STRICTLY CONFIDENTIAL DO NOT FORWARD...The AT1 Sukuk Wakalah shall not be issued, offered, sold, transferred or otherwise disposed, directly or indirectly in Malaysia other than to

STRICTLY CONFIDENTIAL – DO NOT FORWARD ATTACHED IS AN ELECTRONIC COPY OF THE INFORMATION MEMORANDUM DATED 17 NOVEMBER 2017 (“INFORMATION MEMORANDUM”), IN RELATION TO THE PROPOSED ISSUE OF, OFFER FOR SUBSCRIPTION OR PURCHASE OF, OR INVITATION TO SUBSCRIBE FOR OR PURCHASE OF THE ISLAMIC ADDITIONAL TIER 1 SUKUK WAKALAH (“AT1 SUKUK WAKALAH”)) PURSUANT TO AN ISLAMIC ADDITIONAL TIER 1 SUKUK WAKALAH PROGRAMME UNDER THE SHARIAH PRINCIPLE OF WAKALAH BI AL-ISTITHMAR OF UP TO RM10.0 BILLION IN NOMINAL VALUE (“AT1 SUKUK WAKALAH PROGRAMME”) BY MAYBANK ISLAMIC BERHAD (COMPANY NO. 787435-M) (“ISSUER”). THE INFORMATION MEMORANDUM IS STRICTLY CONFIDENTIAL AND DOES NOT CONSTITUTE AN OFFER TO SUBSCRIBE FOR OR PURCHASE ANY OF THE AT1 SUKUK WAKALAH DESCRIBED HEREIN OR ANY INVITATION TO SUBSCRIBE FOR OR PURCHASE OF ANY OF THE AT1 SUKUK WAKALAH TO ANY PERSON OR THE PUBLIC GENERALLY TO SUBSCRIBE FOR OR OTHERWISE PURCHASE ANY OF THE SECURITIES DESCRIBED HEREIN OTHER THAN TO THE INTENDED RECIPIENT. ANY DISTRIBUTION OF THE INFORMATION MEMORANDUM WITHOUT THE PRIOR CONSENT OF THE ISSUER OR MAYBANK INVESTMENT BANK BERHAD (COMPANY NO. 15938-H) IN ITS CAPACITY AS THE PRINCIPAL ADVISER, THE LEAD ARRANGER AND THE LEAD MANAGER (“LEAD ARRANGER”) IS UNAUTHORISED. THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM THE ISSUER, THE LEAD ARRANGER AND ITS/THEIR RESPECTIVE AGENTS IS PROHIBITED FROM DISCLOSING THE INFORMATION MEMORANDUM, ALTERING THE CONTENTS OF THE INFORMATION MEMORANDUM OR FORWARDING A COPY OF THE INFORMATION MEMORANDUM OR ANY PORTION THEREOF BY ELECTRONIC MAIL OR OTHERWISE TO ANY PERSON. THE INFORMATION MEMORANDUM IS NOT A PROSPECTUS AND HAS NOT BEEN REGISTERED NOR WILL IT BE REGISTERED AS A PROSPECTUS UNDER THE CAPITAL MARKETS AND SERVICES ACT, 2007, AS AMENDED FROM TIME TO TIME (“CMSA”). THE INFORMATION MEMORANDUM HAS NOT BEEN AND WILL NOT BE MADE TO COMPLY WITH THE LAWS OF ANY FOREIGN JURISDICTION AND HAS NOT BEEN AND WILL NOT BE REGISTERED, LODGED OR APPROVED PURSUANT TO OR UNDER ANY LEGISLATION OF (OR WITH OR BY ANY REGULATORY AUTHORITIES OR OTHER RELEVANT BODIES IN) ANY FOREIGN JURISDICTION AND IT DOES NOT CONSTITUTE AN ISSUE OR OFFER OF, OR AN INVITATION TO SUBSCRIBE FOR OR PURCHASE THE SECURITIES OR ANY OTHER SECURITIES OF ANY KIND BY ANY PARTY IN ANY FOREIGN JURISDICTION. AT ISSUANCE, THE AT1 SUKUK WAKALAH MAY ONLY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF DIRECTLY OR INDIRECTLY TO A PERSON TO WHOM AN OFFER OR INVITATION TO SUBSCRIBE THE AT1 SUKUK WAKALAH AND TO WHOM THE AT1 SUKUK WAKALAH ARE ISSUED WOULD FALL WITHIN PART 1 OF SCHEDULE 6 (OR SECTION 229(1)(b)) AND PART 1 OF SCHEDULE 7 (OR SECTION 230(1)(b)), READ TOGETHER WITH SCHEDULE 9 (OR SECTION 257(3)) OF THE CMSA. THEREAFTER, THE AT1 SUKUK WAKALAH MAY ONLY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF DIRECTLY OR INDIRECTLY TO A PERSON TO WHOM AN OFFER OR INVITATION TO PURCHASE THE AT1 SUKUK WAKALAH WOULD FALL WITHIN PART 1 OF SCHEDULE 6 (OR SECTION 229(1)(b)), READ TOGETHER WITH SCHEDULE 9 (OR SECTION 257(3)) OF THE CMSA (“SELLING RESTRICTIONS”).

THIS TRANSMISSION SHALL NOT CONSTITUTE AN OFFER TO SUBSCRIBE FOR OR PURCHASE ANY OF THE AT1 SUKUK WAKALAH DESCRIBED HEREIN OR ANY INVITATION TO SUBSCRIBE FOR OR PURCHASE OF ANY OF THE AT1 SUKUK WAKALAH IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL UNDER THE LAWS OF SUCH JURISDICTIONS.

TRANSMISSION OVER THE INTERNET MAY BE SUBJECT TO INTERRUPTIONS, TRANSMISSION BLACKOUT, DELAYED TRANSMISSION DUE TO INTERNET TRAFFIC, INCORRECT DATA TRANSMISSION DUE TO THE PUBLIC NATURE OF THE INTERNET, DATA CORRUPTION, INTERCEPTION, UNAUTHORISED AMENDMENT, TAMPERING, VIRUSES OR OTHER TECHNICAL, MECHANICAL OR SYSTEMIC RISKS ASSOCIATED WITH INTERNET TRANSMISSIONS. THE ISSUER, THE LEAD ARRANGER OR ITS/THEIR RESPECTIVE AGENTS

HAVE NOT ACCEPTED AND WILL NOT ACCEPT ANY RESPONSIBILITY AND/OR LIABILITY FOR ANY SUCH INTERRUPTION, TRANSMISSION BLACKOUT, DELAYED TRANSMISSION, INCORRECT DATA TRANSMISSION, CORRUPTION, INTERCEPTION, AMENDMENT, TAMPERING OR VIRUSES OR ANY CONSEQUENCES THEREOF WHICH MAY RESULT IN A DIFFERENCE BETWEEN THE INFORMATION MEMORANDUM DISTRIBUTED TO YOU IN ELECTRONIC FORMAT AND THE HARD COPY VERSION AVAILABLE TO YOU ON REQUEST FROM US.

THE FOREGOING IS IN ADDITION TO AND WITHOUT PREJUDICE TO ALL OTHER DISCLAIMERS AND AGREEMENTS WHICH A RECIPIENT OF THE INFORMATION MEMORANDUM SHALL BE DEEMED TO HAVE AGREED TO OR BE BOUND BY AS PROVIDED IN THE INFORMATION MEMORANDUM.

BY ACCEPTING THIS E-MAIL AND ACCESSING THE INFORMATION MEMORANDUM, YOU SHALL BE DEEMED TO HAVE REPRESENTED TO US THAT (1) YOU ARE PERSONS FALLING WITHIN THE SELLING RESTRICTIONS; AND (2) YOU CONSENT TO THE DELIVERY OF THE INFORMATION MEMORANDUM BY E-MAIL. YOU ARE REMINDED THAT THE INFORMATION MEMORANDUM HAS BEEN DELIVERED TO YOU ON THE BASIS THAT YOU ARE A PERSON INTO WHOSE POSSESSION THE INFORMATION MEMORANDUM MAY BE LAWFULLY DELIVERED IN ACCORDANCE WITH THE LAWS OF THE JURISDICTION IN WHICH YOU ARE LOCATED AND YOU MAY NOT NOR ARE YOU AUTHORISED TO DELIVER OR DISCLOSE THE CONTENTS OF THE INFORMATION MEMORANDUM TO ANY PERSON. IF THIS IS NOT THE CASE, YOU MUST IMMEDIATELY DELETE ALL COPIES OF THIS E-MAIL PERMANENTLY AND DESTROY ALL PRINTOUTS OF IT. THIS E-MAIL AND ANY ATTACHMENT HERETO ARE INTENDED ONLY FOR USE BY THE ADDRESSEE NAMED HEREIN AND MAY CONTAIN LEGALLY PRIVILEGED AND/OR CONFIDENTIAL INFORMATION. IF YOU ARE NOT THE INTENDED RECIPIENT OF THIS E-MAIL, YOU ARE HEREBY NOTIFIED THAT ANY DISSEMINATION, DISTRIBUTION OR COPYING OF THIS E-MAIL, AND ANY ATTACHMENTS THERETO, IS STRICTLY PROHIBITED. IF YOU HAVE RECEIVED THIS E-MAIL IN ERROR, PLEASE IMMEDIATELY NOTIFY US BY REPLY E-MAIL AND IMMEDIATELY DELETE ALL COPIES OF THIS E-MAIL PERMANENTLY AND DESTROY ALL PRINTOUTS OF IT.

This Information Memorandum is not an offer to sell securities and is not soliciting an offer to buy securities described herein in any jurisdiction where the offer or sale is not permitted

Strictly Private & Confidential

INFORMATION MEMORANDUM

MAYBANK ISLAMIC BERHAD

(Company No. 787435-M)

PROPOSED ISSUANCE OF ISLAMIC ADDITIONAL TIER 1 CAPITAL SECURITIES PURSUANT TO AN ISLAMIC ADDITIONAL TIER 1 CAPITAL SECURITIES PROGRAMME OF UP TO RM10.0

BILLION IN NOMINAL VALUE BASED ON THE SHARIAH PRINCIPLE OF WAKALAH BI AL-ISTITHMAR

Principal Adviser, Lead Arranger and Lead Manager

MAYBANK INVESTMENT BANK BERHAD

(Company No. 15938-H)

17 NOVEMBER 2017

Maybank Islamic Berhad Information Memorandum

RM10,000,000,000 AT1 Sukuk Wakalah Programme

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RESPONSIBILITY STATEMENT

This Information Memorandum has been approved by the directors of Maybank Islamic Berhad (“Maybank Islamic” or the “Issuer” or the “Bank”) and they collectively and individually accept full responsibility for the accuracy of the information given and confirm that, after having made all reasonable enquiries in the circumstances, and to the best of their knowledge, information and belief, there are no false or misleading statements or other material facts the omission of which would make any statement in this Information Memorandum false or misleading and that there are no material omissions in this Information Memorandum in the context of the issue, offer, sale or invitation to subscribe or purchase the Islamic Additional Tier 1 capital securities (“AT1 Sukuk Wakalah”) under the Islamic Additional Tier 1 capital securities programme of up to RM10.0 billion in nominal value based on the Shariah principle of Wakalah Bi Al-Istithmar to be established by the Issuer (“AT1 Sukuk Wakalah Programme”). The opinions expressed in this Information Memorandum with regard to the Issuer have been reached after considering all relevant circumstances and are based on reasonable assumptions. Enquiries have been made by the Issuer to ascertain all material facts and to verify the accuracy of all such information and statements. In this context, the Issuer accepts responsibility for such information contained in this Information Memorandum.

IMPORTANT NOTICE AND GENERAL STATEMENTS OF DISCLAIMER

This Information Memorandum is provided to prospective investors by the Issuer on a private and confidential basis for use solely in connection with the issue, offer, sale or invitation to subscribe or purchase the AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme.

The Issuer has authorised Maybank Investment Bank Berhad (Company No. 15938-H) as principal adviser, lead arranger and lead manager (collectively the “Lead Arranger”) to distribute this Information Memorandum, which is now being provided by the Lead Arranger on a confidential basis to potential investors for the sole purpose of assisting them to decide whether to subscribe or purchase the AT1 Sukuk Wakalah. The AT1 Sukuk Wakalah shall not be issued, offered, sold, transferred or otherwise disposed, directly or indirectly in Malaysia other than to persons falling within any of the categories of persons specified in Part 1 of Schedule 6 (or Section 229(1)(b)) and Part 1 of Schedule 7 (or Section 230(1)(b)), read together with Schedule 9 (or Section 257(3)) of the Capital Markets and Services Act, 2007 (as may be amended from time to time) (“CMSA”), if they consider purchasing the AT1 Sukuk Wakalah at issuance and Part 1 of Schedule 6 (or Section 229(1)(b)), read together with Schedule 9 (or Section 257(3)) of the CMSA if they consider purchasing the AT1 Sukuk Wakalah after issuance. This Information Memorandum shall not be, in whole or in part, reproduced or used for any other purpose, or shown, given, copied to or filed with any other person including, without limitation, any government or regulatory authority except with the prior written consent of the Issuer or the Lead Arranger unless as may be required under Malaysian laws, regulations and/or guidelines.

The AT1 Sukuk Wakalah have been accorded a final long-term rating of AA3 by RAM Rating Services Berhad. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the rating agency.

The Lead Arranger has not verified the information contained herein. The Lead Arranger does not accept any responsibility for the information and data contained in this Information Memorandum and no responsibility or liability is accepted by the Lead Arranger as to the adequacy, legality, effectiveness, validity, genuineness, enforceability, admissibility, reasonableness, authenticity, origin, validity, accuracy or completeness of such information and data or for any other information, data or statement provided by the Issuer or made or purported to be made by the Lead Arranger or on its behalf in connection with the Issuer, its future performance, or the issue and offering or distribution of the AT1 Sukuk Wakalah. The Lead Arranger accordingly disclaims all and any liability whether arising in tort or contract or otherwise which it might otherwise have in respect of this Information Memorandum or any such statement. No statement, representation, warranty or undertaking, express or implied, is made, given or assumed by the Lead Arranger as to the authenticity, origin, validity, accuracy or completeness of such information and data or that the information or data remains unchanged in any respect after the relevant date shown in this Information Memorandum.



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No person is authorised to give any information or data or to make any representation or warranty other than as contained in this Information Memorandum and, if given or made, any such information, data, representation or warranty must not be relied upon as having been authorised by the Issuer, the Lead Arranger or any other person.

This Information Memorandum has not been and will not be made to comply with the laws of any jurisdiction other than Malaysia (“Foreign Jurisdiction”), and has not been and will not be lodged, registered or approved pursuant to or under any legislation (or with or by any regulatory authorities or other relevant bodies) of any Foreign Jurisdiction and it does not constitute an issue, offer or sale of, or an invitation to subscribe for or purchase the AT1 Sukuk Wakalah or any other securities of any kind by any party in any Foreign Jurisdiction. This Information Memorandum is not intended to be a prospectus and has not been registered or lodged under the laws of Malaysia or of any Foreign Jurisdiction as a prospectus. Unless otherwise specified in this Information Memorandum, the information contained in this Information Memorandum is current as at the date hereof. No action has been or will be taken in any country or jurisdiction by the Issuer or the Lead Arranger that would permit an issue or offering or an invitation to subscribe for or purchase the AT1 Sukuk Wakalah, or possession or distribution of any offering material in relation thereto, in any country or jurisdiction where action for that purpose is required. Persons into whose hands this Information Memorandum comes are required by the Issuer and the Lead Arranger to comply with all applicable laws and regulations in each country or jurisdiction in or from which they purchase, offer, sell or deliver the AT1 Sukuk Wakalah or have in their possession or distribute such offering material, in all cases at their own expense. The distribution or possession of this Information Memorandum in or from certain Foreign Jurisdictions may be restricted or prohibited by law. Each recipient is required to seek appropriate professional advice regarding, and to observe, any such restriction or prohibition. Neither the Issuer nor the Lead Arranger accepts any responsibility or liability to any person in relation to the distribution or possession of this Information Memorandum in or from any such Foreign Jurisdiction.

None of the Issuer and the Lead Arranger represents that the AT1 Sukuk Wakalah may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale.

By accepting delivery of this Information Memorandum, each recipient agrees to the terms upon which this Information Memorandum is provided to such recipient as set out in this Information Memorandum, and further agrees and confirms that:

(a) it will keep confidential all such information and data and will not reproduce it howsoever and

in whatsoever manner, without the consent of the Issuer and the Lead Arranger;

(b) it is lawful for the recipient to subscribe for or purchase the AT1 Sukuk Wakalah in all

jurisdictions to which the recipient is subject;

(c) the recipient has complied with all applicable laws in connection with such subscription or purchase of the AT1 Sukuk Wakalah;

(d) the Issuer, the Lead Arranger and their respective directors, officers, employees and

professional advisers are not and will not be in breach of the laws of any jurisdiction to which the recipient is subject as a result of such subscription or purchase of the AT1 Sukuk Wakalah, and they shall not have any responsibility or liability in the event that such subscription or purchase of the AT1 Sukuk Wakalah is or shall become unlawful, unenforceable, voidable or void;

(e) it is aware that the AT1 Sukuk Wakalah can only be offered, sold, transferred or otherwise

disposed of directly or indirectly in accordance with the relevant selling restrictions and all applicable laws;



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(f) it has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of subscribing or purchasing the AT1 Sukuk Wakalah, and is able and is prepared to bear the economic and financial risks of investing in or holding the AT1 Sukuk Wakalah;

(g) it is subscribing or accepting the AT1 Sukuk Wakalah for its own account; and

(h) it is a person to whom an issue, offer or invitation to subscribe or purchase the AT1 Sukuk

Wakalah would constitute a person falling within any one or more of the categories of persons specified in Part 1 of Schedule 6 (or Section 229(1)(b)) and Part 1 of Schedule 7 (or Section 230(1)(b)), read together with Schedule 9 (or Section 257(3)) of the CMSA as amended from time to time if they consider purchasing the AT1 Sukuk Wakalah at issuance and Part 1 of Schedule 6 (or Section 229(1)(b)), read together with Schedule 9 (or Section 257(3)) of the CMSA if they consider purchasing the AT1 Sukuk Wakalah after issuance.

Each recipient is solely responsible for seeking all appropriate expert advice as to the laws of all jurisdictions to which it is subject. For the avoidance of doubt, the Information Memorandum shall not constitute an offer or invitation to subscribe or purchase the AT1 Sukuk Wakalah in relation to any recipient who does not fall within item (h) above.

Neither this Information Memorandum nor any other information supplied in connection with the AT1 Sukuk Wakalah is intended to provide the basis of any credit or other evaluation or should be considered as a recommendation by the Issuer and/or the Lead Arranger that any recipient of this Information Memorandum should purchase any of the AT1 Sukuk Wakalah. This Information Memorandum is not a substitute for, and should not be regarded as, an independent evaluation and analysis and does not purport to be all-inclusive. Each recipient contemplating purchasing the AT1 Sukuk Wakalah should perform and is deemed to have made its own independent investigation and analysis of the financial condition, status and affairs, and its own appraisal of the creditworthiness and nature, of the Issuer and of its subsidiaries and associated companies, the terms of the offering of the AT1 Sukuk Wakalah, including the merits and risks involved, and all other relevant matters, and each recipient should consult its own professional advisers. All information and statements herein are subject to the detailed provisions of the respective agreements referred to herein and are qualified in their entirety by reference to such documents. Neither the delivery of this Information Memorandum nor the offering, sale or delivery of any AT1 Sukuk Wakalah shall in any circumstance imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the AT1 Sukuk Wakalah is correct as of any time subsequent to the date indicated in the document containing the same. Neither the Lead Arranger nor any other advisers for the issue of AT1 Sukuk Wakalah undertake to review the financial condition or affairs of Issuer or to advise any investor in any AT1 Sukuk Wakalah of any information coming to their respective attention.

This Information Memorandum includes certain historical information, estimates, or reports thereon derived from sources mentioned in this Information Memorandum and other parties with respect to the material businesses in which Issuer operates and certain other matters. Such information, estimates, or reports have been included solely for illustrative purposes only. No representation or warranty is made as to the accuracy or completeness of any information, estimate and report thereon derived from such and other third-party sources.



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FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE “INVESTMENT CONSIDERATIONS” IN SECTION 4.0 HEREOF. Certain statements in this Information Memorandum are based on historical data, which may not be reflective of the future, and others are forward-looking in nature and are subject to risks and uncertainties. While the Issuer believes that these forward-looking statements are reasonable, these statements are nevertheless subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in such forward-looking statements. The Issuer is not under any obligation to update or revise such forward-looking statements to reflect any change in expectations or circumstances. In light of all this, the inclusion of forward-looking statements in this Information Memorandum should not be regarded as a representation or warranty by the Issuer that the plans and objectives of the Issuer will be achieved. STATEMENT OF DISCLAIMER ON THE SHARIAH PRONOUNCEMENT

Maybank Islamic Berhad, as the Shariah Adviser, has approved the structure and mechanism of the AT1 Sukuk Wakalah and their compliance with Shariah vide the Shariah pronouncement dated 16 June 2017. However, the approval is only an expression of the view of the Shariah Adviser based on its extensive experience in the subject. There can be no assurance as to the Shariah permissibility of the structure of the AT1 Sukuk Wakalah and the trading of the AT1 Sukuk Wakalah and neither the Issuer, the Lead Arranger nor any other person makes any representation of the same. Investors are reminded that, as with any Shariah views, differences in opinion are possible. Investors are advised to obtain their own independent Shariah advice as to whether the structure meets their individual standards of compliance and make their own determination as to the future tradability of the AT1 Sukuk Wakalah on any secondary market.

ACKNOWLEDGEMENT The Issuer hereby acknowledges that it has authorised the Lead Arranger to circulate or distribute this Information Memorandum on its behalf in respect of or in connection with the proposed offer or invitation to subscribe for and issue of the AT1 Sukuk Wakalah to prospective investors to whom an issue, offer or invitation to subscribe or purchase the AT1 Sukuk Wakalah would constitute persons falling within any one or more of the categories specified in Part 1 of Schedule 6 (or Section 229(1)(b)) and Part 1 of Schedule 7 (or Section 230(1)(b)), read together with Schedule 9 (or Section 257(3)) of the CMSA at the point of issuance of the AT1 Sukuk Wakalah and thereafter in Part 1 of Schedule 6 (or Section 229(1)(b)), read together with Schedule 9 (or Section 257(3)) of the CMSA, and that no further evidence of authorisation is required. STATEMENTS OF DISCLAIMER – SECURITIES COMMISSION MALAYSIA

In accordance with the CMSA, a copy of this Information Memorandum will be deposited with the Securities Commission Malaysia (“SC”), which takes no responsibility for its contents.

The issue, offer or invitation in relation to the AT1 Sukuk Wakalah in this Information Memorandum or otherwise is subject to the fulfilment of various conditions precedent including without limitation the lodgement of the required information and relevant documents in relation to the AT1 Sukuk Wakalah Programme with the SC in accordance with the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework (issued by the SC on 9 March 2015 and revised on 16 January 2017), as amended from time to time (“LOLA Guidelines”).

All required information and relevant documents relating to the AT1 Sukuk Wakalah Programme have been lodged with the SC on 19 October 2017 pursuant to the LOLA Guidelines. Please note that the lodgement with the SC shall not be taken to indicate that the SC recommends the subscription or purchase of the AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme.



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The SC shall not be liable for any non-disclosure on the part of the Issuer and assumes no responsibility for the correctness of any statements made or opinions or reports expressed in this Information Memorandum. EACH SERIES OF THE AT1 SUKUK WAKALAH CARRY DIFFERENT RISKS. INVESTORS SHOULD RELY ON THEIR OWN EVALUATION TO ASSESS THE MERITS AND RISKS OF THE INVESTMENT.

IT IS RECOMMENDED THAT PROSPECTIVE INVESTORS CONSULT THEIR FINANCIAL, LEGAL, SHARIAH AND OTHER ADVISERS BEFORE PURCHASING OR ACQUIRING OR SUBSCRIBING THE AT1 SUKUK WAKALAH.

CONFIDENTIALITY To the recipient of this Information Memorandum:

This Information Memorandum and its contents are strictly confidential and are provided strictly on the basis that the recipient shall ensure the same remains confidential. Accordingly, this Information Memorandum and its contents, and/or any information which is made available to the recipient in connection with any further enquiries, must be held in complete confidence. This Information Memorandum is submitted to selected persons specifically in reference to the AT1 Sukuk Wakalah, falling within one of the categories of persons specified in Part 1 of Schedule 6 (or Section 229(1)(b)); and Part 1 of Schedule 7 (or Section 230(1)(b)); read together with Schedule 9 (or Section 257(3)) of the CMSA at the point of issuance of the AT1 Sukuk Wakalah and Part 1 of Schedule 6 (or Section 229(1)(b)), read together with Schedule 9 (or Section 257(3)) of the CMSA after the issuance of the AT1 Sukuk Wakalah. This Information Memorandum may not be reproduced or used, in whole or in part, for any purpose, nor furnished to any person other than those to whom copies have been sent by the Lead Arranger. Any forwarding, distribution or reproduction of this document in whole or in part is unauthorised. Failure to comply with this directive may result in a violation of applicable laws. If you have received this Information Memorandum contrary to any of the foregoing restrictions, you are not authorised and will not be able to purchase any of the securities described herein.

In the event that there is any contravention of this confidentiality undertaking or there is reasonable likelihood that this confidentiality undertaking may be contravened, each of the Issuer and the Lead Arranger may, at its discretion, apply for any remedy available to the Issuer and the Lead Arranger whether at law or equity, including without limitation, injunctions. Each of the Issuer and the Lead Arranger is entitled to fully recover from the contravening party all costs, expenses and losses incurred and/or suffered, in this regard on a full indemnity basis. For the avoidance of doubt, it is hereby deemed that this confidentiality undertaking shall be imposed upon the recipient, the recipient’s professional advisers, directors, employees and any other persons who may receive this Information Memorandum (or any part of it) from the recipient.

The recipient must return this Information Memorandum and all copies whether in whole or in part and any other information in connection therewith to the Lead Arranger promptly upon the Lead Arranger’s or the Issuer’s request.

FORWARD-LOOKING STATEMENTS The Issuer has included statements in this Information Memorandum which contain words or phrases such as “will”, “would”, “aimed”, “is likely”, “believes”, “expected to”, “will continue”, “anticipate”, “estimates”, “plans”, “seeks to”, “proposes to”, “future”, “objective”, “goals”, “projected”, “should”, “can”, “could”, “may” and similar expressions or variations of such expressions, that are “forward-looking statements”. Actual results may differ materially from those suggested by the forward-looking statements due to certain risks or uncertainties associated with the expectations of the Issuer with respect to, but not limited to, their ability to successfully implement their strategy, future levels of non-performing assets and restructured assets, their growth and expansion, the adequacy of their allowance for credit and investment losses, technological changes, investment income, their ability to market new products, cash flow projections, the outcome of any legal or regulatory proceedings they are or



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becomes a party to, the future impact of new accounting standards, their ability to implements their dividend policy, their ability to roll over their short-term funding sources, their exposure to market risks and the market acceptance of and demand for property.

