, Kansas, USA.

en. iDriS Bin aBD hamiDDirector, Consumer Banking

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

Idris began his career with Malayan Finance Corporation (MFC) in 1978 and later pursued his career at Arab-Malaysian Finance Corporation for 10 years holding various positions and his last post was Head, Retail Banking.

Later in 1994, he joined AFFINBANK Berhad as General Manager and subsequently as CEO 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 covering both Corporate and Consumer banking business.

Idris graduated with a Master in Business Administration from the University of Northern Colorado in 1984 and a Bachelor of Science (Finance) degree from University of Southern Illinois in 1982.

LEFT TO RIGHT:

en. mohammeD nizar Bin faisal

mr. lim Kee yeong

en. iDris Bin aBD hamiD


ANNUAL REPORT 2016

11


mr. Tan kok ToonDirector, Group Treasury

Mr. Tan Kok Toon joined Affin Bank Berhad as Head of Treasury in October 2004 and is responsible for managing all aspects of Treasury Divisions of Banking Group. 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.

mr. ramanaThan raJooChief Financial Officer

Mr. Ramanathan Rajoo began his career in 1988 as an audit trainee with Coopers & Lybrand and rose to the position of Audit Senior before joining AFFINBANK in 1991 as an Executive in Finance Division. Rama was appointed as Chief Financial Officer of Affin Bank Group in 2014.

With an extensive experience of over 26 years ranging from auditing, financial accounting, financial management, capital management, regulatory reporting and recovery, Rama serves as a strategic Business Partner to the Chief Executive Officer and Senior Management to achieve the overall objective of the organisation. He currently chairs various committees within the Bank and participates as key member in some of the other committees.

He is a member of the CPA Australia as well as the Malaysian Institute of Accountants. He holds a certified Credit Professional qualification from the Asian Institute of Chartered Bankers. He also holds a degree in Accounting from the National Universiti of Malaysia and a Master in Business Administration from Universiti Putra Malaysia.

mr. Wong kok leongGroup Chief Risk Officer

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 dual 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 and the Financial Services Institute of Australasia (FINSIA).

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

Wong sits on the Examinations Committee, Asian Institute of Chartered Bankers.

LEFT TO RIGHT:

mr. tan KoK toon

mr. ramanathan raJoo

mr. Wong KoK leong


12

Pn. norhazlizaWaTi BinTi mohD razaliGroup Chief Credit Officer

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

Norhazlizawati 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 business, risk management and credit risk disciplines. Her areas of strength include Credit and Risk Management, Commercial, SME and Retail Lending, Relationship Management and Project Management.

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

Pn. khaTimah BinTi mahaDiGroup Chief Internal Auditor

Pn. Khatimah Binti Mahadi joined Affin Bank Berhad as Chief Internal Auditor in 2004 and subsequently appointed as Group Chief Internal Auditor in April 2007. Prior to Affin Banking Group, she served Citibank Malaysia as Country Internal Audit Head & Compliance Director.

She has over 30 years of banking experiences particularly in the areas of Auditing, Compliance, Investigations, Project Management and Quality Assurance. She is also a trainer in Compliance & Control areas.

She attained her leadership trainings at Harvard University, Boston & Disney Institute, LA and is an Associate Fellow of Institute of Bankers Malaysia.

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

Pn. nor roziTa BinTi norDinChief Human Resource Officer

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

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

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

LEFT TO RIGHT:

Pn. norhazlizaWati Binti mohD razali

Pn. Khatimah Binti mahaDi

Pn. nor rozita Binti norDin


ANNUAL REPORT 2016

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LEFT TO RIGHT:

Pn. nimma safira Binti Dato’ KhaliD

en. shariffuDin Bin mohamaD

en. amiruDin Bin aBDul halim

Pn. nimma Safira BinTi DaTo’ khaliDChief Legal Officer and Company Secretary

Puan Nimma Safira Binti Dato’ Khalid is the Chief Legal Officer and Company Secretary of Affin Bank Berhad and Affin Islamic Bank Berhad (AFFIN Bank Group). 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 is also the Company Secretary of AFFIN Holdings Berhad appointed since 1 August 2011.

Nimma started her career of 23 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.

Nimma is an Affiliate member of The Malaysian Institute of Chartered Secretaries and Administrators (MAICSA) and a member of the Asian Institute of Chartered Bankers (AICB).

en. ShariffuDin Bin mohamaDExecutive Director, Operations and Strategic Services(Retired w.e.f. 31.10.2016)

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).

Shariffudin retired as Executive Director, Operations and Strategic Services with effect from 31 October 2016.

en. amiruDin Bin aBDul halimExecutive Director, Banking(Retired w.e.f. 1.8.2016)

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.

Amirudin retired as Executive Director, Banking with effect from 1 August 2016.



14

Management Discussion & Analysis

“AFFINBANK (AFFIN OR THE BANK) DEPLOYED ITS AFFINITY TRANSFORMATION PROGRAMME (ATP) IN 2016 FOCUSING ON THE BANK’S CUSTOMER SEGMENT, DELIVERY CHANNELS, PRODUCTS & SOLUTIONS, OPERATIONS, TECHNOLOGY, PEOPLE, RISK & COMPLIANCE AND PERFORMANCE MANAGEMENT. AFFINITY IS BY FAR THE BANK’S MOST COMPREHENSIVE TRANSFORMATION PROGRAMME TO IMPROVE OUR COST TO INCOME RATIO, RETURN ON EQUITY, OPERATING PROFIT, FEE TO TOTAL INCOME AND CUSTOMER EXPERIENCE.”

ANNUAL REPORT 2016

15

2016 revieW

The year 2016 was challenged by unexpected macro economic world developments such as Britain’s exit from the European Union (Brexit) and the US presidential elections. These resulted in volatility in currency and commodity prices, leading to uncertainty in market sentiments and slower economic growth for Malaysia.

Having earlier taken steps to reduce pricier deposits and shift assets towards better yielding loans in the consumer segments such as mortgages, credit cards and unit trust financing as well as the small and medium enterprise (SME) segment; AFFINBANK was well positioned to sustain earnings for 2016.

Profit before zakat & taxation (PBzT) increased by 30.7% to RM602.8 million, compared to RM461.2 million recorded in 2015. Gross loans, advances and financing stood at RM43.1 billion and deposits from customers at RM47.6 billion.

Business Banking, now restructured as the two new divisions of Corporate and Public Sector Business Division (CPSBD) and SME and Commercial Business Division (SMECBD), continued to be the major contributors to the Bank’s revenue, followed by Treasury and Consumer Banking. The Bank will continue to grow its Consumer Banking assets so as to achieve a balanced 50:50 contribution ratio between CPSBD and SMECBD combined, and Consumer Banking.

Return on Equity (ROE) improved from 6.79% to 8.45%; while Gross Impaired Loan Ratio was lower at 1.60% from 1.80% in 2015 even as total assets grew by 0.5% to RM60.2 billion. These showed that new financing growth for the year were anchored by prudent underwriting and lower allowances for loan impairment which led to improved asset quality.


Total Assets

2015 RM59.8 billion

2016 RM60.2 billion

+0.7%

Net Financing, Advances& Other Financing

2015 RM42.1 billion

2016 RM42.7 billion

+1.4%

Shareholders’Equity

2015 RM5.5 billion

2016 RM5.8 billion

+5.5%

Earnings Per Share(EPS)

2015 20.5 sen

2016 27.5 sen

+34.1%

As part of proactive capital management, the Bank has successfully placed its maiden issuance of RM1 billion subordinated debt which was 1.6 times oversubscribed. This is part of the issuance of our Subordinated MTN (Medium Term Notes) and/or Senior MTNs programme of up to a combined limit of RM6.0 billion in nominal value.

Earnings per Share (EPS) saw a 34.1% value gain from 20.5 sen the year before to 27.5 sen in 2016.

During the year, AFFINBANK also received the JomPay Award with the highest biller acquired within Group B beating all local and foreign banks in that category. This indicates a measure of success in driving online payment culture among our customers.

2016 Key highlights

The core focus for the year was the implementation and progress made on the AFFINITY Transformation Programme (ATP). In order to create the necessary impact and outcome which are sustainable over the long term, the plan aims for major and deep-seated changes which cover end-to-end view of the business, and targets to double AFFINBANK’s operating income in 2020.

PROFIT BEFORE zAKAT AND TAXATION

+30.7%2015 : RM461.2 MILLION

2016 : rm602.8 MILLION


16


AFFINITY’s phase 1 objective was completed during the year under review, and was centered on the blueprint for the new target operation model comprising Eight Pillars – Target Customer Segments, Delivery Channels, Products & Solutions, Operations, Technology, People & Organisation, Performance Management and Risk & Compliance Governance.

During the course of Phase 1, the following were accomplished:

• ATPCommunicationroadshows/townhallstoallregionswere conducted to share information on the Programme. The AFFINITY newsletter and our Intranet have published details of the transformation since January 2016.

• AnemployeeDreamBankcampaignwasalsoexecutedto solicit inputs and ideas from staff on the Bank’s transformation.

• ThePlanningteamembarkedonadiscoveryandanalysisof business issues across the Divisions and established a comprehensive set of issues, challenges and imperatives to be addressed in the ATP.

• ThePlanningteamthendevelopedtransformationmodels for the “future” AFFINBANK and identified the capabilities required to pursue these models.

• Underpinningthetransformationisthereviewofthecurrent mission and vision statements, including core values.

We are now moving to Phase 2 which focuses on ‘Detail design & quick wins’. The whole programme is expected to be completed in 2019.

Moving towards new frontiers in service delivery and expansion, AFFINBANK achieved several new milestones through partnerships with The Islamic Corporation for the Development of the Private Sector (ICD) and Asian Business School (ABS).

Total Assets

2015 RM59.8 billion

2016 RM60.2 billion

+0.7%

Net Financing, Advances& Other Financing

2015 RM42.1 billion

2016 RM42.7 billion

+1.4%

Shareholders’Equity

2015 RM5.5 billion

2016 RM5.8 billion

+5.5%

Earnings Per Share(EPS)

2015 20.5 sen

2016 27.5 sen

+34.1%

Phase 1PROGRAMME ANALYSIS & PLANNING

Phase 2DETAIL DESIGN & QUICK WINS IMPLEMENTATION

Phase 3CAPABILITIES BUILDING & IMPLEMENTATION

Phase Objectives

•Establisharobustfoundationfor the Programme based on requisite analyses and validation of aspirational targets and parameters.

•CreateacomprehensiveplanfortheProgramme including governance, resources and schedule.

•Detailidentifiedcapabilitiesand capability changes to the required level for building.

•Undertakecapabilitybuildingand implementation planning.

•Build,TestandDeployplannedcapabilities. Based on established prioritised schedule, capabilities building will be initiated.

•Continuouslytrackandmonitorprogress and accomplishment.

•Createandimplementbenefitsrealisation plan.

Estimated Duration

January to June 2016 June 2016 - June 2019

affinity transformation Programme

ANNUAL REPORT 2016

17


Our partnership with ICD is in line with AFFINBANK’s Priority Islamic Policy. Priority Islamic is our strategic move to enhance our Islamic financing portfolio to 40% in 2020. This strategy has seen a 14.6% higher income from Islamic banking for year 2016, with Islamic financing portfolio growing to 29.1%.

In addition, we were the first bank to collaborate with ABS to introduce the Ethics, Risk and Compliance Culture Awareness Programme. The objectives of this programme are to empower staff to develop ethical and critical, risk-return based decision making skills and to align core behaviour to inculcate a strong and healthy ethics, risk and compliance culture compliance into day to day business activities and processes.

The Bank also implemented a new integrated Asset & Liability Management System (ALMS) in May 2016 which enables AFFINBANK Group to better manage interest rate risk, profit rate risk, liquidity risk, capital and large exposures.

As part of our efforts to enhance customer experience, as well as to extend our reach and create greater cost efficiencies, we embarked on a digitalisation programme in 2016.

We intend to embrace digitalisation as a forward looking strategy to secure our future in an increasingly digitalised environment. Increasingly more than 50% of the Malaysian populace have access to internet and engage in online transactions. This creates a greater demand for transactions which are cost and time efficient, convenient and increasingly more appealing to the younger millennial segment.

corPorate social resPonsiBility

Though our primary responsibility towards our stakeholders is to create stability in our business and the social environment, the Bank is mindful in ensuring that its policies, products and services, performance and conduct positively impact the financial, societal and environmental well-being of our stakeholders. We do this through a focus on the four pillars of Workplace, Marketplace, Community and Environment.

Inculcating healthier lifestyle and a spirit of caring among its employees, AFFINBANK provides opportunities for sports involvement among our employees as well as encourages staff participation in annual community events such as Bursa Bull Charge and blood donation drives.

For the 13th consecutive year, the Bank continued to offer Educational Excellence Awards to children of staff who excelled in their Sijil Pelajaran Malaysia (SPM).

Enhancing its profile as a dynamic and responsible corporate citizen within the community, AFFINBANK sponsored the Harian Metro Mountain Bike Grand Prix 2016 and Warriors Challenge 2016 organised by Persatuan Veteran Angkatan Tentera Malaysia. Support for the Malaysian Armed Forces was followed up during the Hari Raya festive celebration with a contribution of RM100,000 worth of gift packages to the Welfare Fund of the Malaysian Armed Forces.

AFFINBANK spread festive cheer through visit to old folks home during Chinese New Year and also invited 160 orphans to join in “Majlis Berbuka Puasa Bersama Anak Yatim”. The Bank also sponsored Utusan Melayu’s Tutor Pull-out Programme, which provides students and teachers with alternative learning material.

With the objective of protecting the environment, AFFINBANK partnered with Management Science University (MSU) for the Eco Marine Youth Expedition 2016 at Pulau Redang, Kuala Terengganu to conduct three days of green activities such as tree and coral reef planting and turtle conservation.


18

2016 objectives

An integral part of the Consumer Banking transformation in 2016 was to realign branch focus to deposits and at the same time cultivate strong customer service and compliance culture. As a result, our deposits grew and we had launched several campaigns such as AFFINBANK Double Reward, Raya Merdeka Bonanza, CNY FD Campaign and Special CNY FD Combo campaign to support this initiative.

The Division also made a gradual shift towards Islamic products which is in line with the Bank’s aspiration of Priority Islamic. The sales composition of Islamic Mortgage sales grew from 68% to 83% whilst the sales composition of Hire Purchase-i grew from 27% to 33%. Meanwhile, Cards Business transformation will soon introduce AFFINBANK’s first Islamic Credit Card in 2017 that will propel Cards Business into a new market arena and complement our existing range of credit card offerings.

Supporting the Banks’s focus on millennials, the digitalisation strategy started during the year with the launch of AFFINITY, focusing on revamping front-end touch points and re-engineering digital enterprise. AFFINITY strives to re-engineer consumer business to be customer centric with digital innovations at core, with the first priority on consumer banking and continue to expand to other business areas, thus, creating a seamless, easy-to-use digital proposition at all customer touch points.


AFFINBANK’S CONSUMER BANKING DIVISION EMBARKED ON A CONSUMER BANKING TRANSFORMATION IN LATE 2015 TO FORTIFY OUR SALES CULTURE THROUGH PRODUCT SPECIALISATION. THE CHANGE OF SALES DRIVERS FROM BRANCHES TO PRODUCT SPECIALISTS BORE FRUIT WITH MORTGAGE BUSINESS AND ASNB BUSINESS GROWING 13% AND 152% YEAR ON YEAR RESPECTIVELY IN 2016. THIS CHANGE HAS ALLOWED BRANCHES TO FOCUS ON DEPOSITS AND AS A RESULT DEPOSITS GREW 6% YEAR ON YEAR.

consumer BanKing

Moving forward, AFFINBANK aspires to become a premier digital bank in Malaysia. The six agendas in the digital transformations are:

1. Mobile-1st To prioritise mobile focus development for all products

and services

2. Omni-channel To provide consistent customer experience across all

channels, i.e. start digital end traditional (SDET) or start traditional end digital (STED)

3. Innovation To explore next-day technologies, collaborate with

FinTechs to fast-track innovation and create innovation lab to spur innovative thinking and culture

4. Social To leverage on social media platforms and digital

marketing efforts to reach and engage new and existing customers

5. Security To provide peace of mind banking for customers at all

digital touch points

6. UX/UI and Analytics To become a highly digital and innovative bank with

customer centricity at heart, coupled with analytics to offer right products at the right time, using the right channel

ANNUAL REPORT 2016

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2016 Performance

hire Purchase: For the first time in six years, the Total Industry Volume (TIV) for the new car market declined by 13% in 2016 to 580,124 units compared to 666,677 in 2015. This is attributed to uncertainties surrounding the economy, rising cost of living and weak consumer sentiment. However, pursuing win-win opportunities with our dealer principals, we managed to improve our sales yield by 30 basis points (bps). These included tie-ups with Cycle & Carriage Bintang Bhd, Kah Motor Bhd and Naza Kia Malaysia Bhd to offer GAP insurance as part of their product offerings. As sales for 2017 is expected to remain below 600,000, we will remain focused on asset preservation and pursue AFFINITY quick win strategies to encourage repeat customers.

mortgage Business: Despite the softening property market, the Mortgage Business had a sterling performance last year. Loan base grew 13% and loan stock increased 60% compared to 2015. This is mainly due to the implementation of sales hubs and the recruitment of product specialists to fortify our sales team capabilities. We intend to continue the momentum gained in 2016 as affordability will continue to be the main issue in 2017. Many customers are delaying big tickets purchases like houses due to rising cost of living and uncertain financial and employment outlook. To counter this issue, we are looking at increasing our cross-selling activities while continuing to target young professionals first home buyers, homeowners looking to upgrade, and those buying affordable residential property of price ranging from RM300K to RM700K.

asnB Business: AFFINBANK is a relative newcomer in the ASNB financing segment compared to heavyweights such as Maybank, CIMB and RHB. Despite challenges from competition and limited resources, our ASNB Business managed to grow by 152% year on year, and our USJ Taipan branch received the PNB-ASNB Starz Award 2015/6 for registering the highest number of counter transactions in AFFINBANK. For 2017, we will improve the process, build a more stable and sustainable sales force and harness opportunities within the Group, LTAT and Boustead to sell. We are targeting to achieve the prescribed PNB-ASNB quota by middle of 2017.

carDs Business: Our Cards Business outpaced industry growth in loan base where we grew 8.7% year on year versus industry growth of 2.6% (Visa report for FY2016). The success is attributed to the roll-out of three regional Card Sales Hubs; in Penang, Johor and Central; and strong collaboration with branches and other product hubs. The number of applications grew 142% whilst the number of approved credit card grew 238%. Besides that, Cards Business has also successfully completed its re-carding exercise to coincide with the move from signature to PIN based authorisation. We also relaunched AFFINBANK BHPetrol ‘Touch and Fuel’ MasterCard® Contactless and launched Cash-on-Call Instalment Programme during the year.

As part of initiatives under the AFFINITY Programme, more card product offerings are in the pipeline for 2017. These include Elite/Infinite cards for the Super Affluent market segment, UnionPay to cater to customers doing business in China, and Islamic Credit Card to allow us to penetrate into this growing segment and offer our customers better choices.

Wealth management: The ongoing market liberalisation has facilitated growth in the wealth management industry and these reforms have helped increase the liquidity for the trading of equity, bonds and derivatives in Malaysia. This presents an opportunity and challenge for us to focus on the importance of overall portfolio management for high net worth customers. In 2016, the Division continues to work closely with our partners including AFFIN Hwang Asset Management to introduce more sophisticated products to our Bank’s affluent customers. A shift in focus - from product push to customers needs – was adopted to strengthen our relationship with customers. This led to Wealth Management teams being housed in selected branches to provide better service; which helped grow our Asset Under Management (AUM) from RM95 million to RM142 million in 2016.

Building on this, we are developing a Personalised Banking platform to offer a convenient one-stop financial solution center for high net worth customers as part of our drive to shape new value propositions that will help us achieve recognition as one of the preferred providers of quality investment advisory and banking services for our affluent customer segment.


20


Business BanKing

corPorate & PuBlic sector Business Division (cPsBD)

CPSBD continued to be the main contributor to the Bank’s asset growth and income generation in 2016. The division tracked a commendable performance, achieving the threshold return on equity (ROE) across all client groups and attaining a respectable revenue of RM1.03 billion or an increase of 20% compared to 2015. The positive growth was in part due to discipline and strategy of deepening our wallet share of the client by providing a breadth of products and services in meeting needs of our clients.

2016 objectives

• StructuringandimplementationofnewRelationshipManager (RM) model as well as orderly client segmentation of business between CPSBD and SME & Commercial Banking.

• EnhancementofCPSBD’scomplianceandbusinessrisk functions into an independent and transparent functioning department in line with regulatory and Groups’ requirements.

• ImplementationofCoveragetoolkitandtrainingmodulesfor Relationship Managers, Client Service Teams (CST – Middle Office) and Business Intelligence Department (Back Office) over the next 12 months with focus on upscaling knowledge around the new RM model.

• ShiftloancompositiontowardsmeetingIslamicBankingintegration initiative of having Islamic Banking accounts holding 80% of the Bank’s total loan portfolio instead of 20% as per the current position.

2016 Performance

Due to global economic uncertainties and volatility in commodity prices throughout the year, CPSBD shifted its concentration on growing quality asset and generating revenue from its portfolio and focus on fee based income. A kitchen sinking exercise to right the portfolio returns was done. This involved a structured approach towards looking at wallet sizing and meeting internal ROE targets as well as the target to be self-funded.

loan groWth: Strategies for loan growth covered a strong focus on asset quality given the uncertain outlook of global/local economy. Given the focus and attention on asset quality, the overall division impairment position during the year was maintained at a healthy 0.43%. Priority was also placed on increasing deposits during the year, to strengthen the bank’s Loan to Deposit (LD) ratio.

Moving forward CPSBD’s loan growth strategy is to focus on specific target segments identified by respective business units and to be critical about monitoring existing loan portfolio in proactive manner. We continue to monitor and review our portfolio quality consistently, while refocusing the way we originate asset and manage it differently especially for new corporate and SME customers.

traDe Business: In enhancing trade business, CPSBD focused on building strategic alliances with correspondent banks, branches and hubs. This was fortified further by strengthening and developing product competitiveness to drive higher fee and interest income. At the same time, we intend to reduce cost and increase efficiency by driving more automation in processes. Moving ahead, we aim to forge closer ties with valued clients towards developing more relevant trade solutions for them.

IN THE LAST QUARTER OF 2016, ARISING FROM THE REALIGNMENT OF BUSINESS STRATEGIES AND SEGMENTATION, AFFINBANK’S BUSINESS BANKING WAS RESTRUCTURED INTO TWO DIVISIONS – THE CORPORATE & PUBLIC SECTOR BUSINESS DIVISION AND THE SME & COMMERCIAL BUSINESS DIVISION. THIS MOVE ALLOWED MORE INTENSIFIED FOCUS ON TARGETING DIFFERING CUSTOMER SEGMENTS WITH PRODUCT AND SERVICE BENEFITS TUNED TO THEIR SPECIFIC NEEDS.

ANNUAL REPORT 2016

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cash management: In 2016, strategies for cash management include an aggressive push for the AffinAce Campaign to drive the Corporate Current Account (CACO); reaping the fruits from the “Pre-approved Inquiry Package” initiatives where applications are increasing; running a campaign to increase utilisation and aggressively acquire Jom-Pay Billers to increase the transaction volume.

In ensuring the success of the business segmentation initiative, CPSBD desks have also been strategically located in key business centres during the year. An ongoing major move for CPSBD is to build its presence nationally and ensure it is present in all geographical locations. This will enable good coordination of all client coverage activities and facilitate compliance engagement to be standardised or streamlined across states.

Moving forward, CPSBD aims to enhance collaboration with all stakeholders within the Group in order to optimise on opportunities and ensure sustainability of the business.

sme & commercial Business Division (smecBD)

The newly created SMECBD undertakes the management, development and expansion of the Bank’s SME & Commercial Business portfolio going forward. Armed with 16 business centres for a start, SMECBD will be working on expanding reach, product suites as well as delivery capabilities with an aim of providing a comprehensive suite of financial solutions to Malaysian SMEs.

2016 objectives

• SetupofSME&CommercialBusinessDivisionstructureand put core team in place as part of AFFINITY by end of 2016.

• RolloutSME&Commercial5-yearstrategicplanwithhigh-level business targets and indicators for execution in 2017 and beyond.

• Planandintroduceshortandlongterminitiativestoenhance the business, including projects for people, process, product/solution and business enabler.

2016 Performance

A major milestone of the year for SMECBD was the timely completion of the division realignment which encompassed the movement of personnel, portfolio and infrastructure. This has been largely completed resulting in a smooth transition into Business-As-Usual moving forward.

The Division took on the management of all existing business centres and 150 staff with an initial portfolio of RM3.3 billion in lending base and a further over RM4 billion in deposit balances from 30,000 customers.

A 5-year strategic plan has been laid down to provide focus and guidance to the team moving forward. Overall, the Bank intends to be the “Main Bank” to our SME customers while remain relevant as the “Preferred Bank” to our Commercial-grade customers. The plan sets out several prudently crafted core objectives to be achieved. Among them include portfolio sizes, revenue & returns as well as asset quality indicators.

Various short and long term initiatives were rolled-out in ensuring the Bank remain competitive and increasingly participative within the SME & Commercial space. Among the notable changes are:

1. SME application approval Turn-Around-Time (TAT) improved to under 5 working days on average; and

2. Compliance framework resulting in a shift of approach to proactive management of compliance and business risk going forward.

Being the new division in the Bank focusing on a very important segment of the Malaysian economy, the Bank will continue to invest resources into SMECBD. Development and expansion plan will be executed over the next several years under the guidance of our AFFINITY program in ensuring the Bank’s pivotal role in the SME segment. While the economy will have its fair share of challenges in 2017, SMECBD will continue to grow prudently in all critical aspects in accordance to its 5-year plan.



22

IN BUILDING ALLIANCES TO STRENGTHEN OUR POSITION, AFFINBANK’S TREASURY DIVISION ACTIVELY ENGAGES WITH RELEVANT ASSOCIATIONS AND COUNCILS TO EXTEND ITS INFLUENCE. CURRENTLY, THE DIVISION HOLDS THE POSITION OF HONORARY SECRETARY POSITION OF FINANCIAL MARKET ASSOCIATION OF MALAYSIA AND THE CHAIR TO SEMINAR AND EDUCATION COMMITTEE. IT IS ALSO REPRESENTED IN THE ECONOMIC COUNCIL OF MALAYSIA-CHINA CHAMBER OF COMMERCE.

treasury

2016 objectives

The principal objectives of the Bank’s Treasury Division are:

• ManageForeignExchange(FX)andinterestrateriskofthe Bank

• SatisfycustomerneedsinTreasuryrelatedproducts and services

• Fulfiltheliquidityneedsandassetandliability(ALM)functions of the Bank

• Meetregulatoryandinternalcompliance

• Operateprofitabletrading/arbitraging/investmentbusinesses

2016 Performance

It was a challenging year for the Treasury Division. Major geopolitical events such as Brexit and the U.S. Presidential election created much uncertainty and heightened market volatility in 2016. On top of that, huge movements in USD/MYR exchange rates due to domestic and international events created added challenges in the already volatile FX and interest rate markets. All these within an environment of on-going intense pricing competition.

With careful planning and focus on a few strategic initiatives via assets building and creative marketing, Treasury Division was able to not only deliver the desired result but exceed set targets.

• Yearonyearprofitbeforetax(PBT)growthof69.5%

• Actualachievementof49.7%overbudgetedPBTsetbythe Management

• AffinIslamicBankBerhad(AIBB)andAffinBankBerhad(ABB) cost of funding (COF) improved by 15 bps and 24 bps respectively

• AiBBandABBnetmarginimprovedby7bpsand18bpsrespectively

• GroupCOFandnetmarginimprovedby22bpsand14bps respectively

Treasury Division’s non-interest income growth in financial year 2016 (FY 2016) was also in-line with our Bank’s long term strategic intent of 65:35 ratio. Treasury Division’s FY 2016 fee base income was higher by 34.5%.

We expect greater uncertainty and unexpected volatility to continue to be the flavour of the markets where the rates cycles are not in sync globally. Likewise the FX market will experience greater capital and fund flows which will eventually be translated into heightened volatility.

The ever changing regulatory landscape is also another major challenge not only for Treasury Division but the banking industry as a whole.

Against of the above mentioned backdrop, Treasury Division will have to take a careful view based on available data to prepare and position ourselves to seize any potential opportunities when it happens. We will also focus on closing our technical competency gaps to meet the challenging landscape of the industry, whether from product or compliance perspective.

A more strategic focused approach will be taken to fulfil the liquidity needs and ALM issues to address our Bank’s liability portfolio gaps as well as to reduce our Bank’s COF to enable business units to price their asset offerings efficiently to enhance shareholders’ values.

Moving forward, we will continue to support our Bank to consistently deliver reliable and quality financial services and solutions not only to meet but exceed customers’ requirements and expectations.


ANNUAL REPORT 2016

23


outlooK: risKs

Three major developments affected the global economic and financial environment in 2016:

1. Sharp decline in commodity prices particularly crude oil prices.

2. Heightened volatility in financial markets driven by speculative activities as well as policy changes in major economies. The US raised interest rates for the first time since the 2008 Global Financial Crisis (GFC) while the Eurozone and Japan adopted negative interest rates and increased monetary stimulus through their respective asset purchase programmes.

3. Global growth moderated with global trade growth experiencing a sharp decline, registering its slowest pace of expansion since the GFC.

The adjustment process is still continuing and could be more prolonged as the global economy continued to underperform with uncertain macroeconomic conditions despite signs of recovery in the US and with weaknesses still evident in Europe and China. A long period of low global oil prices and depreciation of the ringgit exchange rate is expected. These developments coupled with high market volatility has resulted in greater uncertainties and affected business and household sentiments.

Prevalent risks within Malaysia’s domestic banking industry include:

• Weakexternaldemandunderuncertainmarketconditions which could translate into lack-lustre domestic demand, easing loan growth, greater pressure on earnings and concerns over asset quality from the possible rise in impaired loans.

• Highhouseholddebtduetocontinuousexpansionindemand and extended period of low interest rate over recent years.

• Imbalancesinthehousingsector,whichifleftunchecked,may impact the real estate market with negative spillovers to other parts of the economy.

• Margincompressionduetoheightenedcompetitionfordeposits in the industry and more stringent capital and liquidity requirements.

• IncreasedcompliancecostasinvestmentsinInformationTechnology (IT) infrastructure and human capital development are needed to keep pace with the latest regulatory developments as well as to manage the increasingly complex risks.

• Increasedcyber/technologyriskcompoundedbythegrowing threat of sophisticated malicious softwares which increases the vulnerability of customers’ confidential data and money.

In mitigating the risks identified above, the Bank’s Group Risk will continue to strengthen its risk management functions and practices in accordance with the Group’s structure and strategic priorities. These include the following focus areas:

1. Supporting the group’s strategic growth through enhanced risk management on enterprise-wide basis

2. Aligning of Risk Appetite across the group

3. Strengthening risk infrastructure as well as enhancing risk management models and processes

4. Reinforcing ethics, risk and compliance culture, risk oversight and governance

5. Build and upskill risk management human resources

outlooK: oPPortunities

The Malaysian economy is expected to grow by 4.0% - 5.0% in 2017. Capitalising on this slight increase in momentum, AFFINBANK will maintain a strong focus on managing growth with asset preservation in mind, especially in view of the implementation of Malaysian Financial Reporting Standard (MFRS) 9 in 2018.

The Bank’s objective in 2017 will be to leverage on AFFINITY to operate as a trusted partner to our clients; increase our asset and income targets within the prescribed budget set by the bank; and to implement industry best practices in managing and growing with our clients. New target segments have been identified according to projected growth impetus for certain industries in 2017. These include industries involved in infrastructure related projects, as well as Government Linked Companies and Government Linked Investment Companies. While uncovering acceptable opportunities within these sectors, the Bank also aims to continue build AFFINITY with existing pool of clients and enhance our portfolio of products and services to deliver distinct value that stand out from our competitors.


24

Corporate Diary

24 Jun 2016majlis Berbuka Puasa Bersama anak-anak yatim & launch of Priority islamic

In conjunction with the holy month of Ramadan, AFFINBANK Group treated 160 children from several orphanages. Besides that, the Bank also launched its “Priority Islamic” campaign during the event. “Priority Islamic” is the Bank’s pro-active step in supporting Bank Negara Malaysia’s 10-year Financial Sector Strategic Blueprint, which aims to enhance Islamic financing portfolio to 40% by the year 2020.

14 aPr 2016official launch of affinBanK Denai alam Branch

22 feB 2016chinese new year charity visit to ampang old folks home

23 feB, 27 Jul, 01 nov 2016Blood Donation Drives at menara affin

26 Jul 2016tabung haji

AFFINBANK sponsored the publication of the book called “Wirid Terpilih Untuk Dhuyufurrahman”. This charity programme is called “Sahabat Korporat Tabung Haji 1435H” which is organised by Lembaga Tabung Haji. These books will be distributed to pilgrims during their stay at the holy land this year.

21 Jul 2016aidilfitri with staff of affinBanK

Hari Raya Aidilfitri celebration for all AFFINBANK Group’s staff

03 Jun 2016official launch of affinBanK tabuan Jaya Branch

27 may 2016Dinner with customers

Appreciation Dinner for customers in Ipoh, Perak.

21 Jun 2016hari raya goodies for the malaysian armed forces

In conjunction with the Hari Raya festive celebration, AFFINBANK contributed RM100,000 worth of gift packages to the Welfare Fund of the Malaysian Armed Forces.

12 may 2016affin education excellence award 2016

The Bank presented the Education Excellence Awards to 44 children of staff from all departments and branches who had excelled in their 2015 Sijil Pelajaran Malaysia (SPM).

ANNUAL REPORT 2016

25

08 seP 2016Bursa Bull charge 2016

AFFINBANK supported the event by providing cash sponsorship and participation in the Bursa Bull Charge Run.

01 aug 2016affinBanK group Partners With msu for eco marine youth expedition 2016

AFFINBANK Group partnered with Management Science University (MSU) for Eco Marine Youth Expedition 2016 which was held at Pulau Redang, Kuala Terengganu. The three-day activities which included tree and coral reef planting and turtle conservation were participated by some 80 people comprising 60 MSU students and 20 of the Bank’s staff based in Terengganu.

22 seP 2016affinBanK group collaborates with asian Banking school for ethics, risk & compliance culture awareness Programme

AFFINBANK Group signed an agreement with Asian Banking School (ABS) for the provision of a customized training programme which aims to empower staff to develop ethical and critical, risk return based decision-making skills and equipping senior management with the right tools to ensure effectiveness.

10 Dec 2016Warriors challenge 2016

AFFINBANK Group was the main sponsor of the Malaysia’s first military themed obstacle run, Warriors Challenge 2016 organised by Persatuan Veteran Angkatan Tentera Malaysia as part of Hari Pahlawan celebration that is observed every year. The objective is to inculcate patriotism among the younger generation as well as to commemorate the sacrifices of the armed forces.