In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this Information Memorandum include, but are not limited to, general economic and political conditions in Malaysia and the other countries which have an impact on the Issuer’s business activities or investments, political or financial instability in Malaysia or elsewhere or any other acts of terrorism worldwide, any anti-terrorist or other attacks by any country, inflation, deflation, unanticipated turbulence in interest rates, changes in foreign exchange rate, equity prices or other rates or prices, the performance of the financial markets in Malaysia and globally, changes in domestic and foreign laws, regulations and taxes, changes in competition and pricing environment in Malaysia and regional or general changes in asset valuations. For a further discussion on the factors that could cause actual results to differ, see the discussion under “Investment Considerations” contained in this Information Memorandum.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK



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TABLE OF CONTENT

STRICTLY CONFIDENTIAL – DO NOT FORWARD .......................................................................... 1

RESPONSIBILITY STATEMENT .......................................................................................................... i

IMPORTANT NOTICE AND GENERAL STATEMENTS OF DISCLAIMER ........................................ i

STATEMENT OF DISCLAIMER ON THE SHARIAH PRONOUNCEMENT ...................................... iv

ACKNOWLEDGEMENT ..................................................................................................................... iv

STATEMENTS OF DISCLAIMER – SECURITIES COMMISSION MALAYSIA ................................ iv

CONFIDENTIALITY ............................................................................................................................. v

FORWARD-LOOKING STATEMENTS ............................................................................................... v

TABLE OF CONTENT ....................................................................................................................... vii

GLOSSARY OF DEFINITIONS AND ABBREVIATIONS ................................................................... ix

SECTION 1.0 EXECUTIVE SUMMARY ........................................................................................ 1

1.1 Introduction .............................................................................................................................. 1

1.2 The AT1 Sukuk Wakalah Programme ..................................................................................... 1

1.3 The Shariah Structure of the AT1 Sukuk Wakalah Programme .............................................. 2

1.4 Utilisation of Proceeds ............................................................................................................. 6

1.5 Rating ....................................................................................................................................... 6

1.6 BNM Approval .......................................................................................................................... 7

SECTION 2.0 PRINCIPAL TERMS AND CONDITIONS ............................................................... 8

SECTION 3.0 SELLING RESTRICTIONS ................................................................................... 37

SECTION 4.0 INVESTMENT CONSIDERATIONS ..................................................................... 38

4.1 Considerations relating to the Business ................................................................................ 38

4.2 Considerations relating to the Malaysian economy ............................................................... 44

4.3 Considerations relating to the Malaysian Banking Industry ................................................... 47

4.4 Considerations relating to the AT1 Sukuk Wakalah and AT1 Sukuk Wakalah Programme . 50

4.5 General Considerations ......................................................................................................... 60

SECTION 5.0 SELECTED FINANCIAL INFORMATION ............................................................ 62

SECTION 6.0 DESCRIPTION OF MAYBANK ISLAMIC ............................................................ 64

6.1 Introduction ............................................................................................................................ 64

6.2 Principal Shareholder ............................................................................................................ 66

6.3 Maybank Islamic Lines of Business ....................................................................................... 66

6.4 Shariah Governance and Compliance ................................................................................... 67

6.5 Employees ............................................................................................................................. 68

6.6 Profile of the Board of Directors ............................................................................................. 68

6.7 Profile of the Shariah Committee ........................................................................................... 71

6.8 Senior Management .............................................................................................................. 73

SECTION 7.0 FUNDING AND CAPITAL ADEQUACY ............................................................... 75

7.1 Funding .................................................................................................................................. 75



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7.2 Capital Adequacy ................................................................................................................... 76

SECTION 8.0 ASSET QUALITY .................................................................................................. 78

8.1 Financing Portfolio ................................................................................................................. 78

8.2 Classification and Impairment Provisions for Financing ........................................................ 79

8.3 Write-Off Policies ................................................................................................................... 80

8.4 Profile of Impaired Financing ................................................................................................. 80

8.5 Securities Portfolio ................................................................................................................. 81

SECTION 9.0 RISK MANAGEMENT ........................................................................................... 82

9.1 Risk Governance Structure .................................................................................................... 82

9.2 Holistic Enterprise Risk Management Approach .................................................................. 83

9.3 The Group’s Seven Broad Principles of Risk Management .................................................. 84

9.4 Risk Appetite .......................................................................................................................... 85

9.5 Capital Management ............................................................................................................. 85

9.6 Internal Capital Adequacy Assessment Process (“ICAAP”) ................................................. 85

SECTION 10.0 OVERVIEW OF THE MALAYSIAN ECONOMY .................................................. 87

10.1 Ministry of Finance Malaysia – Quarterly Update on the Malaysian Economy – 2nd Quarter 2017, Ministry of Finance Malaysia ....................................................................................... 87

10.2 Ministry of Finance Malaysia - Economic Report 2016/2017 ................................................ 90

10.3 BNM – Economic and Financial Developments in Malaysia in the Second Quarter of 2017 92

SECTION 11.0 CONFLICT OF INTEREST AND APPROPRIATE MITIGATING MEASURES .... 95

11.1 MAYBANK IB ......................................................................................................................... 95

11.2 MESSRS ADNAN SUNDRA & LOW ..................................................................................... 95

11.3 MALAYSIAN TRUSTEES BERHAD ...................................................................................... 95

11.4 MAYBANK ISLAMIC BERHAD .............................................................................................. 96

SECTION 12.0 OTHER INFORMATION ....................................................................................... 97

12.1 Material Contracts .................................................................................................................. 97

12.2 Material Litigation ................................................................................................................... 97

APPENDIX I

Audited Financial Statements for the Financial Year Ended 31 December 2016

APPENDIX II

Unaudited Financial Statements for the Financial Second Quarter Ended 30 June 2017



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GLOSSARY OF DEFINITIONS AND ABBREVIATIONS Except where the context otherwise requires, the following abbreviations shall apply throughout this Information Memorandum:

“AT1 Sukuk Wakalah” Islamic Additional Tier 1 capital securities to be issued pursuant to the AT1 Sukuk Wakalah Programme

“AT1 Sukuk Wakalah Programme”

An Islamic Additional Tier 1 capital securities programme of up to RM10.0 billion in nominal value based on the Shariah principle of Wakalah Bi Al-Istithmar

“BNM” Bank Negara Malaysia

“Board” Board of Directors of Maybank Islamic

“CAFIB” Capital Adequacy Framework for Islamic Banks (Capital Components) issued on 4 August 2017 (as amended from time to time)

“Cagamas” Cagamas Berhad (Company No. 157931-A)

“CET1” Common Equity Tier 1

“CFS” Community Financial Services

“CMSA” Capital Markets and Services Act, 2007 of Malaysia (as amended from time to time)

“CPI” Consumer Price Index

“GB” Global Banking

“Government” Government of Malaysia

“IFSA” Islamic Financial Services Act, 2013 of Malaysia (as amended from time to time)

“Information Memorandum” This Information Memorandum in relation to the AT1 Sukuk Wakalah Programme

“Junior Obligations” Any ordinary share of the Issuer

“Lead Arranger” Maybank IB

“Lead Manager” Maybank IB



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“LOLA Guidelines” Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the SC (issued by the SC on 9 March 2015 and revised on 16 January 2017) (as amended from time to time)

“LPD” The latest practicable date, being 30 September 2017

“Maybank” Malayan Banking Berhad (Company No. 3813-K)

“Maybank Board” Board of Directors of Maybank

“Maybank Group” or the “Group”

Maybank and its subsidiaries

“Maybank IB” Maybank Investment Bank Berhad (Company No. 15938-H)

“Maybank Islamic” or the “Bank” or the “ Issuer”

Maybank Islamic Berhad (Company No. 787435-M)

“Parity Obligation” The most junior class of preference shares and any security or other similar obligation issued, entered into or guaranteed by the Issuer that constitutes or could qualify as Additional Tier I capital of the Issuer on an unconsolidated or consolidated basis, pursuant to the relevant requirements set out in BNM CAFIB, or otherwise ranks or is expressed to rank, by its terms or by operation of law, pari passu with the AT1 Sukuk Wakalah.

“Periodic Distribution” Periodic distribution on the AT1 Sukuk Wakalah

“PIDM” Malaysia Deposit Insurance Corporation

“Principal Adviser” Maybank IB

“RAM Rating” RAM Rating Services Berhad (Company No. 763588-T)

“RM” Ringgit Malaysia, being the lawful currency of Malaysia

“RMC” Risk Management Committee of Maybank

“SAC” Shariah Advisory Council of the SC

“SC” Securities Commission Malaysia

“Senior Creditors” (i) creditors of the Issuer (including holders of any security or other similar obligation issued, entered into or guaranteed by the Issuer that constitutes Tier II Capital Instruments) other than those whose claims rank or are expressed to rank, by its terms or by operation of law, pari passu or junior to the claims of the Sukukholders; and (ii) any class of the Issuer’s share capital (excluding the most junior class of preference shares and ordinary shares).



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“Shariah Adviser” Maybank Islamic Berhad

“Shariah Committee” Shariah Committee of Maybank Islamic

“subsidiaries” Has the meaning ascribed to it in the Companies Act, 2016 of Malaysia (as amended from time to time)

“Sukuk Trustee” Malaysian Trustees Berhad (Company No. 21666-V)

“Sukukholders” The holders of each series of the AT1 Sukuk Wakalah

“Tier II Capital Instrument” Any Tier II capital instrument issued by the Issuer, pursuant to the relevant requirements set out in BNM CAFIB.

“Trust Deed” A trust deed to be executed between the Issuer and the Sukuk Trustee in relation to the AT1 Sukuk Wakalah

“Winding-Up” A final and effective order or resolution for the winding up, liquidation, dissolution or similar proceedings in respect of the Issuer.




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SECTION 1.0 EXECUTIVE SUMMARY

The summary below aims to provide an overview of the information contained in the Information Memorandum. As such, it does not contain all the information that may be important to you and should therefore be read with this entire Information Memorandum. 1.1 Introduction

The Issuer was incorporated in Malaysia on 5 September 2007 under the name Maybank Islamic Berhad with its registered office at 15th Floor, Tower A, Dataran Maybank, No. 1 Jalan Maarof, 59000 Kuala Lumpur. The Issuer’s principal place of business is at 10th Floor, Tower A, Dataran Maybank, No. 1 Jalan Maarof, 59000 Kuala Lumpur. The Issuer is a wholly owned subsidiary of Maybank and is the Islamic financing arm of Maybank Group. Currently, the Issuer has 8 stand-alone branches in Malaysia while at the same time leveraging on the Maybank Group’s infrastructure and network to offer end-to-end Shariah-compliant financial solutions. Maybank Islamic’s portfolio of diversified products and services is available through its parent’s extensive retail network of over 350 domestic branches.

1.2 The AT1 Sukuk Wakalah Programme

Except where the context otherwise requires, all capitalised terms appearing under this section

shall have the same meanings ascribed thereto in section 2.0 (Principal Terms and Conditions)

below.

Brief Structure of the AT1 Sukuk Wakalah Programme

The Issuer proposes to establish the AT1 Sukuk Wakalah Programme which provides flexibility for the Issuer to issue, from time to time, AT1 Sukuk Wakalah during the tenure of the AT1 Sukuk Wakalah Programme, provided that the aggregate outstanding amount of the AT1 Sukuk Wakalah shall not at any time exceed RM10.0 billion in nominal value. The AT1 Sukuk Wakalah shall comply with BNM CAFIB in relation to requirements of an Additional Tier 1 capital instrument.

The Issuer shall have the option to upsize the AT1 Sukuk Wakalah Programme limit provided that (a) such upsizing will not result in any adverse impact on the rating of the AT1 Sukuk Wakalah Programme; (b) the relevant requirements under the LOLA Guidelines in relation to such upsizing have been complied with; and (c) the relevant regulatory approvals have been obtained (if applicable). The Trust Deed will provide that the Sukukholders consent to any upsizing of the AT1 Sukuk Wakalah Programme limit from time to time. Accordingly, no further consent will be required from Sukukholders, the Sukuk Trustee or from any other party under the AT1 Sukuk Wakalah Programme for the Issuer to exercise the option to increase the limit of the AT1 Sukuk Wakalah Programme from time to time.

The tenure of the AT1 Sukuk Wakalah Programme shall be perpetual from the first issue date of the AT1 Sukuk Wakalah. The tenure of the AT1 Sukuk Wakalah shall be perpetual subject to Call Option (as defined below), early redemption or purchase and cancellation by the Issuer or its subsidiaries or agents of the Issuer in accordance with the terms and conditions of the AT1 Sukuk Wakalah Programme.

The issuance of each series of AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme shall have a callable option (“Call Option”), to be determined by the Issuer prior to each issuance of AT1 Sukuk Wakalah, to allow the Issuer to redeem (in whole or in part) that series of AT1 Sukuk Wakalah on the relevant Call Date at the Dissolution Distribution Amount, subject to the Redemption Conditions (as defined below) being satisfied. The AT1 Sukuk Wakalah may also be redeemed by the Issuer pursuant to the Tax Redemption or the Regulatory Redemption. “Redemption Conditions” means:



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(i) the Issuer is solvent at the time of any redemption of that series of AT1 Sukuk Wakalah or part thereof and immediately thereafter;

(ii) the Issuer has obtained the written approval of BNM prior to redemption of that series

of AT1 Sukuk Wakalah or part thereof; and (iii) the Issuer: (a) shall replace that series of AT1 Sukuk Wakalah or part thereof to be redeemed with

capital of the same or better quality and the replacement of this capital is done at conditions which are sustainable for the income capacity of the Issuer; or

(b) demonstrates that its capital position is and can be sustained well above the minimum capital adequacy and capital buffer requirements as imposed by BNM after the redemption is exercised.

Breach of CET1 Capital Ratio

If the CET1 of the Issuer (entity level) or the consolidated CET1 of Maybank Group (whichever is applicable) falls below 5.125%, the Issuer shall, without the need for the consent of the Sukuk Trustee or the Sukukholders, write-off (in whole or in part) or convert the AT1 Sukuk Wakalah into ordinary shares (in whole or in part).

The write-off or conversion into ordinary shares (collectively the “Loss Absorption Mechanism”) shall be determined by the Issuer prior to issuance of each series of the AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme.

Status of the AT1 Sukuk Wakalah

The AT1 Sukuk Wakalah pursuant to the relevant Transaction Documents, constitute direct, unsecured and subordinated obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The rights and claims of the Sukukholders are subordinated in the manner described below.

Subject to the laws of Malaysia, in the event of a Winding-Up of the Issuer, the rights of the Sukukholders to payment of nominal value and Periodic Distributions on the AT1 Sukuk Wakalah and any other obligations in respect of the AT1 Sukuk Wakalah are expressly subordinated and subject in right of payment to the prior payment in full of all claims of Senior Creditors (which includes, but is not limited to, holders of Tier II Capital Instruments and will rank senior to all Junior Obligations The AT1 Sukuk Wakalah will rank pari passu with Parity Obligations.

1.3 The Shariah Structure of the AT1 Sukuk Wakalah Programme

The Issuer may from time to time issue the AT1 Sukuk Wakalah under the Shariah principle of Wakalah Bi Al-Istithmar where the aggregate outstanding nominal value of such AT1 Sukuk Wakalah shall not exceed RM10.0 billion at any one time.

The Shariah principle of Wakalah Bi Al-Istithmar is one of the Shariah principles and concepts approved by the SAC. Except where the context otherwise requires, all capitalised terms appearing under this section shall have the same meanings ascribed thereto in section 2.0 (Principal Terms and Conditions) below.



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Underlying transaction

The transaction diagram of the Wakalah structure is as follows:

The AT1 Sukuk Wakalah Programme shall be effected as follows:

1. Pursuant to a Wakalah agreement entered between the Sukuk Trustee (acting on behalf of the Sukukholders) and Maybank Islamic Berhad (“Maybank Islamic”) (“Wakalah Agreement”), Maybank Islamic shall be appointed as an agent of the Sukukholders (“Wakeel”) to perform duties in respect of the Shariah-compliant Wakalah portfolio (“Wakalah Portfolio”), for a nominal fee including investment in and management of the Wakalah Portfolio, in accordance with the Wakalah Agreement.

The Wakalah Portfolio shall comprise a combination of investment in the following:

(i) Shariah-compliant general business of Maybank Islamic (“Shariah-compliant Business”); and

(ii) Shariah-compliant Commodities (as defined herein) (to be sold to Maybank Islamic as purchaser (“Purchaser”)) under the Shariah principle of Murabahah (“Commodity Murabahah Investment”).

2. The Wakeel shall declare a trust on the Wakalah Portfolio for the benefit of the Sukukholders. The Wakeel shall ensure that the Wakalah Portfolio shall at all times consist of Shariah-compliant Business and Commodity Murabahah Investment throughout the tenure of the AT1 Sukuk Wakalah.

The Issuer shall issue the AT1 Sukuk Wakalah to the investors (“Sukukholders”) and the Sukukholders shall subscribe to the AT1 Sukuk Wakalah by paying the subscription proceeds. The AT1 Sukuk Wakalah shall represent the Sukukholders’ undivided and proportionate interest in the Wakalah Portfolio.



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3. Pursuant to an Investment Agreement entered into between the Wakeel and Maybank Islamic, the Wakeel (on behalf the Sukukholders) shall utilise at least 33% of the proceeds of the AT1 Sukuk Wakalah to invest into the Shariah-compliant Business, subject to the valuation principles set out in the Wakalah Agreement.

For the avoidance of doubt, (i) the above ratio is only applicable at the point of initial investment for each series of the respective AT1 Sukuk Wakalah and does not need to be maintained throughout the tenure of the AT1 Sukuk Wakalah. However, the Wakeel shall ensure that the Shariah-compliant Business shall at all times be a component of the Wakalah Portfolio, and (ii) the Sukukholders shall, via the trust deed to be executed between the Issuer and the Sukuk Trustee (“Trust Deed”), provide their upfront consent to the Issuer to create further trusts over the Shariah-compliant Business (“Future Trusts”) to facilitate any transactions undertaken by the Issuer in connection with any proposed Islamic financing facilities to be obtained by the Issuer, so long as the interest of the relevant parties in the Future Trusts does not overlap with the interest of the Sukukholders in the Shariah-compliant Business under the Wakalah Portfolio.

4. The remaining proceeds of up to 67% of the AT1 Sukuk Wakalah shall be utilized by the Wakeel for investment in the Commodity Murabahah Investment. The Commodity Murabahah Investment shall be effected as follows:

(i) Pursuant to the Commodity Murabahah Investment Agreement, the parties to which includes Maybank Islamic Berhad (as Purchaser and Wakeel) and the Sukuk Trustee, Maybank Islamic as the purchaser (“Purchaser”) shall issue a purchase order to the Sukuk Trustee and the Wakeel with an undertaking to purchase the Commodities from the Wakeel at the Deferred Sale Price (as defined below).

(ii) The Wakeel shall purchase the Commodities on spot basis from a commodity supplier at the commodity purchase price equivalent to such remaining proceeds of the AT1 Sukuk Wakalah (“Commodity Purchase Price”).

(iii) The Wakeel shall sell the Commodities to the Purchaser for a sale price equivalent to the Commodity Purchase Price plus the profit margin payable on deferred basis (“Deferred Sale Price”), pursuant to the terms and conditions of a sale and purchase agreement. For the avoidance of doubt, the Deferred Sale Price shall be equivalent to the nominal value of the AT1 Sukuk Wakalah. The Deferred Sale Price shall be payable on the 99th year anniversary of the issue date of that series of AT1 Sukuk Wakalah subject to the terms and conditions of the sale and purchase agreement, and Maybank Islamic shall be given the right to defer such payment further upon request made by Maybank Islamic subject to issuance of a deferment notice (“Deferment Notice”) five (5) business days prior to expiry of such tenure.

(iv) The Purchaser may subsequently sell the Commodities to a commodity buyer on spot basis for an amount equal to the Commodity Purchase Price.

5. Unless a non-payment event pursuant to the clause on ‘Limitation on Payment’ has occurred, on each Periodic Distribution Date (as defined below), the Wakeel shall distribute returns out of distributable income from the Shariah-compliant Business (“Income”) up to the Expected Periodic Distribution Amount (as defined below) to the Sukukholders in the form of Periodic Distributions (as defined below). Any excess



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above the Expected Periodic Distribution Amount shall be waived by the Sukukholders and retained by the Wakeel as incentive fee.

6. Maybank Islamic (as “Obligor”) shall grant a purchase undertaking (“Purchase Undertaking”) in favour of the Sukuk Trustee, under which the Obligor shall purchase the Sukukholders’ interest in the Shariah-compliant Business from the Sukuk Trustee upon the occurrence of a Dissolution Event (as defined below), at the Exercise Price (as defined below) by entering into a sale agreement (“Sale Agreement”).

7. The Sukuk Trustee (on behalf of the Sukukholders) shall issue a sale undertaking (“Sale Undertaking”) in favour of the Issuer, under which the Sukuk Trustee undertakes to sell the Sukukholders’ interest in the Shariah-compliant Business to the Issuer upon the exercise of early redemption pursuant to the Call Option (as described below), early redemption pursuant to the Regulatory Redemption (as described below) or early redemption pursuant to the Tax Redemption (as described below), at the Exercise Price by entering into a Sale Agreement.

8. Upon redemption of the AT1 Sukuk Wakalah pursuant to exercise of the Call Option, Tax Event or Regulatory Event or on the date of declaration of a Dissolution Event, the Sukuk Trustee shall sell to the Issuer (in the case of Sale Undertaking) or the Obligor shall purchase from the Sukuk Trustee (in the case of Purchase Undertaking), the Sukukholders’ interest in the Shariah-compliant Business at the relevant Exercise Price by entering into the Sale Agreement and the Purchaser shall pay the outstanding Deferred Sale Price.

9. Proceeds from the Wakalah Portfolio including the Income, the Exercise Price and the Deferred Sale Price shall be paid to the Sukukholders to redeem the outstanding AT1 Sukuk Wakalah. Any excess above the Dissolution Distribution Amount (as defined below) of the relevant AT1 Sukuk Wakalah shall be waived by the Sukukholders and retained by the Wakeel as an incentive fee upon full redemption of the relevant AT1 Sukuk Wakalah.

The “Exercise Price” shall be a price for the purchase or sale of the Shariah-compliant Business pursuant to the exercise of the Purchase Undertaking or Sale Undertaking respectively, calculated at the market value or fair value of the Shariah-compliant Business determined based on the valuation principles set out in the Wakalah Agreement, at the relevant redemption date or Dissolution Event date of the AT1 Sukuk Wakalah.

Loss Absorbency Mechanism

Each series of AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme shall include either of the following loss absorbency mechanism (as also further set-out in the ‘Loss Absorption Mechanism’ clause below), which shall be determined by the Issuer prior to issuance of each series of the AT1 Sukuk Wakalah:

▪ In the case of write-off (in whole or in part), the Sukukholders agree to waive their rights on the Deferred Sale Price (in whole or in part, as the case may be) in the event of occurrence of:

(i) Non-Viability Event (as described below); or



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(ii) breach of CET1 Capital Ratio (as defined below). In case of (ii), the aggregate amount to be written off must be at least the amount required to restore the consolidated or entity level CET1 Capital Ratio (whichever is applicable) to the required level.

The Sukukholders also irrevocably waive their right to any Periodic Distribution (including distributions accrued but unpaid up to the date of the occurrence of a breach of CET1 Capital Ratio or Non-Viability Event).

In the case of write-off of full nominal value, the Sukukholders agree to waive their rights on the full Deferred Sale Price and the Wakeel on behalf of Sukukholders’ agrees to transfer the Sukukholders’ interest in the Shariah-compliant Business to the Issuer with no consideration.

While in the case of write-off of partial nominal value, the Sukukholders agree to waive their rights on the Deferred Sale Price equivalent to the partial nominal value being written off and shall retain their interest in the Shariah compliant Business. After write-off of partial nominal value, the remaining portion of the series will remain as AT1 Sukuk Wakalah complying with BNM CAFIB in relation to requirements of an Additional Tier 1 capital instrument.

▪ In the case of conversion (in whole or in part), the Sukukholders agree to convert the nominal value of the AT1 Sukuk Wakalah (in whole or in part, as the case may be) into ordinary shares of Maybank Islamic in the event of occurrence of:

(i) Non-Viability Event; or

(ii) breach of CET1 Capital Ratio. In case of (ii), the aggregate amount of the AT1 Sukuk Wakalah to be converted into ordinary shares must be at least the amount required to restore the consolidated or entity level CET1 Capital Ratio (whichever is applicable) to the required level.

The Sukukholders also irrevocably waive their rights to any Periodic Distribution (including distributions accrued but unpaid up to the date of the occurrence of a breach of CET1 Capital Ratio or Non-Viability Event). After conversion of partial nominal value, the remaining portion of the series will remain as AT1 Sukuk Wakalah complying with BNM CAFIB in relation to requirements of an Additional Tier 1 capital instrument.

1.4 Utilisation of Proceeds

The proceeds from the AT1 Sukuk Wakalah will be utilised for Shariah compliant purposes. The Issuer will utilise the proceeds for its general banking, working capital and other Shariah compliant corporate purposes, as well as to refinance any existing financing or sukuk of the Issuer.

1.5 Rating

The AT1 Sukuk Wakalah have been accorded a final long-term rating of AA3 by RAM Rating pursuant to their letter dated 17 October 2017.



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1.6 BNM Approval

BNM had via its letter dated 4 August 2017 approved the establishment of the AT1 Sukuk Wakalah Programme.




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SECTION 2.0 PRINCIPAL TERMS AND CONDITIONS The principal terms and conditions of the AT1 Sukuk Wakalah Programme have been extracted from the lodgement made to the SC, definitions of terms used in this Section 2.0 of this Information Memorandum may not be similar to the definitions in the Definitions section of this Information Memorandum. Words and expressions used and defined in this Section 2.0 shall, in the event of any inconsistency with the definition section of this Information Memorandum, only be applicable for this Section 2.0. (1) Name of Facility : An Islamic Additional Tier 1 Capital Securities (“AT1 Sukuk

Wakalah”) pursuant to an Islamic Additional Tier 1 Capital Securities Programme of up to RM10.0 billion in nominal value based on the Shariah principle of Wakalah Bi Al-Istithmar (“AT1 Sukuk Wakalah Programme”).

(2) One-time issue or programme

: Programme.

(3) Shariah principles : (i) Wakalah Bi Al-Istithmar (agency); and (ii) Murabahah via Tawarruq arrangement (cost-plus sale).

(4) Facility description : AT1 Sukuk Wakalah Programme pursuant to which Maybank

Islamic Berhad as the issuer (“Issuer”) may from time to time issue AT1 Sukuk Wakalah under the Shariah principle of Wakalah Bi Al-Istithmar where the aggregate outstanding nominal value of such AT1 Sukuk Wakalah shall not exceed RM10.0 billion at any one time. The AT1 Sukuk Wakalah shall comply with Bank Negara Malaysia’s (“BNM”) Capital Adequacy Framework for Islamic Banks (Capital Components) (issued on 4 August 2017) (“BNM CAFIB”) in relation to requirements of an Additional Tier 1 capital instrument. The Shariah principle of Wakalah Bi Al-Istithmar is one of the Shariah principles and concepts approved by the Shariah Advisory Council of the Securities Commission Malaysia (“SC”). Underlying Transaction

The AT1 Sukuk Wakalah Programme shall be effected as follows: 1. Pursuant to a Wakalah agreement entered between the

Sukuk Trustee (acting on behalf of the Sukukholders (as defined below)) and Maybank Islamic Berhad (“Maybank Islamic”) (“Wakalah Agreement”), Maybank Islamic shall be appointed as an agent of the Sukukholders (“Wakeel”) to perform duties in respect of the Shariah-compliant Wakalah portfolio (“Wakalah Portfolio”), for a nominal fee including investment in and management of the Wakalah Portfolio, in accordance with the Wakalah Agreement.



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The Wakalah Portfolio shall comprise a combination of investment in the following:

(i) Shariah-compliant general business of Maybank

Islamic (“Shariah-compliant Business”); and (iii) Shariah-compliant Commodities (as defined herein)

(to be sold to Maybank Islamic as purchaser (“Purchaser”)) under the Shariah principle of Murabahah (“Commodity Murabahah Investment”).

2. The Wakeel shall declare a trust on the Wakalah Portfolio

for the benefit of the Sukukholders. The Wakeel shall ensure that the Wakalah Portfolio shall at all times consist of Shariah-compliant Business and Commodity Murabahah Investment throughout the tenure of the AT1 Sukuk Wakalah.

The Issuer shall issue the AT1 Sukuk Wakalah to the

investors (“Sukukholders”) and the Sukukholders shall subscribe to the AT1 Sukuk Wakalah by paying the subscription proceeds. The AT1 Sukuk Wakalah shall represent the Sukukholders’ undivided and proportionate interest in the Wakalah Portfolio.

3. Pursuant to an Investment Agreement entered into

between the Wakeel and Maybank Islamic, the Wakeel (on behalf the Sukukholders) shall utilise at least 33% of the proceeds of the AT1 Sukuk Wakalah to invest into the Shariah-compliant Business, subject to the valuation principles set out in the Wakalah Agreement.

For the avoidance of doubt, (i) the above ratio is only applicable at the point of initial investment for each series of the respective AT1 Sukuk Wakalah and does not need to be maintained throughout the tenure of the AT1 Sukuk Wakalah. However, the Wakeel shall ensure that the Shariah-compliant Business shall at all times be a component of the Wakalah Portfolio, and (ii) the Sukukholders shall, via the trust deed to be executed between the Issuer and the Sukuk Trustee (“Trust Deed”), provide their upfront consent to the Issuer to create further trusts over the Shariah-compliant Business (“Future Trusts”) to facilitate any transactions undertaken by the Issuer in connection with any proposed Islamic financing facilities to be obtained by the Issuer, so long as the interest of the relevant parties in the Future Trusts does not overlap with the interest of the Sukukholders in the Shariah-compliant Business under the Wakalah Portfolio.

4. The remaining proceeds of up to 67% of the AT1 Sukuk

Wakalah shall be utilized by the Wakeel for investment in the Commodity Murabahah Investment. The Commodity Murabahah Investment shall be effected as follows:

(i) Pursuant to the Commodity Murabahah Investment

Agreement, the parties to which includes Maybank Islamic Berhad (as Purchaser and Wakeel) and the



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Sukuk Trustee, Maybank Islamic as the purchaser (“Purchaser”) shall issue a purchase order to the Sukuk Trustee and the Wakeel with an undertaking to purchase the Commodities from the Wakeel at the Deferred Sale Price (as defined below).

(ii) The Wakeel shall purchase the Commodities on

spot basis from a commodity supplier at the commodity purchase price equivalent to such remaining proceeds of the AT1 Sukuk Wakalah (“Commodity Purchase Price”).

(iii) The Wakeel shall sell the Commodities to the

Purchaser for a sale price equivalent to the Commodity Purchase Price plus the profit margin payable on deferred basis (“Deferred Sale Price”), pursuant to the terms and conditions of a sale and purchase agreement. For the avoidance of doubt, the Deferred Sale Price shall be equivalent to the nominal value of the AT1 Sukuk Wakalah. The Deferred Sale Price shall be payable on the 99th year anniversary of the issue date of that series of AT1 Sukuk Wakalah subject to the terms and conditions of the sale and purchase agreement, and Maybank Islamic shall be given the right to defer such payment further upon request made by Maybank Islamic subject to issuance of a deferment notice (“Deferment Notice”) five (5) business days prior to expiry of such tenure.

(iv) The Purchaser may subsequently sell the

Commodities to a commodity buyer on spot basis for an amount equal to the Commodity Purchase Price.

5. Unless a non-payment event pursuant to the clause on

‘Limitation on Payment’ has occurred, on each Periodic Distribution Date (as defined below), the Wakeel shall distribute returns out of distributable income from the Shariah-compliant Business (“Income”) up to the Expected Periodic Distribution Amount (as defined below) to the Sukukholders in the form of Periodic Distributions (as defined below). Any excess above the Expected Periodic Distribution Amount shall be waived by the Sukukholders and retained by the Wakeel as incentive fee.

6. Maybank Islamic (as “Obligor”) shall grant a purchase

undertaking (“Purchase Undertaking”) in favour of the Sukuk Trustee, under which the Obligor shall purchase the Sukukholders’ interest in the Shariah-compliant Business from the Sukuk Trustee upon the occurrence of a Dissolution Event (as defined below), at the Exercise Price (as defined below) by entering into a sale agreement (“Sale Agreement”).

7. The Sukuk Trustee (on behalf of the Sukukholders) shall

issue a sale undertaking (“Sale Undertaking”) in favour of the Issuer, under which the Sukuk Trustee undertakes to sell the Sukukholders’ interest in the Shariah-compliant Business to the Issuer upon the exercise of early



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redemption pursuant to the Call Option (as described below), early redemption pursuant to the Regulatory Redemption (as described below) or early redemption pursuant to the Tax Redemption (as described below), at the Exercise Price by entering into a Sale Agreement.

8. Upon redemption of the AT1 Sukuk Wakalah pursuant to

exercise of the Call Option, Tax Event or Regulatory Event or on the date of declaration of a Dissolution Event, the Sukuk Trustee shall sell to the Issuer (in the case of Sale Undertaking) or the Obligor shall purchase from the Sukuk Trustee (in the case of Purchase Undertaking), the Sukukholders’ interest in the Shariah-compliant Business at the relevant Exercise Price by entering into the Sale Agreement and the Purchaser shall pay the outstanding Deferred Sale Price.

9. Proceeds from the Wakalah Portfolio including the Income,

the Exercise Price and the Deferred Sale Price shall be paid to the Sukukholders to redeem the outstanding AT1 Sukuk Wakalah. Any excess above the Dissolution Distribution Amount (as defined below) of the relevant AT1 Sukuk Wakalah shall be waived by the Sukukholders and retained by the Wakeel as an incentive fee upon full redemption of the relevant AT1 Sukuk Wakalah.

The “Exercise Price” shall be a price for the purchase or sale of the Shariah-compliant Business pursuant to the exercise of the Purchase Undertaking or Sale Undertaking respectively, calculated at the market value or fair value of the Shariah-compliant Business determined based on the valuation principles set out in the Wakalah Agreement, at the relevant redemption date or Dissolution Event date of the AT1 Sukuk Wakalah. Loss Absorbency Mechanism Each series of AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme shall include either of the following loss absorbency mechanism (as also further set-out in the ‘Loss Absorption Mechanism’ clause below), which shall be determined by the Issuer prior to issuance of each series of the AT1 Sukuk Wakalah: ▪ In the case of write-off (in whole or in part), the

Sukukholders agree to waive their rights on the Deferred Sale Price (in whole or in part, as the case may be) in the event of occurrence of: (i) Non-Viability Event (as described below); or (ii) breach of CET1 Capital Ratio (as defined below).

In case of (ii), the aggregate amount to be written off must be at least the amount required to restore the consolidated or entity level CET1 Capital Ratio (whichever is applicable) to the required level.

The Sukukholders also irrevocably waive their right to any Periodic Distribution (including distributions accrued



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but unpaid up to the date of the occurrence of a breach of CET1 Capital Ratio or Non-Viability Event). In the case of write-off of full nominal value, the Sukukholders agree to waive their rights on the full Deferred Sale Price and the Wakeel on behalf of Sukukholders’ agrees to transfer the Sukukholders’ interest in the Shariah-compliant Business to the Issuer with no consideration.

While in the case of write-off of partial nominal value, the Sukukholders agree to waive their rights on the Deferred Sale Price equivalent to the partial nominal value being written off and shall retain their interest in the Shariah compliant Business. After write-off of partial nominal value, the remaining portion of the series will remain as AT1 Sukuk Wakalah complying with BNM CAFIB in relation to requirements of an Additional Tier 1 capital instrument.

▪ In the case of conversion (in whole or in part), the

Sukukholders agree to convert the nominal value of the AT1 Sukuk Wakalah (in whole or in part, as the case may be) into ordinary shares of Maybank Islamic in the event of occurrence of: (i) Non-Viability Event; or (ii) breach of CET1 Capital Ratio. In case of (ii), the

aggregate amount of the AT1 Sukuk Wakalah to be converted into ordinary shares must be at least the amount required to restore the consolidated or entity level CET1 Capital Ratio (whichever is applicable) to the required level.

The Sukukholders also irrevocably waive their rights to any Periodic Distribution (including distributions accrued but unpaid up to the date of the occurrence of a breach of CET1 Capital Ratio or Non-Viability Event). After conversion of partial nominal value, the remaining portion of the series will remain as AT1 Sukuk Wakalah complying with BNM CAFIB in relation to requirements of an Additional Tier 1 capital instrument.

(5) Currency : Ringgit Malaysia (“RM”).

(6)

Expected facility/programme size (for programme to state the option to upsize)

: The aggregate nominal value of outstanding AT1 Sukuk Wakalah issued pursuant to the AT1 Sukuk Wakalah Programme shall not exceed RM10.0 billion at any one point in time. Option to Upsize

☒Yes ☐No

(7)

Tenure of facility/programme

: Perpetual.



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(8) Availability period for

debt programme : The AT1 Sukuk Wakalah shall be available for the period

commencing from the date all the conditions precedent are fulfilled to the satisfaction of the Lead Arranger (unless waived by the Lead Arranger) as set out in the Transaction Documents (as defined below) so long as the AT1 Sukuk Wakalah Programme subsists provided that the first issuance of AT1 Sukuk Wakalah shall be made within sixty (60) business days from the date of lodgement with the SC (“Lodgement”).

(9)

Clearing and settlement platform

: Payments Network Malaysia Sdn Bhd (“PayNet”) (formerly known as Malaysian Electronic Clearing Corporation Sdn Bhd (“MyClear”)).

(10)

Mode of issue : (i) Direct/private placement; (ii) Book-building; or (iii) Bookrunning.

(11) Selling restrictions

: (i) Part 1 of Schedule 6 of the Capital Markets and Services Act 2007, as amended from time to time (“CMSA”)

(ii) Part 1 of Schedule 7 of the CMSA

(iii) read together with Schedule 9 of the CMSA. Selling restriction at issuance At the point of issuance of the AT1 Sukuk Wakalah, the AT1 Sukuk Wakalah may only be issued, offered, sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to subscribe for or purchase the AT1 Sukuk Wakalah may be made and to whom the AT1 Sukuk Wakalah are issued would fall within the relevant category of persons specified in Part 1 of Schedule 6 (or Section 229(1)(b)) of the CMSA and Part 1 of Schedule 7 (or Section 230(1)(b)) of the CMSA, read together with Schedule 9 (or Section 257(3)) of the CMSA. Selling restriction after issuance After the issuance of the AT1 Sukuk Wakalah, the AT1 Sukuk Wakalah may only be offered, sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to purchase the AT1 Sukuk Wakalah may be made and to whom the AT1 Sukuk Wakalah are issued would fall within the relevant category of persons specified in Part 1 of Schedule 6 (or Section 229(1)(b)) of the CMSA, read together with Schedule 9 (or Section 257(3)) of the CMSA.

(12)

Tradability and transferability

: Tradable and transferable.

(13)

Details of security/collateral pledged, if applicable

: Unsecured.



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(14) Details of guarantee, if applicable

: Not guaranteed.

(15) Convertibility of issuance and details of the convertibility

: Convertible. Only in the event where conversion is elected as the loss absorption mechanism by the Issuer for the relevant AT1 Sukuk Wakalah, upon occurrence of the following: (i) Breach of the CET1 Capital Ratio; or (ii) Non-Viability Event.

Details of the convertible feature are set out in clause “Other Terms and Conditions – Lost Absorption Mechanism”.

(16)

Exchangeability of Issuance and details of the exchangeability

: Non-exchangeable.

(17)

Call option and details, if applicable

: The issuance of each series of AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme shall have a callable option (“Call Option”), to be determined by the Issuer prior to each issuance of AT1 Sukuk Wakalah, to allow the Issuer to redeem (in whole or in part) that series of AT1 Sukuk Wakalah on the relevant Call Date (as defined below) at the Dissolution Distribution Amount, subject to the Redemption Conditions (as defined below) being satisfied. “Call Date” means any Periodic Distribution Date on or after the fifth (5th) anniversary of the issue date of that series of AT1 Sukuk Wakalah, including the First Call Date (as defined below). “First Call Date” shall refer to the first Periodic Distribution Date on or after the fifth (5th) anniversary of the issue date of that series of AT1 Sukuk Wakalah.

(18) Put option and details, if applicable

: No put option.

(19)

Details of covenants

:

(a) Positive Covenants : The Issuer shall comply with such applicable covenants, including but not limited to the following: (i) the Issuer shall at all times comply with its obligations

under the Transaction Documents; (ii) the Issuer shall redeem in full or in part outstanding AT1

Sukuk Wakalah in accordance with the terms and conditions of the Transaction Documents;

(iii) the Issuer shall at all times provide the Sukuk Trustee

such information as it may reasonably require in order to discharge its duties and obligations as Sukuk Trustee relating to the Issuer’s affairs to the extent permitted by law;



15

(iv) the Issuer shall at all times exercise reasonable diligence in carrying on its business in a proper and efficient manner which should ensure, amongst others, that all necessary approvals or relevant licences are obtained and maintained;

(v) the Issuer shall at all times maintain a Paying Agent who

is based in Malaysia; (vi) the Issuer shall procure that the Paying Agent shall notify

the Sukuk Trustee, through the Facility Agent, in the event that the Paying Agent does not receive payment in respect of the AT1 Sukuk Wakalah from the Issuer on the due dates as required under the Transaction Documents;

(vii) the Issuer shall at all times keep proper books and

accounts and to provide the Sukuk Trustee and any person appointed by it (e.g. auditors) access to such books and accounts to the extent permitted by law;

(viii) the Issuer shall ensure that the terms of the Transaction

Documents do not contain any matter which is inconsistent with the provisions of the Information Memorandum; and

(ix) any other covenants as may be advised by the solicitors

of the Lead Arranger and to be mutually agreed between the Issuer and the Lead Arranger.

(b) Negative Covenants

: None.

(c) Financial Covenants

: None.

(d) Information Covenants

: The Issuer shall comply with such applicable information covenants, to include but not limited to the following: (i) the Issuer shall deliver to the Sukuk Trustee:

(a) annually, within one hundred eighty (180) days

after the end of each financial year, a certificate that the Issuer has complied with its obligations under the Transaction Documents and the terms and conditions of the AT1 Sukuk Wakalah and that there did not exist or had not existed, from the date the first AT1 Sukuk Wakalah were issued or from the date of the previous certificate as the case may be, any Dissolution Event (as defined below) and if such is not the case, to specify the same;

(b) a copy of its annual audited financial statements within one hundred and eighty (180) days after the end of each financial year, a copy of its unaudited half yearly financial statements within one hundred and twenty (120) days after the end of each first half of its financial year and promptly, copies of accounts, reports, notices, statements or circulars issued to its shareholders;



16

(ii) the Issuer shall notify the Sukuk Trustee in the event that the Issuer becomes aware of the following:

(a) any Dissolution Event or that such other right or

remedy under the terms, provisions and covenants of the AT1 Sukuk Wakalah and the Trust Deed have become immediately enforceable;

(b) any circumstance that has occurred that would

materially prejudice the ability of the Issuer to perform its obligations under the Transaction Documents or in respect of the AT1 Sukuk Wakalah;

(c) any substantial change in the nature of the

business of the Issuer;

(d) any change in the utilisation of proceeds from the AT1 Sukuk Wakalah other than for the purpose stipulated in the Information Memorandum and the Transaction Documents;

(e) any other matter that may materially prejudice the

interest of the Sukukholders; and (f) any change in the Issuer’s withholding tax position

or tax jurisdiction; and

(iii) any other information covenants as may be advised by the solicitors and to be mutually agreed between the Issuer and the Lead Arranger.

(20)

Details of designated account(s), if applicable, including:

: No designated account.

(a) names of account

: Not applicable.

(b) parties responsible for opening the account

: Not applicable.

(c) parties responsible for maintaining/operating the account

: Not applicable.

(d) signatories to the account

: Not applicable.

(e) sources and utilisation of funds

: Not applicable.

(f) Diagram illustrating the flow of monies and

: Not applicable.



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conditions for disbursements

(21) Name of credit rating

agency, credit rating (state whether final or indicative) and amount rated, if applicable

: Credit Rating Assigned

Credit Rating Agency

Credit Rating

Assigned

Final/ Indicative

Amount Rated

RAM Rating Services Berhad

AA3 Final RM10.0 billion

. (22) Conditions precedent

: To include conditions precedent customary for transactions of

this nature including, but not limited to the following: A. Main Documentation

The relevant Transaction Documents in relation to the AT1 Sukuk Wakalah Programme have been duly executed, and where applicable stamped (unless otherwise exempted) and presented for registration (where applicable).

B. Issuer

Receipt from the Issuer of:

(i) Certified true copies of the Certificate of Incorporation and the Memorandum and Articles of Association or Constitution of the Issuer;

(ii) Certified true copies of the most recent Forms 24, 44 and 49 of the Issuer;

(iii) Certified true copy of the board resolution of the

Issuer authorising, among others, the establishment of the AT1 Sukuk Wakalah Programme, issuance of the AT1 Sukuk Wakalah and the execution of all relevant Transaction Documents thereto; and

(iv) A list of the Issuer’s authorised signatories and their

respective specimen signatures.

C. General

(i) A report of the relevant company search of the Issuer;

(ii) A report of the relevant winding up search conducted

on the Issuer;

(iii) Evidence that the approval from BNM in respect of the establishment of the AT1 Sukuk Wakalah Programme has been obtained;

(iv) Evidence of acknowledgement by the SC in respect of

the Lodgement;



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(v) Confirmation from the rating agency that the AT1 Sukuk Wakalah Programme has obtained a rating as stated in this Lodgement;

(vi) Confirmation from Maybank Islamic Berhad as the

Shariah Adviser (“Shariah Adviser”) that the structure, mechanism and Transaction Documents of the AT1 Sukuk Wakalah Programme are in compliance with Shariah;

(vii) Satisfactory legal opinion from the solicitors with

respect to the legality, validity and enforceability of the Transaction Documents and confirmation that all conditions precedent thereto have been fulfilled (or waived, as the case may be); and

(viii) Such other conditions precedent to be advised by the

solicitors and mutually agreed between the Issuer and the Lead Arranger.

(23)

Representations and warranties

: Representations and warranties usual and customary for a transaction of such nature, which shall include but are not limited to the following: (i) The Issuer (i) has been duly incorporated and validly exists

under the Companies Act, 2016, (ii) has full power and authority to engage in the business of Islamic banking and finance in Malaysia and each other jurisdiction where it is so engaged and conducts its business, and (iii) is duly qualified to transact business under the laws of Malaysia and each other jurisdiction in which it owns or leases properties, or conducts any business, to the extent such qualification is required, other than where the failure to be so qualified would not have a material adverse effect;

(ii) The issuance of the AT1 Sukuk Wakalah has been duly

authorised, and when issued and delivered pursuant to the Transaction Documents, will have been duly executed, authenticated, issued and delivered and will constitute valid and binding obligations of the Issuer entitled to the benefits provided by the Transaction Documents;

(iii) No event has occurred which would constitute a

Dissolution Event under the AT1 Sukuk Wakalah or which with the giving of notice or the lapse of time or other condition would constitute a Dissolution Event;

(iv) The Issuer is not in breach of the provisions of any law or

regulations governing it, and has obtained all necessary approvals, consents, authorisation and/or licences and, after due and careful consideration, the Issuer is not aware of any reason why such approval, consent, authorisation and/or licence should be withdrawn or cancelled or any conditions attached thereto adversely altered, other than where the absence of such approval, consent, authorisation and/or licence would not have a material adverse effect;



19

(v) There are no legal or governmental proceedings pending or, to the knowledge of the Issuer after due and careful consideration, threatened, to which the Issuer is or may be a party or to which any property or asset of the Issuer is or may be the subject which, if determined adversely to the Issuer, could individually or in the aggregate reasonably be expected to have a material adverse effect;

(vi) The Issuer has all licences, franchises, permits,

authorisations, approvals, orders and other concessions of and from all governmental and regulatory officials and bodies that are necessary to own or lease its properties and conduct its business, other than where the failure to obtain such licences, franchises, permits, authorisations, approvals, orders and other concessions would not have a material adverse effect;

(vii) The Issuer and its obligations under the Transaction

Documents and the AT1 Sukuk Wakalah are subject to commercial law and to suit in Malaysia and neither the Issuer nor any of its properties, assets or revenues has any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any court, from set off or counterclaim, from the jurisdiction of any court, or other legal process or proceeding for the giving of any relief or for the enforcement of judgment, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with the Transaction Documents and the AT1 Sukuk Wakalah; and

(viii) Such other representations and warranties as may be

advised by the solicitors and to be mutually agreed between the Issuer and the Lead Arranger.

For the purpose of this terms and conditions, “material adverse effect” means the occurrence of any event which materially and adversely affects the ability of the Issuer to perform any of its obligations under any of the Transaction Documents or which materially and adversely affects the business, financial position, shareholders’ funds or results of the operations of the Issuer.

(24)

Events of defaults or enforcement events, where applicable, including recourse available to investors

: Dissolution events means the occurrence of any of the following events (“Dissolution Events”): (i) Non-payment: the Issuer fails to pay any amount in

respect of the AT1 Sukuk Wakalah when due and payable and such failure continues for a period of seven (7) business days. For the avoidance of doubt, no Periodic Distribution will be due and payable if such Periodic Distribution or part thereof has been cancelled or is deemed cancelled (in each case, in whole or in part) as described under 'Limitation on Payment’ and accordingly, no failure of payment under the AT1 Sukuk Wakalah will have occurred or be deemed to have occurred in such circumstances; or



20

(ii) Winding-Up: If:

(a) a court or an agency or regulatory authority in Malaysia having jurisdiction in respect of the same shall have instituted any proceeding or entered a decree or order for the appointment of a receiver or liquidator in any insolvency, rehabilitation, readjustment of debt, marshalling of assets and liabilities, or similar arrangements involving the Issuer or all or substantially all of its property, or for the winding up of or liquidation of its affairs and such proceeding, decree or order shall not have been vacated or shall have remained in force, undischarged or unstayed for a period of sixty (60) days; or

(b) the Issuer has filed a petition to take advantage of any insolvency statute.

Upon the occurrence of Non-payment (as set out in item (i) above), subject to the terms of the AT1 Sukuk Wakalah, the Sukuk Trustee may or shall (if directed to do so by an extraordinary resolution of the Sukukholders) institute proceedings to enforce the payment obligations under the relevant AT1 Sukuk Wakalah and may institute proceedings in Malaysia for the winding up of the Issuer, provided that neither the Sukuk Trustee nor any of the Sukukholders shall have the right to accelerate payment of the relevant AT1 Sukuk Wakalah in the case of failure to pay any amount due and payable under the relevant AT1 Sukuk Wakalah or any non-performance of any condition, provision or covenant under the Trust Deed or the AT1 Sukuk Wakalah. Upon occurrence of Winding-up event (as set out in item (ii) above), subject to the terms of the AT1 Sukuk Wakalah, the Sukuk Trustee may or shall (if directed to do so by an extraordinary resolution of the Sukukholders) declare (by giving written notice to the Issuer) that the AT1 Sukuk Wakalah together with all other sums payable under the AT1 Sukuk Wakalah shall become and be immediately due and payable at its Dissolution Distribution Amount, whereupon such amounts shall become and be immediately due and payable. The Sukuk Trustee shall enforce its rights under the Transaction Documents, including but not limited to, requiring the Obligor to purchase the Shariah-compliant Business at the Exercise Price from the Sukuk Trustee pursuant to exercise of the Purchase Undertaking and enter into a Sale Agreement for such purchase, institute proceedings in Malaysia for the winding up of the Issuer and declare the AT1 Sukuk Wakalah due and payable i.e. pay the outstanding amounts of the Deferred Sale Price, Exercise Price and distribute any Income arising from the Shariah-compliant Business. Any excess above the Dissolution Distribution Amount of the relevant AT1 Sukuk Wakalah shall be waived by the Sukukholders and retained by the Wakeel as an incentive fee upon full redemption of the relevant AT1 Sukuk Wakalah.



21

The occurrence of event (i) (Non-payment) in respect of one series of the AT1 Sukuk Wakalah shall not trigger a Dissolution Event in respect of the other series of the AT1 Sukuk Wakalah.

(25)

Governing Laws : Laws of Malaysia.

(26)

Provisions on buy-back, if applicable

: Purchase and Cancellation The Issuer or any of its subsidiaries or agent(s) of the Issuer may at any time purchase the AT1 Sukuk Wakalah or part thereof, subject to the prior approval of BNM (but which approval shall not be required for a purchase done in the ordinary course of business), at any price in the open market or by way of private treaty provided that no Non-Viability Event has occurred prior to the date of such purchase. If purchase is made by tender, such tender must (subject to any applicable rules and regulations) be made available to all Sukukholders equally. Subject to prior approval by BNM (where applicable), the AT1 Sukuk Wakalah purchased by the Issuer or its subsidiaries or agents of the Issuer (other than in the ordinary course of business) shall be cancelled and shall not be resold. The AT1 Sukuk Wakalah purchased by related corporations (other than its subsidiaries) or any interested person of the Issuer, which includes the directors, major shareholders and chief executive officer, need not be cancelled but such related corporations or interested person of the Issuer will not be entitled to vote and shall not form part of the quorum of any meeting under the terms of the AT1 Sukuk Wakalah subject to any exceptions in the SC’s Trust Deeds Guidelines dated 12 July 2011. For the purposes of this clause, the term “ordinary course of business” includes those activities performed by the Issuer or its subsidiaries or agent(s) for third parties and excludes those performed for the own account of the Issuer or its subsidiaries or agent(s) and the term “related corporation” has the meaning given to it in the Companies Act, 2016.

(27)

Provisions on early redemption, if applicable

: (i) Early redemption pursuant to the Call Option

The Issuer may at its option, on a Call Date, and subject to the Redemption Conditions being satisfied, redeem in whole or in part, of the AT1 Sukuk Wakalah at the Dissolution Distribution Amount. The optional redemption of one series of the AT1 Sukuk Wakalah shall not trigger the redemption of other series of the AT1 Sukuk Wakalah.

(ii) Early redemption pursuant to the Regulatory Redemption

The AT1 Sukuk Wakalah may be redeemed at the option of the Issuer in whole or in part, and subject to the Redemption Conditions being satisfied, at any time at the Dissolution Distribution Amount, if a Regulatory Event has occurred and is continuing. “Regulatory Event” means that, if there is more than an



22

insubstantial risk, as determined by the Issuer, that:

(a) the AT1 Sukuk Wakalah or any series of the AT1

Sukuk Wakalah (in whole or in part) will, either immediately or with the passage of time or upon either the giving of notice or fulfilment of a condition, no longer qualify as Additional Tier 1 Capital of the Issuer for the purposes of BNM’s capital adequacy requirements under any applicable regulations; or

(b) changes in law will make it unlawful to continue

performing its obligations under the AT1 Sukuk Wakalah or any series of AT1 Sukuk Wakalah.

(iii) Early redemption pursuant to the Tax Redemption

The AT1 Sukuk Wakalah may be redeemed at the option of the Issuer in whole or in part, and subject to the Redemption Conditions being satisfied, at any time at the Dissolution Distribution Amount, if a Tax Event has occurred and is continuing. “Tax Event” means that, if there is more than an insubstantial risk that:

(a) the Issuer has or will become obliged to pay any

additional taxes, duties, assessments or government charges of whatever nature in relation to the AT1 Sukuk Wakalah; or

(b) the Issuer would no longer obtain tax deductions for

the purposes of Malaysian corporation tax for any payment in respect of the AT1 Sukuk Wakalah,

as a result of any change in, or amendment to, the laws or

regulations of Malaysia or any political subdivision or any authority thereof or therein having power to tax (or any taxing authority of any tax jurisdiction in which the Issuer is a tax resident), or any change in the official application or interpretation of such laws or regulations, which change or amendment is announced and becomes effective on or after the issue date and such obligation cannot be avoided by the Issuer after taking reasonable measures available to it.

For the avoidance of doubt, for the purpose of this clause, redemption in part of the AT1 Sukuk Wakalah may be carried out on a pro-rata basis or on selective basis (for instance in the case of purchase by the Issuer in the open market or by private treaty). “Redemption Conditions” means:

(i) the Issuer is solvent at the time of any redemption of that series of AT1 Sukuk Wakalah or part thereof and immediately thereafter;



23

(ii) the Issuer has obtained the written approval of BNM prior to redemption of that series of AT1 Sukuk Wakalah or part thereof; and

(iii) the Issuer:

(a) shall replace that series of AT1 Sukuk Wakalah or part thereof to be redeemed with capital of the same or better quality and the replacement of this capital is done at conditions which are sustainable for the income capacity of the Issuer; or

(b) demonstrates that its capital position is and can be sustained well above the minimum capital adequacy and capital buffer requirements as imposed by BNM after the redemption is exercised.

(28) Voting : Voting by the Sukukholders shall be carried out on a “per series”

basis and not on a collective basis.

(29) Permitted Investments

: No permitted investment.

(30) Other terms and conditions

(a) Other regulatory approvals required in the relation to the issue, offer or invitation to subscribe or purchase of the AT1 Sukuk Wakalah, and whether or not obtained

: Approval from BNM has been obtained on 4 August 2017 for the proposed establishment of the AT1 Sukuk Wakalah Programme.

(b) Details on Utilisation of Proceeds by the Issuer

:

The proceeds from the AT1 Sukuk Wakalah will be utilised for Shariah compliant purposes. The Issuer will utilise the proceeds for its general banking, working capital and other Shariah compliant corporate purposes, as well as to refinance any existing financing or sukuk of the Issuer.

(c) Option to Upsize : The Issuer shall have the option to increase the size of the AT1 Sukuk Wakalah Programme provided that:

(a) such increase will not result in any adverse impact on the

rating of the AT1 Sukuk Wakalah Programme;

(b) the relevant requirements under the LOLA Guidelines in relation to such upsizing have been complied with; and

(c) (c) the relevant regulatory approvals have been obtained (if

applicable). The Trust Deed will provide that the Sukukholders consent to any

upsizing of the AT1 Sukuk Wakalah Programme limit from time to time. Accordingly, no further consent will be required from Sukukholders, the Sukuk Trustee or from any other party under



24

the AT1 Sukuk Wakalah Programme for the Issuer to exercise the option to increase the limit of the AT1 Sukuk Wakalah Programme from time to time.

(d) Tenure of facility / programme

: Tenure of the AT1 Sukuk Wakalah Programme Perpetual from the first issue date of the AT1 Sukuk Wakalah. Tenure of the AT1 Sukuk Wakalah Perpetual.