13 aug - Southern Region

03 seP - Northern Region

15 oct - Central Region

oh! syoknya. Karnival sukan affinity

Sport carnivals were held in all regions in order to strengthen the relationship among all AFFINBANK Group’s staff from all levels.

15 aPr, 10 aug 2016town hall

A session by MD/CEO En. Kamarul Ariffin Mohd Jamil addressing the staff on the AFFINITY programme and the strategic way forward for the Bank.

28 aug 2016BhPetrol orange run 2016

AFFINBANK participated in the BHPetrol Orange Run 2016, a 12-km long run organised to raise funds for selected charities.

Corporate Diary


26

Financial Highlights

27.5

60.2

47.6

20.5

59.9

47.8

33.3

59.5

48.0

37.5

56.4

46.1

earnings Per share (ePs)Sen

total assetsRM’billion

Deposits from customersRM’billion

Profit Before zakat and taxationRM’million

net loans, advances & financingRM’billion

shareholders’ equityRM’billion

‘13

‘13

‘13 ‘13

‘14

‘14

‘14 ‘14

‘15

‘15

‘15 ‘15

‘16

‘16

‘16

602.8

42.7

5.8

461.2

42.1

5.5

720.1

39.5

5.2

762.2

36.2

4.4

‘13

‘13

‘14

‘14

‘15

‘15

‘16

‘16

‘16

ANNUAL REPORT 2016

27

Statement on Corporate Governance

The Board of Directors (‘the Board’) of Affin Bank Berhad (‘the Bank’) and Management seek to embrace high standards and principles of Corporate Governance in all areas of the banking industry towards enhancing business prosperity and corporate integrity, having the ultimate objective of safeguarding shareholder’s value and interest of the stakeholders. The Board continuously review its governance model to ensure its relevance, effectiveness and ability to meet the challenges of the future. The Board provides guidance and oversight of the Bank’s strategic agenda and operations. The Board acknowledges its responsibility to act diligently and responsibly in accordance with legislation and regulations in serving the interests of shareholders, customers, employees and the community at large.

The Board and Management are fully committed and constantly strive in ensuring the Bank operates in accordance with the Financial Services Act 2013 (‘FSA’), Malaysian Code of Corporate Governance 2012 (‘MCCG’), Bank Negara Malaysia Policy Document on Corporate Governance dated 3 August 2016 (‘BNM CG’) and other applicable laws and regulations. The Board and Management place great importance on the safety and soundness of the Bank as a financial institution where risks and business prudence are appropriately balanced. Throughout 2016 and to-date, the Bank continues to conduct its business with integrity and exert a high level of transparency and objectivity.

The Bank adheres to the fit and proper requirement for directors pursuant to the FSA. The Board and Management remain dedicated in ensuring adherence to the Code of Ethics for the Financial Services Industry issued by the Financial Services Professional Board in December 2015 (‘FSPB-01’), which aims at instilling the five values, namely, discipline, integrity, humility, caring and creativity. The Board and Management set a high ethical business standard and practice for business conduct and code of behaviour for employees. The responsibility for implementing the policies and guidelines within the contemplation of the said Code of Ethics rest primarily with the Management with oversight by the Board Audit Committee. In addition, the Bank also has its own Code of Ethics that sets out sound principles and standards of best practices which are observed by the employees.

The following sections set out the commitment of the Bank in applying the best principles of Corporate Governance and extent of compliance with the recommended practice.

BoarD of Directors

The Board is committed in establishing long term sustainable value to the shareholders as well as the stakeholders. Testament to commitment in this respect, the Board is pleased to report that the Bank has complied with the principles and recommendations of the MCCG. The Board has consequently adopted a Group Policy on the maximum tenure of service for Independent Non-Executive Directors (‘INED’) to be in line with the BNM CG. In relation to this, BNM has allowed transitional arrangements for the Bank to fully comply with all other requirements thereunder.

Board’s roles and responsibilities

The Board acknowledge its role and responsibilities for the overall performance of the Bank.

The Board’s responsibilities remain within the framework of the FSA, MCCG, BNM CG and the Bank’s Board Policy Manual. The Board exercises great perseverance and diligence 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 approving business plans including targets and budgets and in approving major strategic decisions.

The Bank’s Board Policy Manual, which sets out the key corporate governance principles of the Bank, clearly define the role and responsibilities of the Board, Chairman and the MD/CEO in the areas of strategy setting, management of the company, integrity of internal control and communication, succession planning and risk management.


28


Board composition and Balance

The Board had, during the financial year ended 2016, undertaken changes at board leadership level pursuant to the requirement set out in the BNM CG.

The Board believes that it is important to build and refresh itself since it serves as a strategic asset and a source of long-term competitive advantage for the Bank in today’s highly competitive world. This includes a long term succession plan for the Board which is of equal importance.

The Board as a team, collectively provides a collection of mixed skills, knowledge and competencies which include banking, accountancy, finance, strategic management, business administration and risk management.

The Board composition comprised a majority of independent directors since year 2011. The Board currently comprise seven (7) directors with one (1) alternate director, two (2) of whom are Independent Non-Executive Directors (‘INED’) and five (5) Non-Independent Non-Executive Directors (“NINED”); the Chairman of the Board is a NINED. The profiles of the directors are set out in this Annual Report.

The composition of INEDs on the Board was initially 57.14% prior to the re-designation of YBhg. Tan Sri Dato’ Seri Mohamed Jawhar and En. Mohd Suffian Bin Haji Haron both of whom have served the Bank for a period of more than nine (9) years. Consequently the Board has undertaken important steps to initiate and effect changes at its level which will position the Bank for continued growth and create sustained value. In relation to this, the Board made concerted efforts and continue its focus in ensuring that the Board’s composition fall within the contemplation of the BNM CG requirement on majority INEDs within the stipulated time frame.

The current two (2) INEDs have no relationships or circumstances which are likely to affect, or could appear to affect their judgment. They bring with them an external perspective and viewpoint and assist in developing proposals on strategy. Further, they scrutinize the performance of the Management in meeting approved goals and objectives and monitor the risk profile of the Bank’s business and the reporting of monthly business performance.

The Board Nomination and Remuneration Committee (‘BNRC’) and the Board have upon their annual assessment, concluded that the two (2) INEDs continue to demonstrate conduct and behaviour that are essential indicators of independence, and that each of them continues to fulfil the definition of independence pursuant to the BNM CG.

The role of INEDs are particularly important in ensuring that the strategies proposed by the Management are fully deliberated and evaluated impartially in line with the long term objectives of the Bank. No individual or small group of individuals dominate the Board’s decision making process. Notwithstanding, the BNRC determines on an annual basis whether an INED remains objective and is free from relationship or influence that could undermine his ability to execute an independent judgment.

Notwithstanding that, at this juncture the Board consists of a majority of NINEDs. Whilst it continue its efforts to have a majority of INEDs, the Board is committed and strongly believes that all directors act in the best interest of the Bank through the adoption of sound corporate governance standards and practice.

Board committees

The Board has established a number of Committees whose compositions and terms of reference are in accordance with the BNM CG and consistent with the recommendations of the MCCG.

In relation to this, the Board has delegated specific authority and responsibilities to these Committees, which operate under approved terms of reference of the respective Board Committees, primarily to assist the Board in the execution of its duties and responsibilities. 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:-

ANNUAL REPORT 2016

29


Board nomination and remuneration committee (Bnrc)

On 27 September 2016, the Board approved the adoption of Affin Holdings Berhad’s (“AHB”) approval at its meeting held on 11 August 2016 on the group policy to establish a joint Board Nomination and Remuneration Committee for the Bank.

Previously, the Bank’s Board Nominating Committee (BNC) and Board Remuneration Committee (BRC) were separate.

The attendance of Members at the BNC meetings in 2016 is reflected as follows:

no. name of Director

number of Board meetings

attendance no. of meetings

1. En. Abd Malik Bin A Rahman Chairman / Independent Non-Executive Director(Appointed as Chairman of BNC w.e.f. 1 June 2016)

6 6

2. En. Mohd Suffian Bin Haji Haron ^Member / Non-Independent Non-Executive Director

6 6

3. YBhg. Tan Sri Dato’ Seri Lodin Bin Wok KamaruddinMember / Non-Independent Non-Executive Director(Completed his tenure of directorship with the Bank w.e.f. 4 October 2016)

4 4

4. YBhg. Tan Sri Dato’ Seri Mohamed Jawhar ^ Member / Non-Independent Non-Executive Director

6 6

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

6 6

Note: ^ Redesignated to Non-Independent Non-Executive Director w.e.f. 1 June 2016

The attendance of Members at the BRC meetings in 2016 is reflected as follows:




1. En. Abd Malik Bin A Rahman Chairman / Independent Non-Executive Director(Appointed as Chairman of BNC w.e.f. 1 June 2016)

1 1


4 4

3. YBhg. Tan Sri Dato’ Seri Lodin Bin Wok KamaruddinMember / Non-Independent Non-Executive Director(Completed his tenure of directorship with the Bank w.e.f. 4 October 2016)

4 4


4 4


The BNRC is responsible for providing a formal and transparent procedure for the appointment of Directors, Managing Director/Chief Executive Officer and Senior Management. The BNRC develops the remuneration policy for Directors, Managing Director/Chief Executive Officer, Senior Management and other material risk takers, whereby, it assesses the effectiveness of individual Director, the Board as a whole and the performance of the Managing Director/Chief Executive Officer as well as Senior Management.

The BNRC reviews and recommends the process for successions planning for the Board, Managing Director/CEO and Senior Management; making appropriate recommendations to the Board, ensures that compensation is competitive and consistent with the Bank’s culture and strategic objectives. In doing so, BNRC obtains advice from experts in compensation and benefits, both internally and externally.


30


The attendance of Members at the BNRC meetings in 2016 is reflected as follows:




1. En. Abd Malik Bin A Rahman Chairman / Independent Non-Executive Director

1 1


1 1

3. YBhg. Tan Sri Dato’ Seri Mohamed Jawhar ^Member / Non-Independent Non-Executive Director

1 1


1 1


Board risk management committee (Brmc)

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 place and function effectively.

The attendance of Members at the BRMC meetings in 2016 is reflected as follows:




1. En. Abd Malik Bin A Rahman Chairman / Independent Non-Executive Director(Appointed as Chairman w.e.f. 25 October 2016)

2 2


8 8


8 8

4. YBhg. Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman ^^Member / Non-Independent Non-Executive Director(Represent Affin Islamic Bank Berhad)

8 8

5. En. Mohd Suffian Bin Haji Haron ^Member / Independent Non-Executive Director

8 8

Note: ^ Redesignated to Non-Independent Non-Executive Director w.e.f. 1 June 2016 ^^ Redesignated to Non-Independent Non-Executive Director w.e.f. 25 October 2016

ANNUAL REPORT 2016

31


Board loan review and recovery committee (Blrrc)

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

The attendance of Members at the BLRRC meetings in 2016 is reflected as follows:




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

14 14

2. YBhg. Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin Member / Non-Independent Non-Executive Director(Completed his tenure of directorship with the Bank w.e.f. 4 October 2016)

11 11


14 14

4. YBhg. Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Mohd Nor (Bersara) Member / Non-Independent Non-Executive Director(Represent AFFIN Islamic Bank Berhad)

14 14


Board audit committee (Bac)

The BAC 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.

The attendance of Members at the BAC meetings in 2016 is reflected as follows:




1. YBhg. Tan Sri Mohd Ghazali Bin Mohd YusoffChairman / Independent Non-Executive Director(Appointed as Chairman w.e.f. 25 October 2016)

9 9


9 9

3. YBhg. Tan Sri Dato’ Sri Abdul Aziz Abdul Rahman ^^Member / Non-Independent Non-Executive Director(Represent AFFIN Islamic Bank Berhad)

9 9

4. Assoc. Prof. Dr. Said BouheraouaMember / Independent Non-Executive Director(Represent AFFIN Islamic Bank Berhad)

7 9

Note: ^ Redesignated to Non-Independent Non-Executive Director w.e.f. 1 June 2016 ^^ Redesignated to Non-Independent Non-Executive Director w.e.f. 25 October 2016


32


Board oversight transformation committee (Botc)

The Board had at its meeting held on 26 July 2016 approved the establishment of BOTC and its terms of reference.

The BOTC is responsible for overseeing the transformation plan (AFFINITY Programme), secure the consistency of strategic decision and ensure that the transformation plan is implemented effectively in a timely manner.

The attendance of Members at the BOTC meetings in 2016 is reflected as follows:




1. En. Abd Malik Bin A Rahman Chairman / Independent Non-Executive Director

2 2


2 2


2 2

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

2 2


independence and conflict of interest

It is the Directors’ responsibility to declare whether they have a potential or actual interest in any transaction of the Bank. 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.

new appointment and re-appointment to the Board

Pursuant to provisions of the FSA and policy documents and guidelines issued by BNM, all appointment and reappointment of directors are subject to the approval of BNM, and the BNM approval will be for a specific term of appointment.

The proposed appointments of new Board members, as well as re-appointment of the Board members are recommended by the BNRC 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 fit and proper criteria as approved by the Board and based on the peer evaluation on his/her effectiveness, contribution and participation. This in line with Principle 2, Recommendation 2.2 of MCCG.

re-election of Directors

In accordance with the Section 91(a) of the Company’s 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.

ANNUAL REPORT 2016

33


continuing education

The Board recognises the importance of continuous education and training, to ensure they remain updated with the latest developments in the areas related to their duties. All newly appointed Non-Executive Directors are furnished by the Bank with copies of the FSA 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 Bursa Malaysia Berhad (Bursa Malaysia). All Directors are required to complete the Financial Institutions Directors’ Education training (FIDE) organised by BNM within one year from the date of appointment. The Board member acknowledge the importance of upgrading members’ skills set and competencies in facing current as well as future competitive and innovative disruptions. The members of the Board keep abreast with the relevant developments in business, banking and finance industry as well as new regulatory requirements on a continuous basis through various conferences, seminars and training programmes. The development and training programmes attended by the Directors during the financial year ended 31 December 2016 are set out below.

yBhg. Jen. tan sri Dato’ seri ismail Bin haji omar (Bersara)

Trainer/organiser Course Title Date

1. BNM BNM Annual Report 2015/Financial Stability & payment System Report 2015 – Briefing Session

23 March 2016

2. MINDA Corporate Directors Advanced Programme (CDAP): Cyber Security Risk Management for the Boardroom and C-Suite

24 March 2016

3. AHB Half Day Talk Oni) Shariah Non-Compliance Risk And Its Impact to Islamic Banksii) Malaysia Financial Reporting Standard (MFRS) 9 - Financial Instruments And

Key Audit Mattersiii) Internal Capital Adequacy Assessment Process (ICAAP)

26 September 2016

yBhg. tan sri Dato’ seri lodin Bin Wok Kamaruddin (Completed his tenure of Directorship with the Bank w.e.f. 4 October 2016)


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

3 March 2016

2. SEACEN SEACEN Conference on Central Bank Cooperation and Mandates in Honor of Former Governor of Bank of Thailand Dr. Puey Unghakorn

14 March 2016

3. SC Global Emerging Markets Programme 2016 – Risk Vulnerability of Global Markets: Reinforcing Resilience in Emerging Markets

15 March 2016

4. ICLIF Independent Directors Programme : “The Essence of Independence” 28 March 2016

5. BNM 3rd BNM-FIDE Forum Annual Dialogue with Governor of BNM 29 March 2016

6. FIDE FIDE Forum 2nd Distinguished Board Leadership Series – “Avoiding Financial Myopia” by Professor Jeffrey L. Sampler

19 April 2016

7. MINDA CG Breakfast Series with Directors “The Strategy, the Leadership, the Stakeholders and the Board”

6 May 2016

8. AHB Risk Management Workshop on Cyber Security and Fraud by IBM 9 May 2016

9. AIBIM Global Islamic Finance Forum (GIFF) 5.0 11 May 2016

10. FIDE Briefing Session B For Directors: Implementation of FIDE Forum’s Directors Register by FIDE Forum

2 June 2016

11. WIEF 12th World Islamic Economic Forum by World Islamic Economic Foundation 2 August 2016

12. FIDE FinTech: Business Opportunity of Disruptor? By Mr. Markus Gnirck and Mr. Veiverne Yuen

4 August 2016

13. Bursa Malaysia Advocacy Sessions on Management Discussion & Analysis (“MD&A”) For Chief Executive Officers (“CEO”) and Chief Financial Officers (“CFO”) Of Listed Companies by Bursa Malaysia

8 August 2016


34


14. Affin Hwang Affin Hwang Capital Conference Series 2016 : Navigating Through Shifting Sands 11 August 2016

15. BNM & The World Bank

2016 Global Symposium on Innovative Financial Inclusion “Harnessing Technology for Inclusive Finance”

21 September 2016



26 September 2016

mr. aubrey li Kwok-sing


1. PwC PwC Non-executive Director Programme- Responsible investment and Green Finance – paving the way for the

sustainable business

1 March 2016

2. KPMG KPMG Independent Non-Executive Director Forum- The Year Ahead- The Way Forward in Financial Reporting- Tax in the Boardroom- Capital Markets

8 March 2016

3. KPMG KPMG Independent Non-Executive Director Forum- The Way Forward- Audit Committee Institute – Global Boardroom Insights- Seeking Value through Internal Audit- The Way Forward on Financial Reporting- Capital Markets- What are the Lessons from the Panama Papers- Disruptive Innovation and Technology

13 June 2016

4. PwC PwC Non-executive Director Programme- The new insightful audit reports

18 August 2016

5. KPMG KPMG Independent Non-Executive Director Forum- What’s around the Corner- Capital Markets Development- Common Reporting Standard – Are You Ready?- Global Profile of the Fraudster- Using Analytics successfully to detect Fraud

5 September 2016

6. CSR Asia/BEA Why Corporate Social Responsibility (CSR) is good for the bottom line 24 November 2016

7. KPMG KPMG Independent Non-Executive Director Forum- Welcome and introduction- From Strategy to Results- Capital Markets Spotlight- The Way Forward on Financial Reporting- The Tax Tsunami

5 December 2016

8. PwC/Café de Coral

Transformation to the Engaged Board 16 December 2016

en. mohd suffian Bin haji haron


1. FPLC Annual National Seminar on Directors’ Duties, Governance, Regulatory Updated & Current Issues 2016

26 – 27 January 2016

2. FIDE Briefing on Directors Register 17 February 2016

3. FIDE An Exclusive Session for Directors: Implementation of FIDE Forum’s Directors Register

1 June 2016

ANNUAL REPORT 2016

35


4. FIDE 3rd Distinguished Board Leadership Series – “Effective Board Evaluation” by Ms. Beverly Behan

25 July 2016

5. FIDE Strategy to Leverage Technology for Business Solutions 14 November 2016

yBhg. tan sri Dato’ seri mohamed Jawhar


1. MINDA Corporate Directors Advanced Programme (CDAP): Cyber Security Risk Management for the Boardroom and C-Suite

24 March 2016

2. BNM 3rd BNM-FIDE Forum Annual Dialogue with Governor of BNM 29 March 2016

3. FIDE Directors and Officers Liability Insurance: Are Directors Sufficiently Protected for Exercising Their Fiduciary Duty

5 April 2016

4. AIBIM Global Islamic Finance Forum (GIFF) 5.0 10 – 12 May 2016

5. FIDE FIDE Forum’s Directors Register: “Identify the Right Board Talent” 14 September 2016

6. BNM & The World Bank

2016 Global Symposium on Innovative Financial Inclusion “Harnessing Technology for Inclusive Finance”

21 – 22 September 2016

yBhg. tan sri mohd ghazali Bin mohd yusoff


1. FIDE The New and Revised Auditor Reporting Standards: Implications to Financial Institutions

20 January 2016

2. FIDE Directors Register: An Industry Briefing Session on the Implementation of the Director Register

17 February 2016

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

3 March 2016

4. FIDE Directors and Officers Liability Insurance: Are Directors Sufficiently Protected for Exercising Their Fiduciary Duty

5 April 2016

5. FIDE 2nd Distinguished Board Leadership Series – Avoiding Financial Myopia 19 April 2016


7. PNB International Forum on the World’s Economic Outlook: Challenges & Opportunities for Malaysian Companies

30 May 2016


1 June 2016

9. FIDE 3rd Distinguished Board Leadership Series– “Effective Board Evaluation” by Ms. Beverly Behan

25 July 2016


4 August 2016

11. FIDE Securities Commission – FIDE Forum Dialogue: FinTech’s Impact on Financial Institutions

29 August 2016

12. BNM Global Symposium 21 September 2016



26 September 2016

14. FIDE Technology – based Innovation that Counts by Steven Lewis, Patrick Menard and Shankar Kanabiran, Ernst & Yong

2 November 2016


36


15. AHB Topic: Talk oni. Amendments to Listing Requirements of Bursa Malaysia;ii. Companies Act 2016;iii. Proposed Code of Corporate Governance; andiv. BNM Policy Document on Corporate Governance.

10 November 2016

16. FIDE Strategy to Leverage Technology for Business Solutions 14 November 2016

en. abd malik Bin a rahman


1. FIDE The New and Revised Auditor Reporting Standards: Implications to Financial Institutions

20 January 2016

2. FIDE/BNM Board Leadership Series – Cyber-Risk Oversight 16 March 2016

3. Bursa Malaysia/PwC

Director’s Guide to Fraud & Corruption Risks 5 April 2016

4. FIDE 2nd Distinguished Board Leadership Series – Avoiding Financial Myopia 19 April 2016



1 June 2016

7. FIDE 3rd Distinguished Board Leadership Series – “Effective Board Evaluation” by Ms. Beverly Behan

25 July 2016


4 August 2016

9. SC/FIDE Securities Commission – FIDE Forum .Dialogue: FinTech’s Impact on Financial Institutions

29 August 2016

10. Tricor Tax Services Sdn Bhd

12th Tricor Tax & Corporate Seminar 2 November 2016

11. AHB/BOARDROOM/ KPMG

Talk on : Amendments to Listing Requirements of Bursa Malaysia; Companies Act 2016; Proposed Code of Corporate Governance 2016; BNM Policy Document on Corporate Governance

10 November 2016

12. AHIB Directors Training on Anti-Money Laundering Act and Counter Financing of Terrorism

30 November 2016

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


1. BEASG Compliance Department

AML Refresher Training – Key Updates to MAS Notice 626

1 April 2016

2. BEASG Human Resource Department

Performance Management and Staff Appraisal

21 April 2016

3. BEASG IT Department

Cyber Security Awareness 21 April 2016

4. Marsh Singapore

Loan Insurance Scheme Tranche5 6 May 2016


Foreign Account Tax Compliance Act. (FATCA) Essentials by Thomson Reuters 4 June 2016

ANNUAL REPORT 2016

37



Personal Data Protection Act (Singapore) 4 June 2016


Anti-Bribery and Anti-Corruption by Thomson Reuters 4 June 2016

8. BEASG IT Department

BEA IT Security Awareness by Thomson Reuters 4 June 2016


Insider Trading – Game-Based Assessment by Thomson Reuters

6 June 2016


BEA Code of Conduct (Refresher) 29 June 2016


BEA – Code of Conduct (2016) 8 August 2016

12. KPMG Hong Kong

International Financial Reporting Standard (IFRS) 9 21 September 2016

13. Monetary Authority of Singapore

High-Level Event to launch the EU-Asia Forum on Financial Regulation 14 October 2016


Market Conduct (Global) by Thomson Reuters 15 November 2016


Financial Crime by Thomson Reuters 26 November 2016


Global Fraud Prevention by Thomson Reuters 26 November 2016

abbreviation

Affin Hwang - Affin Hwang Investment Bank Berhad

AHB - Affin Holdings Berhad

AIBIM - Association of Islamic Banking Institutions Malaysia

BEASG - The Bank of East Asia, Limited Singapore Branch

BNM - Bank Negara Malaysia

BOARDROOM - Boardroom Corporate Services (KL) Sdn Bhd

FIDE - Financial Institutions Directors’ Education

FPLC - Federation of Public Listed Companies Berhad

ICLIF - The Iclif Leadership and Governance Centre

MINDA - Malaysian Directors Academy

PNB - Permodalan Nasional Berhad

PwC - Messrs. PricewaterhouseCoopers

SC - Securities Commission

SEACAN - The SEACAN Centre Kuala Lumpur

WIEF - World Islamic Economic Forum Foundation


38


meetings and supply of information to the Board

Board meetings are scheduled in advance at the beginning of calendar year with additional meetings duly convened as and when necessary to review progress reports on the Bank’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 2016, twenty four (24) Board meetings were held i.e 10 scheduled Board Meetings and 14 Special Board Meeting. Meetings are usually held at the Board Room at 19th Floor, Menara Affin, 80, Jalan Raja Chulan, 50200 Kuala Lumpur.

The Board has full and timely access to information with Board via BoardPac software distributed papers 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, operational, human resource and regulatory compliance matters. The Managing Director/Chief Executive Officer keeps the Board informed, on timely basis, of all material matters affecting the Bank’s performance and major developments.

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

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

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

The Directors’ commitment in carrying out their duties and responsibilities is affirmed by their attendance at the Board of meetings held during the financial year ended 31 December 2016, as reflected below:




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

24 24

2. YBhg. Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin Non-Independent Non-Executive Director(Completed his tenure of directorship with the Bank w.e.f. 4 October 2016)

14 19

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

9 24

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

13 24

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

24 24


23 24

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

24 24

8. En. Abd Malik Bin A Rahman Independent Non-Executive Director

24 24


ANNUAL REPORT 2016

39


Directors’ remuneration

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

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

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

Remuneration package for Non-executive Directors is structured such that it is competitive with the industry and consistent with the Bank’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 mainly consist of three (3) components – an annual fee as a Board member, an allowance for attendance of meetings and a committee fee.

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

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

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

shareholDer

The Bank 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 2015 were tabled at the 40th AGM on 22 March 2016. Likewise the Annual Report and financial statements for the year ended 31 December 2016 will be tabled at the 41st AGM on Thursday, 30 March 2017.


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Statement on Risk Management & 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 AFFINBANK 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 on-going 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, credit, information technology, compliance, controls and risk management procedures.

e. The Board extended the responsibilities of the Board Audit Committee (“BAC”) 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. BAC 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 AFFINBANK 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. BoarD auDit committee anD grouP internal auDit (gia)

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

b. The BAC 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 BAC for reviews and deliberation and subsequently escalated to the Board.

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

ANNUAL REPORT 2016

41

4. risK management frameWorK

a. Board risk management committee (Brmc) • GBRMChasbeenestablishedandtheirresponsibilities,amongstothers,includeoverseeingtheeffective

implementation of the Enterprise-Wide Risk Management framework.

b. risk assessment • RiskAssessmentisinplacetoprovidetheprocessfortheidentificationoftheGroup’smaterialrisks,fromthe

perspective of impact on the Group’s financial standing and reputation. • Consistentandwell-acceptedmethodologiesofriskmeasurementintroducedtoassessLiquidity,CapitalPosition,

Asset and Liability Management and other relevant metrics.

c. risk governance structure • TheRiskGovernanceStructureisalignedacrossallthebusinessunitsandsubsidiariesoftheGroup.Theseare

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

d. risk governance Policies and Procedures • RiskManagementpoliciesandproceduresarereviewedandupdatedregularlytoensurerelevancetothecurrent

business needs and current/applicable regulatory requirements.

e. Whistle Blowing Policy • Thispolicyprovidesavenueforemployeestoreportactualandsuspectedmalpractice,misconductandviolations

of the Group policies in a safe and confidential manner.

f. operational risk management • ProcessfacilitatedbyGroupRisk. • RiskControlSelfAssessment(“RCSA”)hasbeenimplementedtoenablemanagementtoidentifyandassessthe

risks under their areas of supervision and control on a continual basis. • ThisservesasatriggerpointtodetermineKeyRiskIndicators(“KRIs”)toadoptandmonitoroperationalrisk

exposures.

g. Concerns and breaches if any, will be escalated to the Group CEO and 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, BAC 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. AFFINBANK 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.



42


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, AFFINBANK 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 BAC.

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”), BAC and Board.

ANNUAL REPORT 2016

43


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,theHRPPisreviewedtoensurepoliciesandproceduresremainrelevantandappropriatecontrolsarein place to manage operational 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.

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 BAC, 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 AFFINBANK Group’s assets.


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Board Audit Committee Report

The Board is pleased to present the Report on Board Audit Committee (BAC) for the Financial Year ended 31 December 2016.

BoarD auDit committee

The BAC comprises of the following Directors:

terms of reference

1. oBJective

Board Audit Committee (“BAC”) is established as a Committee of the Board of Directors. The primary objectives of BAC are to:

a. Establish the framework and oversee the audit function of AFFINBANK 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 AFFINBANK 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. BAC 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 BAC.

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

c. BAC 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 BAC and each of its members at least once every three (3) years to determine whether the BAC 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 BAC 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 BAC shall have no executive powers.

yBhg tan sri Dato’ sri abdul aziz abdul rahmanChairman/Independent Non-Executive Director (Re-designated as Non-Independent Non-Executive Director and ceased to be Chairman effective 25 Oct 2016)

yBhg tan sri Dato’ seri mohamed JawharMember/Non-Independent Non-Executive Director

yBhg tan sri mohd ghazali mohd yusoffMember/Independent Non-Executive Director (Chairman effective 25 Oct 2016)

yh assoc. Prof Dr said BouheraouaMember/Independent Non-Executive Director

ANNUAL REPORT 2016

45

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.

4. attenDance of meetings

a. The notice of meeting should be served to the BAC members at least seven (7) days before the meeting. The agenda and BAC 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 Board Audit Committee.

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

d. All the original Minutes of BAC 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 BAC members and all other members of the Board.

5. freQuency of meetings

a. The BAC shall meet at least four (4) times in a financial year with the objective of reviewing the internal audit reports and AFFINBANK Group’s financial reporting. The BAC complements this through regular meetings with the Senior Management and both the Internal and External Auditors to review the AFFINBANK 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 BAC meetings are convened before the Board meetings. The BAC, 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) BAC meetings in a year, additional meetings shall be scheduled whenever deemed necessary by the BAC’s Chairman or the majority of the Committee members.

6. authority

The BAC 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 AFFINBANK Group;

d. Maintain direct communication channels with the External Auditors, Internal Auditors and all employees of the AFFINBANK 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.



46


7. functions anD Duties

The functions and duties of BAC 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.

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 BAC is responsible for ensuring that such engagement does not compromise the independence of the External Auditors in their roles as Statutory Auditors of AFFINBANK Group.

h. To review the adequacy and effectiveness of AFFINBANK 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 AFFINBANK 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 AFFINBANK Group.

n. To review the adequacy of the scope, functions, competency, resources and performance 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.

ANNUAL REPORT 2016

47


8. BoarD auDit committee meetings helD in the financial year enDeD 31 DecemBer 2016

During the Financial Year Ended 31 December 2016, a total of nine (9) BAC meetings were held. The BAC members and details of the attendance of each member at the meetings are as follows:

name of committee member attendence

YBhg. Tan Sri Mohd Ghazali Mohd Yusoff Member/ Independent Non-Executive Director(Appointed as Chairman w.e.f. 25 October 2016)

9/9

YBhg. Tan Sri Dato’ Sri Abdul Aziz Abdul Rahman Member/ Independent Non-Executive Director (Redesignated as Non-Independent Non-Executive Director and ceased to be Chairman effective 25 Oct 2016)

9/9

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

9/9

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

7/9

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

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

AFFINBANK Group External Auditors attended three (3) BAC meetings during the period. There were discussions between the BAC 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 2016. The BAC had also reviewed the External Auditors’ Audit Plan for the Financial Year Ending 31 December 2016.

The BAC had two (2) private meetings with the External Auditors without the presence of Management and Internal Auditors in year 2016. In addition, the External Auditors were invited to attend the annual general meeting to respond to shareholders’ questions on audit related issues. The BAC also had direct and unrestricted Access to the Internal Auditors and had ad-hoc discussions with the Internal Auditor without the presence of Management.

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

BAC members had attended trainings in the Financial Year Ended 2016 for continuous improvements.

9. summary of activities of the BoarD auDit committee

The Board Audit Committee has carried out the following activities in discharging its duties and responsibilities for the Financial Year Ended 31 December 2016:

9.1 external auDit

a. Reviewed the 2016 Audit Plan to ensure the scope of work adequately covered the activities of AFFINBANK 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.


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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 2016 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

• MonitorthestatusofcorrectiveactionstakenbyManagementtorectifyanydeficienciesidentifiedbyInternalAudit as well as ensuring that all 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 2016 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 Board Audit Committee Terms of Reference and Group Internal Audit Manual.

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 2016 was RM4.3 million.

ANNUAL REPORT 2016

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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 Board Audit Committee Report for inclusion in the Year 2016 Annual Report before recommending to the Board for approval.


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Network of Branches

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

ANNUAL REPORT 2016

51

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. Denai alam No. 1, Ground Floor, Jalan Elektron U16/J, Seksyen U16, Denai Alam, 40160 Shah Alam, Selangor. Tel : 03-7831 8895 Fax : 03-7831 8859

7. Jalan meru, Klang No. 38 & 40, Pelangi Avenue, Jalan Kelicap 42A/KU1, Klang Bandar Di Raja, 41050 Klang, Selangor. Tel : 03-3341 5237 Fax : 03-3341 5427

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

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

10. 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

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

12. shah alam Vista Alam, F-G-38 & 39, Jalan Ikhtisas 14/1, Off Persiaran Damai, Seksyen 14, 40000 Shah Alam, Selangor. Tel : 03-5524 7780 Fax : 03-5524 7380

13. 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

14. 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

15. Kota Warisan No. G-3, Ground Floor, Jalan Warisan 1, KIP Sentral Kota Warisan, 43900 Sepang, Selangor Darul Ehsan. Tel : 03-8705 4899 Fax : 03-8705 1141

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

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

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

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

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

21. 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

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

23. 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

24. 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

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

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

Network of Branches


52

Network of Branches

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. Te : 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

ANNUAL REPORT 2016

53

Network of Branches

PeraK

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

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

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

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

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

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

Pulau Pinang

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

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

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

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

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

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

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

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

KeDah

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

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

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

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

4. sungai Petani No. 55, Jalan Perdana Heights, 2/2, Perdana Heights, 08000 Sungai Petani, Kedah. Tel : 04-421 1808 Fax : 04-422 6675


54

Network of Branches

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 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

6. tabuan Jaya Lot No. 77, Ground Floor, Tabuan Tranquility, Jalan Canna, Tabuan Jaya, 93350 Kuching, Sarawak Tel : 082-363 385 Fax : 082-363 061

ANNUAL REPORT 2016

55

agenDa

1. To receive the Statutory Statements of Accounts for the year ended 31 December 2016 together with the Directors’ and Auditors’ Reports thereon.

2. To declare a final single tier dividend of 4.52 Sen per share amounting to RM76,300,000 for the financial year ended 31 December 2016.