(e) Profit / Coupon / Rental Rate (fixed or floating)

: Subject to, inter alia, the ‘Limitation on Payment’ clause and the ‘Distributable Reserves’ clause, the AT1 Sukuk Wakalah confer a right to receive periodic distributions (“Periodic Distributions”) up to the Expected Periodic Distribution Amount from (and including) the issue date at the applicable expected profit rate (“Distribution Rate”) out of the Distributable Reserves of the Issuer. The Distribution Rate applicable to each series of the AT1 Sukuk Wakalah shall be: (i) in respect of the period from (and including) the issue date

of that series to (but excluding) the First Call Date of that series, at either of the following (to be determined prior to issuance):

(a) a fixed rate per annum of the nominal value of that

series; or (b) a floating rate, to be reset semi-annually or such

other frequency to be determined prior to issuance, at a rate per annum, i.e. at the Initial Spread for Floating Rate (as defined below) above the Relevant Floating Rate Benchmark (as defined below), of the nominal value of that series; and

(ii) in respect of the period from (and including) the First Call Date of that series to (but excluding) the immediately following Reset Date (as defined below) of that series and every equivalent period thereafter, at either of the following rate (to be determined prior to issuance):

(a) a fixed rate at the Relevant Reset Distribution Rate

(as defined below) of the nominal value of that series; or

(b) a floating rate, to be reset semi-annually or such

other frequency to be determined prior to issuance, at a rate per annum, i.e. at the Initial Spread for Floating Rate above the Relevant Floating Rate Benchmark, of the nominal value of that series.

“Expected Periodic Distribution Amount” refers to the expected periodic distribution amount based on the Distribution Rate payable on the Periodic Distribution Date. “Initial Spread for Fixed Rate” means the initial spread for fixed



25

rate to be determined at the point of issuance of the relevant series of the AT1 Sukuk Wakalah, where applicable, and expressed as a rate in per cent. per annum, being the initial spread above the profit rate swap rate in per cent. per annum for the relevant Reference Period. The Initial Spread for Fixed Rate shall be calculated at the point of issuance and shall be applicable throughout the tenure of the relevant AT1 Sukuk Wakalah. “Initial Spread for Floating Rate” means the initial spread for the floating rate to be determined at the point of issuance of the relevant series of the AT1 Sukuk Wakalah, where applicable, and expressed as a rate in per cent. per annum, being the initial spread above the Relevant Floating Rate Benchmark. The Initial Spread for the Floating Rate shall be calculated at the point of issuance and shall be applicable throughout the tenure of the relevant AT1 Sukuk Wakalah. “Reference Period” means, in relation to a series of the AT1 Sukuk Wakalah, a period of time equal to that commencing on the issue date of that series and ending on the date immediately before the First Call Date of that series (“Initial Period”), and being a minimum period of five (5) years and shall also include every subsequent period of time after the First Call Date equivalent to the Initial Period. “Relevant Floating Rate Benchmark” means KLIBOR for six-months (or such other relevant period) Ringgit deposits. “Relevant Reset Distribution Rate” means a fixed rate per annum equal to the relevant prevailing profit rate swap rate in per cent. per annum for the relevant Reference Period with respect to the relevant Reset Date plus the Initial Spread for Fixed Rate. The profit rate swap rate shall be determined and notified by the Facility Agent (or any other similar agency) to the Issuer and the Sukukholders as published by a recognised industry body or a relevant authority at or about the time prescribed by the recognised industry body or the relevant authority on the second (2nd) business day preceding the relevant Reset Date. “Reset Date” means each date falling on the first day of each Reference Period after the First Call Date of the relevant series of the AT1 Sukuk Wakalah.

(f) Profit / coupon / rental payment frequency

: Subject to, inter alia, the clauses on ‘Limitation on Payment’ and ‘Distributable Reserves’, the AT1 Sukuk Wakalah confer a right to receive Periodic Distributions at the applicable Distribution Rate, payable on a date falling semi-annually or such other frequency to be determined prior to issuance in arrears (“Periodic Distribution Date”).

(g) Profit / coupon / rental payment basis

: In respect of any period ending, the actual number of days in the relevant period divided by 365.

(h) Issue Price : The AT1 Sukuk Wakalah shall be issued at par to the nominal value. The issue price of the AT1 Sukuk Wakalah shall be determined prior to each issuance of the AT1 Sukuk Wakalah, which shall be calculated in accordance with MyClear Rules and



26

Procedures (as defined below).

(i) Yield to Maturity : To be determined prior to the issue date of the AT1 Sukuk Wakalah.

(j) Limitation on Payment

: The Issuer may, at its sole discretion and without prior notice to the Sukukholders, taking into account its specific financial and solvency condition (including insufficient income to pay the Periodic Distributions), elect to cancel any payment of Periodic Distribution, in whole or in part, on a non-cumulative basis. Any Periodic Distribution that has been cancelled shall be no longer due and payable at any time by the Issuer and shall not accrue, whether in a winding up situation or otherwise. Cancellation of a Periodic Distribution shall not constitute a Dissolution Event and does not entitle the Sukukholders to petition for the insolvency or winding-up of the Issuer. If the Issuer does not make a Periodic Distribution payment on the relevant Periodic Distribution Date (or if the Issuer elects to make a payment of a portion, but not all, of such Periodic Distribution payment), such non-payment or part-payment shall serve as evidence of the Issuer’s exercise of its discretion to cancel such Periodic Distribution payment (or the portion of such Periodic Distribution payment not paid), and accordingly such Periodic Distribution payment (or the portion thereof not paid) shall not be due and payable. If practicable, the Issuer shall provide notice of any cancellation of Periodic Distribution (in whole or in part) to the Sukukholders on or prior to the relevant Periodic Distribution Date. If practicable, the Issuer shall endeavour to provide such notice at least five (5) business days prior to the relevant Periodic Distribution Date. Failure to provide such notice will not have any impact on the effectiveness of, or otherwise invalidate, any such cancellation of Periodic Distribution, or give the Sukukholders any rights as a result of such failure.

(k) No Claim by Sukukholders in respect of Periodic Distributions

: No Sukukholder shall have any claim whatsoever in respect of any Periodic Distribution or part thereof cancelled and/or not due or payable as described under the ‘Limitation on Payment’ clause. Accordingly, such cancelled Periodic Distribution or part thereof shall not accrue or accumulate for the benefit of the Sukukholders or entitle the Sukukholders to any claim in respect thereof against the Issuer.

(l) Distributable Reserves

: Any Periodic Distribution may only be paid out of Distributable Reserves. At any time, the amounts for the time being available to the Issuer for distribution as a dividend in compliance with section 131 of the Companies Act, 2016, as of the date of the Issuer’s latest audited financial statements provided that if the Issuer reasonably believes that the available amounts as of any Distribution Determination Date (as defined below) are lower than the available amounts as of the date of the Issuer’s latest audited financial statements and are insufficient to pay the Periodic Distributions and for payments of any dividends or other distributions in respect of Parity Obligations (as defined below) on the relevant Periodic Distribution Date, then two (2) directors of the Issuer shall provide a certificate, on or prior to such Distribution Determination Date, to the Sukukholders of the available amounts as of such Distribution Determination Date (which certificate of the two (2) directors will be binding in the



27

absent of manifest error) and the “Distributable Reserves” as of such Distribution Determination Date for the purposes of such Periodic Distribution will mean the available amounts as set forth in such certificate. “Distribution Determination Date” means, with respect to any Periodic Distribution Date, the day falling two (2) business days prior to that Periodic Distribution Date.

(m) Contingent Settlement

: If on any Periodic Distribution Date, a Capital Disqualification Event (as defined below) of a series of AT1 Sukuk Wakalah has occurred prior to or on such date and is continuing, the Issuer shall, in respect of such series, be obliged to pay the Periodic Distribution accrued and payable in respect of the distribution period which ended on that Periodic Distribution Date and the ‘Limitation on Payment’ clause and the ‘Distributable Reserves’ clause shall cease to apply immediately thereafter. For the avoidance of doubt, after the occurrence of a Capital Disqualification Event in respect of any series of AT1 Sukuk Wakalah, the relevant Periodic Distribution shall not be deferred by the Issuer. If there is no sufficient income to be distributed to the Sukukholders after the occurrence of a Capital Disqualification Event, it would trigger the occurrence of a Dissolution Event. Following such event, the Issuer shall purchase from the Sukuk Trustee (acting on behalf of the Sukukholders) the Sukukholders’ interest in the Shariah-compliant Business at the relevant Exercise Price by entering into the Sale Agreement and the Purchaser shall pay the outstanding Deferred Sale Price. The Exercise Price and the outstanding Deferred Sale Price shall be applied by the Wakeel towards investment into Issuer’s qualified Shariah-compliant financial assets based on Shariah principle of Ijarah which are backed by tangible asset(s) (“Ijarah Financing Assets”) and if applicable, the Commodity Murabahah Investment, provided that the Ijarah Financing Assets shall represent at least 33% of the new Wakalah Portfolio. The Ijarah Financing Assets may be substituted by executing an exchange agreement upon the following events (i) from time to time at the option of the Wakeel and (ii) material impact to the Ijarah Financing Assets including total loss event. For the avoidance of doubt, (i) the Wakeel is authorised to invest in the Ijarah Financing

Assets on behalf of the Sukukholders, pursuant to the terms and conditions of the Wakalah Agreement;

(ii) the proceeds arising from the Ijarah Financing Assets and if applicable the Deferred Sale Price under the Commodity Murabahah Investment shall be at least equivalent to Expected Periodic Distribution Amount calculated from the date of the Capital Disqualification Event and the nominal value of the AT1 Sukuk Wakalah; and

(iii) the Periodic Distribution shall be satisfied by the proceeds arising from the Ijarah Financing Assets.

“Capital Disqualification Event” means that the whole (and not just a part) of any series of AT1 Sukuk Wakalah no longer qualify



28

for inclusion as Additional Tier 1 capital of the Issuer for the purposes of BNM’s capital adequacy requirements under any applicable regulations and such disqualification has been confirmed by BNM in writing. For the avoidance of doubt, where a Capital Disqualification Event is a Tax Event or a Regulatory Event, the aforesaid clause on ‘Contingent Settlement’ applies if early redemption under the clauses on ‘Early redemption pursuant to the Regulatory Redemption’ or ‘Early redemption pursuant to the Tax Redemption’ does not take place.

(n) Distribution Stopper

: If, on any Periodic Distribution Date, payment of Periodic Distributions scheduled to be made on such date is not made by reason of the ‘Limitation on Payment’ clause, the Issuer shall not: (i) declare or pay, any dividends or other distributions in

respect of Junior Obligations (as defined below) (or contribute any moneys to a sinking fund for the payment of any dividends or other distributions in respect of any such Junior Obligations);

(ii) declare or pay, any dividends or other distributions in

respect of Parity Obligations the terms of which provide that the Issuer is not required to make payments of such dividends or other distributions in respect thereof (or contribute any moneys to a sinking fund for the payment of any dividends or other distributions in respect of any such Parity Obligations);

(iii) redeem, reduce, cancel, buy-back or acquire, any Junior

Obligations (or contribute any moneys to a sinking fund for the redemption, capital reduction, buy-back or acquisition of any such Junior Obligations); or

(iv) redeem, reduce, cancel, buy-back or acquire, any Parity

Obligations the terms of which provide that the Issuer is not required to redeem, reduce, cancel, buy-back or acquire such Parity Obligations (or contribute any moneys to a sinking fund for the redemption, capital reduction, buy-back or acquisition of any such Parity Obligations),

in each case, until (a) the next scheduled Periodic Distributions to be paid in respect of such number of consecutive Distribution Periods as shall be equal to or exceed twelve (12) calendar months have been paid in full (or an amount equivalent thereto has been paid, or irrevocably set aside in a separately designated trust account for payment to the Sukukholders); or (b) the Issuer is permitted to do so by an extraordinary resolution of the Sukukholders.

(o) Breach of CET1 Capital Ratio

: If the Common Equity Tier 1 capital ratio (“CET1”) of the Issuer (entity level) or the consolidated CET1 of Malayan Banking Berhad group of companies (“Maybank Group”) (whichever is applicable) falls below 5.125%, the Issuer shall, without the need for the consent of the Sukuk Trustee or the Sukukholders, write-off (in whole or in part) or convert the AT1 Sukuk Wakalah into ordinary shares (in whole or in part).



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The write-off or conversion into ordinary shares (collectively the “Loss Absorption Mechanism”) shall be determined by the Issuer prior to issuance of each series of the AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme. Details of the Loss Absorption Mechanism are set out below.

(p) Non-Viability Event

: If a Non-Viability Event occurs, the Issuer shall irrevocably,

without the need for the consent of the Sukuk Trustee or the Sukukholders, write-off (in whole or in part) or convert into ordinary shares the AT1 Sukuk Wakalah (in whole or in part), as the case maybe, if so required by BNM and/or Malaysia Deposit Insurance Corporation (“PIDM”) at their full discretion. The write-off or conversion into ordinary shares shall be determined by the Issuer prior to issuance of each series of the AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme. Such write-off and/or conversion into ordinary shares shall not constitute a Dissolution Event, nor would it trigger a cross default under any other outstanding AT1 Sukuk Wakalah. A Non-Viability Event shall be deemed to have occurred on the day on which the Issuer or Maybank Group (as the case may be) received the notification from the Relevant Malaysia Authority (as defined below) or on the day the public announcement is made, as the case may be. Details of the Loss Absorption Mechanism are set out below. Upon the occurrence of a Non-Viability Event, the Issuer is required to give notice to the Sukukholders (via the Sukuk Trustee) and the rating agency in accordance with the terms of the AT1 Sukuk Wakalah. “Non-Viability Event” means the earlier of: (i) BNM, jointly with PIDM, so long as the Issuer is a Member

Institution (as defined in the Malaysia Deposit Insurance Corporation Act 2011), or BNM, if the Issuer is no longer a Member Institution (“Relevant Malaysian Authority”) notifying the Issuer in writing that the Relevant Malaysian Authority is of the opinion that a write-off and conversion into ordinary shares is necessary, without which the Issuer or Maybank Group, as the case may be, would become non-viable; and

(ii) the Relevant Malaysian Authority publicly announces that

a decision has been made by BNM, PIDM or any other federal or state government in Malaysia, to provide a capital injection or equivalent support to the Issuer, without which the Issuer or Maybank Group, as the case may be, would have become non-viable.

(q) Loss absorption

mechanism : In the event that write-off is selected as the Loss Absorption

Mechanism (i) Write-off mechanism in the case of a breach of CET1

Capital Ratio



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Upon a breach of CET1 Capital Ratio, the aggregate amount of AT1 Sukuk Wakalah to be written-off must be at least the amount required to restore the Issuer’s or the consolidated Maybank Group’s CET1, whichever is applicable, to at least 5.75%. If this is not possible, then the full principal value of the AT1 Sukuk Wakalah will be written-off.

(ii) Write-off mechanism in the case of a Non-Viability

Event

Upon the occurrence of a Non-Viability Event, then as of the relevant write-off date:

(i) the write-off shall reduce:

(a) the claim of the AT1 Sukuk Wakalah in liquidation. The Sukukholders will be automatically deemed to irrevocably waive their right to receive, and no longer have any rights against the Issuer with respect to, any payment of the aggregate nominal value of the AT1 Sukuk Wakalah written-off;

(b) the amount paid when a call option is

exercised; and (c) Periodic Distribution of AT1 Sukuk Wakalah;

and

(ii) the write-off shall be permanent and the full or part (as the case may be) of the nominal value of the AT1 Sukuk Wakalah will automatically be written-off and the whole or part (as the case may be) of the AT1 Sukuk Wakalah will be cancelled.

Where the AT1 Sukuk Wakalah are included as capital at the consolidated level of Maybank Group, the AT1 Sukuk Wakalah may, at the option of BNM and PIDM, be written-off upon the occurrence of a trigger event in relation to the Maybank Group as described in BNM CAFIB.

Each of the Sukukholders hereby irrevocably waives its right to receive payment of the Deferred Sale Price equivalent to the nominal value of the AT1 Sukuk Wakalah which are written off pursuant to the above, and also irrevocably waives its right to any Periodic Distribution (including distributions accrued but unpaid up to the date of the occurrence of a breach of CET1 Capital Ratio or Non-Viability Event).



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In the case of write-off of full nominal value, the Sukukholders agree to waive their rights on the full Deferred Sale Price and the Wakeel on behalf of Sukukholders agrees to transfer the Sukukholders’ interest in the Shariah-compliant Business to the Issuer with no consideration. While in the case of write-off of partial nominal value, the Sukukholders agree to waive their rights on the Deferred Sale Price equivalent to the partial nominal value being written off and shall retain their interest in the Shariah compliant Business. After write-off of partial nominal value, the remaining portion of the series will remain as AT1 Sukuk Wakalah complying with BNM CAFIB in relation to requirements of an Additional Tier 1 capital instrument. Such write off shall not constitute a Dissolution Event, nor would it trigger a cross-default under any other outstanding AT1 Sukuk Wakalah. In the event that Conversion is selected as the Loss Absorption Mechanism (i) Conversion mechanism in the case of a breach of

CET1 Capital Ratio

Upon a breach of CET1 Capital Ratio, the nominal value of AT1 Sukuk Wakalah (in whole or in part) shall be converted to the ordinary shares in the Issuer at the relevant conversion price (to be determined prior to each issuance of series of the AT1 Sukuk Wakalah) such that the effect of such conversion, will restore the Issuer’s at the consolidated and entity level or the consolidated Maybank Group’s CET1 whichever is applicable, to be at least 5.75%.

(ii) Conversion mechanism in the case of a Non-Viability

Event

Upon the occurrence of a Non-Viability Event, the nominal value of AT1 Sukuk Wakalah (in whole or in part) shall be converted to the ordinary shares in the Issuer at the relevant conversion price (to be determined prior to each issuance of series of the AT1 Sukuk Wakalah).

For the avoidance of doubt, upon the aforesaid conversion of the nominal value of the AT1 Sukuk Wakalah (in whole or in part) to ordinary shares of the Issuer, the relevant Sukukholders hereby irrevocably waive their right to any Periodic Distribution (including distributions accrued but unpaid up to the date of the occurrence of a breach of CET1 Capital Ratio or Non-Viability Event). After conversion of partial nominal value, the remaining portion of the series will remain as AT1 Sukuk Wakalah complying with BNM CAFIB in relation to requirements of an Additional Tier 1 capital instrument. The maximum number of aggregate ordinary shares that the Sukukholders may receive from the conversion of any series of AT1 Sukuk Wakalah which carries the conversion feature under the AT1 Sukuk Wakalah Programme shall be based on: (a) the



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nominal value of such AT1 Sukuk Wakalah, divided by (b) the relevant conversion price of such AT1 Sukuk Wakalah. Additionally, in the event the Issuer is a principal subsidiary (as defined in the Bursa Malaysia Securities Berhad’s Main Market Listing Requirements) of Malayan Banking Berhad, the following provision shall also apply: The maximum number of aggregate ordinary shares that the Sukukholders may receive from the conversion of any series of AT1 Sukuk Wakalah which carries the conversion feature under the AT1 Sukuk Wakalah Programme, together with the aggregate number of shares capable of being converted from the other outstanding AT1 Sukuk Wakalah issued with conversion feature under this AT1 Sukuk Wakalah Programme and other instruments capable of being issued or converted into shares of the Issuer (“Maximum Shares”), shall not exceed 24.99% of the share capital base of the Issuer as at the issue date of the relevant series of the AT1 Sukuk Wakalah with conversion feature. In the event there is a reduction in the share capital base of the Issuer at any time after the issue date of the relevant series of the AT1 Sukuk Wakalah, resulting in a lower share capital base of the Issuer, the Maximum Shares shall be automatically adjusted so that the Maximum Shares shall not exceed 24.99% of the revised share capital base of the Issuer at any point in time. All prior approvals from the relevant regulators (if applicable) and shareholders and all other relevant authorisation for such contingent conversion shall have been obtained prior to an issuance of the AT1 Sukuk Wakalah in respect of which conversion is elected. Such conversion shall not constitute a Dissolution Event, nor would it trigger a cross-default under any other outstanding AT1 Sukuk Wakalah.

(r) Status of the AT1 Sukuk Wakalah

: The AT1 Sukuk Wakalah pursuant to the relevant Transaction Documents, constitute direct, unsecured and subordinated obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The rights and claims of the Sukukholders are subordinated in the manner described below. Subject to the laws of Malaysia, in the event of a Winding-Up (as defined below) of the Issuer, the rights of the Sukukholders to payment of nominal value and Periodic Distributions on the AT1 Sukuk Wakalah and any other obligations in respect of the AT1 Sukuk Wakalah are expressly subordinated and subject in right of payment to the prior payment in full of all claims of Senior Creditors (as defined below, which includes, but is not limited to, holders of Tier II Capital Instruments (as defined below)) and will rank senior to all Junior Obligations. The AT1 Sukuk Wakalah will rank pari passu with Parity Obligations. “Junior Obligation” means any ordinary share of the Issuer. “Parity Obligation” means the most junior class of preference shares and any security or other similar obligation issued, entered into or guaranteed by the Issuer that constitutes or could qualify as Additional Tier I capital of the Issuer on an



33

unconsolidated or consolidated basis, pursuant to the relevant requirements set out in BNM CAFIB, or otherwise ranks or is expressed to rank, by its terms or by operation of law, pari passu with the AT1 Sukuk Wakalah. “Senior Creditors” means (i) creditors of the Issuer (including holders of any security or other similar obligation issued, entered into or guaranteed by the Issuer that constitutes Tier II Capital Instruments) other than those whose claims rank or are expressed to rank, by its terms or by operation of law, pari passu or junior to the claims of the Sukukholders; and (ii) any class of the Issuer’s share capital (excluding the most junior class of preference shares and ordinary shares). “Tier II Capital Instruments” means any Tier II capital instrument issued by the Issuer, pursuant to the relevant requirements set out in BNM CAFIB. “Winding-Up” means a final and effective order or resolution for the winding up, liquidation, dissolution or similar proceedings in respect of the Issuer.

(s) No Set-off : No Sukukholder may exercise, claim or plead any right of set-off, deduction, withholding or retention in respect of any amount owed to it by the Issuer in respect of, or arising under or in connection with, the AT1 Sukuk Wakalah, and each Sukukholder shall, by virtue of his holding of any AT1 Sukuk Wakalah, be deemed to have waived all such rights of set-off, deduction, withholding or retention against the Issuer in relation to the AT1 Sukuk Wakalah to the fullest extent permitted by law. If at any time any Sukukholder receives payment or benefit of any sum in respect of the AT1 Sukuk Wakalah (including any benefit received pursuant to any such set-off, deduction, withholding or retention) other than in accordance with the terms of the AT1 Sukuk Wakalah, the payment of such sum or receipt of such benefit shall, to the fullest extent permitted by law, be deemed void for all purposes and such Sukukholder, by virtue of his holding of any AT1 Sukuk Wakalah, shall, agree as a separate and independent obligation to immediately pay an amount equal to the amount of such sum or benefit so received to the Issuer (or, in the event of its winding-up or administration, the liquidator or, as appropriate, administrator of the Issuer) and, until such time as payment is made, shall hold such amount in trust for the Issuer (or the liquidator or, as appropriate, administrator of the Issuer) and accordingly any payment of such sum or receipt of such benefit shall be deemed not to have discharged any of the obligations under the AT1 Sukuk Wakalah.

(t) Listing status and types of listing, where applicable

: The AT1 Sukuk Wakalah may be listed on Bursa Malaysia Securities Berhad under an Exempt Regime pursuant to Chapter 4B of Bursa Malaysia Securities Berhad’s Main Market Listing Requirements.

(u) Form and Denomination

: Issuance of the AT1 Sukuk Wakalah shall be in accordance with: (i) the “Participation and Operation Rules for Payments and

Securities Services” issued by MyClear (now known as PayNet) (“MyClear Rules”);



34

(ii) the Operational Procedures for Securities Services issued by MyClear (now known as PayNet) (“MyClear Procedures”),

or their replacement thereof (collectively “MyClear Rules and MyClear Procedures”) applicable from time to time; and

(iii) any other procedures/guidelines/rules issued by the

relevant authorities from time to time (as the same may be amended and/or substituted from time to time).

Each series of the AT1 Sukuk Wakalah shall be represented by a global certificate to be deposited with BNM, and is exchangeable for definitive bearer certificates only in limited circumstances. The denomination of the AT1 Sukuk Wakalah shall be RM1,000 or in multiples of RM1,000 at the time of issuance.

(v) Transaction Documents

: Transaction Documents shall include the following documents: (a) the AT1 Sukuk Wakalah (in the form of global certificates

and/or definitive certificates); (b) the Trust Deed; (c) the Programme Agreement; (d) the Securities Lodgement Form; (e) the relevant Islamic documents; and (f) any other relevant documentation which may be advised

by the solicitors.

(w) Taxation : All payments in respect of the AT1 Sukuk Wakalah and the Transaction Documents by the Issuer shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of any authority having power to tax, unless such withholding or deduction is required by law in which case the Issuer shall pay additional amounts so that the full amount which otherwise would have been due and payable under the AT1 Sukuk Wakalah is received by parties entitled thereto.

(x) Trustee’s Reimbursement Account

: The Sukuk Trustee shall open and maintain, throughout the tenure of the AT1 Sukuk Wakalah Programme, an Islamic account to be named the “Trustee’s Reimbursement Account for Debenture holders’ Actions” (the “Account”) with an Islamic bank which is acceptable to the Issuer with a sum of Ringgit Malaysia Thirty Thousand (RM30,000.00). The Account shall be operated solely by the Sukuk Trustee and the money shall be used strictly by the Sukuk Trustee in carrying out its duties in relation to the declaration of a Dissolution Event in the manner as provided in the Trust Deed. The moneys in the Account may be invested in Islamic deposit or account or instrument or securities in the manner as provided in the Trust Deed, with profit from the investment to be accrue to the Issuer. The moneys in the Account shall be returned to the Issuer upon full redemption of the AT1 Sukuk Wakalah in the event there is no declaration of Dissolution Event.



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(y) Identified assets/Trust assets

: The Wakalah Portfolio which comprise the Shariah-compliant Business and the Commodity Murabahah Investment. The “Commodities” to be transacted under the Commodity Murabahah Investment shall be Shariah-compliant commodities, which shall include but not limited to crude palm oil or such other acceptable commodities (excluding ribawi items in the category of medium of exchange such as currency, gold and silver) which are provided through the commodity trading platform, Bursa Suq Al-Sila’ or other trading platforms to be approved by the Shariah Adviser. If applicable, pursuant to the ‘Contingent Settlement’ clause, the Ijarah Financing Assets (as defined herein) would be part of the identified assets and form part of the Wakalah Portfolio. Returns from the Ijarah Financing Assets shall then form part of the Income and any arrangements with respect to the Shariah-compliant Business (including Purchase Undertaking and Sale Undertaking) shall then apply to the Ijarah Financing Assets. The trust assets shall comprise (i) the AT1 Sukuk Wakalah proceeds, (ii) the Wakalah Portfolio and (iii) the rights, title, interest, entitlement and benefit in, to and under the Transaction Documents.

(z) Purchase and selling price/ rental (where applicable)

: In respect of the Commodity Murabahah Investment, the Commodity Purchase Price and the Deferred Sale Price shall be determined prior to each issuance of the AT1 Sukuk Wakalah.

(aa) Dissolution Distribution Amount

: “Dissolution Distribution Amount” means:

(a) upon the occurrence of a Dissolution Event, the aggregate of the nominal value of the relevant AT1 Sukuk Wakalah together with Periodic Distributions accrued and not cancelled but unpaid (if any) to (but excluding) the date of Dissolution Event; and;

(b) upon early redemption (either pursuant to the exercise of a Call Option, Regulatory Redemption or Tax Redemption), the aggregate of the nominal value of the relevant AT1 Sukuk Wakalah together with Periodic Distributions accrued and not cancelled but unpaid (if any) to (but excluding) the redemption date.

(bb) Jurisdiction : The Issuer shall unconditionally and irrevocably submit to the

exclusive jurisdiction of the courts of Malaysia.

(cc) Other Conditions : The AT1 Sukuk Wakalah shall at all times be governed by the guidelines issued and to be issued from time to time by the SC, BNM and PayNet over matters pertaining to the AT1 Sukuk Wakalah and the AT1 Sukuk Wakalah Programme.

(dd) Disclosure of the

following:

(i) If the issuer or its board members have been convicted or

None.



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charged with any offence under any security laws, corporation laws or other laws involving fraud or dishonesty in a court of law, or if any action has been initiated against the issuer or its board members for breaches of the same, for the past 10 years prior to the lodgement/ since incorporation, for issuer incorporated less than 10 years; and

(ii) If the issuer has been subjected to any action by the stock exchange for any breach of the listing requirements or rules issued by the stock exchange, for the past five years prior to lodgement

None.

(ee) Any other material

information

: None.




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SECTION 3.0 SELLING RESTRICTIONS

The AT1 Sukuk Wakalah are tradable and transferable subject to the Selling Restrictions described below.

Selling Restrictions at issuance

The AT1 Sukuk Wakalah may only be issued, offered, sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to subscribe for or purchase the AT1 Sukuk Wakalah may be made and to whom the AT1 Sukuk Wakalah are issued would fall within the relevant category of persons specified in:

• Part 1 of Schedule 6 (or Section 229(1)(b)) of the CMSA; and

• Part 1 of Schedule 7 (or Section 230(1)(b)) of the CMSA; read together with

• Schedule 9 (or Section 257(3)) of the CMSA. Selling Restrictions after issuance

The AT1 Sukuk Wakalah may only be offered, sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to purchase the AT1 Sukuk Wakalah may be made and to whom the AT1 Sukuk Wakalah are issued would fall within the relevant category of persons specified in:

• Part 1 of Schedule 6 (or Section 229(1)(b)) of the CMSA; read together with

• Schedule 9 (or Section 257(3)) of the CMSA.




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SECTION 4.0 INVESTMENT CONSIDERATIONS

Investors should carefully consider, among other things, the risks described below, as well as the other information contained in this Information Memorandum, before making an investment decision. Any of the following risks could materially adversely affect the business, financial condition or results of operations of the Issuer and, as a result, investors could lose all or part of their investment. The risks below are not the only risks the Issuer faces. Additional risks and uncertainties not currently known to the Issuer, or that is currently deems to be immaterial may also materially adversely affect the business, financial condition or results of operations of the Issuer. Words and expressions defined elsewhere in this Information Memorandum shall have the same meanings in this section. The Issuer believes that the factors described below represent the principal risks inherent in investing in the AT1 Sukuk Wakalah to be issued under the AT1 Sukuk Wakalah Programme, but the Issuer’s inability to pay any amounts on or in connection with any AT1 Sukuk Wakalah may occur for other reasons which may not be considered significant risks by the Issuer based on information currently available to it or which it may not currently be able to anticipate, and the Issuer does not represent that the statements below regarding the risks of holding any AT1 Sukuk Wakalah are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this Information Memorandum and reach their own views prior to making any investment decision. In making an investment decision, each investor must rely on its own examination of the Issuer and the terms of the offering of the AT1 Sukuk Wakalah. 4.1 Considerations relating to the Business

In the course of its business activities, the Bank is exposed to various risks, amongst the most significant include credit risk, operational risk, liquidity risk and rate of return risk. While the Bank believes that it has implemented the appropriate policies, systems and processes to control and mitigate these risks, investors should note that any failure to adequately control these risks could be greater than anticipated which could result in adverse effects on the Bank’s financial condition, results of operations, prospects and reputation.

4.1.1 Credit Risks

Credit risks arising from adverse changes in the credit quality and recoverability of financing, advances and amounts due from counterparties are inherent in a wide range of Maybank Islamic’s businesses. Credit risks could arise from a deterioration in the credit quality of specific counterparties of Maybank Islamic, from a general deterioration in local or global economic conditions or from systemic risks within the financial systems, all of which could affect the recoverability and value of its assets and require an increase in Maybank Islamic’s provisions for the impairment of its assets and other credit exposures. See “Risk Management” in Section 9.0 for a description of Maybank Islamic’s exposure to credit risks.

4.1.2 Asset Quality Management

Asset quality is one of the key drivers of a financial institution’s performance. Maybank Islamic adopts prudent credit risk management policies to manage its asset quality. Maybank Islamic recognises that credit policies need to be responsive to the changing environment and diverse market conditions. Additionally, the establishment and application of financing rules, policies and guidelines must be consistently applied throughout the Maybank Group. Maybank Islamic appreciates that asset yield has to reflect the cost of risk in order to generate an optimal return on capital.

Although Maybank Islamic believes that it has adopted a sound asset quality management system and intends to maintain it, there is no assurance that the system will remain effective or adequate in the future. A significant deterioration of asset quality or material non-compliance with its credit risk management policies or asset quality management system may adversely affect the business, financial condition and results of operations of Maybank Islamic.



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4.1.3 Classification and Provisioning Policy for Impaired Financing

The Issuer reviews its individually significant financing and advances at each statement of financial position date to assess whether there is any objective evidence that a financing or group of financing is impaired. The financing or group of financing is deemed to be impaired 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 financing (an incurred “loss event”) and that the loss event has an impact on future estimated cash flows of the financing or group of financing that can be reliably estimated. The carrying amount of the financing is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement.

Financing and advances that have been assessed individually and found not to be impaired and all individually insignificant financing and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the financing portfolio (such as credit quality, levels of arrears, credit utilisation, financing to collateral ratios etc.), concentrations of risks and relevant economic data. While Maybank Islamic believes that its financing portfolio is adequately provided, no assurance can be given that the level of allowances would prove to be adequately provided or that Maybank Islamic would not have to make significant additional allowances for possible financing losses in the future.

4.1.4 Liquidity Risks

Liquidity risks could arise from the inability of Maybank Islamic to anticipate and provide for unforeseen decreases or changes in funding sources which could have adverse consequences on Maybank Islamic’s ability to meet its obligations when they fall due.

Maybank Islamic has a diversified liability structure to meet its funding requirements. The primary sources of funding include customer deposits, interbank deposits, placement of funds from parent bank and securitisation of its financing to Cagamas. The Bank has a stable customer deposit base as its main source of long term funding. The growth in deposits is attained through Maybank Islamic’s eight (8) dedicated branches and its co-located operations at more than 350 Maybank branches nationwide. Additionally, the Bank also has access to interbank lines established with various counterparty banks.

Maybank Islamic continuously explores different avenues to diversify its funding sources through a variety of instruments, including negotiable certificate of deposits and Islamic securities issuance. Adverse and continued constraints in the supply of liquidity may adversely affect the cost of funding for the business and extreme liquidity constraints may limit growth possibilities. An inability to access funds or to access the markets from which it raises funds may create stress on Maybank Islamic’s ability to finance its operations adequately. A dislocated credit environment compounds the risk that funds will not be available at favourable rates. In addition, a continued liquidity crisis in other affected economies may create difficulties for Maybank Islamic’s customers to refinance or repay its financing to Maybank Islamic, resulting in deterioration of the credit quality of Maybank Islamic’s financing portfolio and potentially increase Maybank Islamic’s impaired financing levels. Moreover, if there is a downturn in confidence in the Malaysian banking sector as a result of a liquidity crisis, the depositors may withdraw term deposits prior to maturity which will negatively impact Maybank Islamic’s funding base and liquidity. There can be no assurance that if unexpected withdrawals of



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deposits by Maybank Islamic’s customers result in liquidity gaps, Maybank Islamic will be able to cover such gaps. If Maybank Islamic perceives a likelihood of impending deterioration in economic conditions, it may decrease its risk tolerance in its financing activities, which could have the effect of reducing its profit margin and financing income and ultimately adversely affect the business, financial condition and results of operation of Maybank Islamic. Although the Bank has sound frameworks and policies as well as hedging and exit strategies to proactively manage market disruption should the situation materialise and although it is the Bank’s policy to maintain prudent liquidity risk management, a diversified and stable source of cheaper funding and to minimise undue reliance on any particular funding source, there is no assurance that there will not be a liquidity crisis affecting the Bank, and the failure to maintain such adequate sources of funding may adversely affect the business, financial condition and results of operations of the Bank.

4.1.5 Rate of Return Risks

The Bank’s exposure to rate of return risk arises from its balance sheet positions that are indexed against certain profit rates, such as financing, securities, traditional and inter-bank deposits. Fluctuations in rates of return will affect Maybank Islamic’s earnings stream and level of income through changes in net fund-based income. Adverse impact on net fund-based income resulting from the movements of market rates can be caused by differences in the timing of accrual changes (repricing risk), changing rate and yield curve relationships (basis and yield curve risks) and option risk embedded in certain products. Measures such as rate of return risk limits have been established to control and manage the potential loss of income from adverse rate of return movements. Strategies and mitigating actions are regularly reviewed and executed interchangeably to improve its operation under various rate of return scenarios. Strategies adopted include adjusting the maturity tenor or repricing tenor of assets and liabilities, re-strategising new business growth, securing long term fixed rate funding and entering into Islamic derivative contracts.

Analysis of this risk is complicated by having to make assumptions on optionality of certain products such as prepayment of mortgage financing and hire purchase financing, and effective duration of liabilities, which are contractually payable on demand such as current accounts and saving accounts. The impact on earnings is measured against the approved earnings at risk limit where new business and hedging strategies will be formulated and implemented to manage the rate of return risk exposure through approved frameworks and policies, which benchmark against international best practice, i.e., Bank for International Settlement standards such as Basel II and Basel III.

Although Maybank Islamic believes that it has adopted sound rate of return management strategies and intends to maintain it, no assurance can be given that such strategies will remain effective or adequate in the future.

4.1.6 Operational Risk

Operational risks and losses can result from fraud, error by employees, failure to document transactions properly or to obtain proper internal authorisation, failure to comply with regulatory requirements and conduct of business rules, the failure of internal systems, equipment and external systems (e.g., those of Maybank Islamic’s and Maybank Group’s counterparties or vendors) and occurrence of natural disasters. Although Maybank Islamic and Maybank Group have implemented risk controls and loss mitigation strategies and substantial resources are devoted to developing efficient procedures, it is not possible to entirely eliminate all of the operational risks. In addition,



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Maybank Islamic seeks to protect its computer systems and network infrastructure from physical break-ins as well as security breaches and other potential disruptive problems possible by Maybank Islamic’s increased use of the internet channel. These types of breaches and disruptions could affect the security of the information stored, and those transmitted through these computer systems and network infrastructure. Maybank Islamic and Maybank Group employ various security measures which among others include firewall, intrusion prevention system, data leakage prevention, password encryption, and others, designed to minimise the risk of security breaches. However, these measures cannot entirely prevent the potential security threat which is constantly evolving. A significant fraud, system failure, calamity or failure in security measures could have a material adverse effect on Maybank Islamic’s business, financial condition, results of operations and prospects. In addition, Maybank Islamic’s reputation could be adversely affected by significant frauds committed by employees, customers or other third parties.

4.1.7 Deterioration in collateral values or inability to realise collateral value may necessitate an increase in the Bank’s provisions

A significant portion of the Bank’s financing is secured by collateral such as real estate and securities, the values of which may decline with a downturn in global economic conditions and/or outlook. Any downward adjustment in collateral values may lead to a portion of the Bank’s financing exceeding the value of the underlying collateral. Such downward adjustment which will impact the future cash flow recovery and combined with a deterioration in the general credit worthiness of customers, may result in an increase in the Bank’s financing loss provisions and potentially reducing its financing recoveries from foreclosures of collateral, which could have an adverse effect on the business, financial condition and results of operations of the Bank.

4.1.8 The Bank’s business is inherently subject to the risk of market fluctuations

The Bank’s business is inherently subject to risks in financial markets and in the wider economy, including changes in, and increased volatility of, exchange rates, interest rates, inflation rates, credit spreads, commodity, equity, bond and property prices and the risk that its customers act in a manner which is inconsistent with business, pricing and hedging assumptions. In particular, as a result of the Bank’s expansion into foreign markets, the Bank may become increasingly exposed to changes in, and increased volatility of, foreign currency exchange rates.

Market movements may have an impact on the Bank in a number of key areas. For example, changes in profit rate levels, yield curves and spreads affect the profit rate margin realised between asset yields and financing costs. Historically, there have been periods of high and volatile interbank financing margins over official rates (to the extent banks have been willing to provide financing at all), which have exacerbated such risks. Competitive pressures on fixed profit rates or product terms in existing financings and deposits sometimes restrict the Bank in its ability to change profit rates applying to customers in response to changes in official and wholesale market rates.

Any failure by the Bank to implement, or consistently follow, its risk management systems may adversely affect its financial condition and results of operations, and there can be no assurance that the Bank’s risk management systems will be effective. In addition, the Bank’s risk management systems may not be fully effective in mitigating risk exposure in all market environments or against all types of risks, including risks that are unidentified or unanticipated. Some methods of managing risk are based upon observed historical market behaviour. As a result, these methods may not predict future risk exposures, which could be significantly greater than the historical measures indicated.



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4.1.9 The Issuer may be required to raise additional capital and liquidity in the future in order to meet its capital adequacy and liquidity requirements or in order to comply with any new regulatory framework

On 17 December 2009, the Basel Committee on Banking Supervision (the “BCBS”) proposed a number of fundamental reforms to the regulatory capital framework. On 16 December 2010, the BCBS released two documents entitled “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (revised in June 2011)” and “Basel III: International Framework for Liquidity Risk Management, Standards and Monitoring” and on 13 January 2011 issued a press release entitled “Basel Committee issues final elements of the reforms to raise the quality of regulatory capital” (collectively “Basel III”). On 4 August 2017, BNM issued its regulatory capital adequacy framework entitled “Capital Adequacy Framework for Islamic Banks (Capital Components)” (“CAFIB”) implementing the Basel III reforms. The policy document comes into effect on 3 August 2017 and supersedes the Capital Adequacy Framework for Islamic Banks (Capital Components) issued on 13 October 2015. All Islamic financial institution shall maintain at all times the following minimum capital adequacy ratios: (i) a common equity Tier 1 (“CET1”) capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6.0%; and (iii) a total capital ratio of 8.0%,

which would result in the Issuer requiring to maintain the minimum quantity and quality of capital which it is obliged to maintain. In addition to complying with the minimum capital adequacy ratio requirements, banking institutions, including Maybank Islamic, will be required to maintain a capital conservation buffer above the minimum capital adequacy ratio requirements. The capital conservation buffer is to enable the banking system to withstand future periods of stress and begins at 0.625% in 2016, increasing by an additional 0.625% in each subsequent year, to reach 2.5% in 2019. The CAFIB also sets out the computation of countercyclical capital buffer, in line with the requirements set out by BCBS. Under the CAFIB, banking institutions, including Maybank Islamic, are required to maintain a countercyclical capital buffer ranging from 0.0% and 2.5% above the minimum CET1 capital ratio, Tier 1 capital ratio and total capital ratio.

BNM may also impose additional loss absorbency requirements for systemically important banking institutions and other capital buffers as deemed appropriate having regard to the specific risk profile of the banking institution. The additional loss absorbency requirements for systemically important banking institutions will be assessed at a later stage by BNM on the need for large banking institutions to operate at higher levels of capital. As at the LPD, BNM has not designated Maybank Islamic as a systemically important banking institution nor specified the level of additional loss absorbency required. BNM had on 25 August 2016 issued its Liquidity Coverage Ratio (“LCR”) framework as per Basel III requirements, which calls on banking institutions to maintain sufficient stock of high quality liquid assets to buffer an acute liquidity stress scenario over a 30-day period. In a build-up to a LCR of 100% by 1 January 2019, the minimum LCR requirements that banking institutions have to meet along the way are set out in the table below:



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With effect from 1 June 2015 1 January 2016 1 January 2017 1 January 2018 1 January 2019

and thereafter

Minimum LCR 60% 70% 80% 90% 100%

The capital requirements and the LCR would also be supplemented by a leverage ratio (“LR”) and a net stable funding ratio (“NSFR”).

BNM has issued the exposure draft for LR and NSFR on 16 Aug 2017 and 27 September 2017 respectively as part of the implementation of Basel III in Malaysia. Implementation dates for LR and NSFR are 1 Jan 2018 and at no earlier than 1 Jan 2019 respectively. The Issuer's capital base and capital adequacy ratios and when applicable, required capital buffers, may deteriorate in the future if its results of operations or financial condition deteriorate for any reason, including as a result of any deterioration in the asset quality of its financing, or if the Issuer is not able to deploy its funding into suitably low-risk assets. If any of the Issuer's capital adequacy ratio and when applicable, required capital buffers, deteriorates, it may be required to obtain additional Tier 1 or Tier 2 capital in order to remain in compliance with the applicable capital adequacy guidelines. However, the Issuer may not be able to obtain additional capital on favourable terms, or at all.

There is no assurance that the Issuer will not face increased pressure on its capital and liquidity requirements in the future to comply with Basel III standards which may have an adverse effect on the Bank's business, financial condition, results of operations and prospects. To the extent a bank fails to maintain such a ratio, BNM may impose penalties on such a bank ranging from a fine to revocation of its banking licence. Furthermore, there can be no assurance that BCBS will not amend the package of reforms described above or that BNM will not amend the CAFIB, LCR, NSFR and LR framework in a manner which imposes additional capital and liquidity requirements on, or otherwise affects the capital adequacy and liquidity requirements relating to Malaysian banks. The approach and local implementation of Basel III will depend on BNM’s response which may potentially impact Maybank Islamic in various ways depending on the composition of its qualifying capital, risk weighted assets, assets and liabilities. Although Maybank Islamic has always maintained a strong capital position and healthy liquidity positions that consistently ensures an optimal capital and balance sheet structure to meet the requirements of various stakeholders, there can be no assurance that Maybank Islamic will not face increased pressure on its capital and liquidity in the future to comply with Basel III standards and the CAFIB, LCR, NSFR and LR framework which may have an adverse effect on Maybank Islamic’s business, financial condition, results of operations and prospects.

4.1.10 Ownership Profile

Maybank Islamic is a wholly owned subsidiary of Maybank, which holds 281,556,000 of ordinary shares of Maybank Islamic as at the LPD.

4.1.11 Management

Maybank Islamic is committed towards business integrity and professionalism and firmly supports effective corporate governance and development of best practices. Maybank Islamic’s board through various committees manages the business and affairs of Maybank Islamic in a manner consistent with the objectives of good corporate governance and accountability towards the enhancement of shareholder value.



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As Maybank Islamic is an important component of Maybank Group, and its business and operating model leverages on infrastructure and resources of its parent bank, Maybank Islamic continues to receive support and management oversight at the Group level and its Chief Executive Officer is represented at the various Group’s executive and management committees.

Maybank Islamic's senior management team consists of members with a broad range of experiences. The experienced senior management team allows effective planning and execution of Maybank Islamic's long term vision.

4.2 Considerations relating to the Malaysian economy

As at the LPD, substantially all of the Bank’s net operating income is derived from activities in Malaysia. Any factors which could materially or adversely affect the macroeconomic conditions of Malaysia could have a similar effect on the Bank’s business, financial condition, prospects or results of operations.

4.2.1 Developments in Asia may negatively impact the Bank and affect the Issuer’s

ability to make payments due under the AT1 Sukuk Wakalah

In mid-1997, following the substantial depreciation of the Thai Baht, many countries in Asia, including Malaysia, experienced a significant economic downturn and related economic, financial and social difficulties. As a result of the sharp decline in a number of the region’s currencies, many Asian governments and companies had difficulty in servicing foreign currency denominated debt and many corporate customers defaulted on their debt repayments. As the economic crisis spread across the region, governments raised interest rates to defend weakening currencies, which adversely impacted domestic economic growth. In addition, liquidity was substantially reduced as foreign investors withdrew or reduced investment in the region and banks in the region restricted additional lending activity. The currency depreciation, as well as higher interest rates and other factors, had materially and adversely affected the economies of many countries in Asia. Similar adverse economic developments in Asia could recur in future and could have an adverse effect on Malaysia and its economy and consequently on Maybank Islamic’s business, financial condition and results of operation. In addition, other adverse change in trends or a general economic slowdown as a result of changes in sovereign’s and the Issuer’s credit ratings, labour costs, inflation, interest rates, taxation or other political or economic developments in Malaysia could adversely affect the business, financial condition and results of operation of the Issuer to make the payments due under the AT1 Sukuk Wakalah.

4.2.2 Inflationary pressures in Malaysia and potential impact upon the Malaysian

economy

Inflation, as measured by the annual change in the CPI, moderated to 4.0% in the second quarter of 2017 (1Q 2017: 4.3%) due mainly to lower transport inflation of 13.4% (1Q 2017: 16.2%). During the quarter, prices of RON95 petrol averaged RM2.07 per litre, lower than the average of RM2.23 per litre in 1Q 2017. The lower domestic fuel prices were due mainly to the lower global oil prices amid a stronger ringgit exchange rate during the quarter. However, inflation in the food and non-alcoholic beverages category was slightly higher at 4.3% (1Q 2017: 4.2%) reflecting the stronger demand during the festive season.

Inflation during the quarter was not pervasive. The percentage of items in the CPI basket registering inflation of more than 2% remained unchanged at 33%. However, the sustained increase in the prices of food away from home and rental led to the slightly higher core inflation of 2.5% in second quarter of 2017 (1Q 2017: 2.4%).



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4.2.3 Global or regional developments may have a material adverse impact on the

Bank

The economic, market and political conditions in other countries, particularly emerging market conditions in Asia and its major trading partners, could have an influence on the Malaysian economy. Any widespread global financial instability or a significant loss of investor confidence in other emerging market economies may adversely affect the Malaysian economy through the contagion effect, which could materially and adversely affect Maybank Islamic’s business, financial condition, results of operations, prospects or reputation. Examples of such external factors or conditions that are outside the Bank’s control include, but are not limited to the following:

• entry of new competitors into the Malaysian banking market from foreign countries and other actions by new and existing local and foreign competitors;

• general economic, political and social conditions in Malaysia and key foreign markets;

• consumer spending patterns in Malaysia and key foreign markets;

• currency and interest rate fluctuations;

• inflationary pressure in emerging market economies;

• international events and circumstance such as wars, terrorist attacks, natural disasters and political instability; and

• changes in legal regimes and governmental regulations, such as licensing and approvals, taxation, duties and tariffs, in Malaysia and key foreign markets.

Despite of that, global economic activity is projected to expand at a faster pace in 2017, supported by an expansion in domestic demand in the advanced and emerging market economies and expectations of a recovery in trade activity in the emerging regions. The outlook would be supported by expansionary fiscal plans in selected major economies and recovery in commodity prices. Despite these positive signs, the overall outlook for the global economy still has signs of fragility given its high susceptibility to adverse shocks. Domestic demand in the advanced and emerging market economies is expected to be boosted by fiscal measures in selected major economies, namely the US, the UK and PR China. In the US, expectations are for the new administration to lower taxation rates and increase infrastructure spending which may provide impetus to global trade. The UK government has also unveiled a plan that includes higher expenditure on infrastructure and housing as well as increased funding for innovation, research and development. These pro growth policy measures could spur renewed vigour in demand from the advanced economies, consequently lending support to global demand. Furthermore, PR China’s continued efforts at rebalancing its growth are likely to be accompanied by policy fine-tuning to achieve a gradual moderation in its growth. In addition, the recovery in the prices of key commodities such as coal, steel and crude oil will benefit commodity exporters. In the coal and steel markets, PR China has pledged to reduce excess capacity as part of its ongoing structural reforms. Similarly, members of the Organisation of Petroleum Exporting Countries (OPEC) have lowered their output of crude oil. This is expected to contribute towards a gradual drawdown of inventories and reduce the oversupply of global crude oil.



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While positive spillover of expansionary policies by major economies poses an upside risk, the presence of new and prevailing downside risks continues to dominate the global economy. Firstly, the potential retreat of globalisation in the advanced economies and the potential introduction of protectionist trade policies in the US could hamper the recovery in global trade, which is crucial for maintaining a dynamic global economic environment. Secondly, the uncertainty over the length and outcome of the UK and EU negotiations may negatively affect business sentiments, thus impacting international trade activity and investments. Thirdly, monetary policy divergence between the US and the other major economies will intensify in 2017. This anticipation will lead to changes in investor behaviour. In particular, it could result in over adjustments in the currency markets and destabilised capital flows. While interest rates are not expected to rise significantly, governments and corporations with highly leveraged balance sheets may find their debt servicing capacity being stretched, and this could have consequential implications for financial stability. Finally, geopolitical risks in relation to domestic conflicts, terrorism attacks and territorial disputes remain, which could affect sentiments in the global financial markets and dampen economic activity.

4.2.4 Developments in the social, political, regulatory and economic environment in Malaysia may have a material adverse impact on the Bank

The Bank’s business, prospects, financial condition and results of operation may be adversely affected by social, political, regulatory and economic developments in Malaysia. Such political and economic uncertainties include, but are not limited to, the risks of war, terrorism, nationalism, or nullification of contract, changes in interest rates, imposition of capital controls and methods of taxation. Negative developments in Malaysia’s socio-political environment may adversely affect the business, financial condition, results of operations and prospects of the Issuer. The Malaysian economy recorded a stronger growth of 5.8% in the second quarter of 2017 (1Q 2017: 5.6%), driven by private sector spending. On the external front, growth was further supported by the robust expansion in real exports of goods and services (9.6%; 1Q 2017: 9.8%) following strong demand for manufactured and commodity products. Although the overall Malaysia macroeconomic fundamentals are satisfactory, and underpinned by the stable investment-grade sovereign credit ratings assigned by the international rating agencies, there can be no assurance that this will continue to prevail in the future.

4.2.5 Impact of re-imposition of capital controls

As part of the package of policy responses to the 1997 economic crisis in Southeast Asia, the Government introduced, on 1 September 1998, selective capital control measures. The Government subsequently and progressively liberalised the selective capital control measures, beginning 1999 to allow foreign investors to repatriate principal capital and profits, subject to an exit levy based on a percentage of profits repatriated. On 1 February 2001, the Government revised the levy to apply only to profits made from portfolio investments retained in Malaysia for less than one year. On 2 May 2001, the Government lifted all such controls in respect of the repatriation of foreign portfolio funds (largely consisting of proceeds from the sale of stocks listed on Bursa Malaysia Securities Berhad).

There can be no assurance that the Government will not re-impose these or other forms of capital controls in the future. If the Government re-imposes or introduces foreign exchange controls, investors may not be able to repatriate the proceeds of the sale of the AT1 Sukuk Wakalah and profit and principal paid on the AT1 Sukuk Wakalah from Malaysia for a specified period of time or may only be able to do so after paying a tax or levy.



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4.3 Considerations relating to the Malaysian Banking Industry

4.3.1 Regulatory Environment

The Issuer is regulated by BNM. The Bank is also subject to relevant banking, securities and other laws of Malaysia. BNM has extensive powers to regulate the Malaysian Islamic banking industry under the IFSA. This includes the power to limit the rates of return charged by banks on certain types of financing, establish caps on lending to certain sectors of the Malaysian economy and establish priority lending guidelines in furtherance of certain social and economic objectives. BNM also has broad investigative and enforcement powers. Accordingly, potential investors should be aware that BNM could, in the future, set rates of return at levels or restrict credit in a way which may be adverse to the operations, financial condition or asset quality of banks and financial institutions in Malaysia, including the Bank, and may otherwise significantly restrict the activities of the Bank and Malaysian banks and financial institutions generally.

4.3.2 MFRS 9 Financial Instruments

The Bank is required to prepare its financial statements in accordance with the Malaysian Financial Reporting Standards (“MFRS”), the International Financial Reporting Standards (“IFRS”) and the requirements of the Companies Act, 2016 in Malaysia.

The International Accounting Standards Board (“IASB”) issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but restatement of comparative information is not compulsory. MFRS 9 is issued by the MASB in respect of its application in Malaysia. It is equivalent to IFRS 9 as issued by IASB, including the effective and issuance dates. (i) The application of MFRS 9 will affect the classification and measurement

of our financial assets and may lead to an increase in our allowance for impaired financing

The major differences between IFRS 9 and IAS 39 are: firstly, in respect of the classification and measurement of financial assets, and secondly, in respect of impairment. Specifically, IFRS 9 introduces a new “expected credit loss” impairment model that replaces the “incurred loss” model under lAS 39. Under the “expected credit loss” model, a loss event will no longer need to occur before an impairment allowance is recognised. The “expected credit loss” model, as compared to the “incurred loss” model in lAS 39, uses more forward-looking information instead of an objective evidence of impairment as a precondition for recognising credit losses. In particular, calculation of impairment of financial instruments on an “expected credit loss” basis will result in an earlier recognition, which will have an impact on the calculation, amount and timing of any allowance for impaired financing. We cannot reasonably estimate or quantify the possible impact on our results of operations and financial position until we make a detailed assessment of our financing portfolio and our existing allowances in light of IFRS 9 which is ongoing. There can be no assurance that the application of IFRS 9 would not result in material increases in our allowances for impaired financing. There can also be no assurance that the application of IFRS 9 will not result in substantial changes



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in the classification and measurement of financial assets. A substantial change in the classification and measurement of our financial asset or a material increase in our allowance for impaired financing may have a material and adverse effect on our business, financial condition and results of operations.