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

(a) En. Mohd Suffian bin Haji Haron

(b) YBhg. Tan Sri Mohd Ghazali bin Mohd Yusoff

4. To approve the payment of Directors’ fees and Committees’ fees for financial year ended 31 December 2016.

5. To re-appoint Messrs PricewaterhouseCoopers as Auditors for the financial year ending 31 December 2017 and to authorise the Directors to fix their remuneration.

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

By orDer of the BoarD

nimma safira Binti KhaliD

Secretary

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 of 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.

NOTICE IS HEREBY GIVEN THAT THE 41st 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 thursDay, 30 march 2017 AT 10.00 a.m. FOR THE TRANSACTION OF THE FOLLOWING BUSINESSES:-

Notice of Annual General Meeting


56

Notes to the Financial Statementsfor the financial year ended 31 December 2016

58 Directors’ Report

64 Statements of Financial Position

65 Income Statements

66 Statements of Comprehensive Income

67 Statements of Changes in Equity

69 Statements of Cash Flows

72 Summary of Significant Accounting Policies

90 Notes to the Financial Statements

197 Statement by Directors

197 Statutory Declaration

198 Independent Auditors’ Report

201 Basel II Pillar 3 Disclosures

Financial Statements

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 2016.

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 602,758 456,135

Zakat (2,887) -

Profit before taxation 599,871 456,135

Taxation (135,740) (104,819)

Net profit for the financial year 464,131 351,316

DIVIDENDS

The dividends on ordinary shares paid or declared by the Bank since 31 December 2015 were as follows:

In respect of the financial year ended 31 December 2015 as shown in the Directors’ report for that financial year:

RM’000

Final single-tier dividend of 6.18 sen per share paid on 31 March 2016 104,366

In respect of the financial year ended 31 December 2016:

Single-tier interim dividend of 3.80 sen per share paid on 30 November 2016 64,173

The Directors now recommend the payment of a final single-tier dividend of 1.39 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 RM23,473,898 for the financial year ended 31 December 2016 which is subject to the approval of member at the forthcoming Annual General Meeting of the Bank.

RESERVES AND PROVISIONS

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

BAD AND DOUBTFUL DEBTS AND FINANCING

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

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

Directors’ Reportfor the financial year ended 31 December 2016


58

CURRENT ASSETS

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

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

VALUATION METHODS

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

CONTINGENT AND OTHER LIABILITIES

At the date of this report there does not exist:

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

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

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

CHANGE OF CIRCUMSTANCES

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

ITEMS OF AN UNUSUAL NATURE

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

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

SIGNIFICANT EVENT DURING THE FINANCIAL YEAR

There is no significant event during the financial year.

SUBSEQUENT EVENTS

There were no material events subsequent to the reporting date that require disclosure or adjustments to the financial statements, other than those disclosed in Note 50 of the financial statements.


59

ANNUAL REPORT 2016

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 KamaruddinNon-Independent Non-Executive Director(Completion of directorship on 4 October 2016)

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

En. Mohd Suffian Bin Haji HaronNon-Independent Non-Executive Director(Redesignated as Non-Independent Non-Executive Director on 1 June 2016)

Tan Sri Dato’ Seri Mohamed JawharNon-Independent Non-Executive Director(Redesignated as Non-Independent Non-Executive Director on 1 June 2016)

Tan Sri Mohd Ghazali Bin Mohd YusoffIndependent Non-Executive Director

En. Abd Malik Bin A RahmanIndependent Non-Executive Director

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

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 2016 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 197 of the financial statements.



60

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 RM10 each; RM5 uncalled

As at As at

1.1.2016 Bought Sold 31.12.2016

ABB Trustee Berhad **

Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) 20,000 - - 20,000

** Shares held in trust for the Bank

Ordinary shares of RM1 each

As at As at

1.1.2016 Bought Sold 31.12.2016

AFFIN Holdings Berhad

Abd Malik Bin A Rahman - 10,000 - 10,000

Boustead Heavy Industries Corporation Berhad

Abd Malik Bin A Rahman 3,000 - - 3,000

Abd Malik Bin A Rahman* 1,000 - - 1,000

Ordinary shares of 50 sen each

As at As at

1.1.2016 Bought Sold 31.12.2016

Boustead Holdings Berhad

Abd Malik Bin A Rahman - 6,580 - 6,580

Abd Malik Bin A Rahman* 1,000 12,580 - 13,580

Boustead Plantations Berhad

Abd Malik Bin A Rahman 2,000 - - 2,000

Abd Malik Bin A Rahman* 2,000 - - 2,000

* Indirect shares

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

DIRECTORS’ BENEFITS

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

Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive a benefit (other than the fees and other emoluments shown in the Note 34 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.


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ANNUAL REPORT 2016

BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016

In 2016, economic prospects in major advanced and many emerging market economies remain challenging, and downside risks have become more dominant. Stemming from the softening of export sector and volatile commodity prices, Malaysia’s economy too has experienced a slow-down. Over the fiscal year, Ringgit depreciated against most major and regional currencies with the shift in investor sentiment. However, due to the strong private investment, positive consumer sentiment and continuation of active investment undertakings; the overall impact was partially absorbed and reduced.

Notwithstanding the challenging year, the Group’s profit before tax and zakat of RM602.8 million accounted for 30.68% of the prior year’s performance. Together with the ROA (before tax) of 1.00% and ROE (before tax) of 10.91%, the Bank recorded a notable improvement from the previous year and against the industry average.

BUSINESS OUTLOOK FOR 2017

As for 2017, despite the economic recovery continues to move at a slow pace; our national real GDP’s growth is expected to edge up moderately between 4.0% - 5.0%. Meanwhile, the export sector is expected to experience positive movement from a higher external demand on Electrical and Electronic sector and likewise, private investment is projected to continue drive economic growth (albeit moderately) at 5.8%.

Bank Negara Malaysia (‘BNM’) maintains its accommodative stance in supporting economic growth with the Overnight Policy Rate (‘OPR’) stable at 3.00% and reduction of Statutory Reserve Rate (‘SRR’) to 3.5%. Nevertheless, the cost-push inflation is projected to be at the 2.0% - 3.0% range.

Although the economy is rebounding, it has been a slow and uneven recovery for businesses and individuals alike. The banking industry in Malaysia is expected to remain operating in challenging environment as the dragging down of asset quality and profitability continues. However, we are optimistic in retaining our competitive edge and business growth by prioritizing on business efficiency, brand visibility and customer experience.

Currently, Affin Bank Group is enhancing our digital banking positioning and innovation to elevate our competitiveness in the industry. It is our aspiration to become the preferred bank for the Small and Medium Enterprises (‘SME’) segment and the millennials. After solidifying our sales and services foundation, we are in the midst of enhancing our processes through system automation to improve productivity and turnaround time. The Bank has embarked on the Group Strategic Transformation Program known as ‘AFFINITY’ that aims for better tangible benefits in the form of lower cost-to-income ratio, robust fee income generation and efficient business operations in the near future.

Moving ahead, the Bank will continue our best efforts in serving our customers’ interest by managing liquidity, safeguarding asset quality, preserving margins and maintain our strong capital levels.



62

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 : 2 June 2016

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 21 March 2017.

Mohd Suffian Bin Haji HaronDirector

Tan Sri Mohd Ghazali Bin Mohd YusoffDirector


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ANNUAL REPORT 2016

The Group The Bank 2016 2015 2016 2015 Note RM’000 RM’000 RM’000 RM’000

ASSETSCash and short-term funds 2 4,364,490 4,070,710 3,337,831 2,203,022 Deposits and placements with banks and other financial institutions 3 152,234 351,687 406,075 349,772Investment accounts due from designated financial institution - - 2,110,079 1,331,318Financial assets held-for-trading 4 - 150,121 - 150,121Derivative financial assets 5 167,304 174,037 166,240 174,745Financial investments available-for-sale 6 10,279,997 10,287,350 8,446,589 8,811,977Financial investments held-to-maturity 7 373,524 380,654 301,402 304,372Loans, advances and financing 8 42,668,297 42,104,597 30,753,354 32,902,688Other assets 9 61,932 84,655 53,941 80,403Amount due from subsidiaries 10 - - 196,839 61Amount due from joint ventures 11 46,725 39,936 - -Amount due from associate 12 500 - - -Tax recoverable 15,492 46,206 15,462 46,179Deferred tax assets 13 8,056 3,598 - -Statutory deposits with Bank Negara Malaysia 14 1,482,000 1,604,600 1,150,000 1,345,000Investment in subsidiaries 15 - - 575,224 489,074Investment in joint ventures 16 - - - -Investment in associate 17 750 - - -Property and equipment 18 401,799 407,313 394,717 399,913Intangible assets 19 164,089 153,137 167,982 156,604

TOTAL ASSETS 60,187,189 59,858,601 48,075,735 48,745,249

LIABILITIES AND EQUITYDeposits from customers 20 47,633,056 47,813,213 37,106,463 37,814,118Deposits and placements of banks and other financial institutions 21 3,547,203 2,735,596 2,583,235 1,778,206Obligation on securities sold under repurchase agreements 999,740 1,740,946 999,740 1,740,946Derivative financial liabilities 22 402,772 414,140 409,283 413,944Bills and acceptances payable 37,726 77,114 37,726 77,114Recourse obligation on loans sold to Cagamas Berhad 23 - 134,585 - 134,585Other liabilities 24 439,488 411,575 402,445 365,865Amount due to subsidiaries 25 - - 41,395 422,166Provision for taxation 6,022 10,052 - -Deferred tax liabilities 13 12,884 15,104 12,884 15,104Subordinated term loan 26 1,304,592 1,004,446 1,304,592 1,004,446

TOTAL LIABILITIES 54,383,483 54,356,771 42,897,763 43,766,494

Share capital 27 1,688,770 1,688,770 1,688,770 1,688,770Reserves 28 4,114,936 3,813,060 3,489,202 3,289,985

TOTAL EQUITY 5,803,706 5,501,830 5,177,972 4,978,755

TOTAL LIABILITIES AND EQUITY 60,187,189 59,858,601 48,075,735 48,745,249

COMMITMENTS AND CONTINGENCIES 40 22,483,498 22,301,945 21,185,728 20,192,355

The accounting policies and notes form an integral part of these financial statements.

Statements of Financial Positionas at 31 December 2016


64



Interest income 29 2,327,761 2,326,816 2,325,217 2,325,444

Interest expense 30 (1,495,679) (1,495,771) (1,495,688) (1,495,791)

Net interest income 832,082 831,045 829,529 829,653

Income from Islamic banking business 31 272,806 238,921 - -

1,104,888 1,069,966 829,529 829,653

Other operating income 32 219,542 184,577 219,323 185,068

Net income 1,324,430 1,254,543 1,048,852 1,014,721

Other operating expenses 33 (694,116) (628,358) (561,401) (514,054)

Operating profit before allowances 630,314 626,185 487,451 500,667

Allowances for impairment losses on loans, advances and financing 35 (23,701) (186,987) (27,461) (178,475)

(Allowances for)/write-back of impairment losses on securities (3,855) 22,037 (3,855) 22,037

Profit before zakat and taxation 602,758 461,235 456,135 344,229

Zakat (2,887) (3,779) - -

Profit before taxation 599,871 457,456 456,135 344,229

Taxation 37 (135,740) (111,874) (104,819) (82,939)

Net profit after zakat and taxation 464,131 345,582 351,316 261,290

Attributable to:

Equity holder of the Bank 464,131 345,582 351,316 261,290

Earnings per share (sen):

- Basic 38 27.5 20.5 20.8 15.5

Income Statementsfor the financial year ended 31 December 2016

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ANNUAL REPORT 2016



Profit after zakat and taxation 464,131 345,582 351,316 261,290

Other comprehensive income:

Items that may be reclassified subsequently to profit and loss:

Net fair value change in financial investments available-for-sale 8,002 67,820 21,365 70,495

Deferred tax on financial investments available-for-sale 13 (1,718) (16,479) (4,925) (17,121)

Other comprehensive income for the financial year, net of tax 6,284 51,341 16,440 53,374

Total comprehensive income for the financial year 470,415 396,923 367,756 314,664

Attributable to equity holder of the Bank:

- Total comprehensive income 470,415 396,923 367,756 314,664

Statements of Comprehensive Incomefor the financial year ended 31 December 2016


66

Attributable to Equity Holder of the Bank

AFS Share Share Statutory revaluation Regulatory Retained capital premium reserves reserves reserves profits Total The Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2016 1,688,770 858,904 1,577,509 68,945 278,547 1,029,155 5,501,830

Net profit for the financial year - - - - - 464,131 464,131

Other comprehensive income (net of tax)

- Financial investments available-for-sale - - - 6,284 - - 6,284

Total comprehensive income - - - 6,284 - 464,131 470,415

Dividends paid (Note 39) - - - - - (168,539) (168,539)

Transfer to statutory reserves / regulatory reserves - - 144,128 - 1,657 (145,785) -

At 31 December 2016 1,688,770 858,904 1,721,637 75,229 280,204 1,178,962 5,803,706

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







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

Statements of Changes in Equityfor the financial year ended 31 December 2016

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ANNUAL REPORT 2016

Non-distributable Distributable

AFS Share Share Statutory revaluation Regulatory Retained capital premium reserves reserves reserves profits Total The Bank RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2016 1,688,770 858,904 1,328,792 76,852 220,148 805,289 4,978,755






Transfer to statutory reserves / regulatory reserves - - 87,829 - (13,122) (74,707) -

At 31 December 2016 1,688,770 858,904 1,416,621 93,292 207,026 913,359 5,177,972

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







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


Statements of Changes in Equityfor the financial year ended 31 December 2016


68

The Group The Bank 2016 2015 2016 2015 RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation 599,871 457,456 456,135 344,229

Adjustments for items not involving the movement of cash and cash equivalents:

Interest income:

- financial assets held-for-trading (240) (123) (240) (123)

- financial investments available-for-sale (301,744) (293,991) (301,744) (293,991)

- financial investments held-to-maturity (17,776) (17,267) (17,776) (17,267)

Dividend income:


Gain on sale:

- financial assets held-for-trading (432) (498) (432) (498)


Unrealised (gain)/loss on revaluation:

- financial assets held-for-trading (2) 232 (2) 232

- derivatives (4,965) 3,750 (4,965) 3,750

- foreign exchange (30,226) (45,358) (30,226) (45,358)

Allowance/(write-back) for impairment loss:

- financial investments available-for-sale 318 - 318 -

- financial investments held-to-maturity 3,537 (22,037) 3,537 (22,037)

Depreciation of property and equipment 14,724 15,044 13,688 13,960

Property and equipment written-off 57 84 55 76

Foreclosed properties - impairment made 59 - 59 -

Loss/(gain) on sale of property and equipment 94 (1) 94 (1)

Amortisation of intangible assets 9,681 6,200 9,255 5,735

Gain on sale of foreclosed properties (153) (684) (153) (684)

Net individual impairment 21,918 250,352 38,441 246,840

Net collective impairment 49,832 17,224 35,935 11,265

Bad debt and financing written-off 2,838 3,603 2,816 3,596

Interest expense - subordinated term loan 46,616 28,189 46,616 28,189

Zakat 2,887 3,779 - -

Operating profit before changes in working capital 361,228 392,641 215,745 264,600

Statements of Cash Flowsfor the financial year ended 31 December 2016

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ANNUAL REPORT 2016


CASH FLOWS FROM OPERATING ACTIVITIES

Decrease/(increase) in operating assets:

Deposits and placements with banks and other financial institutions 199,453 (113,465) (56,303) 97,199

Investment accounts due from designated financial institutions - - (778,761) (816,239)

Financial assets held-for-trading 150,795 172 150,795 172

Loans, advances and financing (638,288) (2,919,604) 2,072,142 (871,838)

Other assets 589,059 (318,117) 590,289 (361,174)

Derivative financial instruments (4,635) 91,335 3,844 90,452

Statutory deposits with Bank Negara Malaysia 122,600 91,950 195,000 53,550

Amount due from subsidiaries - - (563,699) 125,762

Amount due from joint ventures (6,789) (25,081) - -

Amount due from associate (500) - - -

(Decrease)/increase in operating liabilities:

Deposits from customers (180,157) (234,011) (707,655) (366,094)

Deposits and placements of banks and other financial institutions 811,607 (2,114,080) 805,029 (1,921,180)

Obligation on securities sold under repurchase agreements (741,206) 1,740,946 (741,206) 1,740,946

Bills and acceptances payable (39,388) (17,194) (39,388) (17,194)

Recourse obligation on loans sold to Cagamas Berhad (134,585) (4,562) (134,585) (4,562)

Other liabilities 39,745 41,808 48,437 25,944

Cash generated from/(used in) operations 528,939 (3,387,262) 1,059,684 (1,959,656)

Zakat paid (2,862) (5,511) - -

Tax refund 5,459 1,364 5,440 1,350

Tax paid (122,913) (179,258) (86,687) (156,206)

Net cash generated from/(used in) operating activities 408,623 (3,570,667) 978,437 (2,114,512)



70


CASH FLOWS FROM INVESTING ACTIVITIES

Investment in associate (250) - - -

Interest received:

- financial investments available-for-sale 301,744 293,991 301,744 293,991

- financial investments held-to-maturity 17,776 17,267 17,776 17,267

Dividend income:

- financial investments available-for-sale 2,673 2,635 2,673 2,635

Redemption of financial investments held-to-maturity net of purchase 3,594 117,538 (567) 111,066

Net purchase/(sale) of financial investments available-for-sale 47,530 (260,940) 419,428 (315,392)

Proceeds from disposal of

- property and equipment 230 2 230 2

- foreclosed properties 588 4,877 588 4,877

Purchase of property and equipment (27,544) (285,117) (26,991) (284,710)

Purchase of intangible assets (2,680) (5) (2,680) (5)

Net cash generated from/(used in) investing activities 343,661 (109,752) 712,201 (170,269)

CASH FLOWS FROM FINANCING ACTIVITIES

Investment in subsidiary - - (100,000) (100,000)

Interest payment on subordinated term loan (46,469) (28,053) (46,469) (28,053)

Drawdown of subordinated term loan 300,000 400,000 300,000 400,000

Payment of dividend (168,539) (66,031) (168,539) (66,031)

Net cash generated from/(used in) financing activities 84,992 305,916 (15,008) 205,916

Net increase/(decrease) in cash and cash equivalents 837,276 (3,374,503) 1,675,630 (2,078,865)

Net (decrease)/increase in foreign exchange (543,496) 506,301 (540,821) 504,845

Cash and cash equivalents at beginning of the financial year 4,070,710 6,938,912 2,203,022 3,777,042

CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR (Note 2) 4,364,490 4,070,710 3,337,831 2,203,022



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ANNUAL REPORT 2016

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 48.

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 2016:

• AmendmentstoMFRS11‘Jointarrangements’-Accountingforacquisitionofinterestsinjointoperations

• AmendmentstoMFRS101‘Presentationoffinancialstatements’-Disclosureinitiative

• AmendmentstoMFRS127“Equitymethodinseparatefinancialstatements”

• AnnualImprovementstoMFRSs2012-2014Cycle

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 2017. None of these is expected to have a significant effect on the financial statements of the Group and the Bank, except the following:

• AmendmentstoMFRS107‘StatementofCashFlows–DisclosureInitiative’(effectivefrom1January2017)introduceanadditional disclosure on changes in liabilities arising from financing activities.

• AmendmentstoMFRS112‘IncomeTaxes-RecognitionofDeferredTaxAssetsforUnrealisedLosses’(effectivefrom1January 2017) clarify the requirements for recognising deferred tax assets on unrealised losses arising from deductible temporary difference on asset carried at fair value.

In addition, in evaluating whether an entity will have sufficient taxable profits in future periods against which deductible temporary differences can be utilised, the amendments require an entity to compare the deductible temporary differences with future taxable profits that excludes tax deductions resulting from the reversal of those temporary differences.

The amendments shall be applied retrospectively.

Summary of Significant Accounting Policiesfor the financial year ended 31 December 2016


72


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

• MFRS9‘FinancialInstruments’(effectivefrom1January2018)willreplaceMFRS139“FinancialInstruments:RecognitionandMeasurement”.

MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income(“OCI”).Thebasisofclassificationdependsontheentity’sbusinessmodelandthecashflowcharacteristicsofthe 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 (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest.

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

MFRS 9 introduces an expected credit loss model on impairment 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’andMFRS 111 ‘Construction contracts’ and related interpretations. 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.

Revenue is recognised when a customer obtains control of goods or services, i.e. when the customer has the ability to direct the use of and obtain the benefits from the goods or services.

A new five-step process is applied before revenue can be recognised:

• Identifycontractswithcustomers;

• Identifytheseparateperformanceobligations;

• Determinethetransactionpriceofthecontract;

• Allocatethetransactionpricetoeachoftheseparateperformanceobligations;and

• Recognisetherevenueaseachperformanceobligationissatisfied.

Key provisions of the new standard are as follows:

• Anybundledgoodsorservices thataredistinctmustbeseparately recognised,andanydiscountsor rebateson thecontract price must generally be allocated to the separate elements.

• If the consideration varies (such as for incentives, rebates, performance fees, royalties, success of an outcomeetc),minimum amounts of revenue must be recognised if they are not at significant risk of reversal.

• Thepointatwhichrevenueisabletoberecognisedmayshift:somerevenuewhichiscurrentlyrecognisedatapointintime at the end of a contract may have to be recognised over the contract term and vice versa.

• Therearenewspecific ruleson licenses,warranties,non-refundableupfront fees,andconsignmentarrangements, toname a few.

• Aswithanynewstandard,therearealsoincreaseddisclosures.


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ANNUAL REPORT 2016


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

• MFRS16‘Leases’(effectivefrom1January2019)supersedesMFRS117‘Leases’andtherelatedinterpretations.

Under MFRS 16, a lease is a contract (or part of a contract) that conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

MFRS 16 eliminates the classification of leases by the lessee as either finance leases (on balance sheet) or operating leases(offbalancesheet).MFRS16requiresalesseetorecognisea“right-of-use”oftheunderlyingassetandaleaseliability reflecting future lease payments for most leases.

The right-of-use asset is depreciated in accordance with the principle in MFRS 116 ‘Property, Plant and Equipment’ and the lease liability is accreted over time with interest expense recognised in the income statement.

For lessors, MFRS 16 retains most of the requirements in MFRS 117. Lessors continue to classify all leases as either operating leases or finance leases and account for them differently.

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.



74

(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

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


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(B) CONSOLIDATION

(iv) Joint arrangements (continued)

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.

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.

(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,goodwillacquiredinabusinesscombinationisallocatedtoeachofthecashgeneratingunits(“CGUs”),orgroupsofCGUs, that are expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

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.



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(D) INTANGIBLE ASSETS

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.

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.


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(F) RECOGNITION OF INTEREST AND FINANCING INCOME AND EXPENSE

Interestandfinancingincomeandexpenseforall interest/profit-bearingfinancial instrumentsarerecognisedwithin“interestincome”, “interest expense” and “income from Islamic banking business” respectively in the income statement using theeffective interest/profit method.

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

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

(G) RECOGNITION OF FEES AND OTHER INCOME

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

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

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



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Classification (continued)

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

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

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

(ii) Loans/financing and receivables

Loans/financing 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.

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/financing 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 (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.


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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/financing 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/financing 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/financing 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/financing 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.

(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.



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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/financing 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/financing) 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/financing reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

(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/financing 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/financing in the Bank and historical loss experience for loans/financing 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/financing 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.


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(ii) Collective impairment allowance (continued)

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.

(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.



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(J) FINANCIAL LIABILITIES

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 initially stated at cost, net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the government. When the amount of GST incurred is not recoverable from the government, the GST is recognised as part of the cost of acquisition of the property and equipment.

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. 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.

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.


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(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.

(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.



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(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.

(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.


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(P) CURRENT AND DEFERRED INCOME TAXES

Deferred tax (continued)

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.

(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.



86

(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 (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.

(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.


87

ANNUAL REPORT 2016

(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 measuredatfairvalueandsubsequentlyatthehigheroftheamountdeterminedinaccordancewithMFRS137“Provisions,contingentliabilitiesandcontingentassets”andtheamountinitiallyrecognisedlesscumulativeamortisation,whereappropriate.

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/financing 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.

(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.



88

(AA) SHARE CAPITAL

Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing:

• theprofitattributabletoownersoftheBank,excludinganycostsofservicingequityotherthanordinaryshares;and

• bytheweightedaveragenumberofordinarysharesoutstandingduringthefinancialyear,adjustedforbonuselementsinordinary shares issued 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

• theweightedaveragenumberofadditionalordinarysharesthatwouldhavebeenoutstandingassumingtheconversionofall dilutive potential ordinary shares.

(AB) BORROWINGS

Borrowings are recognised initially at fair value, net of transaction costs incurred.

Borrowings are subsequently carried at amortised cost; any difference between initial recognised amount and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest/profit method.

All borrowing costs are recognised in profit or loss in the period in which they are incurred.


89

ANNUAL REPORT 2016


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 the nature of these activities during the financial year.

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


Cash and bank balances with banks and other financial institutions 289,669 837,705 282,862 830,099

Money at call and deposit placements maturing within one month 4,074,821 3,233,005 3,054,969 1,372,923

4,364,490 4,070,710 3,337,831 2,203,022

3 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS


Licensed banks 152,234 316,653 406,075 349,772

Other financial institutions - 35,034 - -

152,234 351,687 406,075 349,772

4 FINANCIAL ASSETS HELD-FOR-TRADING


At fair value

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

- 150,121 - 150,121


90


5 DERIVATIVE FINANCIAL ASSETS

The Group The Group 2016 2015 Contract/ Contract/ notional notional amount Assets amount Assets RM’000 RM’000 RM’000 RM’000

At fair value

Foreign exchange derivatives:

Currency forwards 1,764,528 113,263 966,652 76,445

Cross currency swaps 1,963,860 36,441 2,571,803 81,272

Currency options - - 39,130 (12)

Interest rate derivatives:

Interest rate swaps 1,013,500 17,600 1,610,148 16,332

4,741,888 167,304 5,187,733 174,037

The Bank The Bank 2016 2015 Contract/ Contract/ notional notional amount Assets amount Assets RM’000 RM’000 RM’000 RM’000

At fair value


Currency forwards 1,738,521 111,513 1,099,793 77,153


Currency options - - 39,130 (12)



4,812,625 166,240 5,320,874 174,745

91

ANNUAL REPORT 2016


6 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE


At fair value

Money market instruments:

Malaysian Government securities 90,237 39,997 90,237 39,997

Malaysian Government investment issues 1,527,767 1,863,822 898,982 1,249,964

Sukuk Perumahan Kerajaan 406,288 655,690 276,858 468,472

Negotiable Instruments of Deposit and Islamic Debt Certificates 2,514,468 2,134,612 2,514,468 2,134,612

Khazanah Bonds/Sukuk 439,219 437,819 265,931 272,538

4,977,979 5,131,940 4,046,476 4,165,583

Unquoted securities:

Shares in Malaysia 216,948 206,724 216,948 205,167

Corporate bonds/Sukuk

- in Malaysia 4,663,751 4,446,167 3,761,846 3,937,676

- outside Malaysia 421,675 503,820 421,675 503,820

10,280,353 10,288,651 8,446,945 8,812,246

Allowance for impairment losses (356) (1,301) (356) (269)

10,279,997 10,287,350 8,446,589 8,811,977


Movement in allowance for impairment losses

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

Allowance made during the financial year 318 - 318 -

Amount written-off (1,263) (44,021) (231) (44,021)

At end of the financial year 356 1,301 356 269

Included in the Group and the Bank’s financial investments available-for-sale are corporate bonds amounting to RM1,057.7 million (2015: RM1,864.9 million) which are pledged as collateral for obligation on the securities sold under repurchase agreements.


92


7 FINANCIAL INVESTMENTS HELD-TO-MATURITY


At amortised cost

Unquoted securities:

Corporate bonds/Sukuk in Malaysia 377,061 380,832 304,939 304,550

Allowance for impairment losses (3,537) (178) (3,537) (178)

373,524 380,654 301,402 304,372



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

Allowance made during the financial year 3,537 - 3,537 -

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

Amount written-off (178) (22,063) (178) (22,063)

At end of the financial year 3,537 178 3,537 178

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ANNUAL REPORT 2016


8 LOANS, ADVANCES AND FINANCING

(i) By type


Overdrafts 1,919,668 1,960,022 1,640,789 1,645,595

Term loans/financing

- Housing loans/financing 6,964,223 6,172,180 4,106,693 4,075,922

- Hire purchase receivables 11,920,683 12,000,990 8,739,325 9,290,597

- Syndicated financing 2,079,384 1,810,209 1,496,645 1,319,486

- Business term loans/financing 13,440,419 13,416,080 9,898,640 10,555,927

Bills receivables 30,113 321,091 8,738 284,455

Trust receipts 297,955 298,417 291,017 285,817

Claims on customers under acceptances credits 1,082,209 1,016,613 907,586 892,716

Staff loans/financing (of which RM Nil to Directors) 155,172 146,494 142,063 136,958

Credit cards 91,091 83,769 91,091 83,769

Revolving credits 5,069,950 5,373,961 3,750,341 4,751,488

Factoring 1,560 4,369 1,560 4,369

Gross loans, advances and financing 43,052,427 42,604,195 31,074,488 33,327,099

Less:

Allowance for impairment losses

- Individual (149,499) (270,137) (131,497) (231,621)

- Collective (234,631) (229,461) (189,637) (192,790)

Total net loans, advances and financing 42,668,297 42,104,597 30,753,354 32,902,688

Included in the Group and the Bank’s term loans are housing loans sold to Cagamas Berhad with recourse amounting to RM Nil (2015: RM134.6 million).

Included in the Group’s business term loans/financing as at reporting date is RM53.7 million (2015: RM53.7 million) and RM78.0 million (2015: RM63.9 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


Maturing within one year 8,828,952 9,755,365 6,790,065 8,329,031

One year to three years 4,700,048 4,455,462 3,690,330 3,913,159

Three years to five years 7,072,074 6,700,288 5,696,213 5,772,922

Over five years 22,451,353 21,693,080 14,897,880 15,311,987

43,052,427 42,604,195 31,074,488 33,327,099


94



(iii) By type of customer


Domestic banking institutions 3,033 - 3,033 -

Domestic non-banking institutions

- Stockbroking companies - 221 - 221

- Others 814,693 1,575,279 605,194 1,447,078

Domestic business enterprises

- Small medium enterprises 12,504,565 9,069,401 10,729,868 8,060,187

- Others 10,225,035 13,078,516 7,708,023 10,448,275

Government and statutory bodies 1,467,488 1,137,674 85,570 534,604

Individuals 17,663,433 16,799,087 11,696,882 12,067,560

Other domestic entities 88,036 109,263 78,346 83,478

Foreign entities 286,144 834,754 167,572 685,696

43,052,427 42,604,195 31,074,488 33,327,099

(iv) By interest/profit rate sensitivity


Fixed rate

- Housing loans/financing 403,899 400,386 357,962 347,831

- Hire purchase receivables 11,920,683 12,000,990 8,739,326 9,290,597

- Other fixed rate loans/financing 3,434,446 3,986,107 2,079,862 2,670,561

Variable rate

- BLR plus 16,749,266 16,014,700 11,359,696 12,228,698

- Cost plus 10,544,133 10,202,012 8,537,642 8,789,412

43,052,427 42,604,195 31,074,488 33,327,099

95

ANNUAL REPORT 2016



(v) By economic sectors


Primary agriculture 896,922 692,126 494,803 413,218

Mining and quarrying 861,542 723,167 850,194 710,130

Manufacturing 2,102,831 2,254,941 1,768,086 2,029,121

Electricity, gas and water supply 182,805 173,888 118,436 116,517

Construction 2,509,215 3,521,131 1,986,124 2,966,971

Real estate 7,845,338 6,885,709 6,389,929 5,715,112

Wholesale & retail trade and restaurants & hotels 2,791,557 2,437,432 2,383,908 2,218,930

Transport, storage and communication 2,082,979 2,072,151 1,798,763 1,866,149

Finance, insurance and business services 2,835,367 4,285,232 2,374,384 3,718,355

Education, health and others 3,077,832 2,590,004 1,046,112 1,388,887

Household 17,795,793 16,925,393 11,793,554 12,164,391

Others 70,246 43,021 70,195 19,318

43,052,427 42,604,195 31,074,488 33,327,099

(vi) By economic purpose


Purchase of securities 664,778 299,011 389,262 296,578

Purchase of transport vehicles 12,281,400 12,438,031 9,030,869 9,702,193

Purchase of landed property of which:

- Residential 7,078,070 6,404,657 4,134,200 4,229,105

- Non-residential 5,991,465 5,891,022 4,879,275 4,911,687

Fixed assets other than land and building 325,485 240,609 253,064 164,273

Personal use 691,241 745,510 637,648 709,015

Credit card 91,091 83,769 91,091 83,769

Consumer durable 879 852 879 852

Construction 3,215,672 3,127,244 2,319,987 2,325,499

Merger and acquisition 97,992 247,706 97,992 247,706

Working capital 12,251,552 12,777,233 9,114,083 10,440,927

Others 362,802 348,551 126,138 215,495

43,052,427 42,604,195 31,074,488 33,327,099


96



(vii) By geographical distribution


Perlis 195,079 155,914 47,641 34,185

Kedah 1,434,211 1,362,515 772,318 803,114

Pulau Pinang 2,369,676 2,142,594 2,007,416 1,911,468

Perak 1,416,128 1,302,338 973,397 914,655

Selangor 12,411,054 12,878,079 8,950,162 9,800,065

Wilayah Persekutuan 12,986,958 13,155,004 8,752,844 10,272,358

Negeri Sembilan 1,216,093 994,321 767,492 663,569

Melaka 1,030,455 1,003,701 831,300 854,858

Johor 4,046,707 3,449,496 3,212,336 3,004,105

Pahang 897,686 845,284 595,356 551,457

Terengganu 743,413 803,862 347,503 385,226

Kelantan 216,290 229,607 63,115 67,998

Sarawak 1,710,795 1,577,489 1,578,664 1,508,223

Sabah 1,626,472 1,621,746 1,570,576 1,593,194

Labuan 664,510 684,220 600,536 684,164

Outside Malaysia 86,900 398,025 3,832 278,460

43,052,427 42,604,195 31,074,488 33,327,099

(viii) Movements of impaired loans


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

Classified as impaired 679,669 872,231 515,330 763,856

Reclassified as non-impaired (383,917) (394,738) (272,326) (326,841)

Amount recovered (197,704) (149,944) (110,492) (131,082)

Amount written-off (177,949) (273,350) (168,204) (264,285)

At end of the financial year 687,946 767,847 590,447 626,139

Ratio of gross impaired loans, advances and financing to gross loans, advances and financing 1.60% 1.80% 1.90% 1.88%

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ANNUAL REPORT 2016



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


Individual impairment


Allowance made during the financial year 81,349 257,645 62,010 254,086

Amount recovered (59,431) (7,293) (23,569) (7,246)


Unwinding of income (10,324) (33,004) (10,125) (32,376)

Exchange differences 357 6,495 - -



Collective impairment


Net allowance made during the financial year 49,832 17,224 35,935 11,265



(x) Impaired loans by economic sectors



Mining and quarrying 120 15 63 15

Manufacturing 20,434 35,535 19,406 35,187

Electricity, gas and water supply 207 148 96 148

Construction 102,416 81,302 97,335 80,914

Real estate 56,931 89,268 23,296 3,401

Wholesale & retail trade and restaurants & hotels 46,878 37,463 46,289 35,563

Transport, storage and communication 2,106 3,314 1,799 3,013

Finance, insurance and business services 128,829 216,444 128,337 216,333

Education, health and others 732 2,602 570 2,460

Household 314,962 287,368 258,968 234,717

687,946 767,847 590,447 626,139


98



(xi) Impaired loans by economic purpose


Purchase of securities 158 804 158 804

Purchase of transport vehicles 86,062 82,026 69,732 69,400

Purchase of landed property of which:

- Residential 203,075 180,137 161,680 140,674

- Non-residential 54,715 24,010 48,562 22,634

Fixed assets other than land and building 878 164 651 164

Personal use 28,441 20,539 27,616 20,044

Credit card 408 389 408 389

Consumer durable 17 16 17 16

Construction 39,998 98,031 39,998 12,164

Working capital 267,187 338,087 234,618 336,206

Others 7,007 23,644 7,007 23,644

687,946 767,847 590,447 626,139

(xii) Impaired loans by geographical distribution


Perlis 5,245 680 443 639

Kedah 48,834 19,972 45,818 18,964

Pulau Pinang 41,022 42,525 38,916 41,000

Perak 18,490 18,793 14,165 14,871

Selangor 264,698 417,971 233,730 389,349

Wilayah Persekutuan 79,564 89,094 76,894 83,164

Negeri Sembilan 79,423 13,949 74,573 11,230

Melaka 16,091 7,231 15,153 6,749

Johor 27,974 25,596 26,457 23,518

Pahang 9,574 8,262 7,880 6,917

Terengganu 6,245 5,307 1,229 1,389

Kelantan 5,337 5,068 1,694 1,435

Sarawak 7,951 6,918 7,753 6,666

Sabah 45,914 20,614 45,742 20,248

Outside Malaysia 31,584 85,867 - -

687,946 767,847 590,447 626,139

99

ANNUAL REPORT 2016


9 OTHER ASSETS


Other debtors 21,343 49,586 19,424 46,847

Prepayments and deposits 21,898 23,360 21,429 22,740

Cheque clearing accounts 10,721 6,803 7,759 6,501

Foreclosed properties (a) 7,970 4,906 5,329 4,315

61,932 84,655 53,941 80,403

(a) Foreclosed properties


Purchased during the financial year 3,558 - 1,508 -

Disposal during the financial year (435) (4,193) (435) (4,193)

8,029 4,906 5,388 4,315

Foreclosed properties - impairment made (59) - (59) -


10 AMOUNT DUE FROM SUBSIDIARIES

The Bank 2016 2015 RM’000 RM’000

Advances to AFFIN Islamic Bank Berhad 196,828 -

Advances to other subsidiaries 11 61

196,839 61

The advances to subsidiaries are unsecured, bear no interest rate (2015: Nil) and repayable on demand.