(ii) Critical Accounting Estimates and Judgements In the preparation of our financial statements, we are required to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis internally. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgments and key estimations that we have made in the process of applying our accounting policies and that have a significant risk of causing a material adjustment to the carrying amounts of our assets and liabilities within the next financial year. Impact of Future Accounting Policy Changes - IFRS 9 IFRS 9 introduces new requirements for the classification and measurement of financial instruments, methods of measuring impairment based on the expected credit loss model, and introduces new requirements for hedge accounting. The IFRS 9 requirements represent a significant change from the existing requirements in IAS 39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and profit on the principal outstanding. The standard eliminates the existing IAS 39 categories of held-to-maturity, available-for-sale and loans and receivables. For an investment in an equity instrument that is not held for trading, the standard permits an irrevocable election, on initial recognition, on an individual investment-by-investment basis, to present all fair value changes from the investment in other comprehensive income (“OCI”). No amount recognised in OCI would ever be reclassified to profit or loss at a later date. However, dividends on such investments would be recognised in profit or loss, rather than OCI, unless they clearly represent a partial recovery of the cost of the investment. Investments in equity instruments in respect of which an entity does not elect to present fair value changes in OCI would be measured at fair value with changes in fair value recognised in profit or loss. The standard requires derivatives embedded in contracts with a host that is a financial asset in the scope of the standard not to be separated; instead, the hybrid financial instrument is assessed in its entirety for whether it should be measured at amortised cost or fair value. IFRS 9 introduces a new requirement in respect of financial liabilities designated under the fair value option to generally present fair value changes that are attributable to the issuer’s credit risk in OCI rather than in profit or loss. Apart from this change, IFRS 9 largely



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carries forward without substantive amendment the guidance on classification and measurement of financial liabilities from IAS 39. IFRS 9 also introduces a new impairment model that replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model. Under the ‘expected credit loss’ model, a loss event will no longer need to occur before an impairment allowance is recognised. The IFRS 9 ‘expected credit loss’ model uses a dual measurement approach. If the credit risk of a financial asset has not increased significantly since its initial recognition, the financial asset will attract a loss allowance equal to 12-month expected credit losses. If its credit risk has increased significantly, it will attract an allowance equal to its lifetime expected credit losses, thereby increasing the amount of impairment recognised. IFRS 9 introduces new requirements for hedge accounting that align hedge accounting more closely with risk management. The requirements also establish a more principles-based approach to hedge accounting and address inconsistencies and weaknesses in the hedge accounting model in IAS 39. We are making progress to implement IFRS 9 which replaces IAS 39 with effect from 1 January 2018. We have not early adopted IFRS 9 and will implement the new requirements in 2018.

4.3.3 Increasing Competition and Market Liberalisation

The banking industry has been transforming through a deregulation process as part of BNM’s implementation of its first Financial Sector Master Plan (2001- 2010), which has resulted in the liberalisation of the banking industry to allow for a greater presence of foreign and Islamic banks as well as providing greater opportunities for banks to widen their scope of business beyond traditional commercial banking. BNM’s second Financial Sector Master Plan (2011-2020), which was launched in December 2011, is more focused on the future development of the financial sector in promoting the effective intermediation towards the achievement of a high-income economy. The liberalisation of the banking industry has brought about greater competition among banking institutions and this trend is expected to continue.

As a result, banking institutions are encouraged to become more efficient, by improving customer service, exploring more effective uses of available technology and to explore cost effective solutions.

The Issuer faces competition from other domestic banking groups as well as foreign banks operating in Malaysia. The increased competition may adversely impact the business, financial conditions and results of operations of the Issuer and the Group. The use of technology to deliver financial services saw a significant take-up in recent years, with a wider range of banking transactions increasingly conducted through self-service terminals and digital channels such as mobile banking, online banking and mobile applications. At the same time, new innovations continue to rapidly emerge with the proliferation of financial technology (“FinTech”) start-up companies. Such companies are smaller and more agile towards digital developments, but typically face challenges in penetrating the market due to a lack of familiarity and trust among financial consumers. In order to unlock potential synergies provided by more technologically focused service providers, the Issuer and the Group are exploring collaborative approaches in the pursuit of innovation. These include the creation of accelerator programmes, which provide FinTech companies with critical access to industry knowledge to refine their



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products for market validation. This in turn increases the potential for nascent initiatives to be transformed into commercially viable solutions.

4.3.4 Scope and cost of deposit insurance in Malaysia

BNM is not required to act as lender of last resort to meet liquidity needs in the banking system generally or for specific institutions. In the past, BNM has on a case-by-case basis provided a safety net for individual banks with an isolated liquidity crisis. However, there can be no assurance that BNM will provide such assistance in the future.

Effective from 1 September 2005, BNM introduced a deposit insurance system (“Deposit Insurance System”). The Deposit Insurance System is administrated by Malaysia Deposit Insurance Corporation (Perbadanan Insurans Deposit Malaysia), an independent statutory body. All licensed commercial banks (including subsidiaries of foreign banks operating in Malaysia) and Islamic banks are member institutions of the Deposit Insurance System.

In addition to the above, based on announcements by the Malaysia Deposit Insurance Corporation, the Issuer took a risk based approach and implemented the new differential premium system framework in February 2008 to replace the flat rate premium system. Under the differential premium system, the premium payable by a banking institution will depend on the institution’s risk profile. Revised guidelines on the Differential Premium Systems were issued in March 2011 where the eligible deposits that are insured changed from a prescribed limit of RM60,000 to RM250,000 (inclusive of principal and dividends/profits) per depositor, per member institution. The eligible deposits under the new revised guidelines now include foreign currency deposits as part of the deposit coverage.

4.3.5 Winding-up of the Issuer

Under Section 207 of the IFSA, no application for the winding-up of a licensed person (i.e. a licensed bank, which includes the Issuer), an operator of a payment system or an approved person (as defined at Section 11 of the IFSA) can be presented to the High Court without the prior written approval of BNM. In addition, a copy of such an application to the High Court must also be delivered to BNM at the same time as it is presented to the High Court. Failure to comply with such requirements is an offence and a person convicted of such offence is liable to imprisonment and/or a fine.

4.4 Considerations relating to the AT1 Sukuk Wakalah and AT1 Sukuk Wakalah Programme

Except where the context otherwise requires, all capitalised terms appearing under this section shall have the same meanings ascribed thereto in section 2.0 (Principal Terms and Conditions) above.

4.4.1 The AT1 Sukuk Wakalah are perpetual securities and investors have no right to

require redemption

The AT1 Sukuk Wakalah are perpetual and have no maturity date. Sukukholders have no ability to require the Issuer to redeem their AT1 Sukuk Wakalah whereas the Issuer can redeem the AT1 Sukuk Wakalah in certain circumstances as described in item 26 of Section 2.0 (Principal Terms and Conditions) above. However, the Issuer is under no obligation to redeem the AT1 Sukuk Wakalah at any time. The ability of the Issuer to redeem the AT1 Sukuk Wakalah is subject to the Issuer satisfying the Redemption Conditions (including the prior written consent of BNM for the redemption) at such time.



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This means that Sukukholders have no ability to cash in their investment, except if the Issuer exercises its right to redeem the AT1 Sukuk Wakalah or by selling their AT1 Sukuk Wakalah. There can be no guarantee that the Issuer will be able to meet the Redemption Conditions. Sukukholders who wish to sell their AT1 Sukuk Wakalah may be unable to do so at a price at or above the amount they have paid for them, or at all, if insufficient liquidity exists in the market for the AT1 Sukuk Wakalah.

4.4.2 The Issuer may upsize the AT1 Sukuk Wakalah Programme limit

The Issuer shall have the option to upsize the AT1 Sukuk Wakalah Programme limit provided that such upsizing will not result in any adverse impact on the rating of the AT1 Sukuk Wakalah Programme, subject to the relevant upsizing requirements under the LOLA Guidelines and the relevant regulatory approvals have been obtained (if applicable). No further consent is required to be obtained from the Sukuk Trustee, the Sukukholders or any other party under the AT1 Sukuk Wakalah Programme for the Issuer to exercise the option to upsize the AT1 Sukuk Wakalah Programme limit from time to time.

4.4.3 The Issuer may early redeem the AT1 Sukuk Wakalah under certain circumstances

The issuance of each series of AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme shall have a Call Option, to be determined by the Issuer prior to the issuance of such series of AT1 Sukuk Wakalah, to allow the Issuer to redeem such series of AT1 Sukuk Wakalah in whole or in part on the relevant Call Date at the Dissolution Distribution Amount, subject to the Redemption Conditions being satisfied. The redemption in part of the AT1 Sukuk Wakalah may be carried out on a pro-rata basis or on selective basis (for instance in the case of purchase by the Issuer in the open market or by private treaty). An optional redemption feature is likely to affect the market value of AT1 Sukuk Wakalah. During any period when the Issuer may elect to early redeem any series of the AT1 Sukuk Wakalah pursuant to the Call Option, the market value of those AT1 Sukuk Wakalah generally will not rise substantially above the price at which they can be redeemed. The Issuer may early redeem the relevant series of AT1 Sukuk Wakalah by exercising the Call Option when its cost of financing is lower than the profit rate on the AT1 Sukuk Wakalah. At those times and depending on market conditions, an investor generally would not be able to reinvest the redemption proceeds at an effective profit rate as high as the profit rate on the AT1 Sukuk Wakalah being redeemed and may only be able to do so at a lower rate of return. Potential investors should consider the potential reinvestment risks. The Issuer may also, at its option, exercise its right to redeem the AT1 Sukuk Wakalah as a result of Tax Redemption or Regulatory Redemption, subject to the Redemption Conditions being satisfied. The early redemption of one series of the AT1 Sukuk Wakalah pursuant to the Call Option, the Tax Redemption or the Regulatory Redemption shall not trigger the redemption of other series of the AT1 Sukuk Wakalah. For the avoidance of doubt, redemption in part of the AT1CS pursuant to Optional Redemption, Regulatory Redemption or Tax Redemption may be carried out on a pro-rata basis.

4.4.4 The AT1 Sukuk Wakalah may be written-off or converted upon breach of CET1

capital ratio

If the CET1 Capital Ratio of the Issuer or consolidated CET1 Capital Ratio of the Maybank Group falls below 5.125%, the Issuer shall, without the need for the consent



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of the Sukuk Trustee or the Sukukholders, write-off (in whole or in part) or convert the AT1 Sukuk Wakalah into ordinary shares (in whole or in part). The write-off or conversion into ordinary shares (collectively the “Loss Absorption Mechanism”) shall be determined by the Issuer prior to issuance of each series of the AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme. Details of the Loss Absorption Mechanism in the case of a breach of CET1 Capital Ratio are set out below. (i) Write-off mechanism in the case of a breach of CET1 Capital Ratio

Upon a breach of CET1 Capital Ratio, the aggregate amount of AT1 Sukuk Wakalah to be written-off must be at least the amount required to restore the Issuer’s or the consolidated Maybank Group’s CET1 Capital Ratio, whichever is applicable, to at least 5.75%. If this is not possible, then the full principal value of the AT1 Sukuk Wakalah will be written-off. Each of the Sukukholders hereby irrevocably waives its right to receive payment of the Deferred Sale Price equivalent to the nominal value of the AT1 Sukuk Wakalah which are written off pursuant to the above, and also irrevocably waives its right to any Periodic Distribution (including distributions accrued but unpaid up to the date of the occurrence of a breach of CET1 Capital Ratio). In the case of write-off of full nominal value, the Sukukholders agree to waive their rights on the full Deferred Sale Price and the Wakeel on behalf of Sukukholders’ agrees to transfer the Sukuholders’ interest in the Shariah-compliant Business to the Issuer with no consideration. While in the case of write-off of partial nominal value, the Sukukholders shall retain their interest in the Shariah compliant Business and agree to waive their rights on the Deferred Sale Price equivalent to the partial nominal value being written off. After write-off of partial nominal value, the remaining portion of the series will remain as AT1 Sukuk Wakalah complying with BNM CAFIB in relation to requirements of an Additional Tier 1 capital instrument.

(ii) Conversion mechanism in the case of a breach of CET1 Capital Ratio

Upon a breach of CET1 Capital Ratio, the nominal value of AT1 Sukuk Wakalah (in whole or in part) shall be converted to the ordinary shares in the Issuer at the relevant conversion price (to be determined prior to each issuance of series of the AT1 Sukuk Wakalah) such that the effect of such conversion, will restore the Issuer’s at the consolidated and entity level or the consolidated Maybank Group’s CET1 whichever is applicable, to be at least 5.75%. Upon the aforesaid conversion of the nominal value of the AT1 Sukuk Wakalah (in whole or in part) to ordinary shares of the Issuer, the relevant Sukukholders hereby irrevocably waive their right to any Periodic Distribution (including distributions accrued but unpaid up to the date of the occurrence of a breach of CET1 Capital Ratio). After conversion of partial nominal value, the remaining portion of the series will remain as AT1 Sukuk Wakalah complying with BNM CAFIB in relation to requirements of an Additional Tier 1 capital instrument. The maximum number of aggregate ordinary shares that the Sukukholders may receive from the conversion of any series of AT1 Sukuk Wakalah which carries the conversion feature under the AT1 Sukuk Wakalah Programme shall be based on: (a) the nominal value of such AT1 Sukuk Wakalah, divided by (b) the relevant conversion price of such AT1 Sukuk Wakalah. Additionally, in the



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event the Issuer is a principal subsidiary (as defined in the Bursa Malaysia Securities Berhad’s Main Market Listing Requirements) of Maybank, the following provision shall also apply: The maximum number of aggregate ordinary shares that the Sukukholders may receive from the conversion of any series of AT1 Sukuk Wakalah which carries the conversion feature under the AT1 Sukuk Wakalah Programme, together with the aggregate number of shares capable of being converted from the other outstanding AT1 Sukuk Wakalah issued with conversion feature under this AT1 Sukuk Wakalah Programme and other instruments capable of being issued or converted into shares of the Issuer (“Maximum Shares”), shall not exceed 24.99% of the share capital base of the Issuer as at the issue date of the relevant series of the AT1 Sukuk Wakalah with conversion feature. In the event there is a reduction in the share capital base of the Issuer at any time after the issue date of the relevant series of the AT1 Sukuk Wakalah, resulting in a lower share capital base of the Issuer, the Maximum Shares shall be automatically adjusted so that the Maximum Shares shall not exceed 24.99% of the revised share capital base of the Issuer at any point in time. As of todate, the relevant regulators (if applicable) and shareholders and all other relevant authorisation have not been obtained. All prior approvals from the relevant regulators (if applicable) and shareholders and all other relevant authorisation for such contingent conversion shall have been obtained prior to an issuance of the AT1 Sukuk Wakalah in respect of which conversion is elected, and the Issuer shall also undertake that there will be sufficient authorised share capital to effect such conversion to take place automatically upon the occurrence of breach of CET1 Capital Ratio and/or a Non-Viability Event. There is, however, no guarantee that such approvals required will be successfully obtained by the Issuer. Such write off or conversion shall not constitute a Dissolution Event, nor would they trigger a cross-default under any other outstanding AT1 Sukuk Wakalah.

4.4.5 The AT1 Sukuk Wakalah may be written-off or converted into ordinary shares of the Issuer in the case of a Non-Viability Event

The purpose of the Basel III rules is to ensure greater stability of the banking institutions by requiring them to hold more capital to serve as a buffer against losses and reduce the likelihood of bank failures, and, ultimately, government intervention. The Basel III rules are intended to ensure that all classes of capital instruments can, as fully as possible, absorb losses at the point in time of non-viability of the banking institution. The CAFIB requires that the terms and conditions of all Additional Tier 1 and Tier 2 capital instruments issued from 1 January 2013 onwards to contain features that ensure loss absorbency at the point of non-viability. All Additional Tier 1 and Tier 2 capital instruments shall have a provision that requires such instruments to be either written-off in whole or in part or converted in whole or in part into ordinary shares upon the occurrence of a trigger event. Under the AT1 Sukuk Wakalah Programme, “Non-Viability Event” means the earlier of: (i) BNM, jointly with Malaysia Deposit Insurance Corporation (“PIDM”), so long as

the Issuer is a Member Institution (as defined in the Malaysia Deposit Insurance Corporation Act 2011), or BNM, if the Issuer is no longer a Member Institution (“Relevant Malaysian Authority”) notifying the Issuer in writing that the Relevant Malaysian Authority is of the opinion that a write-off and conversion into ordinary shares is necessary, without which the Issuer or Maybank Group, as the case may be, would become non-viable; and



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(ii) the Relevant Malaysian Authority publicly announces that a decision has been made by BNM, PIDM or any other federal or state government in Malaysia, to provide a capital injection or equivalent support to the Issuer, without which the Issuer or Maybank Group, as the case may be, would have become non-viable.

A Non-Viability Event shall be deemed to have occurred on the day on which the Issuer or Maybank Group (as the case may be) received the notification from the Relevant Malaysian Authority (as defined above) or on the day the public announcement is made, as the case may be. If a Non-Viability Event occurs, the Issuer shall irrevocably, without the need for the consent of the Sukuk Trustee or the Sukukholders, write-off (in whole or in part) or convert into ordinary shares the AT1 Sukuk Wakalah (in whole or in part), as the case maybe, if so required by BNM and/or PIDM at their full discretion. The write-off or conversion into ordinary shares shall be determined by the Issuer prior to issuance of each series of the AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme. Such write-off and/or conversion into ordinary shares shall not constitute a Dissolution Event, nor would it trigger a cross default under any other outstanding AT1 Sukuk Wakalah. Due to the inherent uncertainty regarding BNM’s determination on whether a Non-Viability Event exists, it will be difficult to predict when, if at all, such event will occur. Accordingly, the trading behaviour in respect of AT1 Sukuk Wakalah which have the non-viability loss absorption feature is not necessarily expected to follow trading behaviour associated with other types of securities. Any indication that the Maybank Group may potentially be moving towards a Non-Viability Event could have a material adverse effect on the market price of the relevant AT1 Sukuk Wakalah. Further, the regulations on non-viability loss absorption are untested, and will be subject to the interpretation and application by BNM. It is uncertain how BNM would determine the occurrence of a Non-Viability Event, and it is possible that the grounds that constitute Non-Viability Events may change (including that additional grounds may be introduced). Accordingly, the operation of any such future legislation, guidelines or regulations may have an adverse effect on the AT1 Sukuk Wakalah and the interests of the Sukukholders. A potential investor should not invest in the AT1 Sukuk Wakalah unless it has the knowledge and expertise to evaluate how the AT1 Sukuk Wakalah will perform under changing conditions and the impact this investment will have on the potential investor’s overall investment portfolio. Prior to making an investment decision, potential investors should consider carefully, in light of their own financial circumstances and investment objectives, all the information contained in this Information Memorandum. Potential investors should consider the risk that they may lose all of their investment in the AT1 Sukuk Wakalah, including the principal amount plus any accrued but unpaid period distribution, in the event that a Non-Viability Event occurs. Details of the Loss Absorption Mechanism in the case of a Non-Viability Event are set out in paragraph 30(q) of Section 2.0 (Principal Terms and Conditions) above.

4.4.6 Risks attached to the exercise of conversion of AT1 Sukuk Wakalah into ordinary shares of Maybank Islamic

As mentioned in paragraphs 4.4.4 and 4.4.5 above, each series of the AT1 Sukuk Wakalah shall include either write-off or conversion as loss absorbency mechanism,



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which shall be determined by the Issuer prior to issuance of each series of the AT1 Sukuk Wakalah. Where a series of the AT1 Sukuk Wakalah has the conversion feature, the relevant conversion price will be determined prior to the issuance of such series of the AT1 Sukuk Wakalah where the conversion formula will be set out in the Pricing Supplement of such series of AT1 Sukuk Wakalah. Investors should be aware that the AT1 Sukuk Wakalah, those bearing the feature of being convertible into ordinary shares of Maybank Islamic, carries certain risks. The value of the ordinary shares of Maybank Islamic at the time when the conversion is exercised may be lower than the subscription amount of the AT1 Sukuk Wakalah paid by the investor when the AT1 Sukuk Wakalah was issued. This is due to the fact that when the conversion is triggered, it would be because: (a) Maybank Islamic’s (entity level) or the consolidated Maybank Group’s CET1 Capital Ratio having fallen below 5.125%; or (b) a Non-Viability Event have occurred, where losses suffered will then need to be absorbed by the Sukukholders via the conversion. Investors should also be aware that if the AT1 Sukuk Wakalah are converted into the ordinary shares of Maybank Islamic, such investors (now being holders of the ordinary shares of Maybank Islamic) may be required to pare down their holding in the ordinary shares of Maybank Islamic to comply with the necessary legal and regulatory requirements. For example, Section 99 of the IFSA provides that except with the prior written consent of BNM, no person shall enter into an agreement or arrangement, to acquire any interest in shares of a financial institution (in this case, Maybank Islamic) by which, if the agreement or arrangement is carried out, such person would hold (together with any interest in shares of the financial institution (in this case, Maybank Islamic) which are already held by such person) an aggregate interest of 5% or more (and thereafter, any multiples of 5%) in the shares of such financial institution (in this case, Maybank Islamic).

4.4.7 The distribution of the AT1 Sukuk Wakalah are discretionary, non-cumulative and may be cancelled

The Issuer may, at its sole discretion and without prior notice to the Sukukholders, taking into account its specific financial and solvency condition, (including insufficient of income to pay Periodic Distributions) elect to cancel any payment of Periodic Distribution, in whole or in part, on a non-cumulative basis. Any Periodic Distribution that has been cancelled shall be no longer due and payable at any time thereafter by the Issuer and shall not accrue whether in a winding up situation or otherwise. Cancellation of a Periodic Distribution shall not constitute a Dissolution Event and does not entitle the Sukukholders to petition for the insolvency or winding-up of the Issuer. In addition, the Issuer will not be obliged to pay, and will not pay, any Periodic Distribution if the Issuer has insufficient Distributable Reserves. The level of the Issuer’s Distributable Reserves is affected by a number of factors, principally its ability to remain profitable from its operations in a manner which creates Distributable Reserves for the Issuer. Consequently, the Issuer's future Distributable Reserves, and therefore its ability to make Periodic Distributions, are a function of its existing Distributable Reserves, future profitability and the ability to distribute or dividend profits from its operating subsidiaries up the group structure to the Issuer. In addition, the Issuer’s Distributable Reserves may also be adversely affected by the servicing of more senior instruments. The Issuer’s Distributable Reserves, and therefore its ability to make Distributions, may be adversely affected by the performance of the Issuer’s business in general, factors affecting its financial position (including capital and leverage), the economic environment in which the Issuer operates and other factors outside of the Issuer’s



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control. Further, the ability of the Issuer’s ability to receive distributions and other payments from its investments in other entities is subject to applicable local laws and other restrictions, including their respective regulatory, capital and leverage requirements, statutory reserves, financial and operating performance and applicable tax laws. The level of the Issuer’s Distributable Reserves may be further affected by changes to regulation or the requirements and expectations of applicable regulatory authorities. Any such potential changes could adversely affect the Issuer’s Distributable Reserves in the future. If the Issuer does not make a Periodic Distribution payment on the relevant Periodic Distribution Date (or if the Issuer elects to make a payment of a portion, but not all, of such Periodic Distribution payment), such non-payment or part-payment shall serve as evidence of the Issuer’s exercise of its discretion to cancel such Periodic Distribution payment (or the portion of such Periodic Distribution payment not paid), and accordingly such Periodic Distribution payment (or the portion thereof not paid) shall not be due and payable. If practicable, the Issuer shall provide notice of any cancellation of Periodic Distribution (in whole or in part) to the Sukukholders on or prior to the relevant Periodic Distribution Date. If practicable, the Issuer shall endeavour to provide such notice at least five (5) business days prior to the relevant Periodic Distribution Date. Failure to provide such notice will not have any impact on the effectiveness of, or otherwise invalidate, any such cancellation of Periodic Distribution, or give the Sukukholders any rights as a result of such failure. No Sukukholder shall have any claim whatsoever in respect of any Periodic Distribution or part thereof cancelled and/or not due or payable as described under the ‘Limitation on Payment’ clause. Accordingly, such cancelled Periodic Distribution or part thereof shall not accrue or accumulate for the benefit of the Sukukholders or entitle the Sukukholders to any claim in respect thereof against the Issuer. If, on any Periodic Distribution Date, payment of Periodic Distributions scheduled to be made on such date is not made by reason of this clause, the Distribution Stopper shall be applicable. If Periodic Distributions are not paid for whatever reason, the AT1 Sukuk Wakalah may trade at a lower price. If a Sukukholders sells his AT1 Sukuk Wakalah during such a period, he may not receive the same return on investment as a Sukukholders who continues to hold his AT1 Sukuk Wakalah until Periodic Distributions are resumed.

4.4.8 Subordination of the AT1 Sukuk Wakalah could impair an investor’s ability to enforce its rights or realise any claims on the AT1 Sukuk Wakalah

If the Issuer defaults on the payment of any amount due and payable on the AT1 Sukuk Wakalah, the Sukukholders may only institute a winding-up proceeding. The Sukukholders and the Sukuk Trustee will have no right to accelerate payment of the AT1 Sukuk Wakalah in the case of default in payment or failure to perform a covenant under the Trust Deed or the AT1 Sukuk Wakalah except as they may be so permitted under the terms and conditions of the AT1 Sukuk Wakalah as detailed in Section 2.0 (Principal Terms and Conditions of the AT1 Sukuk Wakalah Programme) of this Information Memorandum. The AT1 Sukuk Wakalah constitute direct, unsecured and subordinated obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. Subject to the laws of Malaysia, in the event of a winding up of the Issuer, the rights of



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the Sukukholders to payment of nominal value and Periodic Distributions on the AT1 Sukuk Wakalah and any other obligations in respect of the AT1 Sukuk Wakalah are expressly subordinated and subject in right of payment to the prior payment in full of all claims of Senior Creditors and will rank senior to all Junior Obligations. The AT1 Sukuk Wakalah will rank pari passu with Parity Obligations. As a result, the Sukukholders may recover less than the Senior Creditors of the Issuer and there is a risk that a Sukukholder will lose all or some of its investment in the AT1 Sukuk Wakalah and will not receive a full payment of the principal amount or any unpaid amounts due under the AT1 Sukuk Wakalah.

4.4.9 No set-off right under the AT1 Sukuk Wakalah

No Sukukholder may exercise, claim or plead any right of set-off, deduction, withholding or retention in respect of any amount owed to it by the Issuer in respect of, or arising under or in connection with, the AT1 Sukuk Wakalah, and each Sukukholder shall, by virtue of his holding of any AT1 Sukuk Wakalah, be deemed to have waived all such rights of set-off, deduction, withholding or retention against the Issuer in relation to the AT1 Sukuk Wakalah to the fullest extent permitted by law. If at any time any Sukukholder receives payment or benefit of any sum in respect of the AT1 Sukuk Wakalah (including any benefit received pursuant to any such set-off, deduction, withholding or retention) other than in accordance with the terms of the AT1 Sukuk Wakalah, the payment of such sum or receipt of such benefit shall, to the fullest extent permitted by law, be deemed void for all purposes and such Sukukholder, by virtue of his holding of any AT1 Sukuk Wakalah, shall, agree as a separate and independent obligation to immediately pay an amount equal to the amount of such sum or benefit so received to the Issuer (or, in the event of its winding-up or administration, the liquidator or, as appropriate, administrator of the Issuer) and, until such time as payment is made, shall hold such amount in trust for the Issuer (or the liquidator or, as appropriate, administrator of the Issuer) and accordingly any payment of such sum or receipt of such benefit shall be deemed not to have discharged any of the obligations under the AT1 Sukuk Wakalah.

4.4.10 Liquidity of the AT1 Sukuk Wakalah and No Prior Market for the AT1 Sukuk

Wakalah

The AT1 Sukuk Wakalah comprise a new issue of securities for which there is currently no established secondary market and in the event that a secondary market does develop as to the liquidity of that market for the AT1 Sukuk Wakalah, there can be no assurance that it will continue in perpetuity. In other words, there can be no assurance regarding the future development of a market for the AT1 Sukuk Wakalah, the liquidity of any market that may develop, the ability of the Sukukholders to sell their AT1 Sukuk Wakalah, or the prices at which such Sukukholders may be able to sell their AT1 Sukuk Wakalah. As such, an investor in the AT1 Sukuk Wakalah must be prepared to hold the securities for an indefinite period of time. Accordingly, the purchase or subscription of the AT1 Sukuk Wakalah is suitable only for investors who can bear the risks associated with a lack of liquidity in the AT1 Sukuk Wakalah and the financial and other risks associated with an investment in the AT1 Sukuk Wakalah.