11 AMOUNT DUE FROM JOINT VENTURES

The Group 2016 2015 RM’000 RM’000

Advances to joint ventures 46,725 39,936

46,725 39,936

The advances to joint ventures are unsecured, bear average profit rate 7.72% (2015: 7.85%) and repayable on demand.

12 AMOUNT DUE FROM ASSOCIATE

The Group 2016 2015 RM’000 RM’000

Advances to associate 500 -

500 -

The advances to associates are unsecured, bear no profit rate and payable on demand.


100


13 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:


Deferred tax assets 8,056 3,598 - -

Deferred tax liabilities (12,884) (15,104) (12,884) (15,104)

(4,828) (11,506) (12,884) (15,104)

Deferred tax assets:

- settled more than 12 months - - - -

- settled within 12 months 35,380 20,517 27,071 16,549

Deferred tax liabilities:

- settled more than 12 months (6,705) (4,219) (6,685) (4,012)

- settled within 12 months (33,503) (27,804) (33,270) (27,641)

Deferred tax (liabilities)/assets (4,828) (11,506) (12,884) (15,104)

At beginning of the financial year (11,506) 3,118 (15,104) 218

Credited/(charged) to income statement (Note 37) 8,396 1,855 7,145 1,799

Charged to equity (1,718) (16,479) (4,925) (17,121)

At end of the financial year (4,828) (11,506) (12,884) (15,104)

The movement in deferred tax assets and liabilities during the financial year are as follows (RM’000):

Provision Financial The Group Property and Intangible for other investment 2016 equipment assets liabilities AFS Total

At beginning of the financial year (3,285) (4,204) 18,021 (22,038) (11,506)

(Charged)/credited to income statements (343) (2,916) 11,655 - 8,396

Charged to equity - - - (1,718) (1,718)

At end of the financial year (3,628) (7,120) 29,676 (23,756) (4,828)

Provision Financial The Group Property and Intangible for other investment 2015 equipment assets liabilities 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



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ANNUAL REPORT 2016


13 DEFERRED TAX ASSETS / (LIABILITIES)

Provision Financial The Bank Property and Intangible for other investment 2016 equipment assets liabilities AFS Total

At beginning of the financial year (3,018) (4,101) 16,551 (24,536) (15,104)

(Charged)/credited to income statements (358) (3,019) 10,522 - 7,145



Provision Financial The Bank Property and Intangible for other investment 2015 equipment assets liabilities AFS Total

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



The amount of unused tax losses for which no deferred tax asset is recognised in the statement of financial position are as follows:


Tax losses 98,867 98,865 - -

14 STATUTORY DEPOSITS 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 percentage of total eligible liabilities.

15 INVESTMENT IN SUBSIDIARIES

The Bank 2016 2015 RM’000 RM’000

Unquoted shares, at cost 578,103 519,509

Less: Allowance for impairment losses (2,879) (30,435)

575,224 489,074


102


15 INVESTMENT IN SUBSIDIARIES

The Bank 2016 2015 RM’000 RM’000


At beginning of the financial year 30,435 30,435

Amount written off (27,556) -

At end of the financial year 2,879 30,435

The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows:

Percentage of equity held Name Principal Activities 2016 2015 % %

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 Dormant 100 100

ABB Nominee (Asing) Sdn Bhd Dormant 100 100

AFFIN Factors Sdn Bhd (#) Dormant - 100

AFFIN Futures Sdn Bhd (#) Dormant - 100

ABB IT & Services Sdn Bhd (#) Dormant - 100

BSNCB Nominees (Tempatan) Sdn Bhd (#) Dormant - 100

BSNC Nominees (Tempatan) Sdn Bhd (#) Dormant - 100

PAB Property Development Sdn Bhd (#) Dormant - 100

AFFIN-ACF Nominees (Tempatan) Sdn Bhd (#) Dormant - 100

* 80% held by Directors of the Bank, in trust for the Bank.

# Voluntary winding up.

16 INVESTMENT IN JOINT VENTURES

The Group and The Bank 2016 2015 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 60,158 14,268

Loss after tax (3,777) (268)

Total assets 286,991 269,037

Total liabilities 297,038 275,307

103

ANNUAL REPORT 2016


16 INVESTMENT IN JOINT VENTURES

AFFIN-i KLSD 2016 2015 2016 2015 RM’000 RM’000 RM’000 RM’000

Net liabilities

At beginning of the financial year (4,155) (2,714) (3,559) (4,732)

Loss for the financial year (328) (1,441) (3,449) 1,173

At end of the financial year (4,483) (4,155) (7,008) (3,559)

Issued and paid up share capital 1,000 1,000 500 500

Interest in joint venture (%) 50 50 30 30

Loss in joint venture (RM’000) (2,242) (2,078) (2,102) (1,068)

Both the joint ventures’ principal activities are property developments.

As the Group’s share of cumulative losses of RM3.7 million (2015: RM2.5 million) as at 31 December 2016 exceeded its profit in the joint ventures, the Group does not recognise further losses in its financial statements.

AFFIN-i Nadayu Sdn Bhd (‘AFFIN-i’)

On 1 April 2008, AFFIN Islamic Bank Berhad (‘AiBB’) and Jurus Positif Sdn Bhd, a subsidiary of Nadayu Properties Berhad entered into a Musharakah Joint Venture Agreement under the Shariah principles (‘Musharakah Agreement’) to joint develop a land into a housing scheme at Bukit Gambir, Pulau Pinang.

The Musharakah Agreement also includes an arrangement whereby Jurus Positif Sdn Bhd may acquire the AiBB’s shares upon the completion of the project at a mutually agreed price, unless if both shareholders decide to continue the joint venture for subsequent projects.

Major strategic operation and financial decisions relating to the activities of AFFIN-i Nadayu requires unanimous consent by both joint venture parties. The Group’s interest in AFFIN-i Nadayu Sdn Bhd has been treated as investment in joint venture, which has been accounted for in the consolidated financial statements using the equity method of accounting.

KL South Development Sdn Bhd (‘KLSD’)

On 2 January 2013, AiBB entered into a Musharakah Joint Venture Agreement (‘Musharakah Agreement’) with Albatha Bukit Kiara Holdings Sdn Bhd (‘Albatha’), a subsidiary of Bukit Kiara Capital Sdn Bhd, to joint develop a property project namely “VERVESuitesKLSouth”atJalanKlangLama,KualaLumpur.

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.

Block B was launched on 1st July 2013 and its construction was completed with Certificate of Completion and Compliance (CCC) duly issued on 30th August 2016.

Construction of Block A shall complete by April 2017.


104


17 INVESTMENT IN ASSOCIATE

Raeed Holdings Sdn Bhd

Raeed Holdings Sdn Bhd (‘Raeed’) is a consortium formed by six Islamic banking institutions in Malaysia namely Affin Islamic Bank Berhad, Bank Islam Malaysia Berhad, Bank Muamalat Malaysia Berhad, Maybank Islamic Berhad, Bank Kerjasama Rakyat Malaysia and Bank Simpanan Nasional. Raeed has set up a wholly-owned subsidiary, IAP Integrated Sdn Bhd to develop and operate a multi-bank platform known as the Investment Account Platform (‘IAP’).

IAP Integrated started its business in 2015 as an internet based multibank investment portal. The portal will facilitate efficient intermediation by the Sponsoring Banks to match financing requirement of ventures with investment from retail and institutional investors via Investment Account (IA). IAP Integrated aims to be the leading multibank platform for Shariah compliant capital mobilisation, supported by a conducive ecosystem.

The Group and The Bank 2016 2015 RM’000 RM’000

Unquoted share at cost 750 -

The summarised financial information of associate is as follows:

Revenue - -

Loss after tax (1,754) -

Total assets 8,632 -

Total liabilities 6,431 -

As the Group’s share of cumulative losses of RM0.4 million as at 31 December 2016 exceeded its interest in the associate, the Group does not recognise losses in its current financial statements.

105

ANNUAL REPORT 2016

Not

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106

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107

ANNUAL REPORT 2016

18

PR

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109

ANNUAL REPORT 2016


19 INTANGIBLE ASSETS

Computer The Group Goodwill Software Total 2016 RM’000 RM’000 RM’000

Cost

At beginning of the financial year 133,430 146,107 279,537

Additions - 2,680 2,680

Write-off - (13) (13)

Reclassification from property and equipment (Note 18) - 17,953 17,953

At end of the financial year 133,430 166,727 300,157

Less: Accumulated amortisation

At beginning of the financial year - (126,400) (126,400)

Amortised during the financial year - (9,681) (9,681)

Write-off - 13 13

At end of the financial year - (136,068) (136,068)

Net book value at end of the financial year 133,430 30,659 164,089

2015

Cost


Additions - 5 5

Write-off - (21) (21)






Write-off - 21 21




110



Computer The Bank Goodwill Software Total 2016 RM’000 RM’000 RM’000

Cost


Additions - 2,680 2,680

Write-off - (13) (13)






Write-off - 13 13



2015

Cost


Additions - 5 5

Write-off - (21) (21)






Write-off - 21 21



111

ANNUAL REPORT 2016



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’):


Business banking 119,698 119,698 123,591 123,591

Consumer banking 13,732 13,732 13,732 13,732

133,430 133,430 137,323 137,323

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 2017 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 4.5% (2015: 4.0%), 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.

2016 2016 2015 2015 Business Consumer Business Consumer banking banking banking banking % % % %

Pre-tax discount rate 11.67 11.57 8.91 8.91

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.

20 DEPOSITS FROM CUSTOMERS

The Group The Bank (i) By type of deposit 2016 2015 2016 2015 RM’000 RM’000 RM’000 RM’000

Demand deposits 7,608,648 7,740,305 5,037,616 5,306,347

Savings deposits 2,043,157 1,951,353 1,565,872 1,538,959

Fixed deposits 26,549,515 28,952,441 19,839,651 22,429,816

Commodity Murabahah 768,412 630,118 - -

Money market deposits 518,016 1,637,103 518,016 1,637,103

Negotiable instruments of deposit (‘NID’) 10,145,308 6,901,893 10,145,308 6,901,893

47,633,056 47,813,213 37,106,463 37,814,118


112


20 DEPOSITS FROM CUSTOMERS

The Group The Bank (ii) Maturity structure of fixed deposits and NID 2016 2015 2016 2015 RM’000 RM’000 RM’000 RM’000

Due within six months 29,695,766 29,025,361 24,967,259 24,244,323

Six months to one year 6,283,803 5,640,983 4,490,502 4,010,758

One year to three years 544,151 1,172,330 512,720 1,061,114

Three years to five years 171,103 15,660 14,478 15,514

36,694,823 35,854,334 29,984,959 29,331,709

The Group The Bank (iii) By type of customer 2016 2015 2016 2015 RM’000 RM’000 RM’000 RM’000

Government and statutory bodies 6,970,831 8,103,704 3,766,293 5,158,224

Business enterprise 12,855,326 14,538,898 8,536,353 10,534,733

Individuals 12,922,185 12,209,520 11,601,961 10,931,299

Domestic banking institutions 7,399,892 6,944,295 7,399,775 6,943,481

Domestic non-banking financial institutions 6,332,943 4,609,745 5,052,773 3,296,595

Foreign entities 499,655 425,725 425,962 361,141

Other entities 652,224 981,326 323,346 588,645

47,633,056 47,813,213 37,106,463 37,814,118

21 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS


Licensed banks 2,211,825 1,583,912 1,611,023 1,031,696

Licensed investment banks 165,173 103,689 165,172 103,689

Bank Negara Malaysia 63,235 - 63,235 -

Other financial institutions 1,106,970 1,047,995 743,805 642,821

3,547,203 2,735,596 2,583,235 1,778,206

Maturity structure of deposits

Due within six months 3,499,664 2,735,596 2,583,235 1,778,206

Six months to one year 47,539 - - -

3,547,203 2,735,596 2,583,235 1,778,206

113

ANNUAL REPORT 2016


22 DERIVATIVE FINANCIAL LIABILITIES

The Group The Group 2016 2015 Contract/ Contract/ notional notional amount Liabilities amount Liabilities RM’000 RM’000 RM’000 RM’000

At fair value


Currency forwards 411,616 15,223 711,091 13,821




4,961,062 402,772 4,592,245 414,140

The Bank The Bank 2016 2015 Contract/ Contract/ notional notional amount Liabilities amount Liabilities RM’000 RM’000 RM’000 RM’000

At fair value


Currency forwards 404,467 14,510 745,337 13,625




5,860,161 409,283 4,626,491 413,944

23 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.


114


24 OTHER LIABILITIES


Bank Negara Malaysia and Credit Guarantee Corporation Funding programmes 38,563 38,536 38,563 38,536

Margin and collateral deposits 149,616 131,678 141,203 118,678

Other creditors and accruals 52,647 54,090 49,165 50,190

Sundry creditors 128,000 98,002 108,502 87,783

Cheque clearing accounts 19,272 50,363 19,272 36,742

Provision for zakat 2,332 2,307 - -

Defined contribution plan (a) 15,437 16,528 14,380 15,385

Accrued employee benefits 33,621 20,071 31,360 18,551

439,488 411,575 402,445 365,865

(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.

25 AMOUNT DUE TO SUBSIDIARIES

The amount due to subsidiaries is unsecured, interest-free and repayable on demand.

26 SUBORDINATED TERM LOAN

The Bank has taken subordinated loans as follows:

No Amount Issued (RM’m)

Description Basel Issue Date Maturity Date

Call Date Coupon

1 300 Tier 2 Basel II Subordinated Term Loan 3

Basel II 16/01/2012 16/01/2022 16/01/2017 COF plus 1.00% p.a.

2 400 Tier 2 Basel III Subordinated Term Loan 1

Basel III 30/12/2015 30/12/2025 30/12/2020 COF plus 1.00% p.a.





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 Tier 2 Basel II Subordinated Term Loan 3 is payable by quarterly and Tier 2 Basel III Subordinated Term Loans 1, 2 and 3 are payable by monthly.

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 capital ratio of the Bank.

Tier 2 Basel II Subordinated Term Loans 3 is subject to gradual phase-out treatment under Basel III.

The Tier 2 Basel III Subordinated Term Loans 1, 2 and 3 may be written-off, either fully or partially, at the discretion of BNM, at the point of non-viability as determined by BNM.

115

ANNUAL REPORT 2016


27 SHARE CAPITAL

Number of ordinary shares of RM1 each The Group and The Bank 2016 2015 2016 2015 ‘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/end of the financial year 1,688,770 1,688,770 1,688,770 1,688,770

28 RESERVES


Retained profits 1,178,962 1,029,155 913,359 805,289

Share premium 858,904 858,904 858,904 858,904

AFS revaluation reserves (b) 75,229 68,945 93,292 76,852

Statutory reserves (c) 1,721,637 1,577,509 1,416,621 1,328,792

Regulatory reserves (d) 280,204 278,547 207,026 220,148

4,114,936 3,813,060 3,489,202 3,289,985

(a) As at 31 December 2016, the Bank has a tax exempt account balance of RM10,931,988 (2015: RM10,931,988) under Section 12 of the Income Tax (Amendment) Act 1999, subject to agreement by the Inland Revenue Board.

(b) 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.

(c) 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.

(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.


116


29 INTEREST INCOME


Loans, advances and financing 1,807,744 1,809,124 1,714,508 1,758,650

Money at call and deposit placements with financial institutions 84,450 68,237 175,142 117,339

Financial assets held-for-trading 240 123 240 123

Financial investments:

- Available-for-sale 301,744 293,991 301,744 293,991

- Held-to-maturity 17,776 17,267 17,776 17,267

Interest rate derivatives 115,807 138,074 115,807 138,074

2,327,761 2,326,816 2,325,217 2,325,444

of which:

Interest income earned on impaired loans, advances and financing 8,070 16,358 8,070 16,358

30 INTEREST EXPENSE


Deposits from customers 1,188,329 1,215,168 1,188,338 1,215,188

Deposits and placements of banks and other financial institutions 113,284 86,344 113,284 86,344

Securities sold under repurchase agreements 33,193 32,485 33,193 32,485

Interest rate derivatives 108,712 127,033 108,712 127,033

Loan sold to Cagamas Berhad 4,931 5,917 4,931 5,917

Subordinated term loan 46,616 28,189 46,616 28,189

Others 614 635 614 635

1,495,679 1,495,771 1,495,688 1,495,791

31 INCOME FROM ISLAMIC BANKING BUSINESS

The Group 2016 2015 RM’000 RM’000

Income derived from investment of depositors’ funds and others 486,809 448,464

Income derived from investment of investment account funds 90,061 60,970

Income derived from investment of shareholders’ funds 44,186 36,402

Total distributable income 621,056 545,836

Income attributable to depositors (348,250) (306,915)

272,806 238,921

of which:

Financing income earned on impaired financing, advances and other financing 409 310

117

ANNUAL REPORT 2016


32 OTHER OPERATING INCOME


Fee income

Commission 17,695 16,299 17,695 16,299

Service charges and fees 64,324 57,168 64,324 57,168

Guarantee fees 24,355 23,292 24,355 23,292

106,374 96,759 106,374 96,759

Income from financial instruments

Gain/(loss) arising on financial assets held-for-trading:

- net gain on disposal 432 498 432 498

- unrealised gains/(losses) 2 (232) 2 (232)

434 266 434 266

Gain/(loss) on derivatives:

- realised 2,452 4,576 2,452 4,576

- unrealised 4,965 (3,750) 4,965 (3,750)

7,417 826 7,417 826

Gain arising on financial investments available-for-sale:

- net gain on disposal 32,993 10,678 32,993 10,678

- gross dividend income 2,673 2,635 2,673 2,635

35,666 13,313 35,666 13,313

Other income

Foreign exchange gain/(loss):

- realised 30,665 17,053 30,665 17,053

- unrealised 30,226 45,358 30,226 45,358

Rental income 1,556 1,726 1,556 1,726

(Loss)/gain on sale of property and equipment (94) 1 (94) 1

Gain on disposal of foreclosed properties 153 684 153 684

Other non-operating income 7,145 8,591 6,926 8,282

Dividend from subsidiary - - - 800

69,651 73,413 69,432 73,904

219,542 184,577 219,323 185,068


118


33 OTHER OPERATING EXPENSES


Personnel costs (a) 390,037 357,009 308,736 285,942

Establishment costs (b) 216,274 201,336 180,883 170,535

Marketing expenses (c) 18,583 14,418 16,148 12,128

Administrative and general expenses (d) 69,222 55,595 55,634 45,449

694,116 628,358 561,401 514,054

(a) Personnel costs


Wages, salaries and bonuses 295,171 272,500 233,311 218,043

Defined contribution plan (‘EPF’) 49,145 45,041 38,754 35,925

Other personnel costs 45,721 39,468 36,671 31,974

390,037 357,009 308,736 285,942

(b) Establishment costs


Rental of premises 24,977 24,183 20,171 19,986

Equipment rental 682 1,305 563 1,191

Repair and maintenance 34,463 36,007 27,418 30,478

Depreciation of property and equipment 14,724 15,044 13,688 13,960

Amortisation of intangible assets 9,681 6,200 9,255 5,735

IT Consultancy fees 65,111 64,245 54,940 55,292

Dataline rental 7,732 6,380 6,591 5,431

Security services 17,450 16,293 13,653 13,142

Electricity, water and sewerage 11,532 10,558 9,758 8,980

Insurance/Takaful and indemnities 24,970 16,198 24,187 14,738

Other establishment costs 4,952 4,923 659 1,602

216,274 201,336 180,883 170,535

119

ANNUAL REPORT 2016


33 OTHER OPERATING EXPENSES

(c) Marketing expenses


Business promotion and advertisement 10,312 6,736 9,524 5,967

Entertainment 2,359 2,193 2,040 1,908

Traveling and accommodation 4,017 3,646 3,190 2,873

Other marketing expenses 1,895 1,843 1,394 1,380

18,583 14,418 16,148 12,128

(d) Administration and general expenses


Telecommunication expenses 5,181 4,587 4,223 3,741

Auditors’ remuneration 1,695 1,440 1,241 1,148

Professional fees 10,751 7,008 9,572 5,918

Property and equipment written-off 57 84 55 76

Mail and courier charges 4,042 3,246 3,342 2,744

Stationery and consumables 10,011 9,247 7,477 6,951

Commissions expenses 7,998 4,306 6,952 3,769

Brokerage expenses 1,981 2,160 831 955

Directors’ fees and allowances 2,097 1,573 2,041 1,445

Donations 2,027 1,586 1,464 1,473

Settlement, clearing and bank charges 10,462 8,751 9,455 7,938

Stamp duties 763 383 763 380

Operational and litigation write-off expenses 1,876 4,922 1,615 4,902

GST input tax-non recoverable 6,268 3,474 4,440 2,444

Other administration and general expenses 4,013 2,828 2,163 1,565

69,222 55,595 55,634 45,449

The expenditure includes the following statutory disclosure:


Directors’ remuneration (Note 34) 4,290 7,391 4,234 7,263

Auditors’ remuneration:

- statutory audit fees 1,108 925 834 728

- over provision in prior year (30) (33) (17) (22)

- regulatory related fees 411 391 258 245

- tax fees 67 26 27 66

- non audit fees 139 131 139 131


120


34 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

Non-Executive Directors

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

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin (Completion of directorship on 4 October 2016)

Mr Aubrey Li Kwok-Sing

En. Mohd Suffian Bin Haji Haron

Tan Sri Dato’ Seri Mohamed Jawhar

Tan Sri Mohd Ghazali bin Mohd Yusoff

En. Abd Malik Bin A Rahman

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:



Salaries 960 1,215 960 1,215

Bonuses 800 3,498 800 3,498

Defined contribution plan (‘EPF’) 291 883 291 883

Other employee benefits 61 70 61 70

Benefits-in-kind 81 152 81 152

Non-Executive Directors

Fees 2,073 1,547 2,017 1,419


Directors’ remuneration (Note 33) 4,290 7,391 4,234 7,263

121

ANNUAL REPORT 2016



A summary of the total remuneration of the MD/CEO and Directors, distinguishing between Executive and Non-Executive Directors:

Directors’ * Other Benefits- The Group Salaries Bonuses Fees emoluments in-kind Total 2016 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000


Kamarul Ariffin Bin Mohd Jamil 960 800 - 352 81 2,193

Total 960 800 - 352 81 2,193

Non-executive Directors

Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) - - 516 96 24 636

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin - - 387 - - 387

En. Mohd Suffian Bin Haji Haron - - 540 - - 540

Tan Sri Dato’ Seri Mohamed Jawhar - - 534 - - 534

Total - - 1,977 96 24 2,097

Grand total 960 800 1,977 448 105 4,290

* Executive Director’s other emoluments include allowance and EPF


122



A summary of the total remuneration of the MD/CEO and Directors, distinguishing between Executive and Non-Executive Directors: (continued)

Directors’ * Other Benefits- The Group Salaries Bonuses Fees emoluments in-kind Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000



Dato’ Zulkiflee Abbas Bin Abdul Hamid 495 3,418 - 772 95 4,780

Total 1,215 3,498 - 953 152 5,818






Total - - 1,451 96 26 1,573

Grand total 1,215 3,498 1,451 1,049 178 7,391


123

ANNUAL REPORT 2016



Directors’ * Other Benefits- The Bank Salaries Bonuses Fees emoluments in-kind Total 2016 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000



Total 960 800 - 352 81 2,193




Mr Aubrey Li Kwok-Sing - - 148 - - 148



Tan Sri Mohd Ghazali bin Mohd Yusoff - - 330 - - 330

En. Abd Malik Bin A Rahman - - 241 - - 241

Mr Tang Peng Wah (Alternate Director to Mr Aubrey Li Kwok-Sing) - - 26 - - 26

Total - - 1,921 96 24 2,041

Grand total 960 800 1,921 448 105 4,234



124



A summary of the total remuneration of the MD/CEO and Directors, distinguishing between Executive and Non-Executive Directors: (continued)

Directors’ * Other Benefits- The Bank Salaries Bonuses Fees emoluments in-kind Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000



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


125

ANNUAL REPORT 2016


35 ALLOWANCES FOR IMPAIRMENT LOSSES ON LOANS, ADVANCES AND FINANCING


Individual impairment

- made during the financial year 81,349 257,645 62,010 254,086

- written-back (59,431) (7,293) (23,569) (7,246)

Collective impairment

- net allowance made during the financial year 49,832 17,224 35,935 11,265

Bad debts and financing

- recovered (50,887) (84,192) (49,731) (83,226)

- written-off 2,838 3,603 2,816 3,596

23,701 186,987 27,461 178,475

36 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 15

Subsidiaries

Joint ventures as disclosed in Note 16 Joint ventures

Associate as disclosed in Note 17 Associate

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 34.


126

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016

127

ANNUAL REPORT 2016



(a) Related parties transactions and balances (continued)

Ultimate holding Holding Other related corporate body company companies 2016 2015 2016 2015 2016 2015 The Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Amount due from

Corporate bonds/sukuk - - - - 1,009,192 1,089,870

Loans, advances and financing - - - - 1,650,773 1,728,517

Deposits and placements with banks and other financial institutions - - - - 58,310 -

Intercompany balances - - 9 9 47,225 39,936

Security deposits - - - - 3,206 2,997

- - 9 9 2,768,706 2,861,320

Amount due to

Demand and savings deposits 107,492 94,668 997 1,003 957,624 533,117

Fixed deposits - - 27,968 44,856 432,010 876,379

Negotiable instruments of deposit - - - - 419,882 421,482

Deposits and placements of banks and other financial institutions - - - - 65,011 38,818

Commodity Murabahah 7,507 - - - 251,018 99,544

Money market deposits 114,597 43,506 4,136 470 193,241 115,315

Subordinated term loan - - 1,304,592 1,004,446 - -

229,596 138,174 1,337,693 1,050,775 2,318,786 2,084,655

Commitments and contingencies - - - - 1,705,295 1,844,587

Companies in which certain Directors have Key management substantial interest personnel 2016 2015 2016 2015 The Group RM’000 RM’000 RM’000 RM’000

Amount due from

Loans, advances and financing 99,624 - 5,675 2,586

Security deposits - - 29 -

99,624 - 5,704 2,586

Amount due to

Demand and savings deposits 3,493 596 9,210 6,780

Fixed deposits 19,149 - 7,980 7,849

22,642 596 17,190 14,629

Commitments and contingencies 7 - - -


128

36

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016

129

ANNUAL REPORT 2016



(a) Related parties transactions and balances (continued)

Ultimate holding Holding corporate body company Subsidiaries 2016 2015 2016 2015 2016 2015 The Bank RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Amount due from Restricted investment accounts (RIA) - - - - 2,110,079 1,331,318 Deposits and placements with banks and other financial institutions - - - - 285,026 84,001 Intercompany balances - - 9 9 196,839 62

- - 9 9 2,591,944 1,415,381

Amount due to Demand and savings deposits 102,996 93,496 997 1,003 609 923 Fixed deposits - - 27,968 44,856 416 403 Money market deposits 114,597 43,506 4,136 470 - - Intercompany balances - - - - 41,395 422,166 Subordinated term loan - - 1,304,592 1,004,446 - -

217,593 137,002 1,337,693 1,050,775 42,420 423,492

Commitments and contingencies - - - - - -

Companies which Other related certain Directors have Key management companies substantial interest personnel 2016 2015 2016 2015 2016 2015 The Bank RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Amount due from Corporate bonds/sukuk 1,009,192 1,089,870 - - - - Loans, advances and financing 1,051,172 1,279,775 - - 5,045 2,212 Deposits and placements with banks and other financial institutions 58,310 - - - - - Security deposits 3,206 2,997 - - 29 -

2,121,880 2,372,642 - - 5,074 2,212

Amount due to Demand and savings deposits 578,717 510,506 482 - 6,039 4,153 Fixed deposits 284,090 671,636 19,149 - 5,595 2,524 Negotiable instruments of deposit 419,882 421,482 - - - - Deposits and placements of banks and other financial institutions 65,011 38,818 - - - - Money market deposits 193,241 115,315 - - - -

1,540,941 1,757,757 19,631 - 11,634 6,677

Commitments and contingencies 1,541,228 1,797,375 7 - - -


130



(b) Key management personnel compensation

The remuneration of key management personnel of the Group and the Bank during the year are as follows:


Directors’ fees and allowances

Fees 2,073 1,547 2,017 1,419


2,097 1,573 2,041 1,445

Short-term employment benefits

Salaries 7,567 7,441 6,769 6,810

Bonuses 3,601 9,859 3,191 9,120

Defined contribution plan (‘EPF’) 1,962 3,038 1,742 2,801

Other employee benefits 1,304 1,176 1,097 1,043


14,809 21,955 13,117 20,202

Included in the above table is the CEO and directors’ remuneration as disclosed in Note 34.

37 TAXATION


The taxation charge arising in Malaysia for the financial year

Current tax 143,516 106,824 111,560 78,335

Under provision in prior year 620 6,905 404 6,403

Deferred tax (Note 13) (8,396) (1,855) (7,145) (1,799)

Tax expense for the year 135,740 111,874 104,819 82,939

131

ANNUAL REPORT 2016


37 TAXATION

The Group The Bank 2016 2015 2016 2015 % % % %

Statutory tax rate in Malaysia 24.00 25.00 24.00 25.00

Tax effect in respect of:

Non allowable expenses 0.37 0.42 0.43 0.47

Non taxable income (0.14) (0.29) (0.14) (0.27)

Effect of different tax rate (1.06) (1.22) (1.40) (1.64)

Tax savings arising from income exempt from tax for International Currency Business Unit (‘ICBU’) (0.75) (0.10) - -

Under provision in prior year 0.10 1.50 0.09 1.86

Other temporary differences not recognised in prior years - (1.07) - (1.35)

Change in tax rate - 0.02 - 0.02

Average effective tax rate 22.52 24.26 22.98 24.09

38 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 RM464,131,000 (2015: RM345,582,000) and RM351,316,000 (2015: RM261,290,000) respectively. The weighted average number of shares in issue during the financial year of 1,688,770,000 (2015: 1,688,770,000) is used for the computation.

39 DIVIDENDS

Dividends recognised as distribution to ordinary equity holders of the Bank:

The Group and The Bank The Group and The Bank 2016 2015 Dividend Amount of Dividend Amount of per share Dividend per share Dividend sen RM’000 sen RM’000

Ordinary shares

Single tier dividend:

- Interim dividend 3.80 64,173 - -

- Final dividend 6.18 104,366 3.91 66,031

9.98 168,539 3.91 66,031

At the forthcoming Annual General Meeting, a single-tier final dividend in respect of the current financial year of 1.39 sen per share amounting to RM23,473,898 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 2017 when approved by the shareholder.


132


40 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 2016 2015 2016 2015 Principal Principal Principal Principal amount amount amount amount RM’000 RM’000 RM’000 RM’000

Direct credit substitutes (*) 423,565 408,318 390,178 398,935

Transaction-related contingent items 2,252,924 2,027,954 1,970,056 1,879,994

Short-term self-liquidating trade-related contingencies 496,339 470,476 183,789 101,909

Irrevocable commitments to extend credit: 9,178,584 9,211,778 7,579,320 7,476,032

- maturity less than one year 7,663,856 7,494,453 6,534,578 6,107,115

- maturity more than one year 1,514,728 1,717,325 1,044,742 1,368,917

Foreign exchange related contracts (#): 7,092,677 6,918,839 8,062,513 7,086,226

- less than one year 6,667,157 6,497,779 7,636,993 6,665,166

- one year to less than five years 383,035 421,060 383,035 421,060

- more than five years 42,485 - 42,485 -

Interest rate related contracts (#): 2,610,273 2,861,139 2,610,273 2,861,139

- less than one year 593,125 652,116 593,125 652,116

- one year to less than five years 1,187,148 1,612,023 1,187,148 1,612,023

- more than five years 830,000 597,000 830,000 597,000

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 198,586 215,113 159,049 199,792

Unutilised credit card lines 230,550 188,328 230,550 188,328

22,483,498 22,301,945 21,185,728 20,192,355

* Included in direct credit substitutes as above are financial guarantee contracts of RM423.4 million and RM390.0 million at the Group and the Bank, respectively (2015: RM408.2 million and RM398.8 million at the Group and the Bank, respectively), of which fair value at the time of issuance is zero.

# Thefairvalueofthesederivativeshavebeenrecognisedas“derivativefinancialassets”and“derivativefinancialliabilities”inthe statement of financial position and disclosed in Note 5 and 22 to the financial statements.

133

ANNUAL REPORT 2016


41 FINANCIAL RISK MANAGEMENT

(i) Credit risk

Credit risk is the potential financial loss resulting from the failure of the customer to settle financial and contractual obligations through lending/financing, hedging, trading and investing activities. It includes both pre-settlement and settlement risks of trading counterparties. Credit risk emanates mainly from loans, advances and financing, loan/financing commitments arising from such lending activities, as well as through financial transaction with counterparties including interbank money market activities as well as derivative instruments used for hedging and debt securities.

The management of credit risk in the Bank is governed by the Credit Risk Management Framework which is supported 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. Board Loan Review and Recovery Committee (‘BLRRC’) has review/veto power.

An independent Group Credit Management function is headed by Group Chief Credit Officer (‘GCCO’) with direct reporting line to MD/CEO to ensure sound credit appraisal and approval process. Group Risk Management (‘GRM’) with direct reporting line to Board Risk Management Committee (‘BRMC’) has functional responsibilities for the management of credit risk, to ensure adherence to risk standards and discipline.

Credit guidelines and procedures are incorporated within the Credit Policy. The Credit Authority Framework facilitates the approval of all new, restructured and continuing credit facilities. New and existing businesses are governed by Credit Plan which is developed as part of the annual business planning and budgeting process. The Credit Plan is reviewed at least annually to ensure the guidelines and criteria reflect portfolio strategy and market environment.

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 with the level of risk undertaken. Assessment and quantification of credit risk are supported by the use of internal rating models, scorecards and decision support tools.

The Bank adopts a credit risk grading methodology encompassing probability of default (‘PD’) driven scorecards for business loans, advances and financing. Separate scorecards have been developed for two categories of business borrowers, Large Corporate (‘LC’) and Small Medium Enterprise (‘SME’).

For consumer mass market products, statistically developed application scorecards are used to assess the risks associated with the credit application as a decision support tool at loans, advances and financing origination.

Stress Testing supplements the overall assessment of credit risk across the Bank.

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).


134



(i) Credit risk (continued)

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, geographical and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on changing market and economic conditions.

The credit risk exposure for derivative and loans, advances and financing books is managed as part of the overall lending limits with customers together with potential exposure from market movements.

Collateral

Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:

- 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/financing, 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

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year using updated financial and other relevant 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.

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.

An Early Alert Process is adopted to pro-actively identify, report, and manage warning signs of potential credit deterioration. 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 as well as exceptions reporting is in place to manage the overall risk profile, identify, analyse and mitigate adverse trends or specific areas of risk concerns.

135

ANNUAL REPORT 2016




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.

The exposure to credit risk of the Group and the Bank equals their carrying amount in the statement of financial position as at reporting date, except for the followings:

The Group The Bank 2016 2015 2016 2015 Maximum Maximum Maximum Maximum Credit Credit Credit Credit Exposure Exposure Exposure Exposure RM’000 RM’000 RM’000 RM’000

Credit risk exposures of on-balance sheet assets:

Short-term funds (*) 4,151,994 3,866,154 3,125,334 1,998,466

Financial investments available-for-sale (#) 10,063,405 10,081,927 8,229,997 8,607,079

Other assets (@) 39,212 62,990 33,910 59,649

Credit risk exposure of off-balance sheet items:

Financial guarantees 423,415 408,168 390,028 398,785

Loan commitments and other credit related commitments 12,357,133 12,113,799 10,122,914 9,846,205

Total maximum credit risk exposure 27,035,159 26,533,038 21,902,183 20,910,184

The following have been excluded for the purpose of maximum credit risk exposure calculation:

* cash in hand

# investment in unquoted shares

@ prepayment

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 74% (2015: 69%) and 73% (2015: 67%) respectively. The financial effects of collateral for the other financial assets are insignificant.


136

41

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-

171

,075

-

2

,074

,137

-

2

,245

,212

68

0,79

5

Fina

nce,

insu

ranc

e an

d bu

sine

ss s

ervi

ces

3

86,6

06

152

,234

1

39,2

51

4,2

95,1

35

172

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2

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-

7

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1,

187,

903

Gov

ernm

ent a

nd g

over

nmen

t age

ncie

s

3,7

65,3

88

-

-

5,0

20,8

39

-

1,4

67,4

88

-

10,2

53,7

15

1,32

9,53

7

Who

lesa

le &

reta

il tra

de a

nd re

stau

rant

s &

hot

els

-

-

2

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3

5,80

1

19,

902

2

,757

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-

2

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1,

676,

223

Oth

ers

-

-

1

6,10

2

-

-

19,3

19,2

88

39,

212

19,

374,

602

1,

540,

029

Tota

l ass

ets

4,1

51,9

94

152

,234

1

67,3

04

10,

063,

405

3

73,5

24

42,6

68,2

97

39,

212

57,

615,

970

1

2,78

0,54

8

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016

137

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(i)

C

red

it r

isk

(co

ntin

ued

)

Cre

dit

ris

k co

ncen

trat

ions

(co

ntin

ued

)

D

epos

its a

nd

plac

emen

ts

with

ban

ks

Fina

ncia

l

Fina

ncia

l Fi

nanc

ial

Loan

s,

O

n

and

othe

r as

sets

D

eriv

ativ

e in

vest

men

ts

inve

stm

ents

ad

vanc

es

ba

lanc

e C

omm

itmen

ts

S

hort

-ter

m

fina

ncia

l he

ld-f

or-

finan

cial

av

aila

ble-

he

ld-t

o-

and

Oth

er

shee

t an

d

Th

e G

roup

fund

s in

stitu

tions

tr

adin

g as

sets

fo

r-sa

le

mat

urity

fin

anci

ng

asse

ts

tota

l co

ntin

genc

ies

2015

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

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icul

ture

-

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-

12

-

-

6

89,2

96

-

689

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2

44,6

63

Min

ing

and

quar

ryin

g

-

-

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721

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-

7

21,7

13

280

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Man

ufac

turin

g

-

-

-

1,6

82

220

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4

3,76

9

2,2

31,7

14

-

2,4

98,0

14

2,42

8,38

1

Elec

tric

ity, g

as a

nd w

ater

sup

ply

-

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2

9

172

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1

73,3

43

-

345

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4

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Con

stru

ctio

n

-

-

-

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44,

844

1

85,0

32

3,4

52,2

89

-

3,6

82,1

65

3,18

4,72

6

Rea

l est

ate

-

-

-

-

-

-

6

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-

6

,830

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1,

159,

430

Tran

spor

t, st

orag

e an

d

co

mm

unic

atio

n

-

-

-

46

2

31,0

27

-

2,0

63,9

19

-

2,2

94,9

92

697,

346

Fina

nce,

insu

ranc

e an

d bu

sine

ss

se

rvic

es

8

84,5

27

351

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1

50,1

21

120

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4

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1

28,4

14

4,1

23,4

39

-

9,9

44,3

18

1,0

35,3

36

Gov

ernm

ent a

nd g

over

nmen

t

agen

cies

2,9

81,6

27

-

-

-

5,2

27,6

79

-

1,1

37,6

74

-

9,3

46,9

80

812

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Who

lesa

le &

reta

il tr

ade

and

rest

aura

nts

& h

otel

s

-

-

-

170

-

2

3,43

9

2,4

11,8

00

-

2,4

35,4

09

1,72

6,00

5

Oth

ers

-

-

-

51,

406

-

-

18

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6

2,99

0 1

8,38

3,29

3

948,

295

Tota

l ass

ets

3

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3

51,6

87

150

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1

74,0

37

10,

081,

927

3

80,6

54

42,1

04,5

97

62,

990

57,

172,

167

12

,521

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Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016


138

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(i)

C

red

it r

isk

(co

ntin

ued

)

Cre

dit

ris

k co

ncen

trat

ions

(co

ntin

ued

)

Dep

osi

ts a

nd I

nves

tmen

ts

pla

cem

ents

ac

coun

ts

wit

h b

anks

d

ue f

rom

Fina

ncia

l Fi

nanc

ial

Loan

s,

O

n

and

oth

er

des

igna

ted

D

eriv

ativ

e in

vest

men

ts i

nves

tmen

ts

adva

nces

bal

ance

Co

mm

itm

ents

S

hort

-ter

m

fina

ncia

l fi

nanc

ial

fina

ncia

l av

aila

ble

- he

ld-t

o-

and

O

ther

sh

eet

and

The

Ban

k

fund

s in

stit

utio

ns

inst

itut

ions

as

sets

fo

r-sa

le

mat

urit

y fi

nanc

ing

as

sets

to

tal

cont

ing

enci

es

20

16

RM

’000

R

M’0

00

RM

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R

M’0

00

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R

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icul

ture

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-

647

-

-

4

92,6

98

-

493

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1

24,4

87

Min

ing

and

quar

ryin

g

-

-

-

-

-

-

849

,015

-

8

49,0

15

331,

554

Man

ufac

turin

g

-

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-

8,2

61

165

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-

1

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-

1

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1,

880,

678

Elec

tric

ity, g

as a

nd w

ater

sup

ply

-

-

-

5

8

264

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1

18,1

11

-

382

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8,

403

Con

stru

ctio

n

-

-

-

10

-

1

80,8

86

1,9

41,5

76

-

2,1

22,4

72

2,11

3,27

9

Rea

l est

ate

-

-

-

-

2

0,39

0

-

6,3

68,3

56

-

6,3

88,7

46

948,

879

Tran

spor

t, st

orag

e an

d

co

mm

unic

atio

n

-

-

-

-

140

,973

-

1

,791

,098

-

1

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,071

58

9,91

6

Fina

nce,

insu

ranc

e an

d

bu

sine

ss s

ervi

ces

4

12,9

65

406

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2

,110

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1

38,1

87

4,0

02,0

28

100

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2

,302

,275

-

9

,472

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77

4,16

6

Gov

ernm

ent a

nd g

over

nmen

t

agen

cies

2,7

12,3

69

-

-

-

3,6

00,9

35

-

85,

570

-

6

,398

,874

86

4,69

8

Who

lesa

le &

reta

il tr

ade

and

rest

aura

nts

& h

otel

s

-

-

-

2,9

75

35,

801

1

9,90

2

2,3

51,0

04

-

2,4

09,6

82

1,63

0,45

3

Oth

ers

-

-

-

16,

102

-

-

12

,702

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3

3,91

0 1

2,75

2,27

8 1,

246,

429

Tota

l ass

ets

3

,125

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4

06,0

75

2,1

10,0

79

166

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8

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3

01,4

02

30,7

53,3

54

33,

910

45,

126,

391

10,5

12,9

42

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016

139

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(i)

C

red

it r

isk

(co

ntin

ued

)

Cre

dit

ris

k co

ncen

trat

ions

(co

ntin

ued

)

Dep

osits

and

In

vest

men

ts

pl

acem

ents

ac

coun

ts

w

ith b

anks

du

e fro

m

Fina

ncia

l

Fina

ncia

l Fi

nanc

ial

Loan

s,

O

n

an

d ot

her

desi

gnat

ed

inve

stm

ents

D

eriv

ativ

e in

vest

men

ts

inve

stm

ents

ad

vanc

es

ba

lanc

e C

omm

itmen

ts

Sho

rt-t

erm

fi

nanc

ial

finan

cial

he

ld-f

or-

finan

cial

av

aila

ble-

he

ld-t

o-

and

Oth

er

shee

t an

d

Th

e B

ank

fu

nds

inst

itutio

ns

inst

itutio

ns

trad

ing

asse

ts

for-

sale

m

atur

ity

finan

cing

as

sets

to

tal

cont

inge

ncie

s

20

15

R

M’0

00

RM

’000

R

M’0

00

RM

’000

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00

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R

M’0

00

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R

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icul

ture

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2

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410

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-

4

10,7

03

215,

236

Min

ing

and

quar

ryin

g -

-

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7

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6

Man

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g -

-

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1

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1

40,2

75

43,

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2

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2,

107,

601

Elec

tric

ity, g

as a

nd

w

ater

sup

ply

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-

-

29

1

72,0

90

-

116

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2

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57

3,23

2

Con

stru

ctio

n -

-

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-

4

4,84

4

185

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3

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2,

759,

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Rea

l est

ate

-

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-

-

-

-

5,6

96,5

45

-

5,6

96,5

45

1,05

5,52

8

Tran

spor

t, st

orag

e

and

com

mun

icat

ion

-

-

-

-

46

1

85,3

58

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1,8

58,7

67

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44,1

71

451,

634

Fina

nce,

insu

ranc

e an

d

busi

ness

ser

vice

s 9

27,9

09

349

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1

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1

50,1

21

121

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3

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5

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3,5

57,6

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Gov

ernm

ent a

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go

vern

men

t age

ncie

s 1

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-

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-

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4

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5

34,6

04

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5,7

41,3

52

144,

837

Who

lesa

le &

reta

il tr

ade

and

rest

aura

nts

& h

otel

s -

-

-

-

1

70

-

23,

439

2

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-

2

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1,

535,

407

Oth

ers

-

-

-

-

5

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6

-

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12,9

16,6

97

59,

649

13,

027,

752

78

2,52

9

Tota

l ass

ets

1,9

98,4

66

349

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1

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1

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21

174

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3

04,3

72

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02,6

88

59,

649

45,

878,

210

10

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Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016


140




Collaterals

The main collateral types accepted and given value by the Bank are:

• Mortgagesoverresidentialproperties;

• Chargesovercommercialrealestateorvehiclesfinanced;

• Chargesoverbusinessassetssuchasbusinesspremises,inventoryandaccountreceivables;and

• Chargesoverfinancialinstrumentssuchasmarketablesecurities

Total loans, advances and financing - credit quality

Allloans,advancesandfinancingarecategorisedinto“neitherpastduenorimpaired”,“pastduebutnotimpaired”and“impaired”.

Past due loans/financing refer to loans, advances and financing that are overdue by one day or more.

Loans, advances and financing are classified impaired when they fulfill any of the following criteria:

i) the principal or interest/profit or both is past due more than 90 days or 3 months from the first day of default

ii) where the account is in arrears for less than 90 days or 3 months, there is evidence of impairment to indicate that the borrower/customeris“unlikelytorepay”itscreditobligations

iii) the loan/financing is classified as rescheduled and restructured in Central Credit Reference Information System (CCRIS).

Distribution of loans, advances and financing by credit quality


Neither past due nor impaired (a) 39,828,268 39,181,976 28,593,953 30,574,217

Past due but not impaired (b) 2,536,213 2,654,372 1,890,088 2,126,743

Impaired (c) 687,946 767,847 590,447 626,139

Gross loans, advances and financing 43,052,427 42,604,195 31,074,488 33,327,099

less: Allowance for impairment

- Individual (149,499) (270,137) (131,497) (231,621)

- Collective (234,631) (229,461) (189,637) (192,790)

Net loans, advances and financing 42,668,297 42,104,597 30,753,354 32,902,688

141

ANNUAL REPORT 2016




Total loans, advances and financing - credit quality (continued)

(a) Loans/financing 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:


Quality classification

Satisfactory 38,177,186 38,594,431 27,220,848 30,022,816

Special mention 1,651,082 587,545 1,373,105 551,401

39,828,268 39,181,976 28,593,953 30,574,217

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 Group Early Alert Committee (‘GEAC’).

(b) Loans/financing past due but not impaired

Certain loans, advances and financing are past due but not impaired as the collateral values of these loans/financing are in excess of the principal and profit outstanding. Allowances for these loans/financing 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:


Past due up to 30 days 1,208,874 1,498,813 1,016,374 1,257,382

Past due 31-60 days 953,657 819,181 588,648 606,202

Past due 61-90 days 373,682 336,378 285,066 263,159

2,536,213 2,654,372 1,890,088 2,126,743


142




Total loans, advances and financing - credit quality (continued)

(c) Loans/financing impaired


Analysis of impaired assets:

Gross impaired loans/financing 687,946 767,847 590,447 626,139

Individually impaired loans/financing 426,348 527,128 381,384 424,929

Collateral and other credit enhancements obtained

The Group and the Bank obtained assets by taking possession of collateral held as security or calling upon other credit enhancements.


Nature of assets

Industrial and residential properties 7,970 4,906 5,329 4,315

Foreclosed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding indebtedness. The carrying amount of foreclosed properties held by the Group and the Bank as at reporting date has been classified as Other assets as disclosed in Note 9.

Deposits and short-term funds, corporate bonds/sukuk, treasury bills and derivatives - credit quality

Corporate bonds/sukuk, 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.

143

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(i)

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red

it r

isk

(co

ntin

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Dep

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,468

K

haza

nah

Bon

ds/S

ukuk

4

39,2

19

- -

- -

- -

439

,219

C

orpo

rate

bon

ds/s

ukuk

2

,557

,328

1

,120

,103

95

6,27

5 1

89,3

62

143

,475

1

18,8

83

-

5,0

85,4

26

Fina

ncia

l inv

estm

ents

hel

d-to

-mat

urity

C

orpo

rate

bon

ds/s

ukuk

-

-

-

-

-

3

67,2

84

6,2

40

373

,524

8

,786

,226

1

,371

,297

3

,264

,359

6

94,1

57

155

,941

6

30,2

41

6,2

40

14,9

08,4

61

* N

et o

f allo

wan

ce fo

r im

pairm

ent.

C

olla

tera

l is

not

gene

rally

obt

aine

d di

rect

ly fr

om t

he is

suer

s of

deb

t se

curit

ies.

Cer

tain

deb

t se

curit

ies

may

be

colla

tera

lised

by

spec

ifica

lly id

entifi

ed a

sset

s by

tha

t w

ould

be

obta

inab

le in

the

even

t of d

efau

lt.

D

epos

its a

nd s

hort

-ter

m fu

nds,

cor

pora

te b

onds

/suk

uk, t

reas

ury

bills

and

der

ivat

ives

whi

ch a

re p

ast d

ue b

ut n

ot im

paire

d is

not

sig

nific

ant.

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016


144

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(i)

C

red

it r

isk

(co

ntin

ued

)

A

A-

Lo

wer

The

Gro

up

Sov

erei

gns

AA

A

to A

A+

A

- to

A+

th

an A

- U

nrat

ed

* Im

paire

d

Tota

l

2015

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

Sho

rt-t

erm

fund

s

2

,981

,627

9

5,79

5

761

,577

2

3,84

8

3,3

01

6

-

3,8

66,1

54

Dep

osits

and

pla

cem

ents

with

ban

ks a

nd o

ther

fina

ncia

l ins

titut

ions

-

115

,459

2

36,2

28

-

-

-

-

351

,687

Fina

ncia

l ass

ets

held

-for

-tra

ding

N

egot

iabl

e In

stru

men

ts o

f Dep

osit

-

-

-

150

,121

-

-

-

1

50,1

21

Der

ivat

ive

finan

cial

ass

ets

-

3

4,17

5

32,

539

(6

) 1

,647

1

05,6

82

-

174

,037

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

M

alay

sian

Gov

ernm

ent s

ecur

ities

39,9

97

-

-

-

-

-

-

39,

997

M

alay

sian

Gov

ernm

ent i

nves

tmen

t iss

ues

1,

863,

822

-

-

-

-

-

-

1

,863

,822

S

ukuk

Per

umah

an K

eraj

aan

655

,690

-

-

-

-

-

-

6

55,6

90

N

egot

iabl

e In

stru

men

ts o

f Dep

osit

and

Isla

mic

Deb

t Cer

tifica

tes

-

-

2,0

84,5

72

50,

040

-

-

-

2

,134

,612

K

haza

nah

Bon

ds/S

ukuk

43

7,81

9

- -

- -

- -

437

,819

C

orpo

rate

bon

ds/s

ukuk

2,

230,

351

1

,107

,456

1

,132

,880

3

81,7

13

67,

542

3

0,04

5

-

4,9

49,9

87

Fina

ncia

l inv

estm

ents

hel

d-to

-mat

urity

C

orpo

rate

bon

ds/s

ukuk

-

-

-

-

-

3

57,2

15

23,

439

3

80,6

54

8

,209

,306

1

,352

,885

4

,247

,796

6

05,7

16

72,

490

4

92,9

48

23,

439

15,

004,

580

* N

et o

f allo

wan

ce fo

r im

pairm

ent.

C

olla

tera

l is

not

gene

rally

obt

aine

d di

rect

ly fr

om t

he is

suer

s of

deb

t se

curit

ies.

Cer

tain

deb

t se

curit

ies

may

be

colla

tera

lised

by

spec

ifica

lly id

entifi

ed a

sset

s by

tha

t w

ould

be

obta

inab

le in

the

even

t of d

efau

lt.

D

epos

its a

nd s

hort

-ter

m fu

nds,

cor

pora

te b

onds

/suk

uk, t

reas

ury

bills

and

der

ivat

ives

whi

ch a

re p

ast d

ue b

ut n

ot im

paire

d is

not

sig

nific

ant.

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016

145

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(i)

C

red

it r

isk

(co

ntin

ued

)

A

A-

Lo

wer

The

Ban

k

So

vere

igns

A

AA

t

o A

A+

A

- to

A+

th

an A

- U

nrat

ed

* Im

pai

red

To

tal

2016

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

Sho

rt-t

erm

fund

s

2

,712

,369

1

97,6

88

173

,816

-

4

1,46

1

-

-

3,1

25,3

34

Dep

osits

and

pla

cem

ents

with

ban

ks a

nd o

ther

fina

ncia

l ins

titut

ions

-

41,

289

1

10,9

45

-

253

,841

-

-

4

06,0

75

Inve

stm

ent a

ccou

nts

due

from

des

igna

ted

finan

cial

inst

itutio

ns

-

-

-

-

-

2

,110

,079

-

2

,110

,079

Der

ivat

ive

finan

cial

ass

ets

-

1

2,21

6

6,4

52

621

2

,877

1

44,0

74

-

166

,240

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

M

alay

sian

Gov

ernm

ent s

ecur

ities

90,2

37

-

-

-

-

-

-

90,

237

M

alay

sian

Gov

ernm

ent i

nves

tmen

t iss

ues

8

98,9

82

-

-

-

-

-

-

898

,982

S

ukuk

Per

umah

an K

eraj

aan

276

,858

-

-

-

-

-

-

2

76,8

58

N

egot

iabl

e In

stru

men

ts o

f Dep

osit

and

Isla

mic

Deb

t Cer

tifica

tes

-

-

2,0

14,2

00

500

,268

-

-

-

2,5

14,4

68

K

haza

nah

Bon

ds/S

ukuk

2

65,9

31

- -

- -

- -

265

,931

C

orpo

rate

bon

ds/s

ukuk

2

,068

,928

79

7,99

0 8

64,8

83

189

,362

1

43,4

75

118

,883

-

4

,183

,521

Fina

ncia

l inv

estm

ents

hel

d-to

-mat

urity

C

orpo

rate

bon

ds/s

ukuk

-

-

-

-

-

2

95,1

62

6,2

40

301

,402

6

,313

,305

1

,049

,183

3

,170

,296

6

90,2

51

441

,654

2

,668

,198

6

,240

14

,339

,127

* N

et o

f allo

wan

ce fo

r im

pairm

ent.

C

olla

tera

l is

not

gene

rally

obt

aine

d di

rect

ly f

rom

the

issu

ers

of d

ebt

secu

ritie

s. C

erta

in d

ebt

secu

ritie

s m

ay b

e co

llate

ralis

ed b

y sp

ecifi

cally

iden

tified

ass

ets

that

wou

ld b

e ob

tain

able

in th

e ev

ent o

f def

ault.

D

epos

its a

nd s

hort

-ter

m fu

nds,

cor

pora

te b

onds

/suk

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reas

ury

bills

and

der

ivat

ives

whi

ch a

re p

ast d

ue b

ut n

ot im

paire

d is

not

sig

nific

ant.

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016


146

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(i)

C

red

it r

isk

(co

ntin

ued

)

A

A-

Lo

wer

The

Ban

k

Sov

erei

gns

AA

A

to A

A+

A

- to

A+

th

an A

- U

nrat

ed

* Im

paire

d

Tota

l

2015

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

Sho

rt-t

erm

fund

s

1

,070

,558

9

5,80

1

761

,315

1

6,60

8

54,

184

-

-

1

,998

,466

Dep

osits

and

pla

cem

ents

with

ban

ks a

nd o

ther

fina

ncia

l ins

titut

ions

-

115

,460

2

01,1

94

-

33,

118

-

-

3

49,7

72

Inve

stm

ent a

ccou

nts

due

from

des

igna

ted

finan

cial

inst

itutio

ns

-

-

-

-

-

1

,331

,318

-

1

,331

,318

Fina

ncia

l ass

ets

held

-for

-tra

ding

N

egot

iabl

e In

stru

men

ts o

f Dep

osit

-

-

-

150

,121

-

-

-

1

50,1

21

Der

ivat

ive

finan

cial

ass

ets

-

3

4,17

5

32,

533

(6

) 2

,361

1

05,6

82

-

174

,745

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

M

alay

sian

Gov

ernm

ent s

ecur

ities

39,

997

-

-

-

-

-

-

3

9,99

7

M

alay

sian

Gov

ernm

ent i

nves

tmen

t iss

ues

1

,249

,964

-

-

-

-

-

-

1

,249

,964

S

ukuk

Per

umah

an K

eraj

aan

468,

472

-

-

-

-

-

-

4

68,4

72

N

egot

iabl

e In

stru

men

ts o

f Dep

osit

and

Isla

mic

Deb

t Cer

tifica

tes

-

-

2,0

84,5

72

50,

040

-

-

-

2,1

34,6

12

K

haza

nah

Bon

ds/S

ukuk

27

2,53

8

- -

- -

- -

272

,538

C

orpo

rate

bon

ds/s

ukuk

2,

105,

220

7

95,4

56

1,0

61,5

20

381

,713

6

7,54

2

30,

045

-

4

,441

,496

Fina

ncia

l inv

estm

ents

hel

d-to

-mat

urity

C

orpo

rate

bon

ds/s

ukuk

-

-

-

-

-

2

80,9

33

23,

439

3

04,3

72

5

,206

,749

1

,040

,892

4

,141

,134

5

98,4

76

157

,205

1

,747

,978

2

3,43

9 1

2,91

5,87

3

* N

et o

f allo

wan

ce fo

r im

pairm

ent.

C

olla

tera

l is

not

gene

rally

obt

aine

d di

rect

ly f

rom

the

issu

ers

of d

ebt

secu

ritie

s. C

erta

in d

ebt

secu

ritie

s m

ay b

e co

llate

ralis

ed b

y sp

ecifi

cally

iden

tified

ass

ets

that

wou

ld b

e ob

tain

able

in th

e ev

ent o

f def

ault.

D

epos

its a

nd s

hort

-ter

m fu

nds,

cor

pora

te b

onds

/suk

uk, t

reas

ury

bills

and

der

ivat

ives

whi

ch a

re p

ast d

ue b

ut n

ot im

paire

d is

not

sig

nific

ant.

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016

147

ANNUAL REPORT 2016




Other financial assets - credit quality

Other financial assets of the Group and the Bank are neither past due nor impaired are summarised as below:


Other assets 39,212 62,990 33,910 59,649

Amount due from subsidiaries - - 196,839 61

Amount due from joint ventures 46,725 39,936 - -

Amount due from associate 500 - - -

Other financial assets that are past due but not impaired or impaired are not significant.

(ii) Market risk

Market risk is the risk of losses in on and off-balance-sheet positions arising from movements in market prices. The Bank’s exposure to market risk results largely from interest rate and foreign exchange rate risks.

The Market Risk Management Framework governs the market risk activities of the Bank which is supported by a set of approved market risk management policies, guidelines and procedures.

Risk control parameters are established based on risk appetite, market liquidity and business strategies as well as macroeconomic conditions. These parameters are reviewed at least annually.

Market risk arising from the Trading Book is primarily controlled through the imposition of Stop-loss and Value-at-Risk (‘VaR’) risk control parameters.

Interest rate risk is quantified by analysing the mismatches in timing repricing of the rate sensitive assets and rate sensitive liabilities. Earnings-at-Risk (‘EaR’) or Net Interest Income simulation is conducted to assess the variation in short term earnings under various rates scenarios. The potential long term effect of the overall exposure is tracked by assessing the impact on Economic Value of Equity (‘EVE’), also known as Economic Value-at-Risk (‘EVaR’). Thresholds are set for EaR and EVaR as management triggers.

Periodic stress tests are conducted to quantify market risk arising from probability of abnormal market movements.

Value-at-risk (‘VaR’)

Value-at-Risk (‘VaR’) is used to compute the maximum potential loss amount over a specified holding period of the 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. As 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.

Backtesting of the VaR computation system is conducted regularly to gauge the accuracy of the risk measurement system.


148



(ii) Market risk (continued)

Value-at-risk (‘VaR’) (continued)

Average for the The Group and The Bank Balance financial year Minimum Maximum 2016 RM’000 RM’000 RM’000 RM’000

Instruments

FX swap 369 820 162 3,353

FX spot (Metro Desk) 214 402 40 1,285

FX option 2 175 2 1,474

Government securities, Corporate bonds/sukuk - 16 - 278

Average for the The Group and The Bank Balance financial year Minimum Maximum 2015 RM’000 RM’000 RM’000 RM’000

Instruments

FX swap 472 605 253 3,128

FX spot (Metro Desk) 466 330 48 3,240

Fix option 77 362 5 932

Government securities, Corporate bonds/sukuk 1 - - 17

Other risk measures

• Mark-to-market

Mark-to-market valuation tracks the current market value of the outstanding financial instruments.

• Stresstesting

Stress 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 experiences 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.

Impact on equity represents the changes in fair value of fixed income instruments held in available-for-sale portfolio arising from the shifts in interest/profit rate.

149

ANNUAL REPORT 2016




Interest/profit rate sensitivity (continued)

The Group The Bank 2016 2016 2016 2016 +100 -100 +100 -100 basis point basis point basis point basis point RM million RM million RM million RM million

Impact on profit after tax (28.3) 28.3 (15.0) 15.0

Impact on equity (248.6) 265.4 (182.1) 194.0

The Group The Bank 2015 2015 2015 2015 +100 -100 +100 -100 basis point basis point basis point basis point RM million RM million RM million RM million

Impact on profit after tax (49.9) 49.9 (36.1) 36.1

Impact on equity (261.0) 261.2 (215.8) 213.1

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:


+1%

Euro 2,877 1,512 4,967 1,143

United States Dollar 44,218 39,731 46,368 37,697

Great Britain Pound 1,571 2,347 1,585 2,215

Australian Dollar 41 (56) 39 3

Japanese Yen 480 184 479 178

Others 2,309 4,600 2,300 3,577

51,496 48,318 55,738 44,813

-1%

Euro (2,877) (1,512) (4,967) (1,143)

United States Dollar (44,218) (39,731) (46,368) (37,697)

Great Britain Pound (1,571) (2,347) (1,585) (2,215)

Australian Dollar (41) 56 (39) (3)

Japanese Yen (480) (184) (479) (178)

Others (2,309) (4,600) (2,300) (3,577)

(51,496) (48,318) (55,738) (44,813)


150

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

) M

arke

t ri

sk (c

ont

inue

d)

Fore

ign

exch

ang

e ri

sk

The

Ban

k is

exp

osed

to th

e ef

fect

s of

fluc

tuat

ions

in th

e pr

evai

ling

fore

ign

curr

ency

exc

hang

e ra

tes

on it

s fin

anci

al p

ositi

on a

nd c

ash

flow

s. T

he ri

sk o

f fluc

tuat

ions

in fo

reig

n cu

rren

cy

exch

ange

rat

es is

man

aged

via

set

ting

of th

resh

olds

on

the

leve

l of e

xpos

ure

by c

urre

ncy

and

in a

ggre

gate

for

both

ove

rnig

ht a

nd in

tra-

day

posi

tions

, whi

ch a

re m

onito

red

daily

.

The

follo

win

g ta

ble

sum

mar

ises

the

Ban

k’s

expo

sure

to fo

reig

n cu

rren

cy e

xcha

nge

rate

ris

k at

repo

rtin

g da

te. I

nclu

ded

in th

e ta

ble

are

the

Ban

k’s

finan

cial

inst

rum

ents

at c

arry

ing

amou

nts,

cat

egor

ised

by

curr

ency

.