4.4.11 Rating of the AT1 Sukuk Wakalah Programme

The AT1 Sukuk Wakalah Programme has been accorded a final long-term rating of AA3 by RAM Rating. In the event that the rating assigned to the AT1 Sukuk Wakalah Programme is subsequently downgraded for any reason, no person or entity including but not limited to the Issuer, will be obligated to provide any additional credit enhancement with respect to the AT1 Sukuk Wakalah Programme. Any downgrade in the rating may have an adverse effect on the liquidity and market price of the AT1 Sukuk Wakalah. Any



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downgrade of a rating will not constitute an event of default or a Dissolution Event or an event in which the Issuer is obliged to redeem the AT1 Sukuk Wakalah. There is no specific obligation on the part of the Principal Adviser/Lead Arranger/Lead Manager, the Sukuk Trustee or any other person or entity to maintain or procure maintenance of the rating for the AT1 Sukuk Wakalah Programme. The rating of the AT1 Sukuk Wakalah Programme will also be subjected to both the domestic and global economy. Any changes to the local and global economic outlook may result in downgrading or changes in the rating of the AT1 Sukuk Wakalah Programme. A rating is not a recommendation to purchase, hold or sell the AT1 Sukuk Wakalah. There is no assurance that the rating will not be lowered entirely if the circumstances in the future so warrant.

4.4.12 Investment in AT1 Sukuk Wakalah is subject to rate of return risk and inflation risk and market value of the AT1 Sukuk Wakalah may be subject to fluctuation

The market value of any AT1 Sukuk Wakalah may fluctuate. The trading prices of the AT1 Sukuk Wakalah may be higher or lower than the initial offering price which are influenced by numerous factors, including the prevailing rates of return, operating results and/or financial condition of the Issuer, political, economic and any other factors that can affect the capital markets. Any adverse economic developments could have an effect on the market value of the AT1 Sukuk Wakalah. Sukukholders would have an anticipated rate of return based on expected inflation rates on the purchase of the AT1 Sukuk Wakalah. An unexpected increase in inflation could reduce the actual return. The AT1 Sukuk Wakalah are fixed income securities and may therefore see their prices fluctuate due to movements in rates of return. Investment in AT1 Sukuk Wakalah involves the risk that subsequent changes in market rates of return may adversely affect the value of the AT1 Sukuk Wakalah. Generally, a rise in rates of return may cause a fall in AT1 Sukuk Wakalah prices. The AT1 Sukuk Wakalah may be similarly affected resulting in a capital loss for Sukukholders. Sukukholders may suffer unforeseen losses due to fluctuations in rates of return.

4.4.13 Each issue of AT1 Sukuk Wakalah carries different risks and may have different terms

All potential investors are strongly encouraged to evaluate each issue of the capital securities on its own merit as each issue of AT1 Sukuk Wakalah under the AT1 Sukuk Wakalah Programme carry different risks and may have different terms. For example, the Issuer may elect a write-off mechanism as the loss absorption for one series, while another series of the AT1 Sukuk Wakalah may have the conversion mechanism selected as the loss absorption mechanism. Both loss absorption mechanism are different and entail different consequences, hence, each potential investor of the AT1 Sukuk Wakalah needs to be aware of the differences in terms and must determine the suitability of that investment in light of its own circumstances. The purchase or subscription of the AT1 Sukuk Wakalah may involve substantial risks and is suitable only for sophisticated investors who have the knowledge and experience in financial and business matters necessary to enable them to evaluate the risks and the mitigating factors of an investment in the AT1 Sukuk Wakalah.

4.4.14 No limitation on issuing further Sukuk or Islamic securities or incur further financing or indebtedness

The Issuer may from time to time without the consent of the Sukukholders create or issue additional senior and/or subordinated indebtedness (including additional AT1



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Sukuk Wakalah), which may confer greater rights for the holders/creditors thereof or may rank pari passu in right and priority of payment with the AT1 Sukuk Wakalah or may be subordinated to the AT1 Sukuk Wakalah in the case of any distribution of assets in any winding up of the Issuer. There is no limitation imposed on the Issuer under the AT1 Sukuk Wakalah to incur further financing or indebtedness via the issuance of new AT1 Sukuk Wakalah without the consent of the Sukukholders. Any such further indebtedness may reduce the amount recoverable by the Sukukholders in the event of dissolution or winding-up of the Issuer.

4.4.15 The Issuer’s ability to meet its obligations under the AT1 Sukuk Wakalah

The AT1 Sukuk Wakalah constitutes direct, unsecured and subordinated obligations of the Issuer and are payable out of the Distributable Reserves of the Issuer and thus will not be the obligations or responsibilities of any person other than the Issuer. The ability of the Issuer to meet its obligations to pay the nominal value of the AT1 Sukuk Wakalah and the Periodic Distributions thereon will be largely dependent on the revenue generated by its operations.

4.4.16 The AT1 Sukuk Wakalah may not be a suitable investment for all investors

Each potential investor in any AT1 Sukuk Wakalah must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:

• have sufficient knowledge and experience to make a meaningful evaluation of the AT1 Sukuk Wakalah, the merits and risks of investing in the AT1 Sukuk Wakalah and the information contained or incorporated by reference in this Information Memorandum;

• have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the AT1 Sukuk Wakalah and the impact such investment will have on its overall investment portfolio;

• have sufficient financial resources and liquidity to bear all of the risks of an investment in the AT1 Sukuk Wakalah, including where the currency for principal or profit payments is different from the potential investor’s currency;

• understand thoroughly the terms of the AT1 Sukuk Wakalah and be familiar with the behaviour of any relevant indices and financial markets; and

• be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, rate of return and other factors that may affect its investment and its ability to bear the applicable risks.

4.4.17 Change of law

The terms and conditions of the AT1 Sukuk Wakalah are based on Malaysian law in effect as at the LPD. No assurance can be given as to the impact of any possible judicial decision or change to Malaysian law or administrative practice after the LPD.

4.4.18 Investors should pay attention to any modification and waivers

The terms and conditions of the AT1 Sukuk Wakalah contain provisions for calling meetings of Sukukholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Sukukholders, including Sukukholders who did not attend and vote at the relevant meeting and Sukukholders who voted in a



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manner contrary to the majority.

4.4.19 Shariah Compliance

Notwithstanding the approval of the Shariah Adviser, case law in Malaysia indicates that the courts in Malaysia may still examine the issue of whether there has been compliance with Shariah and if held to be non-Shariah compliant, the recoverability of the profit element under the AT1 Sukuk Wakalah may be affected. No assurance is given that the approvals of the Shariah Adviser will not be subject to challenge on grounds that the AT1 Sukuk Wakalah is not Shariah compliant. The Shariah Adviser has issued a pronouncement confirming, among others, that the structure and mechanism of the AT1 Sukuk Wakalah are Shariah-compliant as of the date of such pronouncement. However, there can be no assurance that the structure and mechanism of the AT1 Sukuk Wakalah will be deemed to be Shariah-compliant by any other Shariah board or Shariah scholar. Potential investors should obtain their own independent Shariah advice as to the Shariah compliance of among others, the structure and mechanism of the AT1 Sukuk Wakalah and tradability of the AT1 Sukuk Wakalah in the secondary market. No representation, warranty or undertaking, express or implied, is given by the Issuer, the Principal Adviser, Lead Arranger and Lead Manager as to the status of the AT1 Sukuk Wakalah’s compliance with Shariah and the Issuer, the Principal Adviser, Lead Arranger and the Lead Manager shall not be liable for any consequences of such reliance and/or assumption of any such compliance.

4.5 General Considerations

4.5.1 Economic Factors

The Bank’s business, prospects, financial condition and results of operation may be adversely affected by social, political, regulatory and economic developments in Malaysia. Such political and economic uncertainties include, but are not limited to, the risks of war, terrorism, nationalism, or nullification of contract, changes in rates of return, imposition of capital controls and methods of taxation. Negative developments in Malaysia’s socio-political environment may adversely affect the business, financial condition, results of operations and prospects of the Issuer. Please refer to Section 10.0 of this Information Memorandum on the ‘Malaysian Banking Industry Overview’.

4.5.2 Force Majeure

An event of force majeure is an event which is not within the control of the party effected, which that party is unable to prevent, avoid or remove and shall include war and acts of terrorism, riot and disorders, natural catastrophes and others. Force majeure events do not include economic downturn, non- availability or insufficient or lack of financing on the part of the Issuer. The occurrence of a force majeure event may have a material impact on the Issuer’s business.

4.5.3 Forward Looking Statements

Certain statements in this Information Memorandum are forward looking in nature. These statements include, among other things, discussions of Maybank Islamic’s business strategy and expectation concerning its position in the Malaysian economy, future operations, growth prospects, profitability, liquidity, capital resources and financial position. All forward looking statements are based on estimates and assumptions made by Maybank Islamic and third party consultants that, although believed to be reasonable, are subject to risks and uncertainties that may cause actual events and the future results of Maybank Islamic to be materially different from that expected or indicated by such statements and estimates and no assurance can be given that any of such statements or estimates will be realised. In light of these and other uncertainties, the inclusion of forward looking statements in this Information



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Memorandum should not be regarded as a representation or warranty by Maybank Islamic or any other person that the plans and objectives of Maybank Islamic will be achieved.




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SECTION 5.0 SELECTED FINANCIAL INFORMATION The following tables present the summary of unaudited interim financial information for each of the six-month period ended 30 June 2016 and 30 June 2017, and audited financial information for each of the financial year ended 31 December 2015 and 31 December 2016 for Maybank Islamic. The interim and annual financial information below have been derived from, and should be read in conjunction with, the unaudited interim financial statements and the audited accounts in Maybank Islamic’s annual reports.

The summary of the selected financial information as at and for the six-month periods ended 30 June 2016 and 30 June 2017, set out below, have been derived from Maybank Islamic’s unaudited interim financial statements. Such financial information has not been audited or reviewed. Accordingly, there can be no assurance that, had an audit or review been conducted in respect of such financial information, the information presented therein would not have been materially different, and investors should not place undue reliance upon them. Results for the interim periods should not be considered indicative of results for any other period or for the full financial year. The audited accounts of Maybank Islamic for the financial year ended 31 December 2016 and the unaudited interim financial statements of Maybank Islamic for the financial quarter ended 30 June 2017 are appended to this Information Memorandum as Appendix I and Appendix II respectively. The full version of Maybank Islamic’s annual reports for the financial year 2016 can be obtained from Maybank’s website at http://www.maybank.com. Unaudited Audited

As at 30 June As at 31 December

2017 2016 2016 2015 (RM ‘000) (RM ‘000) (RM ‘000) (RM ‘000)

Financial Statements Income derived from investment of

depositors’ funds

3,304,871

3,052,756

6,132,907

6,536,316 Income derived from investment of

investment account funds

807,212

711,769

1,613,812

213,931 Income derived from investment of

shareholder’s funds

160,104

141,298

315,364

304,131 Allowance for impairment losses on

financing and advances

(177,691)

(278,311)

(381,836)

(256,527)

Total distributable income 4,094,496 3,627,512 7,680,247 6,797,851 Profit distributed to depositors (1,833,170) (1,737,383) (3,463,225) (3,795,088) Profit distributed to investment

account holders

(509,342)

(467,932)

(1,079,875)

(115,983)

Total net income 1,751,984 1,422,197 3,137,147 2,886,780 Overhead expenses (679,540) (614,498) (1,233,110) (1,135,056) Finance cost (58,803) (63,299) (122,267) (113,781)

Profit before taxation and zakat 1,013,641 744,400 1,781,770 1,637,943 Taxation (230,744) (174,883) (427,444) (416,478) Zakat (6,212) (9,173) (16,559) (8,979)

Profit for the period

776,685 560,344 1,337,727 1,212,486

Profit attributable to : Equity holders of the parent

776,685

560,344

1,337,727

1,212,486 Earnings per share attributable to the equity holder of the Bank - Basic/diluted (sen)

275.9

212.3

495.5

480.3

http://www.maybank.com/



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Unaudited Audited


2017 2016 2016 2015

(RM ‘000) (RM ‘000) (RM ‘000) (RM ‘000)

Assets

Cash and short-term funds 12,551,460 14,838,937 15,535,992 8,815,504

Deposit and placements with banks and other financial institutions 754,201 3,161,099 651,558 -

Financial investments portfolio 11,531,833 10,890,966 8,972,105 9,327,813

Financing and advances 152,999,908 137,000,521 148,523,310 130,166,349

Derivative assets 343,933 406,312 515,554 497,905

Other assets 4,310,772 3,179,190 4,506,551 3,673,991

Statutory deposits with BNM 2,620,000 2,991,000 3,070,000 3,834,000

Deferred tax assets 7,066 - 19,487 36,892

Total Assets 185,119,173 172,468,025 181,794,557 156,352,454

Liabilities

Deposits from customers 113,156,605 106,345,043 106,604,492 105,786,215

Investment accounts of customers 27,786,571 30,964,031 31,544,587 17,657,893

Deposits and placements of banks and other financial institutions

30,783,378 22,361,924 30,342,006 21,344,573

Bills and acceptances payable 17,983 43,250 53,220 33,556

Derivative liabilities 397,572 445,276 535,161 587,772

Financial liabilities at fair value through profit or loss

897,047 488,680 902,091 -

Other liabilities 254,374 889,363 91,739 138,883

Provision for taxation and zakat 161,371 12,117 98,090 9,011

Deferred tax liabilities - 3,434 - -

Subordinated sukuk 2,533,918 2,534,436 2,534,496 2,527,960

Total Liabilities 175,988,819 164,087,554 172,705,882 148,085,863

Shareholder’s Equity

Share capital 5,481,783 263,959 281,556 263,959

Share premium - 4,658,232 5,200,227 4,658,232

Retained profits 3,268,349 2,885,540 2,857,087 2,572,819

Other Reserves 380,222 572,740 749,805 771,581

Total Shareholder’s Equity 9,130,354 8,380,471 9,088,675 8,266,591

Total Liabilities and Shareholder’s Equity

185,119,173

172,468,025

181,794,557

156,352,454

Commitments and Contingencies 54,698,448 48,866,015 52,067,915 49,648,320



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SECTION 6.0 DESCRIPTION OF MAYBANK ISLAMIC

6.1 Introduction

Maybank Islamic is a wholly owned subsidiary of Maybank which serves as the Islamic financing arm of the Maybank Group. Maybank was the first domestic commercial bank to offer Islamic financing products and services through its Islamic window operations in 1993 until the commencement of Maybank Islamic’s operations on 1 January 2008 after the transfer of its parent’s Islamic financing business. Maybank Islamic leverages on Maybank’s policies, infrastructure and resources including distribution channels, information technology system and platforms as well as front and back-office support operations to reap the benefits of economies of scale and to reduce duplication of resources. In Malaysia, the Bank’s products and services are available at its 8 stand-alone branches as well as through its parent’s extensive retail network of over 350 branches. The Bank also supports the Islamic banking business at the various distribution channels nationwide, as well as in Indonesia, Singapore, Hong Kong, London, Bahrain and Labuan. The Bank dominates the domestic Islamic financing industry with strong market share which clearly reflects the Maybank Group’s more than 20 years of in-depth expertise in Islamic financial products and services. As at 30 June 2017, Maybank Islamic is the largest domestic Islamic bank in Malaysia by assets with an asset size of RM185.1 billion. The Bank is the largest Islamic bank in ASEAN and one of the top Islamic banks globally. As at 30 June 2017, gross financing grew by 12% YoY amounting to an increase of RM16.3 billion, backed by a healthy capital ratio of 17.767%. The financing growth was fuelled by the Group’s CFS and GB division. Financing growth by CFS, comprising consumer, small medium enterprise and business banking segments, grew 9% YoY or RM9.2 billion. Deposits from customers increased RM3.6 billion or 3% YoY due to the Group’s strong franchise in its home markets. Meanwhile for Group’s GB, financing grew by 20% YoY amounting to an increase of RM7.1 billion mainly from term financing. Penetration of Maybank Islamic’s Shariah compliant products and services has expanded considerably over the years reflecting healthy acceptance amongst retail and wholesale customers, as the Bank’s offerings meet their needs, provides additional value and match their financial goals and lifestyles. Maybank Islamic also continued to work alongside the Maybank Group to deliver Islamic financial solutions to retail and institutional investors. The Bank aims to be the primary financial services partner for corporate investors as the Bank expands its leadership beyond borders by securing key deals in local and foreign currencies, further contributing to the growth economies that the Bank operates in. The global growth of the Islamic finance industry is expected to continue on a strong momentum and Malaysia is well positioned to be at the forefront of the industry’s development. On the back of the industry’s growth, Maybank’s Group Islamic Banking has realised its aspiration of becoming ‘the Global Leader in Islamic Finance by 2015’. In 2017, Maybank Islamic would focus on enhancing the Bank’s global brand visibility and deepening its existing regional presence, via the pursuit of more headline deals and participation in international conferences and thought leadership programs. The Bank would also look to take on a more leadership role in promoting Islamic Social Finance via its Zakat and Waqaf initiatives.

Maybank Islamic has been awarded several accolades by publications of international standing for all its achievements in Malaysia as displayed in the following table:



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No. Institution Awards

1 The Banker 2017

• Best Islamic Bank of the Year, Asia Pacific

• Best Islamic Bank of the Year, Malaysia

2016

• Best Private Bank for Islamic Services

2 The Asset Triple A Islamic

Finance Awards

2017

• Bank of the Year, Asia Pacific

• Bank of the Year, Malaysia

• Bank of the Year, Singapore

• Best Retail Bank, Malaysia

• Best Retail Bank, Singapore

• Best Islamic Syndicated Loan

• Best Local Currency Sukuk

2016

• Bank of the Year (Asia Pacific,Malaysia, Singapore )

• Best Retail Bank (Malaysia, Singapore)

• Best Trade Finance Malaysia

• Islamic Deal of the Year

• Sukuk/Best New Sukuk

3 Global Finance Awards 2017

• Best Sukuk Bank 2017

• Best Islamic Financial Institution Asia Pacific

• Best Islamic Financial Institution Malaysia



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• Best Islamic Financial Institution Singapore

• Best Islamic Financial Institution - Global

• Best Provider Of Shariah-Compliant Short-Term Investments

2016

• Global Best Sukuk Bank

• Global Best Supplier of Shariah Short-term Investments

• Best Islamic Bank (Malaysia)

6.2 Principal Shareholder

As at the LPD, Maybank Islamic is 100% owned by Maybank.

6.3 Maybank Islamic Lines of Business

Maybank Islamic provides a comprehensive range of financial services under two main business pillars, both offering Shariah compliant financial products and services to cater for the needs of its customers, namely CFS and GB.

CFS remains the core business segment and major contributor to Maybank Islamic. As at 30 June 2017, CFS division contributed approximately 72.6% of Maybank Islamic’s total financing. 6.3.1 Community Financial Services

Maybank Islamic’s CFS segment includes the following:

• Consumer Finance – Mortgages, Automobile Financing, Retail Financing

• Deposit and Investment Account

• Islamic Credit Cards

• SME Banking

• Business Banking

• Wealth Management

Maybank Islamic’s CFS segment contributed 60.6% of Maybank Islamic total asset. The strong market presence is made possible by its ability to leverage on the cross-selling of its products and services. In addition, Maybank Islamic is able to reach its domestic customer base through the Maybank Group’s extensive branch network and automated teller machines, Maybank2u.com.my website and Kawanku phone banking, which enables consumers to perform various transactions over the internet and the phone. Maybank Islamic offers comprehensive mortgage financing products to its customers, consisting mainly of house and shophouse financing facilities for new buyers and refinancing purposes, securing an attractive market share of 28.1% as at 30 June 2017. House financing accounted for 85.2% of mortgage financing as at 30 June 2017. As at 30 June 2017, Automobile Financing accounted for the second largest component of Maybank Islamic’s CFS portfolio, which stands at approximately 28.5%. The Bank’s Automobile Financing comprises retail hire purchase, business hire



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purchase, corporate auto scheme, floor stocking and block discounting.

Skim Amanah Saham Bumiputra (“ASB”) financing continues to record positive growth and contributed to 17.1% of the overall financing as at 30 June 2017.

6.3.2 Global Banking

GB segment accounts for approximately 27.4% of the Bank’s financing portfolio as at 30 June 2017 in Malaysia. The main pillars under this segment are as follows:

• Investment Banking

• Global Markets

• Corporate Banking

• Transaction Banking The Client Coverage team of the Maybank Group anchors the GB segment to support these main pillars to offer customized, innovative Shariah-compliant products and solutions to meet prospective clients’ diverse financial needs. This coverage model has enhanced the capabilities, sharpened focus and maximised cross-product collaboration to deliver superior product offerings such as advisory, treasury, trade finance, cash management as well as financing solutions. As at 30 June 2017, Maybank Islamic captured strong market shares in Malaysia for overdraft financing at 44.4% and 38.5% for trade financing and 29.2% for foreign currency financing. In the debt capital market space, Maybank Group continues to retain its prominent position, ranked among the top two Sukuk lead managers for the Bloomberg Ringgit Malaysia Sukuk and Bloomberg Global Sukuk league table, respectively as at 30 September 2017. The Bank continues to focus on developing its foreign currency portfolio to cater for the growing demand of Malaysian businesses venturing abroad, opportunities to penetrate new markets as well as in support of Government’s initiatives under Malaysia as an International Islamic Financial Centre (MIFC).

6.4 Shariah Governance and Compliance

6.4.1 Shariah Compliance Framework

Shariah principles are the foundation for the practice of Islamic finance through the observance of the tenets, conditions and principles espoused by Shariah. Comprehensive compliance with Shariah principles would bring confidence to the general public and the financial markets on the credibility of Islamic finance operations.

6.4.2 Shariah Governance Framework

The Shariah governance is designed to meet the following objectives:-

• sets out the expectations of Shariah governance structures, processes and arrangements of all entities within the Group that execute Islamic business transactions to ensure that all its operations and business activities are in accordance with Shariah;

• provides a comprehensive guidance to the Board, Shariah Committee of Maybank Islamic (“Shariah Committee”) and management in discharging its duties in matters relating to Shariah; and

• outlines the roles of internal Shariah functions such as Shariah Advisory, Shariah research, Shariah Risk, Shariah Audit and Shariah Review.



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6.4.3 Shariah Committee

The Shariah Committee is responsible and accountable for all its decisions, views and opinions related to Shariah matters. Among the roles of Shariah Committee include:-

• To advise the Board and provide input to Maybank Islamic on Shariah matters

in order for the relevant countries or businesses to be Shariah compliant at all times;

• To endorse Shariah policies and procedures; • To endorse and validate documentation including terms and conditions,

contract agreements or other legal documentation, product manuals, marketing advertisements, sales illustrations and brochures to be in compliance with Shariah principles;

• To assist related parties on Shariah matters for advice upon request;

• To advise on matters to be referred to the Shariah Advisory Council of BNM

and the SAC; and • To provide written Shariah opinions (where necessary).

6.4.4 Internal Shariah Functions

The Bank has established strong internal Shariah functions which comprise Shariah Advisory, Shariah Research, Shariah Committee Secretariat, Shariah Risk, Shariah Review and Compliance and Shariah Audit to support the Shariah Committee’s functions where their responsibilities shall include but are not limited to participating in product development, providing Shariah advice, conducting Shariah review and audit, conducting research on the Shariah compliance of products and facilitating the process of identifying, measuring, controlling and monitoring Shariah-compliance risks inherent in Maybank Islamic’s operations and activities.

6.5 Employees

As at 30 September 2017, Maybank Islamic employed 172 employees compared to 167 as at 30 September 2016. In addition to the 172 employees employed directly under the Bank’s payroll, Maybank Islamic has access to over 24,362 staff of Maybank Group domestically under the current leveraged operating model in conducting its banking business and operations. The Bank aims to continue to draw more qualified staff with the right skills and capabilities in support of its future expansion programmes at all levels by introducing attractive remuneration packages, comprehensive training programmes, skill enhancement opportunities and a positive overall working environment.

6.6 Profile of the Board of Directors

The members of the Board and their respective profiles as at the LPD are set out below: (i) Encik Zainal Abidin bin Jamal

Encik Zainal Abidin Jamal was appointed as Chairman of Maybank Islamic Berhad on 1 June 2017. He has been a Director of Maybank Islamic since 28 January 2010. Prior to that, he was a Director of Malayan Banking Berhad from July 2009 until April 2014, where he also served as a member of the Credit Review Committee, Nomination and Remuneration Committee, and Employees’ Share Scheme Committee of the Board. He was also previously Chairman of Maybank Trustees Berhad.



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His other current directorship within the Maybank Group is a Director of Etiqa Takaful Berhad. Encik Zainal Abidin Jamal is a practicing corporate and commercial lawyer and established his firm, Zainal Abidin & Co in 1987, where he is the Founder and Senior Partner. He also serves on the Boards of Sime Darby Berhad, Sime Darby Plantation Sdn Bhd, Sime Darby Industrial Holdings Sdn Bhd and Lam Soon (M) Berhad.

(ii) Dato’ Dr. Muhammad Afifi al-Akiti

Dato’ Dr. Muhammad Afifi al-Akiti was appointed as a Director of Maybank Islamic on 15 August 2013. Dato’ Dr Muhammad Afifi al-Akiti received a First-Class degree in Scholastic Philosophy and History of Science from the Queen's University of Belfast, where he was awarded various scholarships for his Masters and Doctoral degrees at the University of Oxford. Dato’ Dr. Muhammad Afifi al-Akiti subsequently completed his DPhil in Medieval Arabic Philosophy from the University of Oxford as a Clarendon Scholar in 2008. His areas of expertise are Islamic theology, philosophy and science. Dato’ Dr. Muhammad Afifi al-Akiti is a Kuwait Foundation for the Advancement of Sciences (KFAS) Fellow in Islamic Studies at the Oxford Centre for Islamic Studies, an Islamic Centre Lecturer in Islamic Studies at the Faculty of Theology, University of Oxford as well as a College Lecturer in World Religions at Worcester College, Oxford. He was listed in The World’s 500 Most Influential Muslims for 2010 and was appointed as a permanent member of the Council of the State of Perak, Malaysia, by the then Crown Prince of Perak, Raja Dr. Nazrin Shah. Dato’ Dr. Muhammad Afifi al-Akiti sits on the Boards of Oxford Islamic Finance Ltd, U.K. and Oxford Real Estate Ltd, U.K. Aside from serving as member of an international team of experts to advise on the setting up of the Sultan Omar ‘Ali Saifuddin Centre for Islamic Studies, Universiti Brunei Darussalam, he also serves as a member of an international task force for the Abu Dhabi Educational Council (ADEC) UAE, on redesigning the curriculum at the Islamic Institute of Al Ain, the oldest Islamic educational institution in the United Arab Emirates.

(iii) Encik Dali Kumar @ Dali bin Sardar

Encik Dali Sardar was appointed as a Director of Maybank Islamic on 11 August 2014. Encik Dali’s specific areas of expertise include financial & corporate restructuring and conventional banking derived from his vast working experience. He served as Relationship Manager at Citicorp/ Citibank and was also attached to the Leveraged Buyouts ('LBO') and Venture Capital Groups at Citibank New York. Upon his return to Malaysia, he was seconded to Citicorp Capital Sdn. Bhd where he served as the Vice President of Citicorp/Citibank in 1990 and as the Executive Director of Citicorp Capital until 1993 where he was eventually promoted as its Managing Director in 1994. Encik Dali Sadar also served as the Chief Executive Officer of Utama Merchant Bank Berhad in 1996 after which he left to establish his own firm, DTA Capital Group. He serves as a director of Chuan Huat Resources Bhd, a company listed on the main board of Bursa Malaysia and Malaysian General Investment Corporation (MGIC) Bhd as well as on several boards of foreign companies such as Norhtec Corporation Ltd, Thailand and M Development Ltd, Singapore.



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Encik Dali Sadar is currently the director of DTA Capital Group which is a venture capital/private equity and corporate finance set-up involved in mainly venture fund management, direct equity investments, debt raising, Mergers & Acquisitions, pre-initial public offering planning and various forms of corporate and financial restructuring.

(iv) Encik Nor Hizam bin Hashim

Encik Nor Hizam Hashim was appointed as a Director of Maybank Islamic on 18 October 2016. Encik Nor Hizam Hashim is an accountant by profession and a member of the Malaysian Institute of Accountants (MIA). He has 30 years’ working experience holding various positions in a number of companies. Encik Nor Hizam Hashim acquired senior management experience in finance, marketing and general management in three multinational companies, namely ESSO Malaysia Berhad (as an accountant and financial analyst from 1975 to 1981), Mamor Sdn Bhd, a subsidiary of the Unilever Group (as a Financial Controller between 1982 and 1985) and Raleigh Berhad (as a General Manager (Finance) from 1986 to 1988). From 1988 to 2003, he held various senior management positions at Telekom Malaysia Berhad Group, including as Chief Operating Officer. In the year 1997, he was appointed as the Chief Financial Officer of TELKOM SA Ltd, which is the largest telecommunications company in Africa. Thereafter (i.e. from 2000 to 2003) he was appointed as the Chief Executive Officer of TM International Corporation. Between year 2007 and 2011, he was appointed as an Expert Officer to the Public Private Partnership Unit and Economic Planning Unit in the Prime Minister’s Department. Currently, Encik Nor Hizam Hashim sits on the Board of Maybank and also holds directorship in Minority Shareholders’ Watchdog Group. Previously, he was a Director of several subsidiaries of TM (including its overseas subsidiaries). He was also a Director of TELKOM SA Ltd and its subsidiaries.