U

nite

d

Gre

at

Sta

tes

Bri

tain

A

ustr

alia

n Ja

pan

ese

The

Gro

up

E

uro

D

olla

r P

oun

d

Do

llar

Yen

Oth

ers

Tota

l

20

16

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

Ass

ets

Cas

h an

d sh

ort-

term

fund

s

395

186

,378

1

,483

1

,385

1

,055

8

,385

19

9,08

1

D

eriv

ativ

e fin

anci

al a

sset

s

5,27

2

136

,611

2

,260

1

8

3

2,1

09

146

,273

Fi

nanc

ial i

nves

tmen

ts a

vaila

ble-

for-

sale

4

7,49

0

226

,021

-

-

-

1

48,1

64

421

,675

Lo

ans,

adv

ance

s an

d fin

anci

ng

-

1,1

71,2

84

-

-

-

-

1,1

71,2

84

Oth

er a

sset

s

-

1,7

39

-

-

-

-

1,7

39

Tota

l fina

ncia

l ass

ets

53

,157

1

,722

,033

3

,743

1

,403

1

,058

1

58,6

58

1,9

40,0

52

Liab

iliti

es

D

epos

its fr

om c

usto

mer

s

602,

713

2

28,6

30

7,1

78

6,1

40

803

4

1,38

2

886

,846

D

epos

its a

nd p

lace

men

ts o

f ban

ks a

nd o

ther

fina

ncia

l ins

titut

ions

-

1

7,24

3

-

-

-

-

17,

243

Der

ivat

ive

finan

cial

liab

ilitie

s

4,41

3

2,8

56

11,

116

3

93

156

1

,437

2

0,37

1

O

ther

liab

ilitie

s

1

6

5,79

9 -

-

-

-

5,

815

Tota

l fina

ncia

l lia

bili

ties

607,

142

25

4,52

8 1

8,29

4

6,5

33

959

4

2,81

9

930

,275

Net

on-

bala

nce

shee

t fina

ncia

l pos

ition

(5

53,9

85)

1,4

67,5

05

(14,

551)

(5

,130

) 9

9

115,

839

1,0

09,7

77

O

ff ba

lanc

e sh

eet c

omm

itmen

ts

932,

581

4

,350

,680

2

21,2

96

10,

560

6

3,02

6

187,

936

5,7

66,0

79

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016

151

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

) M

arke

t ri

sk (c

ont

inue

d)

Fore

ign

exch

ang

e ri

sk (c

ont

inue

d)

U

nite

d

Gre

at

Sta

tes

Brit

ain

Aus

tral

ian

Japa

nese

The

Gro

up

E

uro

Dol

lar

Pou

nd

Dol

lar

Yen

Oth

ers

Tota

l

20

15

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

Ass

ets

Cas

h an

d sh

ort-

term

fund

s

1,7

94

840

,080

4

,186

1

,293

5

72

10,

152

8

58,0

77

Dep

osits

and

pla

cem

ents

with

ban

ks a

nd o

ther

fina

ncia

l ins

titut

ions

-

3

3,11

8

-

-

-

-

33,

118

Der

ivat

ive

finan

cial

ass

ets

49

2

113

,475

3

1,53

7

39

9

3

747

1

46,3

83

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

46,9

55

297

,472

-

-

-

1

59,3

93

503

,820

Loan

s, a

dvan

ces

and

finan

cing

-

1

,131

,490

-

-

-

2

22,7

25

1,3

54,2

15

Oth

er a

sset

s

-

1,6

72

-

-

-

-

1,6

72

Tota

l fina

ncia

l ass

ets

4

9,24

1

2,4

17,3

07

35,

723

1

,332

6

65

393

,017

2

,897

,285

Liab

ilitie

s

Dep

osits

from

cus

tom

ers

52

6,84

1

373

,221

1

0,37

7

7,9

56

603

1

0,88

9

929

,887

Dep

osits

and

pla

cem

ents

of b

anks

and

oth

er fi

nanc

ial i

nstit

utio

ns

-

200

,617

-

8

14

-

-

201

,431

Der

ivat

ive

finan

cial

liab

ilitie

s

2,11

7

14,

080

1

17

-

-

495

1

6,80

9

Oth

er li

abilit

ies

16

7

8

-

-

-

-

94

Tota

l fina

ncia

l lia

bilit

ies

52

8,97

4

587

,996

1

0,49

4

8,7

70

603

1

1,38

4

1,1

48,2

21

Net

on-

bala

nce

shee

t fina

ncia

l pos

ition

(4

79,7

33)

1,8

29,3

11

25,

229

(7

,438

) 6

2

381

,633

1

,749

,065

Off

bala

nce

shee

t com

mitm

ents

68

1,38

3

3,4

68,1

59

287

,647

-

2

4,47

3

231

,704

4

,693

,366

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016


152

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

) M

arke

t ri

sk (c

ont

inue

d)

Fore

ign

exch

ang

e ri

sk (c

ont

inue

d)

U

nite

d

Gre

at

Sta

tes

Bri

tain

A

ustr

alia

n Ja

pan

ese

The

Ban

k

Eur

o

Do

llar

Po

und

D

olla

r Ye

n O

ther

s To

tal

2016

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

Ass

ets

Cas

h an

d sh

ort-

term

fund

s

- 2

14,6

19

1,0

85

1,0

67

890

7

,779

2

25,4

40

Dep

osits

and

pla

cem

ents

with

ban

ks a

nd o

ther

fina

ncia

l ins

titut

ions

-

5

3,20

7

-

-

-

-

53,

207

Der

ivat

ive

finan

cial

ass

ets

5

,684

1

35,1

26

2,2

67

18

3

2

,109

1

45,2

07

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

47,4

90

226,

021

-

-

-

148

,164

4

21,6

75

Loan

s, a

dvan

ces

and

finan

cing

-

1

,105

,742

-

-

-

-

1

,105

,742

Oth

er a

sset

s

-

1,7

39

-

-

-

-

1,7

39

Tota

l fina

ncia

l ass

ets

53

,174

1

,736

,454

3

,352

1

,085

8

93

158

,052

1

,953

,010

Liab

iliti

es

Dep

osits

from

cus

tom

ers

24

4,25

5

206

,078

6

,929

6

,121

7

98

41,

382

5

05,5

63

Dep

osits

and

pla

cem

ents

of b

anks

and

oth

er fi

nanc

ial i

nstit

utio

ns

-

17,

243

-

-

-

-

1

7,24

3

Der

ivat

ive

finan

cial

liab

ilitie

s

4,52

4

6,2

71

11,

116

3

93

156

1

,437

2

3,89

7

Oth

er li

abilit

ies

16

5,

799

-

-

-

-

5,81

5

Tota

l fina

ncia

l lia

bili

ties

248,

795

2

35,3

91

18,

045

6

,514

9

54

42,

819

5

52,5

18

Net

on-

bala

nce

shee

t fina

ncia

l pos

ition

(1

95,6

21)

1,5

01,0

63

(14,

693)

(5

,429

) (6

1)

115,

233

1,40

0,49

2

Off

bala

nce

shee

t com

mitm

ents

84

9,15

5

4,5

99,9

47

223

,221

1

0,56

0

63,

026

1

87,3

54

5,93

3,26

3

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016

153

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

) M

arke

t ri

sk (c

ont

inue

d)

Fore

ign

exch

ang

e ri

sk (c

ont

inue

d)

U

nite

d

Gre

at

Sta

tes

Brit

ain

Aus

tral

ian

Japa

nese

The

Ban

k

E

uro

Dol

lar

Pou

nd

Dol

lar

Yen

Oth

ers

Tota

l

20

15

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

Ass

ets

Cas

h an

d sh

ort-

term

fund

s

561

8

37,2

52

2,3

03

1,0

32

749

8

,680

8

50,5

77

Dep

osits

and

pla

cem

ents

with

ban

ks a

nd o

ther

fina

ncia

l ins

titut

ions

-

3

3,11

8

-

-

-

-

33,

118

Der

ivat

ive

finan

cial

ass

ets

4

92

113

,354

3

1,53

7

38

9

3

746

1

46,2

60

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

46,9

55

297

,472

-

-

-

1

59,3

93

503

,820

Loan

s, a

dvan

ces

and

finan

cing

-

1

,047

,046

-

-

-

2

22,7

25

1,2

69,7

71

Oth

er a

sset

s

-

1,6

72

-

-

-

-

1,6

72

Tota

l fina

ncia

l ass

ets

48

,008

2

,329

,914

3

3,84

0

1,0

70

842

3

91,5

44

2,8

05,2

18

Liab

ilitie

s

Dep

osits

from

cus

tom

ers

51

7,48

1

360

,437

1

0,37

0

7,9

52

598

8

,297

9

05,1

35

Dep

osits

and

pla

cem

ents

of b

anks

and

oth

er fi

nanc

ial i

nstit

utio

ns

-

116

,616

-

8

14

-

-

117

,430

Der

ivat

ive

finan

cial

liab

ilitie

s

2,0

89

13,

504

7

3

-

-

495

1

6,16

1

Oth

er li

abilit

ies

16

7

8

-

-

-

-

94

Tota

l fina

ncia

l lia

bilit

ies

51

9,58

6

490

,635

1

0,44

3

8,7

66

598

8

,792

1

,038

,820

Net

on-

bala

nce

shee

t fina

ncia

l pos

ition

(4

71,5

78)

1,8

39,2

79

23,

397

(7

,696

) 2

44

382

,752

1

,766

,398

Off

bala

nce

shee

t com

mitm

ents

6

23,9

50

3,1

86,9

71

271

,994

8

,112

2

3,53

9

94,

121

4

,208

,687

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016


154




Interest/profit rate risk

Interest rate risk is the risk to earnings and capital arising from exposure to adverse movements in interest rates mainly due to mismatches in timing repricing of assets and liabilities. These mismatches are actively managed from an earnings and economic value perspective.

The objective of interest rate risk management is to achieve a stable and sustainable net interest income from the following perspectives:

(1) Next 12 months’ Earnings - Interest rate risk from the earnings perspective is the impact based on changes to the net interest (‘NII’) over the next 12 months. This risk is measured through sensitivity analysis including the application of an instantaneous 100 basis point parallel shock in interest rates across the yield curve.

(2) Economic Value - Measuring the change in the economic value of equity (‘EVE’) is an assessment of the long term impact to the Bank’s capital. This is assessed through the application of relevant duration factors to capture the net economic value impact over the long term or total life of all balance sheet assets and liabilities to adverse changes in interest rates.

Interest rate risk thresholds are established in line with the Group’s strategy and risk appetite. These thresholds are reviewed regularly to ensure relevance in the context of prevailing market conditions.

The following table represents the Group’s and the Bank’s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates as at reporting date.

155

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

) M

arke

t ri

sk (c

ont

inue

d)

Inte

rest

/pro

fit

rate

ris

k (c

ont

inue

d)

N

on-

trad

ing

bo

ok

No

n-

in

tere

st /

U

p t

o 1

>

1-3

>3-

12

>1-

5 O

ver

5 p

rofi

t Tr

adin

g

T

he G

roup

m

ont

h m

ont

hs

mo

nths

ye

ars

year

s se

nsit

ive

bo

ok

Tota

l

20

16

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

Ass

ets

Cas

h an

d sh

ort-

term

fund

s

4,

069,

728

-

-

-

-

294

,762

-

4

,364

,490

Dep

osits

and

pla

cem

ents

with

ban

ks a

nd o

ther

fina

ncia

l ins

titut

ions

40,0

00

50,

000

6

0,00

0

-

-

2,2

34

-

152

,234

Der

ivat

ive

finan

cial

ass

ets

-

-

-

-

-

-

167

,304

1

67,3

04

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

8

54,9

65

1,4

65,9

59

871,

412

2,5

55,6

69

4,2

27,9

49

304

,043

-

10

,279

,997

Fina

ncia

l inv

estm

ent h

eld-

to-m

atur

ity

1

78,1

44

-

72,

065

5

0,00

0

50,

000

2

3,31

5 -

3

73,5

24

Loan

s, a

dvan

ces

and

finan

cing

- no

n-im

paire

d

24

,537

,597

2

,723

,113

3

,129

,917

8

,950

,311

2

,788

,912

-

-

42

,129

,850

- im

paire

d

-

-

-

-

-

5

38,4

47 #

-

5

38,4

47

Oth

ers

(1)

-

-

26,

931

-

-

7

4,25

6

-

101

,187

Sta

tuto

ry d

epos

its w

ith B

ank

Neg

ara

Mal

aysi

a

-

-

-

-

-

1

,482

,000

-

1

,482

,000

Tota

l ass

ets

29,6

80,4

34

4,2

39,0

72

4,1

60,3

25

11,5

55,9

80

7,0

66,8

61

2,7

19,0

57

167

,304

59

,589

,033

# N

et o

f ind

ivid

ual i

mpa

irmen

t allo

wan

ce.

(1)

Oth

ers

incl

ude

othe

r as

sets

and

am

ount

due

from

join

t ven

ture

s an

d as

soci

ate.

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016


156

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

) M

arke

t ri

sk (c

ont

inue

d)

Inte

rest

/pro

fit

rate

ris

k (c

ont

inue

d)

N

on-

trad

ing

bo

ok

No

n-

in

tere

st /

U

p t

o 1

>

1-3

>3-

12

>1-

5 O

ver

5 p

rofi

t Tr

adin

g

T

he G

roup

m

ont

h m

ont

hs

mo

nths

ye

ars

year

s se

nsit

ive

bo

ok

Tota

l

20

16

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

Liab

iliti

es

Dep

osits

from

cus

tom

ers

17,4

19,2

87

11,6

85,7

08

14,3

56,7

36

702

,512

-

3,

468,

813

-

47,6

33,0

56

Dep

osits

and

pla

cem

ents

of b

anks

and

oth

er fi

nanc

ial i

nstit

utio

ns

1

,963

,246

1

,299

,470

2

66,6

25

-

-

17,

862

-

3

,547

,203

Obl

igat

ion

on s

ecur

ities

sol

d un

der

repu

rcha

se a

gree

men

ts

87

6,30

9 12

0,63

7 -

-

-

2

,794

-

9

99,7

40

Der

ivat

ive

finan

cial

liab

ilitie

s

-

-

-

-

-

-

4

02,7

72

402

,772

Bills

and

acc

epta

nces

pay

able

-

-

-

-

-

37,

726

-

3

7,72

6

Sub

ordi

nate

d te

rm lo

an

1,3

00,0

00

-

-

-

-

4,5

92

-

1,3

04,5

92

Oth

er li

abilit

ies

-

-

-

-

-

4

39,4

88

-

439

,488

Tota

l lia

bili

ties

21

,558

,842

13

,105

,815

14

,623

,361

7

02,5

12

-

3,97

1,27

5 40

2,77

2 5

4,36

4,57

7

Net

inte

rest

/pro

fit

sens

itiv

ity

gap

8,12

1,59

2 (8

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) 10,

853,

468

7,

066,

861

Not

es t

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nanc

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tate

men

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ncia

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1 D

ecem

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016

157

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

) M

arke

t ri

sk (c

ont

inue

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Inte

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k (c

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d)

N

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ng b

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Non

-

in

tere

st /

U

p to

1

> 1

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12

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Ass

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62

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Fina

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Oth

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l ass

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36,6

56

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12,8

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31

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59

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ount

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nanc

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tate

men

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fina

ncia

l yea

r end

ed 3

1 D

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016


158

41

FIN

AN

CIA

L R

ISK

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e G

roup

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onth

m

onth

s m

onth

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ars

year

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nsiti

ve

book

To

tal

2015

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’000

R

M’0

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00

Liab

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Dep

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08,2

90

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60

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13

Dep

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1

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Obl

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Der

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Oth

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Tota

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Not

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016

159

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

) M

arke

t ri

sk (c

ont

inue

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ok

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p t

o 1

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12

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5 O

ver

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adin

g

T

he B

ank

mo

nth

mo

nths

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hs

year

s ye

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sens

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oo

k To

tal

2016

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M’0

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Ass

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31

Dep

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000

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2

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Inve

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481

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947

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Der

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166

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1

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Fina

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49,9

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99

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53

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5 8

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5,

429,

761

2,45

8,47

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40

46,9

17,0

21

# N

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wan

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Not

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tate

men

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fina

ncia

l yea

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ed 3

1 D

ecem

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016


160

41

FIN

AN

CIA

L R

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MA

NA

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sk (c

ont

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k (c

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ank

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mo

nths

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sens

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oo

k To

tal

2016

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00

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Liab

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cus

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12,9

43,3

91

9,9

59,7

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53

514

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3

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37

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Dep

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pla

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anks

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nanc

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nstit

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ns

1

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49,4

70

219

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Obl

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Der

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Sub

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Oth

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Am

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41,

395

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Tota

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16

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Net

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1 (7

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Not

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men

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fina

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l yea

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1 D

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ber 2

016

161

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

) M

arke

t ri

sk (c

ont

inue

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ng b

ook

Non

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st /

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p to

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3 >

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t Tr

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g

Th

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ank

m

onth

m

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s m

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ars

year

s se

nsiti

ve

book

To

tal

2015

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M’0

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00

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Ass

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8

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22

Dep

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140

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1

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72

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Fina

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150

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Der

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77

Fina

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1

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32

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Loan

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Am

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Tota

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20,9

52,7

16

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3,14

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10

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5

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2

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3

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66

47,6

49,1

64

# N

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tate

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tsfo

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fina

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l yea

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ed 3

1 D

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ber 2

016


162

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

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t ri

sk (c

ont

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ve

book

To

tal

2015

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’000

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M’0

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00

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Liab

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Dep

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11,6

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75

11,4

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69

1,0

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99

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3,5

61,3

35

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14,1

18

Dep

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pla

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nanc

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nstit

utio

ns

1

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1

58,7

63

262

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2

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-

1

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Obl

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46

Der

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4

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44

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Bills

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Rec

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Oth

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-

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365

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3

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Am

ount

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422

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Tota

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ies

14,0

77,4

54

11,9

18,1

68

11,7

47,4

01

1,1

50,6

78

-

4,4

43,7

45

413

,944

43

,751

,390

Net

inte

rest

sen

sitiv

ity g

ap

6,8

75,2

62

(9,0

15,0

28)

(7,3

61,2

16)

9,1

65,6

03

5,5

97,1

17

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016

163

ANNUAL REPORT 2016



(iii) Liquidity risk

Liquidity risk is the risk of inability of a bank to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses. 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.

The Liquidity Risk Management Framework governs the liquidity risk management activities of the Group. 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.

The Group’s short term liquidity risk management is premised on BNM’s Liquidity Coverage Ratio (‘LCR’) final standards. The LCR is a quantitative requirement which seeks to ensure that the Bank holds sufficient high-quality liquid assets (‘HQLA’) to withstand a significant liquidity stress scenario over a 30-day horizon.

Long term liquidity risk profile is assessed via the Net Stable Funding Ratio (‘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 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 re-issued on 25th August 2016 as well as BNM’s revised Basel III Observation Period reporting for Net Stable Funding Ratio (‘NSFR’) and Leverage Ratio (‘LR’) issued on 7 August 2015.

The Group also employs a set of liquidity risk indicators as an early alert of any structural change for liquidity risk management. The liquidity risk indicators include internal and external qualitative as well as quantitative indicators.

Liquidity stress tests are conducted periodically and on ad-hoc basis to gauge the Group’s resilience in the event of a liquidity disruption.

The Contingency Funding Plan provides a systematic approach in handling liquidity disruption. The document encompasses strategies, decision-making authorities, and courses of action to be taken in the event of liquidity crisis and emergencies, enabling the Group to respond to an unexpected liquidity disruption in an effective and efficient manner.

The Board Risk Management Committee (‘BRMC’) is responsible for the Bank’s liquidity policy and the strategic management of liquidity has been delegated to the Group Asset Liability Management Committee (‘GALCO’). The Liquidity Management Committee (‘LMC’), which is a sub-committee of GALCO, augments the functions of GALCO by directing its focus specifically to liquidity issues. The BRMC is informed regularly on the liquidity position of the Bank.


164



(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.

Up to 1 >1-3 >3-12 >1-5 Over 5 The Group month months months years years Total 2016 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Deposits from customers 20,555,858 11,923,838 14,822,567 780,116 - 48,082,379

Deposits and placements of banks and other financial institutions 1,973,803 1,315,056 271,519 - - 3,560,378

Obligation on securities sold under repurchase agreements 879,770 121,323 - - - 1,001,093

Bills and acceptances payable 37,726 - - - - 37,726

Other liabilities 439,488 - - - - 439,488

Subordinated term loan 304,292 7,139 33,275 176,781 1,202,145 1,723,632

24,190,937 13,367,356 15,127,361 956,897 1,202,145 54,844,696


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


Recourse obligation on loans sold to Cagamas Berhad - 2,560 136,965 - - 139,525



22,231,554 14,622,973 15,336,719 1,438,312 1,119,574 54,749,132

165

ANNUAL REPORT 2016




Liquidity risk disclosure table which is based on contractual undiscounted cash flow (continued)

Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total 2016 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Deposits from customers 16,072,622 10,159,568 10,634,918 555,578 - 37,422,686

Deposits and placements of banks and other financial institutions 1,507,183 862,296 222,697 - - 2,592,176

Obligation on securities sold under repurchase agreements 879,770 121,323 - - - 1,001,093



Amount due to subsidiaries 41,395 - - - - 41,395


19,245,433 11,150,326 10,890,890 732,359 1,202,145 43,221,153


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


17,293,599 12,087,595 12,244,188 1,320,868 1,119,574 44,065,824


166




Derivative financial liabilities

Derivative financial liabilities based on contractual undiscounted cash flow:


Derivatives settled on net basis

Interest rate derivatives (424) (1,194) (3,930) (8,461) (2,685) (16,694)

Derivatives settled on gross basis


Outflow (1,969,654) (280,116) (1,935,333) (274,066) - (4,459,169)

Inflow 1,969,768 280,403 1,937,099 201,077 - 4,388,347

114 287 1,766 (72,989) - (70,822)



Interest rate derivatives (424) (1,194) (3,930) (8,461) (2,685) (16,694)



Outflow (1,859,028) (280,116) (1,935,333) (274,066) - (4,348,543)

Inflow 1,859,129 280,403 1,937,099 201,077 - 4,277,708

101 287 1,766 (72,989) - (70,835)

167

ANNUAL REPORT 2016




Derivative financial liabilities (continued)

Derivative financial liabilities based on contractual undiscounted cash flow:



Interest rate derivatives (200) (63) (663) (364) 948 (342)



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)



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)


168

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

i) Li

qui

dit

y ri

sk (c

ont

inue

d)

Liq

uid

ity

risk

fo

r as

sets

and

liab

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ased

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ng c

ont

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itie

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es o

f on

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she

et a

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bilit

ies

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ell a

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sets

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liab

ilitie

s, c

omm

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ts a

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port

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fact

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tabl

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s in

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atur

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tual

mat

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es.

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uriti

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f ass

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and

liabi

litie

s of

the

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up a

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ank

by re

mai

ning

con

trac

tual

mat

uriti

es p

rofil

e ar

e as

follo

ws:

Up

to

1

>1-

3 >

3-12

>

1-5

Ove

r 5

No

The

Gro

up

m

ont

h m

ont

hs

mo

nths

ye

ars

year

s sp

ecifi

c To

tal

2016

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

mat

urit

y R

M’0

00

Ass

ets

Cas

h an

d sh

ort-

term

fund

s

4,3

64,4

90

-

-

-

-

-

4,3

64,4

90

Dep

osits

and

pla

cem

ents

with

ban

ks a

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fina

ncia

l ins

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-

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1

01,5

07

50,

727

-

1

52,2

34

Der

ivat

ive

finan

cial

ass

ets

2

8,97

8

32,

064

9

6,52

8

1,9

03

7,8

31

-

167

,304

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

836

,723

1

,407

,041

8

55,4

18

2,7

06,2

74

4,2

27,9

49

246

,592

10

,279

,997

Fina

ncia

l inv

estm

ents

hel

d-to

-mat

urity

-

-

6

,676

9

0,19

0

256

,756

1

9,90

2

373

,524

Loan

s, a

dvan

ces

and

finan

cing

3

,858

,511

2

,344

,564

1

,821

,611

11

,374

,252

23

,269

,359

-

42

,668

,297

Oth

er a

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30,

436

2

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1

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6,1

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7,9

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Am

ount

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5

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00

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500

Sta

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ank

Neg

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Mal

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1,4

82,0

00

-

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-

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1,4

82,0

00

Oth

er n

on-fi

nanc

ial a

sset

s (1

)

-

-

-

-

-

5

90,1

86

590

,186

10,6

48,3

63

3,7

85,7

71

2,7

94,3

66

14,2

80,2

72

27,8

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67

864

,650

60

,187

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(1)

Oth

er n

on-fi

nanc

ial a

sset

s in

clud

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x re

cove

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asse

ts, i

nves

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t in

asso

ciat

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rope

rty

and

equi

pmen

t and

inta

ngib

le a

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s.

Not

es t

o th

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nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016

169

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

i) Li

qui

dit

y ri

sk (c

ont

inue

d)

Liq

uid

ity

risk

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sets

and

liab

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ng c

ont

ract

ual m

atur

itie

s (c

ont

inue

d)

Up

to

1

>1-

3 >

3-12

>

1-5

Ove

r 5

No

The

Gro

up

m

ont

h m

ont

hs

mo

nths

ye

ars

year

s sp

ecifi

c To

tal

2016

R

M’0

00

RM

’000

R

M’0

00

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’000

R

M’0

00

mat

urit

y R

M’0

00

Liab

iliti

es

Dep

osits

from

cus

tom

ers

20

,539

,928

11

,849

,312

14

,528

,885

7

14,9

31

-

-

47,6

33,0

56

Dep

osits

and

pla

cem

ents

of b

anks

and

oth

er fi

nanc

ial i

nstit

utio

ns

1,9

71,6

29

1,3

07,3

01

268

,273

-

-

-

3

,547

,203

Obl

igat

ion

on s

ecur

ities

sol

d un

der

repu

rcha

se a

gree

men

ts

878

,754

1

20,9

86

-

-

-

-

999

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Der

ivat

ive

finan

cial

liab

ilitie

s

44,

928

2

8,00

5

164

,636

1

59,7

64

5,4

39

-

402

,772

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and

acc

epta

nces

pay

able

3

7,72

6

-

-

-

-

-

37,

726

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er li

abilit

ies

4

39,4

88

-

-

-

-

-

439

,488

Sub

ordi

nate

d te

rm lo

an

3

04,5

92

-

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1,0

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00

-

1,3

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92

Oth

er n

on-fi

nanc

ial l

iabi

litie

s (2

)

-

-

-

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1

8,90

6

18,

906

24,2

17,0

45

13,3

05,6

04

14,9

61,7

94

874

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1

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1

8,90

6 5

4,38

3,48

3

Net

liq

uid

ity

gap

(

13,5

68,6

82)

(9,5

19,8

33) (

12,1

67,4

28) 1

3,40

5,57

7 2

6,80

8,32

8

845

,744

(2)

Oth

er n

on-fi

nanc

ial l

iabi

litie

s in

clud

e de

ferr

ed ta

x lia

bilit

ies

and

prov

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n fo

r ta

xatio

n.

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016


170

Not

es t

o th

e Fi

nanc

ial S

tate

men

tsfo

r the

fina

ncia

l yea

r end

ed 3

1 D

ecem

ber 2

016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

i) Li

qui

dit

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sk (c

ont

inue

d)

Liq

uid

ity

risk

fo

r as

sets

and

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iliti

es b

ased

on

rem

aini

ng c

ont

ract

ual m

atur

itie

s (c

ont

inue

d)

Up

to 1

>

1-3

>3-

12

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5 O

ver

5 N

o

The

Gro

up

m

onth

m

onth

s m

onth

s ye

ars

year

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ecifi

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tal

2015

R

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00

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00

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mat

urity

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Ass

ets

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0

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4,0

70,7

10

Dep

osits

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pla

cem

ents

with

ban

ks a

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ther

fina

ncia

l ins

titut

ions

-

3

5,03

4

-

286

,619

3

0,03

4

-

351

,687

Fina

ncia

l ass

ets

held

-for

-tra

ding

1

50,1

21

-

-

-

-

-

150

,121

Der

ivat

ive

finan

cial

ass

ets

1

7,92

5

75,

530

7

2,92

9

4,9

11

2,7

42

-

174

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Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

88,

162

9

66,6

99

889

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4

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4

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2

35,4

23

10,2

87,3

50

Fina

ncia

l inv

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ents

hel

d-to

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urity

-

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4

8,59

4

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3

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54

Loan

s, a

dvan

ces

and

finan

cing

3

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1

,530

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2

,205

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11

,005

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23

,722

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-

42

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Oth

er a

sset

s

54,

214

2

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1

6,59

5

5,7

69

1,0

80

4,9

06

84,

655

Am

ount

due

from

join

t ven

ture

s

3

9,93

6

-

-

-

-

-

39,

936

Sta

tuto

ry d

epos

its w

ith B

ank

Neg

ara

Mal

aysi

a

1,6

04,6

00

-

-

-

-

-

1,6

04,6

00

Oth

er n

on-fi

nanc

ial a

sset

s (1

)

-

-

-

-

-

6

10,2

54

610

,254

9,6

66,5

19

2,6

09,9

04

3,2

32,9

38

15,3

97,9

81

28,0

77,2

38

874

,021

59

,858

,601

(1)

Oth

er n

on-fi

nanc

ial a

sset

s in

clud

e ta

x re

cove

rabl

e, d

efer

red

tax

asse

ts, p

rope

rty

and

equi

pmen

t and

inta

ngib

le a

sset

s.

171

ANNUAL REPORT 2016

41

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii

i) Li

qui

dit

y ri

sk (c

ont

inue

d)

Liq

uid

ity

risk

fo

r as

sets

and

liab

iliti

es b

ased

on

rem

aini

ng c

ont

ract

ual m

atur

itie

s (c

ont

inue

d)

Up

to 1

>

1-3

>3-

12

>1-

5 O

ver

5 N

o

The

Gro

up

m

onth

m

onth

s m

onth

s ye

ars

year

s sp

ecifi

c To

tal

2015

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

mat

urity

R

M’0

00

Liab

ilitie

s

Dep

osits

from

cus

tom

ers

20

,053

,169

11

,973

,746

14

,598

,308

1

,187

,990

-

-

47

,813

,213

Dep

osits

and

pla

cem

ents

of b

anks

and

oth

er fi

nanc

ial i

nstit

utio

ns

1,5

75,9

70

897

,088

2

62,5

38

-

-

-

2,7

35,5

96

Obl

igat

ion

on s

ecur

ities

sol

d un

der

repu

rcha

se a

gree

men

ts

95,

370

1

,645

,576

-

-

-

-

1

,740

,946

Der

ivat

ive

finan

cial

liab

ilitie

s

57,8

60

87,

441

1

25,1

10

138

,835

4

,894

-

4

14,1

40

Bills

and

acc

epta

nces

pay

able

7

7,11

4

-

-

-

-

-

77,

114

Rec

ours

e ob

ligat

ion

on lo

ans

sold

to C

agam

as B

erha

d

-

806

-

1

33,7

79

-

-

134

,585

Oth

er li

abilit

ies

4

11,5

75

-

-

-

-

-

411

,575

Sub

ordi

nate

d te

rm lo

an

3

,065

1

,381

-

-

1

,000

,000

-

1

,004

,446

Oth

er n

on-fi

nanc

ial l

iabi

litie

s (2

)

-

-

-

-

-

2

5,15

6

25,

156

22,2

74,1

23

14,6

06,0

38

14,9

85,9

56

1,4

60,6

04

1,0

04,8

94

25,

156

54,

356,

771

Net

liqu

idity

gap

(

12,6

07,6

04) (

11,9

96,1

34) (

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172

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173

ANNUAL REPORT 2016

Not

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174

Not

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175

ANNUAL REPORT 2016

41

FIN

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016


176



(iv) Operational risk management

Operational risk is defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or external events. The definition includes legal risk, and exposure to litigation from all aspects of the Bank’s activities, but excludes strategic business, reputational and systemic risks.

The Group Operational Risk Management Framework governs the management of operational risk across the Group.

BRMC approves all policies/policy changes relating to operational risk. GORMC supports BRMC in the review and monitoring of operational risk and provides the forum to discuss and manage all aspects of operational risk including control lapses.

The operational risk management (‘ORM’) function within GRM operates in independent capacity to manage the risks in activities associated with the operational function of the Bank.

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.

Operational risks are managed daily through established systems and processes to ensure compliance with policies, guidelines and control procedures.

To identify and assess operational risk issues and exposure, the following tools are employed:

• RiskControlSelfAssessment(‘RCSA’)

• KeyControlStandards(‘KCS’)

• KeyRiskIndicator(‘KRI’)

• LossEventDatabase(‘LED’)

Information Technology (‘IT’) and cyber risks are managed as part of the operational risk activities. The IT systems and processes are assessed and tested regularly for resilience and continuity, and that they are secure from internal and external threats.

Introduction of new products or services are evaluated to assess suitability, potential risks and operational readiness.

Operational Risk Coordinators (ORC) are appointed at business and support units as champions of ORM activities within respective units. The ORC is responsible for the reporting of ORM activities and to liaise with Group Operational Risk Management on all operational defects and results. As an internal requirement, all Operational Risk Coordinators must satisfy an Internal Operational Risk (including 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.

177

ANNUAL REPORT 2016



(v) Shariah Non-Compliance Risk

Shariah non-compliance is the risk of failure to comply with the Shariah rules and principles as determined by SC and/or any other relevant bodies, such as BNM Shariah Advisory Council.

The Shariah Governance Framework for Islamic Financial Institutions issued by BNM is the main reference for the Shariah governance process and oversight within AiBB.

Shariah Committee (‘SC’) is established to deliberate on Shariah issues and provide resolution as well as guidance. GORMC together with BRMC and GBRMC assist in the overall oversight of Shariah risk management of the Group.

Shariah Risk Management is part of an integrated risk management control function to identify all possible risks of Shariah non-compliance and where appropriate, to provide mitigating measures that need to be taken to reduce the risk. The scope covers overall business activities and operations, commencing from Islamic product origination until maturity.

Each business and support unit is responsible to identify and assess potential Shariah Non-Compliance Risk using the RCSA process. Half yearly RCSA checklist is performed to gauge the level of Shariah compliance.

All Islamic products, services and strategies related matters must be approved by the SC.

Shariah Resolutions/Circulars are issued and training on Shariah Compliance is conducted by the Shariah Review Team on a regular basis.

Shariah non-compliance reports are regularly submitted for further deliberation, decision and remedial action.

(vi) Business Continuity Risk

Business continuity risk is the risk of losses in assets, revenue, reputation and stakeholder/customer confidence due to the discontinuation of services in both business and technology operations.

The Business Continuity Management Framework governs the management of business continuity issues, in line with BNM Guidelines on Business Continuity Management (‘BCM’).

BRMC approves all policies and its changes relating to business continuity management. It also reviews, monitors and discusses business continuity management reports tabled at its meetings. GORMC supports BRMC in the review and monitoring of Business Continuity Risk and provides the forum to discuss and manage all aspects of operational risk including control lapses.

The BCM function is an independent body overseeing the management of the overall business continuity risk.

Annual Risk Assessment and Business Impact Analysis are made compulsory for each business and support unit in the Bank to undertake. The outcome of this assessment will translate into a risks listing that require business and support units to derive action plans to address the risks.

Risk control is established through adherence with established BCM guidelines and standards throughout the implementation of BCM programs. Rigorous testing on business continuity and disaster recovery plans are diligently performed to ensure effective and smooth execution of the plan for resumption and recovery of disrupted business.

Policies and processes are in place to support the monitoring and reporting of business continuity risks.


178



(vii) Fair value of financial instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Group and the Bank measure fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are not based on observable market data.

Financial instruments are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted prices is readily available, and the price represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an on-going basis. These would include actively traded listed equities and actively exchange-traded derivatives.

Where fair value is determined using unquoted market prices in less active markets or quoted prices for similar assets and liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available, the Group and the Bank then determine fair value based upon valuation techniques that use as inputs, market parameters including but not limited to yield curves, volatilities and foreign exchange rates. The majority of valuation techniques employ only observable market data and so reliability of the fair value measurement is high.

Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). Such inputs are generally determined based on observable inputs of a similar nature, historical observations on the level of the input or other analytical techniques.

This category includes unquoted shares held for socio economic reasons. Fair values for shares held for socio economic reasons are based on the net tangible assets of the affected companies. The Group’s and the Bank’s exposure to financial instruments classified as Level 3 comprised a small number of financial instruments which constitute an insignificant component of the Group’s and the Bank’s portfolio of financial instruments. Hence, changing one or more of the inputs to reasonable alternative assumptions would not change the value significantly for the financial assets in Level 3 of the fair value hierarchy.

The Group and the Bank recognise transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfer has occurred. Transfers between fair value hierarchy primarily due to change in the level of trading activity, change in observable market activity related to an input, reassessment of available pricing information and change in the significance of the unobservable input. There were no transfers between Level 1, 2 and 3 of the fair value hierarchy during the financial year (2015: Nil).

179

ANNUAL REPORT 2016



(vii) Fair value of financial instruments (continued)

The following table presents assets and liabilities measured at fair value and classified by level of the following fair value measurement hierarchy:

The Group Level 1 Level 2 Level 3 Total

2016 RM’000 RM’000 RM’000 RM’000

Assets

Derivative financial assets - 167,304 - 167,304

Financial investments available-for-sale *

- Money market instruments - 4,977,979 - 4,977,979

- Equity securities - - 216,592 216,592

- Corporate bonds/Sukuk - 5,055,381 30,045 5,085,426

Total - 10,200,664 246,637 10,447,301

Liabilities

Derivative financial liabilities - 402,772 - 402,772

Total - 402,772 - 402,772

The Group Level 1 Level 2 Level 3 Total

2015 RM’000 RM’000 RM’000 RM’000

Assets

Financial assets held-for-trading - 150,121 - 150,121





- Corporate bonds/Sukuk - 4,949,987 - 4,949,987

Total - 10,406,085 205,423 10,611,508

Liabilities


Total - 414,140 - 414,140

* Net of allowance for impairment.


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The Bank Level 1 Level 2 Level 3 Total

2016 RM’000 RM’000 RM’000 RM’000

Assets





- Corporate bonds/Sukuk - 4,153,476 30,045 4,183,521

Total - 8,366,192 246,637 8,612,829

Liabilities


Total - 409,283 - 409,283

The Bank Level 1 Level 2 Level 3 Total

2015 RM’000 RM’000 RM’000 RM’000

Assets

Financial assets held-for-trading - 150,121 - 150,121





- Corporate bonds/Sukuk - 4,441,496 - 4,441,496

Total - 8,931,945 204,898 9,136,843

Liabilities


Total - 413,944 - 413,944

* Net of allowance for impairment.

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The following table present the changes in Level 3 instruments for the financial year ended:



Purchases 30,045 500 30,045 -

Sales (25) - - -

Reclassify to investment in associate (500) - - -

Total gains recognised in other comprehensive income 12,012 74,245 12,012 74,246

Allowance for impairment losses (318) - (318) -


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):

Inter-relationship Fair value assets between significant 2016 2015 Valuation Unobservable unobservable inputs and Description RM’000 RM’000 techniques inputs fair value measurement

Financial investments available-for-sale

The Group Net tangible Net tangible Higher net tangible assets

Unquoted shares 216,592 205,423 assets assets results in higher fair value

The Bank Net tangible Net tangible Higher net tangible assets

Unquoted shares 216,592 204,898 assets 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:

Carrying Fair value The Group value Level 1 Level 2 Level 3 Total 2016 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets

Financial investments held-to-maturity 373,524 - 373,524 - 373,524

Loans, advances and financing 42,668,297 - 41,856,606 - 41,856,606

43,041,821 - 42,126,879 - 42,126,879

Financial liabilities

Deposits from customers 47,633,056 - 47,644,913 - 47,644,913

47,633,056 - 47,644,913 - 47,644,913

Carrying Fair value The Group value Level 1 Level 2 Level 3 Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets



42,485,251 - 42,185,567 - 42,185,567



Recourse obligation on loans sold to Cagamas Berhad 134,585 - 136,065 - 136,065

47,947,798 - 47,968,551 - 47,968,551

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ANNUAL REPORT 2016




Carrying Fair value The Bank value Level 1 Level 2 Level 3 Total 2016 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets



31,054,756 - 30,443,469 - 30,443,469



37,106,463 - 37,113,009 - 37,113,009

Carrying Fair value The Bank value Level 1 Level 2 Level 3 Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets

Deposits and placements with banks and other financial institutions 1,310,764 - 1,336,046 - 1,336,046



34,517,824 - 34,283,615 - 34,283,615



Recourse obligation on loans sold to Cagamas Berhad 134,585 - 136,065 - 136,065

37,948,703 - 37,964,156 - 37,964,156

Other than as disclosed above, the total fair value of each financial assets and liabilities presented on the statements of financial position as at reporting date of the Group and the Bank approximates the total carrying amount.

The fair value estimates were determined by application of the methodologies and assumptions described below.

Short-term funds and placements with banks and other financial institutions

For short-term funds and placements with banks and other financial institutions with maturity of less than six months, the carrying amount is a reasonable estimate of fair value.

For amounts with maturities of six months or more, fair values have been estimated by reference to current rates at which similar deposits and placements would be made to banks with similar credit ratings and maturities.


184




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/financing and fixed rate loans/financing. For performing floating rate loans/financing, the carrying amount is a reasonable estimate of their fair values.

The fair values of performing fixed rate loans/financing 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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ANNUAL REPORT 2016


42 OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES

In accordancewithMFRS132 “Financial Instruments: Presentation”, theGroup and theBank report financial assets andfinancial liabilities on a net basis on the statements of financial position only if there is a legally enforceable right to set off the recognised amounts and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. The following table shows the impact of netting arrangement on:

• Allfinancialassetsandliabilitiesthatarereportednetonstatementsoffinancialposition;and

• Allderivativefinancialinstrumentsandreverserepurchaseandrepurchasedagreementsandothersimilarsecuredlendingand borrowing agreements that are subject to enforceable master netting arrangements or similar agreements, but do not qualify for statements of financial position netting.

The table identifies the amounts that have been offset in the statements of financial position and also those amounts that are covered by 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,as a variety of credit mitigation strategies are employed in addition to netting and collateral arrangements.

Related amount not offset

Derivative financial assets and liabilities

The ‘Financial instruments’ column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be offset and close-out netting applied across all outstanding transaction covered by the agreements if an event of default or other predetermined events occur.

Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the collateral to be realised in an event of default or if other predetermined events occur.

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.


186



Effects of offsetting on the statements of financial position Related amounts not offset

Net amount reported on statement Gross Amount of financial Financial Financial Net The Group amount offset position instruments collateral amount 2016 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets

Derivative financial assets 167,304 - 167,304 (38,960) - 128,344

Total assets 167,304 - 167,304 (38,960) - 128,344


Obligation on securities sold under repurchase agreements 999,740 - 999,740 (999,740) - -

Derivative financial liabilities 402,772 - 402,772 (38,960) - 363,812

Total liabilities 1,402,512 - 1,402,512 (1,038,700) - 363,812


Net amount reported on statement Gross Amount of financial Financial Financial Net The Group amount offset position instruments collateral amount 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets


Total assets 174,037 - 174,037 (74,365) - 99,672


Obligation on securities sold under repurchase agreements 1,740,946 - 1,740,946 (1,740,946) - -



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ANNUAL REPORT 2016




Net amount reported on statement Gross Amount of financial Financial Financial Net The Bank amount offset position instruments collateral amount 2016 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets


Total assets 166,240 - 166,240 (39,647) - 126,593


Obligation on securities sold under repurchase agreements 999,740 - 999,740 (999,740) - -




Net amount reported on statement Gross Amount of financial Financial Financial Net The Bank amount offset position instruments collateral amount 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets


Total assets 174,745 - 174,745 (74,491) - 100,254


Obligation on securities sold under repurchase agreements 1,740,946 - 1,740,946 (1,740,946) - -




188


43 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:


Within one year 22,844 22,745 22,153 22,056

One year to five years 22,986 33,468 22,304 33,219

44 CAPITAL AND OPERATING COMMITMENTS

Capital commitments

Capital expenditure for property and equipment approved by the Directors but not provided for in the financial statements amounted to approximately:

The Bank 2016 2015 RM’000 RM’000

Authorised and contracted for 13,384 13,058

Operating commitment

Operating expenditure approved by the Directors but not provided for in the financial statements amounted to approximately:

The Bank 2016 2015 RM’000 RM’000

Authorised and contracted for 47,518 79,263

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ANNUAL REPORT 2016


45 CAPITAL MANAGEMENT

The total capital and capital adequacy ratios of the Group and the Bank are computed in accordance with BNM’s Capital Adequacy Framework (Capital Components).

The Group and the Bank are currently adopting the Standardised Approach for Credit Risk and Market Risk and the Basic Indicator Approach for Operational Risk. In line with the transitional arrangements under the BNM 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 5.125% (2015: 4.5%) and 6.625% (2015: 6.0%) respectively for year 2016. The minimum regulatory capital adequacy requirement is 8.625% (2015: 8.0%) for total capital ratio.

The Group and the Bank’s objectives when managing capital are:

• TocomplywiththecapitalrequirementssetbytheregulatorsofthebankingmarketswheretheentitieswithintheGroupand the Bank operates;

• TosafeguardtheGroupandtheBank’sabilitytocontinueasagoingconcernsothatitcancontinuetoprovidereturnsfor shareholders and benefits 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 46 below summarises the composition of regulatory capital and the ratios of the Group and the Bank for the financial year ended 31 December 2016.

46 CAPITAL ADEQUACY

The capital adequacy ratios are as follows:

The Group (#) The Bank 2016 2015 2016 2015 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

Statutory reserves 1,721,637 1,577,509 1,416,621 1,328,792


Unrealised gains and losses on AFS 98,985 90,983 122,753 101,388

5,547,258 5,245,321 5,000,407 4,783,143

Less:

Goodwill and other intangibles (164,089) (153,137) (167,982) (156,604)

55% of cumulative unrealised gains of AFS (54,442) (50,041) (67,514) (55,763)

Investment in associate/subsidiaries (450) - (345,134) (195,630)

CET1 capital 5,328,277 5,042,143 4,419,777 4,375,146

Tier I capital 5,328,277 5,042,143 4,419,777 4,375,146


190


46 CAPITAL ADEQUACY

The Group (#) The Bank 2016 2015 2016 2015 RM’000 RM’000 RM’000 RM’000

Subordinated term loan 1,180,000 820,000 1,180,000 820,000

Collective impairment @ 137,903 133,809 109,362 110,058

Regulatory adjustments 280,204 278,547 207,026 220,148

Less:


Tier II capital 1,597,807 1,232,356 1,266,298 856,762

Total capital 6,926,084 6,274,499 5,686,075 5,231,908

CET1 capital ratio 12.201% 11.878% 12.595% 12.230%

Tier 1 capital ratio 12.201% 11.878% 12.595% 12.230%

Total capital ratio 15.860% 14.781% 16.204% 14.625%

CET1 capital ratio (net of proposed dividends)^ 12.147% 11.632% 12.528% 11.938%

Tier 1 capital ratio (net of proposed dividends)^ 12.147% 11.632% 12.528% 11.938%

Total capital ratio (net of proposed dividends)^ 15.806% 14.535% 16.137% 14.333%

Risk-weighted assets for:

Credit risk 40,928,681 39,766,072 32,838,523 33,498,227

Market risk 333,445 327,504 296,191 323,855

Operational risk 2,408,896 2,355,261 1,956,481 1,951,219

Total risk-weighted assets 43,671,022 42,448,837 35,091,195 35,773,301

@ 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 RM23,473,898 (2015: RM104,366,000).

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 2016, RIA assets included in the Total Capital Ratio calculation amounted to RM2,112,242,742 (2015: RM1,316,026,354).

The capital adequacy ratios of the AFFIN Islamic Bank Berhad is as follows:

Economic Entity The Bank 2016 2015 2016 2015 RM’000 RM’000 RM’000 RM’000

(Before and after deducting proposed dividend)




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ANNUAL REPORT 2016


47 LITIGATION AGAINST THE BANK

(a) AclaimbythePlaintiffagainsttheBankvideWritofSummonsandStatementofClaimdated22January2016(“Writ”)forthe following:

i) RM56,885,317.82 together with interest at 5% per annum from 1999 till full settlement as alleged damages;

ii) SGD9,928,473.75 together with interest at 5% per annum from 2013 till full settlement as alleged losses;

iii) RM776,331.00 being alleged losses of Plaintiffs’ shares in Berlian Ferries Pte. Ltd which was transferred out as a result of his bankruptcy in 2013 with interest at 5% per annum from 2013 till full settlement as alleged losses; and

iv) RM500,000 as cost in respect of legal proceedings in Singapore.

TheBankhadon25January1996givenSuriaBarisan(M)SdnBhd(“Suria”)acreditfacilityofRM21.6million(“Facility”)against security of unquoted shares belongs to Naval Dockyard Sdn Bhd and guarateed by the Plaintiff and Puan NorashikinBintiAbdulLatiff(“Guarantor”).

Suria,thePlaintiffandGuarantor(“All”)defaultedintheFacilitywhichledtotheBankfilingadebtrecoveryactionagainstAll of them in 1999. Judgement was obtained against All on 8 July 2004.

The Plaintiff was made bankrupt on 17 January 2013. The bankruptcy was set aside in September 2015 on the grounds that hewas solventdue to a thirdparty,Chenet FinanceLtd (“Chenet”) beingorderedby aSingaporeCourt topaydamagestotheDirectorGeneralofInsolvencyMalaysia(“DGI”)asreceiverofPlaintiff’sEstate.TheBankhasappealedandCaseManagement(“CM”)hasbeenfixedon24June2016.

ThePlaintiff’sclaim(“Claim”)ispremisedonallegedwrongfulactsbyABBasfollows:

• failuretosell7.2millionsharesinNavalDockyardSdnBhd(“NDSBshares”)whichwaspledgedbySuriatotheBankas security for the Facility on a timely basis. On this claim, Plantiff claims damages under (i) above;

• allowedthereleaseoftheGuarantor fromher liabilityuponpaymentofacertainsumpursuanttoherGuaranteewithout giving the same opportunity to the Plaintiff;

• theBankhadcorrespondedwiththeopponentofPlantiffinSingaporetopreventthePlaintifffromclaiminghisassetsin Singapore.

Plantiff has alleged conspiracy between the Bank and the opponent of the Plantiff in Singapore. On this claim, Plantiff claims losses under (ii) above;

• theBankhadwrongfullymadePlantiffabankruptin2013whichbankruptcywassetasidein2015.Onthisclaim,Plantiff claims losses under (iii) above;

• ThePlantiffisalsoclaimingtheamountof(iv)abovebeingcostofproceedingsincurredbyhiminSingapore.

TheBankhasagooddefence(“Defence”)onthemeritswithregardtoeachoftheallegedwrongfulactasfollows:

• thesaleofNDSBShareswassubjecttotheapprovalfromtherelevantauthoritiesasperthetermsoftheFacilityAgreement and the price has to be based on the offer from the approved prospective buyer;

• thereleaseoftheGuarantoristheprerogativeoftheBankpursuanttothetermsoftheGuaranteeAgreement;

• thePlantiff’sbankruptcyisbasedonajudgementofCourt;

• theBank’slegalfirmhadcorrespondedwiththelegalfirmofthePlantiff’sopponentinSingaporeonlytoinformthestatus of the Plantiff proceedings in Malaysia and any alleged conspiracy is denied; and

• theclaimforcostisunreasonableastheBankwasnotinanywayinvolvedintheSingaporeproceedings.


192


47 LITIGATION AGAINST THE BANK

(a) AclaimbythePlaintiffagainsttheBankvideWritofSummonsandStatementofClaimdated22January2016(“Writ”)forthe following (continued):

The above Claim against the Bank by the Plaintiff is a result of the Debt Recovery Action against the Plaintiff which was commenced in the ordinary course of business.

On 15 August 2016, the matter came up for hearing for the Plaintiff’s Application for Discovery of Documents whereby the Court fixed the said matter for decision on 1 November 2016. The Court has also fixed the full trial dates on 13 February to 16 February 2017.

The Plaintiff’s Stay Application was dismissed by the Court on 20 September 2016 with a cost of RM5,000.00. The hearing for the Bank’s appeal against the annulment of the Adjudicting Order Receiving Order (‘AORO’) has been fixed on 10 November 2016.

The Board of Directors of the Bank are of the view that save for the orders, cost and other relief sought by the Plaintiff, which will materialize only if the Court rules in the Plaintiff’s favour, the Writ and Statement of Claim is not expected to result in any immediate losses, material, financial and operational impact on the Bank for the current financial year ended 31 December 2016.

(b) Other than the above, there are various legal suits against the Bank in respect of claims and counter claims of approximately RM71.8 million (31 December 2015: RM68.1 million). Based on legal advice, the Directors of the Bank are of the opinion that no provision for damages need to be made in the financial statements, as the probability of adverse adjudication against the Bank is remote.

48 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/financing, such as those to individuals and small business customers of the private and retail business, and for those loans/financing 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.

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ANNUAL REPORT 2016


49 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 2016 2015 RM’000 RM’000

(i) The aggregate value of outstanding credit exposures with connected parties (RM’000) 2,990,808 2,319,413

(ii) The percentage of outstanding credit exposures to connected parties as a proportion of total credit exposures 6% 5%

(iii) The percentage of outstanding credit exposures with connected parties which is impaired or in default Nil Nil

50 SIGNIFICANT EVENT AFTER YEAR END

(a) The Bank has disposed the entire share capital of ABB Trustee Berhad (‘ABBT’) comprising 100,000 ordinary shares of RM10 each (of which RM5 is uncalled) for a total consideration of RM662,208. The entire share capital of ABBT is acquired by five shareholders in equal proportion, namely AFFIN Hwang Investment Bank Berhad, AFFIN Hwang Nominees (Tempatan) Sdn Bhd, AFFIN Hwang Nominess (Asing) Sdn Bhd, AHC Global Sdn Bhd and AHC Associates Sdn Bhd, each holding 20% equity interest in ABBT. The disposal was completed on 9 January 2017.

(b) The Bank has obtained approval from Bank Negara Malaysia to prepay the Tier 2 Basel II Subordinated Term Loan 3 amounting to RM300 million on 16 January 2017.

(c) On 16 February 2017, AFFIN Hwang Investment Bank Berhad (‘AHIB’) had on behalf of the Board of Directors of AFFIN Holdings Berhad (‘AHB’) announced that AHB and the Bank intend to undertake the Proposed Reorganisation of the AHB Group of companies as follows:

(i) Proposed transfer by AHB of the following identified companies to the Bank:

• AHIB,awholly-ownedsubsidiaryofAHB;

• AFFINMoneybrokersSdnBhd,awholly-ownedsubsidiaryofAHB(‘AMB’);

• AXAAFFINLifeInsuranceBerhad,a51.00%-ownedjointventurecompanyofAHB(‘AALI’);and

• AXAAFFINGeneralInsuranceBerhad,a37.07%-ownedassociatecompanyofAHB(‘AAGI’),

(AHIB, AMB, AALI and AAGI shall collectively be referred to as the ‘’Identified Companies’’ and item (i) above shall be referredtoasthe“ProposedReorganisation”);

(ii) Proposed distribution of the entire shareholdings in the Bank held by AHB to the entitled shareholders of AHB whose names appear in AHB’s Record of Depositors on an entitlement date to be determined and announced by the Board at a later date (‘Entitlement Date’) (‘Entitled Shareholders’), after the completion of the Proposed Reorganisation, on the Entitlement Date by way of a distribution-in-specie via a reduction of the following:

• theentireconsolidatedcapitalofAHB(whichincludestheentireissuedandpaid-upsharecapitalofAHBandthe entire share premium account of AHB); and

• theretainedprofitsofAHB,

(item(ii)aboveshallbereferredtoasthe“ProposedDistribution”);


194



(iii) Proposed subscription by the Bank of 2 new ordinary shares in AHB (‘AHB Shares’) which will be undertaken simultaneouslywiththeProposedDistribution(“ProposedSubscription”);

(iv) Proposed amendments of the Memorandum and Articles of Association (‘M&A’) of AHB and the Bank to facilitate the ProposedTransferofListingStatus(“ProposedAmendments”);

(v) Proposed transfer of the listing status from AHB to the Bank on the Main Market of Bursa Malaysia Securities Berhad (‘Bursa Securities’) (‘’Proposed Transfer of Listing Status’’); and

(vi) Proposed members’ voluntary winding-up of AHB in accordance with the Companies Act, 2016 (‘Act’) (‘’Proposed Winding-up’’)

(theaboveshallcollectivelybereferredtoasthe“Proposals”).

(1) Details of the Proposed Reorganisation

AHB will enter into a conditional share sale agreement (‘SSA’) with the Bank to undertake the Proposed Reorganisation where the entire shareholdings held by AHB in the Identified Companies at a cut-off date to be determined later (‘Cut-Off Date’) will be transferred from AHB to the Bank. The SSA will be entered into between the transacting parties after the approval of Bank Negara Malaysia (‘BNM’) has been obtained.

The Cut-Off Date shall be the last day of the calendar month immediately prior to the calendar month in which the conditions precedents are fulfilled in accordance with the terms of the SSA.

(2) Transfer consideration and mode of satisfaction

The transfer consideration for each of the Identified Companies shall be based on their respective carrying value recorded by AHB in its management accounts as at the Cut-Off Date (‘Transfer Consideration’). Carrying value comprised AHB’s cost of investment in the said Identified Companies and its share of post-acquisition profits recorded by the respective Identified Companies.

The mode of satisfaction for the Transfer Consideration are proposed to be as follows:

• forAHIB,AMB,andAALI-issuanceof254,178,931newordinarysharesintheBank(‘BankShares’);and

• forAAGI-tobefullysatisfiedincashtobepaidbytheBanktoAHB

AHB and the Bank have decided to fix the number of new Bank Shares the Bank will issue to AHB to satisfy part of the Transfer Consideration to facilitate the exchange ratio for the Proposed Distribution. As at the date of announcement, the Bank has 1,688,769,616 Bank Shares in issue whilst AHB has 1,942,948,547 AHB Shares in issue. The Bank intends to issue 254,178,931 new Bank Shares for the Transfer Consideration of AHIB, AMB and AALI. This will result in both AHB and the Bank having the same resultant number of shares in issue, being 1,942,948,547 shares.

With the equal amount number of shares in issue, AHB will be able to undertake a distribution-in-specie of 1 Bank Share for each existing AHB Share held pursuant to the Proposed Distribution, minimising the incidence of odd lots for its shareholders when undertaking the Proposed Distribution.

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ANNUAL REPORT 2016



(3) Approvals required

The Proposals are subject to the following approvals being obtained:

(a) BNM and the Ministry of Finance, Malaysia (on recommendation of BNM) for the Proposed Reorganisation, Proposed Distribution and Proposed Subscription.

(b) SC for the following:

(i) change in controller of AHIB, AFFIN Hwang Asset Management Berhad (‘AHAM’) and AIIMAN Asset Management Sdn Bhd (‘AIIMAN’), being holders of the Capital Markets and Services License issued by the SC, pursuant to the proposed transfer of AHIB under the Proposed Reorganisation; and

(ii) exemption to LTAT and its persons acting in concert under Paragraph 4.13(1)(c) of the Rules from the obligation to make a mandatory take-over offer to acquire all the Bank Shares not held by LTAT and its persons acting in concert upon completion of the Proposed Distribution.

(c) Bursa Malaysia Securites Berhad (‘Bursa Securities’) for the following:

(i) the withdrawal of AHB’s listing status from the Main Market of Bursa Securities, pursuant to the Proposed Transfer of Listing Status; and

(ii) admission to the Official List and the listing of and quotation for the entire enlarged issued and paid-up share capital of the Bank on the Main Market of Bursa Securities, pursuant to the Proposed Transfer of Listing Status.

(d) sanction of the High Court of Malaya under Section 116(4) of the Act for the Proposed Distribution;

(e) shareholders of AHB at an EGM to be convened for the Proposed Distribution, Proposed Subscription, Proposed Amendments and Proposed Transfer of Listing Status;

(f) shareholder of the Bank for the Proposed Reorganisation, proposed issuance of new Bank Shares to settle the transfer consideration for AHIB, AMB and AALI under the Proposed Reorganisation, Proposed Subscription, Proposed Amendments and Proposed Winding-Up;

(g) approvals of the lenders of AHB Group and the Identified Companies, if required; and

(h) approval, waiver and/or consent of any other relevant authority or party, if required.

(4) Inter-conditionality of the Proposals

The Proposed Reorganisation is not conditional upon any of the other Proposals.

The Proposed Distribution, Proposed Subscription, Proposed Amendments and Proposed Transfer of Listing Status are inter-conditional upon each other and are also conditional upon the Proposed Reorganisation.

Save as disclosed above, the Proposals are not conditional upon any other proposal undertaken or to be undertaken by AHB or the Bank.

On 20 February 2017, AHB had submitted an application to Bank Negara Malaysia (‘BNM’) to seek the approval of BNM and/or its recommendations to Ministry of Finance, Malaysia for approval for the Proposed Reorganisation, Proposed Distribution and Proposed Subscription. AHB had on the same day submitted an application to the Securities Commission Malaysia (‘SC’) to seek the approval of the SC for the change in controller of AHIB, AHAM and AIIMAN pursuant to the Proposed Reorganisation.

51 APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 21 March 2017.


196

Statement by DirectorsPursuant to Section 169 (15) of the Companies Act, 1965

Statutory DeclarationPursuant to Section 169 (16) of the Companies Act, 1965

We, MOHD SUFFIAN BIN HAJI HARON and TAN SRI MOHD GHAZALI BIN MOHD YUSOFF, two of the Directors of AFFIN BANK BERHAD, state that, in the opinion of the Directors, the accompanying financial statements set out on pages 64 to 196 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 2016 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 21 March 2017.

MOHD SUFFIAN BIN HAJI HARON

Director

TAN SRI MOHD GHAZALI BIN MOHD YUSOFF

Director

I, RAMANATHAN RAJOO, the officer of AFFIN BANK BERHAD primarily responsible for the financial management of the Group and the Bank, do solemnly and sincerely declare that, in my opinion, the accompanying financial statements set out on pages 64 to 196, are correct and I make this solemn declaration conscientiously believing the same to be true, by virtue of the provisions of the Statutory Declarations Act, 1960.

RAMANATHAN RAJOO

Subscribed and solemnly declared by the above named RAMANATHAN RAJOO at Kuala Lumpur in Malaysia on 21 March 2017, before me.

Commissioner for Oaths

197

ANNUAL REPORT 2016

Independent Auditors’ Reportto the Member of AFFIN Bank Berhad (Incorporated in Malaysia)

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Our opinion

Inouropinion,thefinancialstatementsofAFFINBankBerhad(“theBank”)anditssubsidiaries(“theGroup”)giveatrueandfairview of the financial position of the Group and of the Bank as at 31 December 2016, and of their financial performance and their 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.

What we have audited

We have audited the financial statements of the Group and of the Bank, which comprise the statements of financial position as at 31 December 2016 of the Group and of the Bank, and the income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Bank for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 64 to 196.

Basis for opinion

We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the “Auditors’ responsibilities for the audit of the financialstatements”sectionofourreport.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence and other ethical responsibilities

We are independent of the Group and of the Bank in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) oftheMalaysianInstituteofAccountants(“By-Laws”)andtheInternationalEthicsStandardsBoardforAccountants’CodeofEthicsforProfessionalAccountants(“IESBACode”),andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeBy-Lawsand the IESBA Code.

Information other than the financial statements and auditors’ report thereon

The directors of the Bank are responsible for the other information. The other information comprises

• ManagementDiscussionandAnalysis,

• FinancialHighlights,

• StatementonCorporateGovernance,

• StatementonRiskManagementandInternalControl,

• BoardAuditCommitteeReport,

• Directors’Report

• BaselIIPillar3Disclosures

but does not include the financial statements of the Group and of the Bank and our auditors’ report thereon.

Our opinion on the financial statements of the Group and of the Bank does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements of the Group and of the Bank, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Bank or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.


198


REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Responsibilities of the directors for the financial statements

The directors of the Bank are responsible for the preparation of the financial statements of the Group and of the Bank that 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 is necessary to enable the preparation of financial statements of the Group and of the Bank that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements of the Group and of the Bank, the directors are responsible for assessing the Group’s and the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Bank or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Bank as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

(a) Identify and assess the risks of material misstatement of the financial statements of the Group and of the Bank, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

(b) Obtain an understanding of internal control relevant to the audit 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 Group’s and Bank’s internal control.

(c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

(d) Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s or Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Bank or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group or Bank to cease to continue as a going concern.

(e) Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Bank, including the disclosures, and whether the financial statements of the Group and of the Bank represent the underlying transactions and events in a manner that achieves fair presentation.

(f) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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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 auditors’ reports on the financial statements of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act.

OTHER MATTERS

This report is made solely to the members of the Bank, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

PRICEWATERHOUSECOOPERS NG YEE LING (No. AF: 1146) 03032/01/2019 JChartered Accountants Chartered Accountant

Kuala Lumpur, Malaysia21 March 2017


200


202 1. Introduction202 1.1 Background

202 1.2 Scope of Application

202 2. Risk Governance Structure202 2.1 Overview

203 2.2 Board Committees

204 2.3 Management Committees

205 2.4 Group Risk Management Function

205 2.5 Internal Audit and Internal Control Activities

205 3. Capital Management205 3.1 Internal Capital Adequacy Assessment

Process (‘ICAAP’)

205 3.2 Capital Structure

207 3.3 Capital Adequacy

207 4. Risk Management Objectives and Policies

207 5. Credit Risk207 5.1 Credit Risk Management Objectives and

Policies

208 5.2 Application of Standardised Approach for Credit Risk

208 5.3 Credit Risk Measurement

209 5.4 Risk Limit Control and Mitigation Policies

209 5.5 Credit Risk Monitoring

210 5.6 Impairment Provisioning

215 6. Market Risk215 6.1 Market Risk Management Objectives

and Policies

215 6.2 Application of Standardised Approach for Market Risk

215 6.3 Market Risk Measurement, Control and Monitoring

216 6.4 Value-at-Risk (‘VaR’)

216 6.5 Foreign Exchange Risk

216 7. Liquidity Risk216 7.1 Liquidity Risk Management Objectives

and Policies

217 7.2 Liquidity Risk Measurement, Control and Monitoring

217 8. Operational Risk217 8.1 Operational Risk Management

Objectives and Policies

217 8.2 Application of Basic Indicator Approach for Operational Risk

218 8.3 Operational Risk Measurement, Control and Monitoring

218 8.4 Certification

218 9. Shariah Non-Compliance Risk218 9.1 Shariah Non-Compliance Risk


218 9.2 Shariah Non-Compliance Risk Measurement, Control and Monitoring

219 10. Business Continuity Risk219 10.1 Business Continuity Risk Management


219 10.2 Business Continuity Risk Measurement, Control and Monitoring

220 Appendices

Basel II Pillar 3 Disclosures

Basel II Pillar 3 Disclosuresas at 31 December 2016

1 INTRODUCTION

1.1 Background

TheCapitalAdequacyFramework(BaselII–Risk-WeightedAssets)issuedbyBankNegaraMalaysia(‘BNM’),whichistheequivalant of the Basel II issued by the Basel Committee of Banking Supervision and the Islamic Financial Services Board is structured around three fundamental pillars:

- Pillar 1 defines the minimum capital requirement to ensure that financial institutions hold sufficient 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 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 promotes transparency regarding their risk management practices and capital adequacy positions.

Pillar 3 disclosure is required under the BNM Risk Weighted Capital Adequacy Framework (Basel II) – DisclosureRequirements (Pillar 3).

AffinBankBerhad(‘theBank”)adoptsthefollowingapproachesunderPillar1requirements:

- 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 2016. 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 2016 Annual Report for the year ended 31 December 2016.

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 (‘AiBB’).

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.


202



2.1 Overview (continued)

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.

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’)

BRMC is responsible for overseeing management activities in managing credit, market, liquidity, operational, legal, reputational and other material risks as well as ensuring that the risk management process is in place and functioning effectively.

It is responsible for setting the overall tone of the Bank’s strategy and ensuring effective communication and integration of risk appetite within the business strategy, operations and culture.

The Committee also assists the Board in oversight responsibilities on internal controls, and risk management strategies, policies, processes, frameworks and other risk related matters. It has the responsibility of reviewing and/or approving risk management policies, guidelines and reports.

Board Loan Review and Recovery Committee (‘BLRRC’)

The BLRRC is responsible for providing critical review of loans and other credit facilities with high risk implications and vetoing loan/financing applications that have been approved by the Group Management Loan Committee as appropriate.

Board Audit Committee (‘BAC’)

The BAC 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 the Shariah Governance Framework for Islamic Financial Institutions.

The roles and responsibilities of the Shariah Committee include advising the Board on Shariah matters to ensure that the business operations of the Bank comply with Shariah principles at all times. SC is also responsible for endorsing and validating relevant documentations of the Bank’s products to ensure that the products comply with Shariah principles, and advising the Bank on matters to be referred to the Shariah Advisory Council.

2.3 Management Committees

Management Committee (‘MCM’)

MCM comprises the senior management team chaired by Group Managing Director/Chief Executive Officer (Group MD/CEO). MCM is responsible for assisting the Board in managing the day-to-day operations, formulating tactical plans and business strategies while monitoring the banking entities’ overall performance, and ensuring all business activities conducted are in accordance with the Bank’s corporate objectives, strategies, policies as well as Annual Business Plan and Budget.

Group Management Loan Committee (‘GMLC’)

GMLC is established within senior management to approve complex and large loans/financing and workout/recovery proposals beyond the delegated authority of the individual approvers.

Group Asset and Liability Management Committee (‘GALCO’)

GALCO comprising the senior management team chaired by the MD/CEO, manages the Bank’s asset and liability position by identifying, managing and controlling balance sheet risks and capital management in the execution of the business strategy, while implementing asset liability strategy and policy for the balance sheet of the respective subsidiary.

Liquidity Management Committee (‘LMC’)

The LMC is a sub-committee of the GALCO. The role of LMC is to augment the functions of GALCO by directing its focus specifically to liquidity issues.

Group Operational Risk Management Committee (‘GORMC’)

GORMC is a senior management committee chaired by the Group Chief Risk Officer, established to oversee the management of operational risks issues and control lapses while supporting BRMC in its review and monitoring of operational risk. It is also responsible for reviewing and ensuring that the operational risk programme, process and framework are implemented in accordance with regulatory requirement and manage loss incidents to an acceptable level.

Group Early Alert Committee (‘GEAC’)

GEAC is a senior management committee, established to monitor credit quality through monthly reviews of the Early Alert, Watchlist and Exit Accounts as well as to review the actions taken to address the emerging risks and issues in these accounts.


204



2.4 Group Risk Management Function

Group Risk Management (‘GRM’), headed by the Group Chief Risk Officer (‘GCRO’) is segregated from the lines of business, with direct reporting line to BRMC to ensure independence of risk management function.

The independence of risk function is critical towards controlling and managing the Bank’s risk taking activities to achieve an optimum return in line with the subsidiaries’ risk appetite, with consideration to variations required due to differences in each subsidiary’s business model.

Committees namely BLRRC, SC, MCM, GMLC, GALCO, LMC, GORMC and GEAC assist BRMC in managing credit, market, liquidity, operational and other material risks in the Bank. The responsibilities of these Committees include risk identification, risk assessment and measurement, risk control and mitigation and risk monitoring and reporting.

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 BAC.

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 BAC and Management meetings on bi-monthly basis. The BAC also conducts annual reviews on the adequacy of internal audit function, scope of work, resources and budget of GIA.


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

The total capital and capital adequacy ratios of the Group and the Bank are computed in accordance with BNM’s Capital Adequacy Framework (Capital Components).

The Group and the Bank are currently adopting the Standardised Approach for Credit Risk and Market Risk and the Basic Indicator Approach for Operational Risk. In line with the transitional arrangements under the BNM 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 5.125% (2015: 4.5%) and 6.625% (2015: 6.0%) respectively for year 2016. The minimum regulatory capital adequacy requirement is 8.625% (2015: 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 2016.

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3.2 Capital structure (continued)


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

Statutory reserves 1,721,637 1,577,509 1,416,621 1,328,792


Unrealised gains and losses on AFS 98,985 90,983 122,753 101,388

5,547,258 5,245,321 5,000,407 4,783,143

Less:

Goodwill (164,089) (153,137) (167,982) (156,604)

55% of cumulative unrealised gains of AFS (54,442) (50,041) (67,514) (55,763)


CET1 capital 5,328,277 5,042,143 4,419,777 4,375,146

Tier I capital 5,328,277 5,042,143 4,419,777 4,375,146

Subordinated term loan 1,180,000 820,000 1,180,000 820,000

Collective impairment 137,903 133,809 109,362 110,058

Regulatory adjustments 280,204 278,547 207,026 220,148

Less:


Tier II capital 1,597,807 1,232,356 1,266,298 856,762

Total capital 6,926,084 6,274,499 5,686,075 5,231,908




CET1 capital ratio (net of proposed dividends) 12.147% 11.632% 12.528% 11.938%

Tier 1 capital ratio (net of proposed dividends) 12.147% 11.632% 12.528% 11.938%

Total capital ratio (net of proposed dividends) 15.806% 14.535% 16.137% 14.333%

Risk-weighted assets for:

Credit risk 40,928,681 39,766,072 32,838,523 33,498,227

Market risk 333,445 327,504 296,191 323,855

Operational risk 2,408,896 2,355,261 1,956,481 1,951,219

Total risk-weighted assets 43,671,022 42,448,837 35,091,195 35,773,301


206



3.3 Capital adequacy

The Group and the Bank have in place an internal limit for its CET1 capital ratio, Tier I capital ratio and Total capital ratio, which is guided by the need to maintain a prudent relationship between available capital and the risks of its underlying businesses. The capital management process is monitored by senior management through periodic reviews.

Refer to Appendix I.

4 RISK MANAGEMENT OBJECTIVES AND POLICIES

The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the Bank’s subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been no significant changes in these principal activities during the financial year.

The Bank’s business activities involve the analysis, measurement, acceptance, and management of risks 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 and return as well as minimise any potential adverse effects.

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 to settle financial and contractual obligations through lending/financing, hedging, trading and investing activities. It includes both pre-settlement and settlement risks of trading counterparties. Credit risk emanates mainly from loans/financing and advances, loan/financing commitments arising from such lending activities, as well as through financial transaction with counterparties including interbank money market activities as well as derivative instruments used for hedging and debt securities.

The management of credit risk in the Bank is governed by the Credit Risk Management Framework which is supported 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. BLRRC has review/veto power.

An independent Group Credit Management function is headed by Group Chief Credit Officer (‘GCCO’) with direct reporting line to MD/CEO to ensure sound credit appraisal and approval process. GRM with direct reporting line to BRMC has functional responsibilities for the management of credit risk, to ensure adherence to risk standards and discipline.

Credit guidelines and procedures are incorporated within the Credit Policy. The Credit Authority Framework facilitates the approval of all new, restructured and continuing credit facilities. New and existing businesses are governed by Credit Plan which is developed as part of the annual business planning and budgeting process. The Credit Plan is reviewed at least annually to ensure the guidelines and criteria reflect portfolio strategy and market environment.

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5 CREDIT RISK

5.2 Application of Standardised Approach for credit risk

The Bank uses the following External Credit Assessment Institutions (‘ECAIs’) to determine the risk weights for the rated credit exposures:-

• 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. Assessment and quantification of credit risk are supported by the use of internal rating models, scorecards and decision support tools.

The Bank adopts a credit risk grading methodology encompassing probability of default (‘PD’) driven scorecards for business lo loans, advances and financing. Separate scorecards have been developed for two categories of business borrowers, Large Corporate (‘LC’) and Small Medium Enterprise (‘SME’).

For consumer mass market products, statistically developed application scorecards are used to assess the risks associated with the credit application as a decision support tool at loans, advances and financing origination.

Stress Testing supplements the overall assessment of credit risk across the Bank.

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).


208


5 CREDIT RISK

5.4 Risk limit control and mitigation policies

The Bank employs various policies and practices to control and mitigate credit risk.

Lending limits

The Bank establishes internal limits and related lending guidelines to manage large exposures and avoid undue concentration of credit risk in its credit portfolio. The limits include single customer groupings, connected parties, geographical and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on changing market and economic conditions.

The credit risk exposure for derivative and loans, advances and financing books is managed as part of the overall lending limits with customers together with potential exposure from market movements.

Collateral

Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:

• Mortgagesoverresidentialproperties;

• Chargesovercommercialrealestateorvehiclesfinanced;

• Chargesoverbusinessassetssuchasbusinesspremises,inventoryandaccountreceivables;and

• Chargesoverfinancialinstrumentssuchasmarketablesecurities

Credit related commitments

Commitment to extend credit represents unutilised portion of approved credit in the form of loans, advances and financing, 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

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year using updated financial and other relevant 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.

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.

An Early Alert Process is adopted to pro-actively identify, report, and manage warning signs of potential credit deterioration. 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 as well as exceptions reporting is in place to manage the overall risk profile, identify, analyse and mitigate adverse trends or specific areas of risk concerns.

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5 CREDIT RISK

5.6 Impairment provisioning

Individual impairment provisioning

All significant loans, advances and financing exposures, with or without past due status, are subject to individual assessment for impairment when an evidence of impairment surfaces, or at the very least once annually during the Annual Review process.

If impaired, the amount of 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 rate/rate of return (i.e. the effective interest rate/rate of return computed at initial recognition). The level of impairment allowance on loans, advances and financing is to be reviewed at least quarterly, and more frequently when individual circumstances require. The review covers the collateral held (including reconfirmation of its enforceability) and an assessment of actual and expected receipts.

All significant loans, advances and financing which are deemed not impaired after individual assessment and all loans, advances and financing which are deemed impaired but do not result in impairment allowance after individual assessment are included in the collective impairment assessment.

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, advances and financing 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.

Collective assessment for impairment allowance is conducted in accordance with the impairment methodologies approved by the Board for all loans, advances and financing not covered under the individual impairment assessment.

Impairment allowance will be determined for each segment based on its respective loss probabilities (history) and other information relevant to estimation of the future cash flows.

The Bank is required to maintain, in aggregate, collective impairment allowances and regulatory reserves of no less than 1.2% of total outstanding loans/financing (excluding loans/financing with explicit guarantee from Government of Malaysia), net of individual impairment.

Total loans, advances and financing - credit quality

Allloans,advancesandfinancingarecategorisedinto“neitherpastduenorimpaired”,“pastduebutnotimpaired”and“impaired”.

Past due loans refer to loans, advances and financing that are overdue by one day or more.

Loans, advances and financing are classified impaired when they fulfill any of the following criteria:

i) the principal or interest/profit or both is past due more than 90 days or 3 months from the first day of default

ii) where the account is in arrears for less than 90 days or 3 months, there is evidence of impairment to indicate that the borrower/customeris“unlikelytorepay”itscreditobligations

iii) the loan/financing is classified as rescheduled and restructured in Central Credit Reference Information System (CCRIS).


210


5 CREDIT RISK

5.6 Impairment provisioning (continued)

Analysed by economic sectors

The Group The Bank 2016 2015 2016 2015 Past due loans RM’000 RM’000 RM’000 RM’000



Manufacturing 40,385 45,369 38,086 43,470

Electricity, gas and water supply 974 1,140 438 497

Construction 106,594 168,155 85,530 142,659

Real estate 119,137 276,752 98,494 275,737




Education, health and others 22,641 83,093 14,081 64,689

Household 1,874,177 1,828,209 1,302,114 1,361,693

2,536,214 2,654,372 1,890,088 2,126,743

The Group The Bank 2016 2015 2016 2015 Individual impairment RM’000 RM’000 RM’000 RM’000

Primary agriculture 197 426 197 426

Manufacturing 8,698 13,821 8,684 13,821

Construction 26,001 45,659 25,867 45,659

Real estate 18,998 35,032 1,585 43


Transport, storage and communication - 610 - 610


Education, health and others - 1,926 - 1,926

Household 13,627 9,420 13,186 6,969

149,499 270,137 131,497 231,621

211

ANNUAL REPORT 2016


5 CREDIT RISK


Analysed by economic sectors (continued)

The Group The Bank 2016 2015 2016 2015 Individual impairment charged RM’000 RM’000 RM’000 RM’000

Primary agriculture 1 321 1 321

Manufacturing 2,584 8,267 2,272 8,242

Electricity, gas and water supply 942 - 942 -

Construction 26,361 54,171 26,226 54,171

Real estate 19,396 768 2,280 768


Transport, storage and communication 58 104 58 104


Education, health and others - 2,922 - 2,922

Household 13,376 11,389 12,069 9,016

81,349 257,645 62,010 254,086

The Group The Bank 2016 2015 2016 2015 Individual impairment written-off RM’000 RM’000 RM’000 RM’000

Primary agriculture - 2,227 - 2,227

Manufacturing - 11,793 - 9,411

Construction 37,007 148,771 37,007 148,771


Transport, storage and communication 668 - 668 -


Household 2,605 850 - 850

132,589 192,965 128,440 190,583


212


5 CREDIT RISK


Analysed by economic sectors (continued)

The Group The Bank 2016 2015 2016 2015 Collective impairment RM’000 RM’000 RM’000 RM’000



Manufacturing 8,592 9,406 8,017 8,312

Electricity, gas and water supply 635 545 325 379

Construction 21,289 23,183 18,681 20,718

Real estate 22,381 20,165 19,988 18,524




Education, health and others 7,132 7,368 4,247 4,931

Household 136,336 133,132 104,591 107,469

234,631 229,461 189,637 192,790

Analysed by geographical area

The Group The Bank 2016 2015 2016 2015 Past due loans RM’000 RM’000 RM’000 RM’000

Perlis 4,573 4,178 2,965 3,335

Kedah 118,870 122,883 70,337 80,482

Pulau Pinang 117,259 97,462 95,865 82,776

Perak 126,871 127,279 67,975 70,476

Selangor 724,499 768,553 523,592 614,302


Negeri Sembilan 111,709 104,328 73,443 77,869

Melaka 94,182 96,081 75,000 83,208

Johor 242,796 262,571 191,625 230,486

Pahang 61,984 69,963 42,208 48,519

Terengganu 66,538 60,213 3,882 4,617

Kelantan 29,392 32,780 6,719 7,053

Sarawak 151,651 155,101 149,113 152,260

Sabah 236,484 297,380 231,080 291,889

Labuan - 73 - 73

Outside Malaysia 230 - 133 -

2,536,214 2,654,372 1,890,088 2,126,743

213

ANNUAL REPORT 2016


5 CREDIT RISK


Analysed by geographical area (continued)

The Group The Bank 2016 2015 2016 2015 Individual impairment RM’000 RM’000 RM’000 RM’000

Kedah 949 1,484 927 1,484

Pulau Pinang 14,020 12,386 14,020 12,386

Perak 1,436 59 1,436 59

Selangor 76,241 181,327 75,786 178,904


Negeri Sembilan 2,174 - 2,174 -

Melaka 140 - 140 -

Johor 4,650 1,533 4,650 1,533

Pahang 72 38 72 38

Kelantan 3 - 3 -

Sarawak 229 - - -

Sabah 8,207 9,944 8,207 9,944

Outside Malaysia 17,296 34,988 - -

149,499 270,137 131,497 231,621

The Group The Bank 2016 2015 2016 2015 Collective impairment RM’000 RM’000 RM’000 RM’000

Perlis 861 901 475 492

Kedah 10,167 10,201 7,371 8,315

Pulau Pinang 11,069 9,670 9,703 8,722

Perak 12,576 12,685 8,565 8,976

Selangor 73,047 70,220 58,803 58,436


Negeri Sembilan 8,892 7,814 6,991 6,570

Melaka 6,503 7,594 5,720 7,093

Johor 20,785 21,283 18,325 19,524

Pahang 5,043 6,352 3,553 4,830

Terengganu 5,577 4,718 1,486 1,652

Kelantan 3,373 3,733 839 642

Sarawak 9,973 9,280 9,531 9,009

Sabah 18,932 15,966 18,630 15,689

Labuan 1,188 1,504 994 1,504

Outside Malaysia 76 556 3 496

234,631 229,461 189,637 192,790


214


6 MARKET RISK

6.1 Market risk management objectives and policies

Market risk is the risk of losses in on and off-balance-sheet positions arising from movements in market prices. The Bank’s exposure to market risk results largely from interest rate and foreign exchange rate risks.

The Market Risk Management Framework governs the market risk activities of the Bank which is supported by a set of approved market risk management policies, guidelines and procedures.

Risk control parameters are established based on risk appetite, market liquidity and business strategies as well as macroeconomic conditions. These parameters are reviewed at least annually.


Interest rate risk is quantified by analyzing the mismatches in timing repricing of the rate sensitive assets and rate sensitive liabilities. Earnings-at-Risk (‘EaR’) or Net Interest Income simulation is conducted to assess the variation in short term earnings under various rates scenarios. The potential long term effect of the overall exposure is tracked by assessing the impact on Economic Value of Equity (‘EVE’), also known as Economic Value-at-Risk (‘EVaR’). Thresholds are set for EaR and EVaR as management triggers.

Periodic stress tests are conducted to quantify market risk arising from probability of abnormal market movements.

6.2 Application of Standardised Approach for market risk

The Bank adopts the Standardised Approach for the purpose of calculating the capital requirement for market risk.

Refer to Appendix I.

6.3 Market risk measurement, control and monitoring

The Bank’s market risk management control 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.


The Bank quantifies interest rate risk by analyzing the mismatches in timing repricing of the rate sensitive assets and rate sensitive liabilities. Earnings-at-Risk (‘EaR’) or Net Interest Income simulation is conducted to assess the variation in short term earnings under various rates scenarios. The potential long term effect of the overall exposure is tracked by assessing the impact on Economic Value of Equity (‘EVE’), also known as Economic Value-at-Risk (‘EVaR’). Thresholds are set for EaR and EVaR as management triggers.

In addition, periodic stress tests are conducted to quantify market risk arising from probability of abnormal market movements.

The GALCO and BRMC are regularly kept informed of the Bank’s risk profile and positions.

215

ANNUAL REPORT 2016


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 the 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. As 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.

Backtesting of the VaR computation system is conducted regularly to gauge the accuracy of the risk measurement system.

Other risk measures include the following:

(i) Mark-to-market valuation tracks the current market value of the outstanding financial instruments.

(ii) Stress tests are conducted to attempt to quantify market risk arising from abnormal market movements. Stress tests measure the changes in values arising from extreme movements in interest rates and foreign exchange rates based on past experiences 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. The risk of fluctuations in foreign currency exchange rates is managed via setting of thresholds on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily.

7 LIQUIDITY RISK

7.1 Liquidity risk management objectives and policies

Liquidity risk is the risk of inability of a bank to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses. 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.

The Liquidity Risk Management Framework governs the liquidity risk management activities of the Bank. 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 Bank’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.


216


7 LIQUIDITY RISK

7.2 Liquidity risk measurement, control and monitoring

The Bank’s short term liquidity risk management is premised on BNM’s Liquidity Coverage Ratio (‘LCR’) final standards. The LCR is a quantitative requirement which seeks to ensure that the Bank holds sufficient high-quality liquid assets (‘HQLA’) to withstand a significant liquidity stress scenario over a 30-day horizon. Long term liquidity risk profile is assessed via the Net Stable Funding Ratio (‘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 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 re-issued on 25th August 2016 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 Bank also employs a set of liquidity risk indicators as an early alert of any structural change for liquidity risk management. The liquidity risk indicators include internal and external qualitative as well as quantitative indicators.

Liquidity stress tests are conducted periodically and on ad-hoc basis to gauge the Group’s resilience in the event of a liquidity disruption.

The Contingency Funding Plan provides a systematic approach in handling liquidity disruption. The document encompasses strategies, decision-making authorities, and courses of action to be taken in the event of liquidity crisis and emergencies, enabling the Group to respond to an unexpected liquidity disruption in an effective and efficient manner.

The Board Risk Management Committee (‘BRMC’) is responsible for the Bank’s liquidity policy and the strategic management of liquidity has been delegated to the Group Asset Liability Management Committee (‘GALCO’). The Liquidity Management Committee (‘LMC’), which is a sub-committee of GALCO, augments the functions of GALCO by directing its focus specifically to liquidity issues. 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 defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or external events. The definition includes legal risk, and exposure to litigation from all aspects of the Bank’s activities, but excludes strategic business, reputational and systemic risks.

The Group Operational Risk Management Framework governs the management of operational risk across the Group.

BRMC approves all policies/policy changes relating to operational risk. GORMC supports BRMC in the review and monitoring of operational risk and provides the forum to discuss and manage all aspects of operational risk including control lapses.

The operational risk management (‘ORM’) function within GRM operates in independent capacity to manage the risks in activities associated with the operational function of the Bank.

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.

217

ANNUAL REPORT 2016


8 OPERATIONAL RISK

8.3 Operational risk measurement, control and monitoring

Operational risks are managed daily through established systems and processes to ensure compliance with policies, guidelines and control procedures.

To identify and assess operational risk issues and exposure, the following tools are employed:

• RiskControlSelfAssessment(‘RCSA’)

• KeyControlStandards(‘KCS’)

• KeyRiskIndicator(‘KRI’)

• LossEventDatabase(‘LED’)

Information Technology (‘IT’) and cyber risks are managed as part of the operational risk activities. The IT systems and processes are assessed and tested regularly for resilience and continuity, and that they are secure from internal and external threats.

Introduction of new products or services are evaluated to assess suitability, potential risks and operational readiness.

Operational Risk Coordinators (‘ORC’) are appointed at business and support units as champions of ORM activities within respective units. The ORC is responsible for the reporting of ORM activities and to liaise with Group Operational Risk Management on all operational defects and results.

8.4 Certification

As an internal requirement, all Operational Risk Coordinators must satisfy an Internal Operational Risk (including 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 NON-COMPLIANCE RISK

9.1 Shariah non-compliance risk objectives and policies

Shariah non-compliance is the risk of failure to comply with the Shariah rules and principles as determined by SC and/or any other relevant bodies, such as BNM Shariah Advisory Council.

The Shariah Governance Framework for Islamic Financial Institutions issued by BNM is the main reference for the Shariah governance process and oversight within AiBB.

Shariah Committee (‘SC’) is established to deliberate on Shariah issues and provide resolution as well as guidance. GORMC together with BRMC assist in the overall oversight of Shariah risk management of the Group.

Shariah Risk Management is part of an integrated risk management control function to identify all possible risks of Shariah non-compliance and where appropriate, to provide mitigating measures that need to be taken to reduce the risk. The scope covers overall business activities and operations, commencing from Islamic product origination until maturity.

9.2 Shariah non-compliance risk measurement, control and monitoring

Each business and support unit is responsible to identify and assess potential Shariah Non-Compliance Risk using the RCSA process. Half yearly RCSA checklist is performed to gauge the level of Shariah compliance.

All Islamic products, services and strategies related matters must be approved by the SC.

Shariah Resolutions/Circulars are issued and training on Shariah Compliance is conducted by the Shariah Review Team on a regular basis.

Shariah non-compliance reports are regularly submitted for further deliberation, decision and remedial action.


218


10 BUSINESS CONTINUITY RISK

10.1 Business continuity risk management objectives and policies

Business continuity risk is the risk of losses in assets, revenue, reputation and stakeholder/customer confidence due to the discontinuation of services in both business and technology operations.

The Business Continuity Management Framework governs the management of business continuity issues, in line with BNM Guidelines on Business Continuity Management (‘BCM’).

BRMC approves all policies and its changes relating to business continuity management. It also reviews, monitors and discusses business continuity management reports tabled at its meetings. GORMC supports BRMC in the review and monitoring of Business Continuity Risk and provides the forum to discuss and manage all aspects of operational risk including control lapses.

The BCM function is an independent body overseeing the management of the overall business continuity risk.

10.2 Business continuity risk measurement, control and monitoring

Annual Risk Assessment and Business Impact Analysis are made compulsory for each business and support unit in the Bank to undertake. The outcome of this assessment will translate into a risks listing that require business and support units to derive action plans to address the risks.

Risk control is established through adherence with established BCM guidelines and standards throughout the implementation of BCM programs. Rigorous testing on business continuity and disaster recovery plans are diligently performed to ensure effective and smooth execution of the plan for resumption and recovery of disrupted business.

Policies and processes are in place to support the monitoring and reporting of business continuity risks.

219

ANNUAL REPORT 2016

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ks 6

,297

,843

6

,297

,843

4

,116

4

,116

3

30

Ban

ks, D

evel

opm

ent F

inan

cial

Inst

itutio

ns &

MD

Bs

3,7

57,9

58

3,7

59,5

22

1,2

19,2

36

1,2

19,2

36

97,

539

Insu

ranc

e C

ompa

nies

, Sec

uriti

es F

irms

& F

und

Man

ager

s 3

95,2

68

395

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3

71,5

80

371

,580

2

9,72

7 R

esid

entia

l Mor

tgag

es 5

,014

,762

4

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1

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1

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1

54,3

18

Hig

her

Ris

k A

sset

s 1

97,9

93

197

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2

96,9

90

296

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2

3,75

9 E

quity

Exp

osur

e 2

3,43

9 2

3,43

9 2

3,43

9 2

3,43

9 1

,875

D

efau

lted

Exp

osur

es 1

,276

,975

1

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1

,765

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1

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1

41,2

68

Tota

l for

On-

Bal

ance

She

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ures

59,

664,

847

58,

555,

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36,

080,

190

36,

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190

2,8

86,4

16

Off

Bal

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She

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ures

Off

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oth

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r cr

edit

deriv

ativ

es 4

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3

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3

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2

89,3

52

Def

aulte

d E

xpos

ures

50,

013

46,

171

68,

976

68,

976

5,5

18

Tota

l for

Off-

Bal

ance

She

et E

xpos

ures

4,3

24,0

60

4,1

37,9

40

3,6

85,8

82

3,6

85,8

82

294

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Tota

l for

On

and

Off-

Bal

ance

She

et E

xpos

ures

63,

988,

907

62,

692,

965

39,

766,

072

39,

766,

072

3,1

81,2

86

2M

AR

KE

T R

ISK

Lon

g P

ositi

on

Sho

rt P

ositi

on

Inte

rest

Rat

e R

isk

9,9

25,7

78

10,

011,

694

(85,

916)

274

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-

2

1,95

5 Fo

reig

n C

urre

ncy

Ris

k 2

9,62

0 4

3,39

9 (1

3,78

0) 4

6,72

6 -

3

,738

O

ptio

n R

isk

1,4

28

1,4

40

(12)

6,3

46

-

508

3

OP

ER

ATIO

NA

L R

ISK

Ope

ratio

nal R

isk

2,3

55,2

61

188

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Tota

l RW

A a

nd C

apita

l Req

uire

men

ts 4

2,44

8,83

7 3

9,76

6,07

2 3

,395

,908



App

endi

x I

221

ANNUAL REPORT 2016

Dis

clo

sure

on

Cap

ital

Ad

equa

cy u

nder

the

Sta

ndar

dis

ed A

pp

roac

h (R

M’0

00) (

cont

inue

d)

Ban

k20

16

Exp

osu

re C

lass

Gro

ss

Exp

osu

res/

E

AD

bef

ore

C

RM

Net

E

xpo

sure

s/

EA

D a

fter

C

RM

Ris

k W

eig

hted

A

sset

s

To

tal R

isk

Wei

ght

ed

Ass

ets

afte

r E

ffec

ts o

f P

SIA

Min

imum

C

apit

al

Req

uire

men

ts

at 8

%

1C

RE

DIT

RIS

KO

n B

alan

ce S

heet

Exp

osur

esC

orpo

rate

s 2

0,51

7,21

7 1

9,59

6,67

1 1

6,37

0,19

4 1

6,37

0,19

4 1

,309

,616

R

egul

ator

y R

etai

l 1

0,06

9,03

3 9

,856

,100

7

,418

,580

7

,418

,580

5

93,4

86

Oth

er A

sset

s 2

,572

,816

2

,572

,816

7

51,5

52

751

,552

6

0,12

4 S

over

eign

s/C

entr

al B

anks

5,3

34,6

82

5,3

34,6

82

-

-

-

Ban

ks, D

evel

opm

ent F

inan

cial

Inst

itutio

ns &

MD

Bs

3,8

66,9

95

3,8

66,9

95

1,1

21,2

37

1,1

21,2

37

89,

699

Insu

ranc

e C

ompa

nies

, Sec

uriti

es F

irms

& F

und

Man

ager

s 3

11,8

66

311

,866

2

88,0

89

288

,089

2

3,04

7 R

esid

entia

l Mor

tgag

es 3

,111

,099

3

,089

,793

1

,216

,333

1

,216

,333

9

7,30

7 H

ighe

r R

isk

Ass

ets

188

,984

1

88,9

84

283

,476

2

83,4

76

22,

678

Equ

ity E

xpos

ure

19,

902

19,

902

19,

902

19,

902

1,5

92

Def

aulte

d E

xpos

ures

1,5

09,6

18

1,4

79,1

44

2,1

42,7

46

2,1

42,7

46

171

,420

To

tal f

or

On-

Bal

ance

She

et E

xpo

sure

s 4

7,50

2,21

2 4

6,31

6,95

3 2

9,61

2,10

9 2

9,61

2,10

9 2

,368

,969

Off

Bal

ance

She

et E

xpos

ures

Off

Bal

ance

She

et E

xpos

ures

oth

er th

an O

TC d

eriv

ativ

es o

r cr

edit

deriv

ativ

es 3

,629

,653

3

,472

,360

3

,187

,997

3

,187

,997

2

55,0

40

Def

aulte

d E

xpos

ures

31,

882

25,

764

38,

417

38,

417

3,0

73

Tota

l fo

r O

ff-B

alan

ce S

heet

Exp

osu

res

3,6

61,5

35

3,4

98,1

24

3,2

26,4

14

3,2

26,4

14

258

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Tota

l fo

r O

n an

d O

ff-B

alan

ce S

heet

Exp

osu

res

51,

163,

747

49,

815,

077

32,

838,

523

32,

838,

523

2,6

27,0

82

2M

AR

KE

T R

ISK

Lo

ng P

osi

tio

n S

hort

Po

siti

on

Inte

rest

Rat

e R

isk

10,

354,

955

10,

646,

498

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) 2

25,6

17

-

18,

049

Fore

ign

Cur

renc

y R

isk

5,6

17

70,

574

(64,

958)

70,

574

-

5,6

46

3O

PE

RA

TIO

NA

L R

ISK

Ope

ratio

nal R

isk

1,9

56,4

81

156

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Tota

l RW

A a

nd C

apit

al R

equi

rem

ents

35,

091,

195

32,

838,

523

2,8

07,2

95



Bas

el II

Pill

ar 3

Dis

clos

ures

as a

t 31

Dec

embe

r 201

6A

ppen

dix

I


222

Dis

clo

sure

on

Cap

ital

Ad

equa

cy u

nder

the

Sta

ndar

dis

ed A

pp

roac

h (R

M’0

00) (

cont

inue

d)

Ban

k20

15 E

xpos

ure

Cla

ssG

ross

E

xpos

ures

/ E

AD

bef

ore

CR

M

Net

E

xpos

ures

/ E

AD

afte

r C

RM

Ris

k W

eigh

ted

Ass

ets

Tot

al R

isk

Wei

ghte

d A

sset

s af

ter

Effe

cts

of P

SIA

Min

imum

C

apita

l R

equi

rem

ents

at

8%

1

CR

ED

IT R

ISK

On

Bal

ance

She

et E

xpos

ures

Cor

pora

tes

22,

142,

913

21,

505,

321

16,

922,

764

16,

922,

764

1,3

53,8

21

Reg

ulat

ory

Ret

ail

10,

589,

267

10,

448,

661

7,8

58,2

88

7,8

58,2

88

628

,663

O

ther

Ass

ets

3,0

16,7

51

3,0

16,7

51

795

,251

7

95,2

51

63,

620

Sov

erei

gns/

Cen

tral

Ban

ks 3

,560

,909

3

,560

,909

4

,116

4

,116

3

29

Ban

ks, D

evel

opm

ent F

inan

cial

Inst

itutio

ns &

MD

Bs

3,7

39,8

99

3,7

39,8

99

1,2

19,2

37

1,2

19,2

37

97,

539

Insu

ranc

e C

ompa

nies

, Sec

uriti

es F

irms

& F

und

Man

ager

s 3

95,2

68

395

,268

3

71,5

81

371

,581

2

9,72

6 R

esid

entia

l Mor

tgag

es 3

,040

,556

3

,022

,893

1

,129

,760

1

,129

,760

9

0,38

1 H

ighe

r R

isk

Ass

ets

191

,648

1

91,6

48

287

,472

2

87,4

72

22,

998

Equ

ity E

xpos

ure

23,

439

23,

439

23,

439

23,

439

1,8

75

Def

aulte

d E

xpos

ures

1,1

98,6

72

1,1

77,5

95

1,6

62,6

61

1,6

62,6

61

133

,013

To

tal f

or O

n-B

alan

ce S

heet

Exp

osur

es 4

7,89

9,32

2 4

7,08

2,38

4 3

0,27

4,56

9 3

0,27

4,56

9 2

,421

,965

Off

Bal

ance

She

et E

xpos

ures

Off

Bal

ance

She

et E

xpos

ures

oth

er th

an O

TC d

eriv

ativ

es o

r cr

edit

deriv

ativ

es 3

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3

,508

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3

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3

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2

53,5

32

Def

aulte

d E

xpos

ures

40,

347

36,

505

54,

513

54,

513

4,3

61

Tota

l for

Off-

Bal

ance

She

et E

xpos

ures

3,7

14,4

14

3,5

45,3

02

3,2

23,6

58

3,2

23,6

58

257

,893

Tota

l for

On

and

Off-

Bal

ance

She

et E

xpos

ures

51,

613,

736

50,

627,

686

33,

498,

227

33,

498,

227

2,6

79,8

58

2M

AR

KE

T R

ISK

Lon

g P

ositi

on

Sho

rt P

ositi

on

Inte

rest

Rat

e R

isk

9,8

75,0

89

9,9

60,8

00

(85,

711)

274

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-

2

1,92

9 Fo

reig

n C

urre

ncy

Ris

k 2

6,29

2 4

3,39

9 (1

7,10

7) 4

3,39

9 -

3

,472

O

ptio

n R

isk

1,4

28

1,4

40

(12)

6,3

46

-

508

3

OP

ER

ATIO

NA

L R

ISK

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ratio

nal R

isk

1,9

51,2

19

156

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Tota

l RW

A a

nd C

apita

l Req

uire

men

ts 3

5,77

3,30

1 3

3,49

8,22

7 2

,861

,865



Bas

el II

Pill

ar 3

Dis

clos

ures

as a

t 31

Dec

embe

r 201

6A

ppen

dix

I223

ANNUAL REPORT 2016


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. Corporate Bonds / Sukuk and Government Securities)

e) FX Options

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.

Appendix I


224

Dis

clo

sure

on

Cre

dit

Ris

k: D

iscl

osu

res

on

Ris

k W

eig

hts

und

er t

he S

tand

ard

ised

Ap

pro

ach

(RM

’000

)

Gro

up20

16Ex

posu

res

afte

r Net

ting

and

Cred

it Ri

sk M

itiga

tion

Risk

W

eigh

ts

Sove

reig

ns

& C

entr

al

Bank

s PS

Es

Bank

s,

MDB

s an

d FD

Is

Insu

ranc

e Co

mpa

nies

, Se

curit

ies

Firm

s &

Fun

d M

anag

ers

Corp

orat

es

Regu

lato

ry

Reta

il Re

side

ntia

l M

ortg

ages

High

er

Risk

As

sets

Ot

her

Asse

ts

Spec

ialis

ed

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ncin

g /

Inve

stm

ent

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ritis

atio

n Eq

uity

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l Ex

posu

re

afte

r Ne

tting

&

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it Ri

sk

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gatio

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l Ris

k W

eigh

ted

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ts

0%7,

339,

819

-

213

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-

2,

204,

247

-

-

-

1,91

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0 -

-

-

11

,671

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-

10

%-

-

-

-

-

-

-

-

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-

-

-

-

-

20%

51,

369

10

2,58

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2 2

9,72

2 2,

342,

675

805

-

-

18

1,10

9 -

-

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5,

186,

132

1,03

7,22

6 35

% -

-

-

-

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4,

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-

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-

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4,69

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5 1,

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-

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8 -

3

56,8

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90

551

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9

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-

-

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659

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9 75

% -

-

-

-

-

13

,429

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1

3,86

5 -

-

-

-

-

13

,443

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10

,082

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90

% -

-

-

-

-

-

-

-

-

-

-

-

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-

6

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3

00,4

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22,5

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99

128

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6

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-

757

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-

-

1

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2 24

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11

0% -

-

-

-

-

-

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-

-

-

-

-

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12

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-

-

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-

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13

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15

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-

4

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1,

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136

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1

21,4

25

207

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-

-

-

-

1,

714,

328

2,57

1,49

2 27

0% -

-

-

-

-

-

-

-

-

-

-

-

-

-

35

0% -

-

-

-

-

-

-

-

-

-

-

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-

-

40

0% -

-

-

-

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-

-

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-

-

-

-

-

62

5% -

-

-

-

-

-

-

-

-

-

-

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-

-

93

8% -

-

-

-

-

-

-

-

-

-

-

-

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12

50%

-

-

-

-

-

-

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-

-

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-

-

-

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rag

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isk

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ght

-

-

-

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on

fro

m

Cap

ital

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ase

-

-

-

-

-

-

-

-

-

-

-

-

-

PSE“PublicSectorEntities”

MDB“MultilateralDevelopmentBanks”

FDI“FinancialDevelopmentInstitutions”

Bas

el II

Pill

ar 3

Dis

clos

ures

as a

t 31

Dec

embe

r 201

6A

ppen

dix

II225

ANNUAL REPORT 2016

Dis

clo

sure

on

Cre

dit

Ris

k: D

iscl

osu

res

on

Ris

k W

eig

hts

und

er t

he S

tand

ard

ised

Ap

pro

ach

(RM

’000

) (co

ntin

ued

)

Gro

up20

15Ex

posu

res

afte

r Net

ting

and

Cred

it Ri

sk M

itiga

tion

Risk

Wei

ghts

Sove

reig

ns

& Ce

ntra

l Ba

nks

PSEs

Ba

nks,

MDB

s an

d FD

Is

Insu

ranc

e Co

mpa

nies

, Se

curit

ies

Firm

s &

Fund

M

anag

ers

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orat

es

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lato

ry

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il Re

side

ntia

l M

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ages

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gher

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k As

sets

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her A

sset

s

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ialis

ed

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ncin

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stm

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ritis

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l Ex

posu

re

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r Ne

tting

&

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it Ri

sk

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gatio

n

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l Ris

k W

eigh

ted

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ts

0% 6

,335

,218

-

2

13,5

18

-

2,5

07,2

53

-

-

-

2,0

54,9

69

-

-

-

11,1

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58

-

10%

-

-

-

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-

-

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-

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-

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-

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20%

80,

265

1,6

10

2,0

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39

29,

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3,1

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08

760

-

-

5

92,1

63

-

-

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5,9

34,8

54

1,1

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35%

-

-

-

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-

-

4,4

28,9

37

-

-

-

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6A

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IV


244

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