(v) Datin Paduka Jam’iah binti Abdul Hamid

Datin Paduka Jam’iah Abdul Hamid was appointed as a Director of Maybank Islamic on 17 July 2017. Datin Paduka Jam’iah Abdul Hamid holds a Master’s Degree in Business Administration from Universiti Kebangsaan Malaysia. She also received her Bachelor’s Degree of Science (Finance) from the University of Northern Illinois, USA and Diploma in Public Administration from Universiti Teknologi MARA (formerly known as Institut Teknologi MARA). She is a Certified Financial Planner with the Financial Planning Association of Malaysia. Datin Paduka Jam’iah Abdul Hamid brings more than 30 years working experience holding various positions covering investment operations, corporate finance, research, international fund, corporate communications and human resource in Permodalan Nasional Berhad (PNB). Prior to her retirement in July 2016, she served as the Deputy President, Corporate & International of PNB. She had previously served as a Board member of various government-linked and investee companies namely Malaysia Mining Corporation Berhad, UMW Holdings Berhad, Chemical Company of Malaysia Bhd, Malaysian Sheet Glass Berhad, Pelangi Berhad and PNB Development Sdn Bhd. Datin Paduka Jam’iah Abdul Hamid who currently sits on the Maybank Board is the first female director on the Maybank Islamic Board of Directors. She also holds chairmanships in Prolintas Group of Companies.



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(vi) Datuk Mohd Anwar bin Yahya

Datuk Mohd Anwar Yahya was appointed as an Independent Non-Executive Director of Maybank Islamic on 17 July 2017. Datuk Anwar Yahya is an accountant and currently a member of the Institute of Chartered Accountants in England and Wales (ICAEW), the Malaysian Institute of Accountants (MIA) and the Malaysian Institute of Certified Public Accountants (MICPA). He holds a Bachelor of Science (Honours) in Economics & Accountancy from the University of Hull, United Kingdom. He was with PricewaterhouseCoopers (PwC) for more than 25 years and was involved in more than 500 consultation projects over that period. During his tenure with PwC, Datuk Anwar Yahya held financial and business advisory roles for various projects in a variety of industries.

6.7 Profile of the Shariah Committee

The members of the Shariah Committee of Maybank Islamic and their respective profiles as at the LPD are set out below: (i) Assoc. Prof. Dr. Aznan Hasan

Associate Professor, IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia Dr Aznan Hasan was appointed as the Chairman of the Shariah Committee of Maybank Islamic on 1 May 2014. He is currently an Associate Professor of IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia. Dr. Aznan Hasan received his first degree in Shariah from the University of al-Azhar and a Master’s degree in Shariah from Cairo University with distinction (mumtaz). He then obtained his Ph.D from the University of Wales, Lampeter, United Kingdom. He is the current President of the Association of Shariah Advisors in Islamic Finance (“ASAS”). He is also the Deputy Chairman of Shariah Advisory Council of the Securities Commission and a former member of the Shariah Advisory Council of Bank Negara Malaysia. Dr Aznan serves as Chairman of the Shariah Advisory Board, Barclays Capital (DIFC, Dubai), a member of the Shariah Advisory Board, ABSA Islamic Bank (South Africa), FNB Bank, Yasaar Limited, Khalij Islami, European International Islamic Bank (“EIIB”), Amanahraya Berhad, Amanah Raya Investment Bank Labuan, Employee Provident Fund and some other financial institutions and corporate bodies at both local and international level. He also serves as a Shariah consultant to Maybank Investment Bank Berhad. He is a registered Shariah Advisor for the Islamic Unit Trust Schemes and Islamic securities (Sukuk), Securities Commission of Malaysia as well as a Member of the National International Zakat Organisation Coordination Committee, an advisory body established under the Prime Minister’s Department, and a member, Shariah Supervisory Board of the Waqaf Foundation (Yayasan Waqaf), a corporate entity formed by the government to oversee the application of Waqaf in Malaysia. Dr. Aznan Hasan is also a prominent author in Islamic finance and to date, has produced a number of books and publications in journals and has presented several conference papers/proceedings at various international events/ conferences.

(ii) Assoc. Prof. Dr Ahcene Lahsasna Vice President, Research & Publication of Malaysian Financial Planning Council (MFPC)



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Dr Ahcene Lahsasna was appointed as a member of the Shariah Committee of Maybank Islamic on 11 June 2009. He received his bachelor’s degree in Islamic law and Islamic jurisprudence from Algeria, and his Masters and PhD degrees in Islamic law and Islamic jurisprudence from the International Islamic University of Malaysia. Dr Ahcene obtained his Certificate in Chartered Islamic Finance Professional from INCEIF. Prior to joining MFPC, he was an Associate Professor and the Deputy Director of the Centre of Research and Publication at INCEIF. Dr. Lahsasna is a registered Shariah advisor for the Islamic Unit Trust Schemes and Islamic Securities (Sukuk), with the Securities Commission of Malaysia. He serves as the Chairman of the Etiqa Takaful Shariah Committee and is a member of the RGA Retakaful Shariah Committee in Labuan. He is also certified as an Accredited Trainer by the General Council for Islamic Banks and Financial Institutions (“CIBAFI”), a Certified Professional Trainer by MFPC and a Certified Professional Trainer by the Finance Accreditation Agency (“FAA”). Dr Lahsasna is also a FAA Accreditation Panel (“FAP”) appointed by the FAA. Dr Lahsasna received the Global Responsible Business Leadership Award in 2017, for Islamic Financial Excellence, by the Asia Pacific CSR council, supported by United Nations Global Compact.

(iii) Dr Marjan binti Muhammad Head, Research Quality Assurance Office, International Shariah Research Academy for Islamic Finance Dr Marjan Muhamad was appointed as a member of the Shariah Committee of Maybank Islamic on 1 May 2013. She is currently the Head, Research Quality Assurance Office, at International Shariah Research Academy for Islamic Finance (ISRA). Prior to joining ISRA, she was a tutor at the Faculty of Judiciary and Law at the Islamic Science University of Malaysia (“USIM”). She obtained her first degree in Islamic Revealed Knowledge and Heritage (Fiqh and Usul al-Fiqh) from the International Islamic University Malaysia in 1998 and pursued her Masters and Ph.D at the same university, both in Islamic Revealed Knowledge and Heritage (Fiqh and Usul-Fiqh) field. Since her involvement at ISRA, she has been actively producing various research papers and articles internationally on Islamic finance. Previously Dr Marjan Muhammad was a Shariah Committee member of RHB Islamic Bank from 2011 to 2013.

(iv) Assoc. Prof. Dr. Mohamed Fairooz bin Abdul Khir Associate Professor, School of Law and Shariah, Islamic University of Malaysia Dr Mohamed Fairooz was appointed as a member of the Shariah Committee of Maybank Islamic on 1 May 2013. He was a researcher at ISRA and the Head of its Islamic Banking Unit. Prior to joining ISRA, he served the International Islamic University Malaysia for eight years as a lecturer at the Department of Islamic Revealed Knowledge and Human Sciences. He is a registered Shariah Advisor for the Islamic Unit Trust Schemes and Islamic Securities (Sukuk) with the Securities Commission of Malaysia. He is also the chairman of Shariah Committee of AGRO Bank and Shariah Committee member of MNRB Holdings Berhad. He obtained his PhD and Masters in Shariah from the University of Malaya, specializing in Fiqh, Usul al-Fiqh and Islamic Finance, and a Degree in the same field from International Islamic University Malaysia. He has also studied Shariah in Jordan under prominent Jordanian Shariah scholars. Dr Mohamed Fairooz was conferred the Shariah Scholarship Award by Bank Negara Malaysia for his Ph.D studies in Islamic finance. He is actively involved in researches related to Islamic finance. Previously he was a Shariah advisor to the Malaysian Industrial Development



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Finance Berhad.

(v) Ustaz Mohd Kamal Mokhtar Judge, Shariah Appeal Court of Singapore Ustaz Mohd Kamal Mokhtar was appointed as a member of the Shariah Committee of Maybank Islamic on 1 September 2015. Ustaz Mohd Kamal Mokhtar completed tertiary education in National University of Singapore (NUS) and graduated from Science Faculty with B.Sc. in Zoology and Botany. He obtained Diploma in Arabic Language from Islamic University of Medina in 1993. Proceeded in Faculty of Hadith and graduated with BA (Hons.) in Hadith and Islamic Studies in 1997. In 2006, he graduated from Shari'a Advisory Training Program jointly conducted by PERGAS (Singapore Islamic Scholars & Religious Teachers Association) and IIIF (International Institute of Islamic Finance). He is a Master Candidate for Master of Science (Finance) in International Islamic University Malaysia. He is currently a Judge at the Shariah Appeal Court of Singapore. At the same time, Ustaz Kamal Mokhtar is also a Sharia’a Advisor and Research Analyst at SHAPE Financial Corp. where he is supporting in formulating Sharia’a fund and sukuk structuring and monitoring of the projects in the GCC, US, Europe and Southeast Asia. He has also been consulted by the Singapore Council of Fatwa on Contemporary Financial issues such as the matter of CPF Life Scheme which had been implemented since 2010. He is currently serving as an associate member of the Singapore Council of Fatwa to discuss contemporary matters which concerns the general Muslim public in Singapore. His recent research relates to the practical applications of the concepts of istijrar, tawarruq, sukuk forms, the Islamic rules of exchanges applicable to sukuk, and global capital market rules.

6.8 Senior Management

As at the LPD, Maybank Islamic business is managed by the following executives:

Name Position

Dato’ Mohamed Rafique Merican Mohd Wahiduddin Merican

Chief Executive Officer

Nor Shahrizan Sulaiman Deputy Chief Executive Office

Wong Yee Fun Chief Financial Officer

Munawwaruzzaman Mahmud Head, Shariah Management

Arshad Mohamed Ismail Head, Corporate & Investment Banking

Azzady Jamaludin Head, Community Banking



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Name Position

Idham Sabki Baharum Head, Islamic Global Markets

Azman Rizal Abdul Aziz Head, Risk Management

Mohd Fikri Abd Ghapar Head, Corporate Legal Services

Rosmayati Ismail Head, Corporate Secretarial

Rozima Yahya Human Capital Director, Group Islamic Banking (Acting)




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SECTION 7.0 FUNDING AND CAPITAL ADEQUACY

7.1 Funding

Maybank Islamic has a liability structure that incorporates customer deposits and investment account of customers. The customer deposits that represent 13.0%, 15.0% and 72.0% of total deposits are savings deposits, demand deposits and term deposits respectively. Investment account of customers includes with and without maturity represents 69.0% and 31.0% of the total investment account respectively. The Bank is able to maintain stable growth in deposits and investment accounts through 8 stand-alone branches while at the same time leveraging on the Group’s infrastructure and network to offer end-to-end Shariah-compliant financial solutions through its parent’s extensive retail network of over 350 domestic branches. As at 30 June 2017, approximately 79.5% of total term deposits and 77.7% of investment accounts with maturity are due within six months. However, based on Maybank Islamic’s experience and historical trends in respect of customer behaviour, the rollover rate of traditional deposits has been consistent and predictable, hence providing the Bank with a steady source of funding. As at 30 June 2017, Maybank Islamic secured a market share of 29.6% of total customer deposits and investment accounts within the Islamic banking industry and a market share of 25.3%, 37.6%, 25.1%, and 81.2% for term deposits, savings deposits, demand deposits and investment accounts respectively. Approximately 37.6% of Maybank Islamic’s deposits were sourced from business enterprises, 32.9% from individuals, 14.9% from government and statutory bodies, and 14.6% from institutional clients and others as at 30 June 2017. Other sources of funding include interbank deposits and holding company placements. In relation to Maybank Islamic’s investment accounts, 36.0% were sourced from business enterprises, 57.0% were sourced from individuals, 1.0% were sourced from government and statutory bodies and the remaining 6.0% were from other sources. The following table illustrates the profile of the Bank’s customer deposits and investment accounts by type:

Unaudited Audited


2017 2016 2016 2015 (RM ‘000) (RM ‘000) (RM ‘000) (RM ‘000)

Deposits Type

Savings 14,777,868 13,532,762 13,498,385 12,173,654

Demand 16,938,648 16,500,214 17,291,694 17,282,238

Term deposit 81,440,089 76,312,067 75,814,413 76,330,323

Total Deposits 113,156,605 106,345,043 106,604,492 105,786,215

Investment Account

without Maturity 8,613,796 7,192,035 7,564,114 5,664,558

with Maturity 19,172,775 23,771,996 23,980,473 11,993,335

Total Investment Account 27,786,571 30,964,031 31,544,587 17,657,893



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7.2 Capital Adequacy

As at 30 June 2017 and 31 December 2016, Maybank Islamic’s Common Equity Tier 1 (“CET1”) ratio (the ratio of CET1 to risk-weighted assets) was 13.404% and 13.992% respectively. The Total Capital Ratio (“TCR”) (the ratio of total capital base to risk-weighted assets) was 17.767% and 18.553%, respectively, which are well above the minimum requirements set by BNM of 8.0%. Maybank Islamic’s Tier 1 capital has grown over the past financial year, mainly as a result of retained earnings and the increase in paid-up share capital and share premium by way of a rights issue. The following table sets forth the unaudited capital adequacy ratios of Maybank Islamic as at 30 June 2016 and 30 June 2017 and the audited capital adequacy ratios of Maybank Islamic as at 31 December 2015 and 31 December 2016:

Unaudited Audited


2017 2016 2016 2015

CET1 capital ratio 13.404% 13.886% 13.992% 12.435%

Tier 1 capital ratio 13.404% 13.886% 13.992% 12.435%

Total capital ratio 17.767% 18.426% 18.553% 16.489%

Breakdown of capital base in the various categories of capital:

Unaudited Audited


2017 2016 2016 2015

(RM ‘000) (RM ‘000) (RM ‘000) (RM ‘000)

CET1 / Tier 1 Capital

Share capital 5,481,783 263,959 281,556 263,959

Share premium - 4,658,232 5,200,227 4,658,232

Retained profits 3,268,349 2,885,540 2,857,087 2,572,819

Other reserves 380,222 538,284 749,805 771,581

CET1 capital before regulatory adjustment 9,130,354 8,346,015 9,088,675 8,266,591

Less: Regulatory adjustment applied in CET1 capital (398,766) (120,653) (413,187) (501,597)

Total CET1 / Tier 1 capital 8,731,588 8,225,362 8,675,488 7,764,994

Tier 2 Capital

Tier 2 capital instruments 2,500,000 2,500,000 2,500,000 2,200,000

Collective allowance 24,630 29,729 23,379 27,625

Surplus of eligible provision over expected loss 317,862 159,071 304,154 303,861

Total Tier 2 capital 2,842,492 2,688,800 2,827,533 2,531,486

Total capital 11,574,080 10,914,162 11,503,021 10,296,480



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The breakdown of Risk Weighted Assets (“RWA”) are as follows:

Unaudited Audited


2017 2016 2016 2015

(RM ‘000) (RM ‘000) (RM ‘000) (RM ‘000)

Standardised Approach exposure 6,717,932 6,335,495 7,151,955 6,417,990

Internal Ratings Based Approach exposure after scaling factor 67,405,985 61,821,731 64,702,050 59,046,097

Total RWA for credit risk 74,123,917 68,157,226 71,854,005 65,464,087

Total RWA for credit risk absorbed by parent and Investment Account Holder (16,045,465) (15,396,621) (16,426,406) (9,098,255)

Total RWA for market risk 943,072 1,183,901 882,544 1,135,708

Total RWA for operational risk 6,122,133 5,288,425 5,691,742 4,943,708

Total RWA 65,143,657 59,232,931 62,001,885 62,445,248




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SECTION 8.0 ASSET QUALITY

8.1 Financing Portfolio

Maybank Islamic’s financing are predominantly made to corporations and individuals based in Malaysia. As at 30 June 2017, Maybank Islamic’s total gross outstanding financing were RM154.5 billion, which represented 83.5% of Maybank Islamic’s total assets of RM185.1 billion. 8.1.1 Financing and Advances by Type

The composition of Maybank Islamic financing portfolio is set out below:-

Unaudited Audited


2017 2016 2016 2015

(RM ‘000) (RM ‘000) (RM ‘000) (RM ‘000)

Cashline 5,130,146 4,466,586 4,844,393 3,780,361

Term financing

- Housing financing 82,642,008 80,815,333 81,327,544 79,380,968

- Syndicated financing 737,392 795,413 785,260 805,196

- Hire purchase receivables 36,747,845 35,154,049 36,148,172 35,493,985

- Other term financing 97,876,910 95,843,541 99,099,206 96,338,890

Bills receivable 38,022 30,432 1,172 1,195

Trust receipts 152,395 205,086 153,310 164,745

Claims on customers under acceptance credits 4,690,134 4,328,411 4,838,297 4,368,353

Staff financing 2,338,707 2,265,367 2,316,208 2,187,781

Credit cards receivable 867,913 701,324 825,661 624,865

Revolving credit 17,065,919 12,400,449 16,508,748 9,708,099

248,287,391 237,005,991 246,847,971 232,854,438

Unearned income (93,775,331) (98,796,597) (96,954,485) (101,731,632)

Gross financing and advances 154,512,060 138,209,394 149,893,486 131,122,806

Allowances for impaired financing and advances

- Individual (663,320) (239,520) (617,350) (208,683)

- Collective (848,832) (969,353) (752,826) (747,774)

Net financing and advances 152,999,908 137,000,521 148,523,310 130,166,349



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8.1.2 Financing and Advances by Economic Purpose

Unaudited Audited


2017 2016 2016 2015

(RM ‘000) (RM ‘000) (RM ‘000) (RM ‘000)

Purchase of securities 19,265,003 18,770,654 19,549,967 18,801,131

Purchase of transport vehicles 31,808,835 30,425,550 31,285,307 30,661,915

Purchase of landed properties

- Residential 33,615,582 28,450,519 30,558,405 25,975,500

- Non-residential 11,072,874 10,519,340 11,448,638 9,480,798

Purchases of fixed assets (exclude land properties) 38,249 34,706 30,867 45,843

Personal use 3,374,836 2,683,910 3,293,004 2,302,898

Consumer durables 301 345 293 570

Construction 3,455,811 3,387,055 3,553,259 3,727,995

Working capital 50,971,246 43,199,035 49,305,842 39,463,731

Credit/charge cards 909,323 738,280 867,904 662,425

Gross financing and advances 154,512,060 138,209,394 149,893,486 131,122,806

8.2 Classification and Impairment Provisions for Financing

Impairment Losses on Financing and Advances

The Issuer review its individually significant financing and advances at each statement of financial position date to assess whether an impairment loss should be recorded in the income statement. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Issuer makes judgements about the customer’s financial situation and the net realisable value of collateral. These estimates are based on assumptions on a number of factors and actual results may differ, resulting in future changes to the allowances. Financing and advances that have been assessed individually but for which no impairment is required and all individually insignificant financing and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether allowances should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as credit quality, levels of arrears, credit utilisation, financing to collateral ratios, and others) and judgements on the effect of concentrations of risks (such as the performance of different individual groups).

Classification of Financing and Advances as Impaired

Financing and advances are classified as impaired when principal or profit or both are past due for more than three months or where financing in arrears for three months or less exhibit indications of credit weaknesses, whether or not impairment loss has been provided for. Where an impaired financing and advances has been rescheduled or restructured, it will continue to be



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classified as impaired until repayments based on the revised and/or restructured terms have been observed continuously for a period of six (6) months. Where a default occurs for repayments scheduled on intervals of three months or longer, it will be classified as impaired.

Income Recognition

For all financial instruments measured at amortised cost and profit bearing financial investments classified as held-for-trading and available-for-sale, profit income for all profit-bearing financial instruments are recognised within finance income in the income statement using the effective yield method. The effective yield/profit rate method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the finance income over the relevant period. The effective yield/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 yield/profit rate, the Issuer takes 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 profit rate, but does not consider future credit losses.

8.3 Write-Off Policies

As a general policy, the unsecured impaired accounts aged 2 years and above are to be written off irrespective of the status of ongoing recovery actions/repayment. For impaired accounts with security, only partial write-offs are to be effected and full write-off is to be made for impaired accounts aged 7 years and above. Impaired accounts which are written off in such cases are maintained in a memorandum account for further follow-up actions as if the debt has not been written off.

8.4 Profile of Impaired Financing

As at 30 June 2017 and 30 June 2016, Maybank Islamic’s total net impaired financing were RM0.1 billion and RM1.4 billion respectively. The ratio of net impaired financing to net financing as at 30 June 2017 and 30 June 2016 were 0.88% and 1.47% respectively as illustrated below.

Unaudited Audited


2017 2016 2016 2015

(RM ‘000) (RM ‘000) (RM ‘000) (RM ‘000)

Gross impaired financing and advances (opening) 1,489,286 873,230 873,230 674,817

Newly impaired 700,774 1,128,006 1,399,827 1,024,632

Reclassified as non-impaired (257,469) (193,967) (415,007) (362,515)

Recovered (191,320) (133,604) (237,721) (292,292)

Amount written off (56,494) (54,263) (131,043) (171,412)

Gross impaired financing and advances 1,684,777 1,619,402 1,489,286 873,230



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Unaudited Audited


2017 2016 2016 2015

Calculation of ratio of net impaired financing and advances

Gross impaired financing and advances (excluding financing funded by RPSIA* and IA**) 1,607,161 1,619,402 1,407,595 873,230

Less: Individual allowance (663,320) (239,520) (617,350) (208,683)

Net impaired financing and advances 943,841 1,379,882 790,245 664,547

Gross financing and advances (excluding financing funded by RPSIA* and IA**) 108,054,975 94,362,069 100,618,4361 102,599,76

Less: Individual allowance (663,320) (239,520) (617,350) (208,683)

Net financing and advances 107,391,655 94,122,549 100,001,086 102,391,078

Ratios:

Net impaired financing and advances as a percentage of net financing and advances 0.88% 1.47% 0.79% 0.65%

*RPSIA = Restricted Profit Sharing Investment Accounts **IA = Investment Account

8.5 Securities Portfolio

Securities Held-for-Trading (“HFT”)

HFT securities are acquired principally for the purpose of benefiting from actual or expected short-term price movement or to lock in arbitrage profits. As at 30 June 2017, HFT securities constituted 0.1% of Maybank Islamic’s total assets. Maybank Islamic’s HFT portfolio mainly comprises corporate Sukuk (100%) of the HFT portfolio as at 30 June 2017. Securities Available-for-Sale (“AFS”)

The AFS portfolio covers the holding of approved securities that are not classified as held-for-trading or held-to-maturity investments and are measured at fair value. As at 30 June 2017, AFS securities constituted 5.4% of Maybank Islamic’s total assets. Maybank Islamic’s AFS portfolio mainly consisted of Malaysian Government Investment Issues (63.1%), Negotiable Islamic instrument of deposits (21.0%), and unquoted securities (15.9%).



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SECTION 9.0 RISK MANAGEMENT

Maybank Islamic currently adopts the integrated risk management approach established by the Maybank Group. The Bank’s risks are systematically managed with proper risk governance, infrastructure and tools embedded throughout the Maybank Group Islamic financing businesses. This approach ensures effective management of enterprise-wide risks posed by the rapidly changing business environment. The management of risk lies at the heart of the Group’s business. The Group continues to take proactive measures to manage various risks posed by the rapidly changing business environment. These risks, which include credit risk, market risk, liquidity risk, reputational risk, business risk, strategic risk and operational risk, are systematically managed within the Group’s risk management framework. Amidst the various risk factors impacting the Group’s business operations, which include changing regulatory landscape, external competitive environment and economic landscape, the Group continues to plan, monitor and respond to these internal and external risk factors in an anticipative manner. The risk management framework that the Group has put in place is designed to meet these challenges. Various aspects of the risk management framework are described below. 9.1 Risk Governance Structure

The Group invests extensively to ensure that adequate policies and procedures for the identification, measurement, monitoring and control of credit, liquidity, rate of return, foreign exchange and operational risks have been implemented and that a uniform standard of such measures exists across the Group. Risk management is a critical part of the Group’s operating model. The existing risk management infrastructure for the Group was established by the Issuer and subsequently adopted by its subsidiaries, taking into account the respective business models and specific requirements of each individual entity.

Both the Maybank Board and the Board are assisted by the following Maybank Board committees in its overall responsibility (for risk oversight within the Group): (a) Risk Management Committee; (b) Credit Review Committee; and (c) Audit Committee. The Executive Risk Committee, Group Operational Risk Management Committee, Asset and Liability Management Committee and Group Management Credit Committee are Executive Level Committees responsible for the management of all material risks within the Bank.




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The following chart illustrates the risk governance structures of the Group:

Board of Directors

The Maybank Board and the Board are Maybank Group’s “ultimate governing body” who has overall risk oversight responsibility. It approves the Group’s risk management framework, risk appetite, plans and performance targets for the Group and its principal operating subsidiaries, the appointment of senior officers, the delegation of authorities for credit and other risks and the establishment of effective control procedures.

Board Level Committees

Risk Management Committee

The RMC is a dedicated Maybank Board’s and the Board’s committee responsible for the risk oversight function within the Group. It is principally responsible to review and approve key risk frameworks and policies for the various risks.

Credit Review Committee (“CRC”)

The CRC is tasked by the Maybank Board and the Board to review fresh or additional financing applications subject to pre-determined authority limits and credit risk ratings as may be recommended by the Group Management Credit Committee (“GMCC”).

Executive Level Committees

Executive Risk

Committee (“ERC”)

Group Operational

Risk Management Committee (“GORMC”)

Asset & Liability Management Committee (“ALCO”)

Group Management Credit

Committee (“GMCC’)

The ERC, GORMC, ALCO and GMCC are Executive Level Committees responsible for the management of all material risks within the Maybank Group. The scope of ERC encompasses all risks type, whilst the GORMC caters specifically to operational risk matters. The ALCO is primarily responsible for the development and implementation of broad strategies and policies for managing the consolidated balance sheet and associated risks. The GMCC is empowered as the centralised financing approval committee for the Group.

9.2 Holistic Enterprise Risk Management Approach

In light of the Group’s operating structure and geographic expansion, the Group continuously enhances its integrated risk management approach towards the effective management of enterprise-wide risks in the Group. Key components of the Enterprise Risk Management (“ERM”) framework include:



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In line with the ERM, the Group has adopted and consistently practised the Seven Broad Principles of Risk Management to ensure integration in purpose, policy, methodology and risk culture.

9.3 The Group’s Seven Broad Principles of Risk Management

The Seven Broad Principles define the key principles on accountability, independence, structure and scope. (1) The risk management approach is premised on three lines of defence – risk taking units,

risk control units and internal audit. (2) The risk taking units are responsible for the day-to-day management of risks inherent

in their business activities while the risk control units are responsible for setting the risk management frameworks and developing tools and methodologies for the identification, measurement, monitoring, control and pricing of risk. Complementing this is internal audit which provides independent assurance of the effectiveness of the risk management approach.

(3) Risk management provide risk oversight for the major risk categories including credit risk, market risk, liquidity risk, operational risk and other industry-specific risks.

(4) Risk management ensures that the core risk policies of the Group are consistent, sets the risk tolerance level and facilitates the implementation of an integrated risk-adjusted measurement framework.

(5) Risk management is functionally and organizationally independent of the business sectors and other risk taking units within the Maybank Group.

(6) The Maybank Board, through the Maybank Board Risk Management Committee, maintains overall responsibility for risk oversight within the Group.

(7) Risk management is responsible for the execution of various risk policies and related business decisions empowered by the Board.



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The Maybank Group manages risk through clear delineation of the 3 lines of defence. The 3 lines of defence are defined as follows:

9.4 Risk Appetite

Identifying the risk appetite and risk capacity of the business is an important starting point for ERM. A key element of the Risk Appetite Framework is the Risk Appetite Statement, which is a Maybank Islamic Board-approved document that defines the self-imposed constraints and drivers which Maybank Islamic have chosen to limit or otherwise influence the amount of risk undertaken. This document shall have a set of quantitative and qualitative key measures, and shall be regularly reviewed, updated and approved by the Maybank Board Risk Management Committee and the Maybank Islamic Board.

The Maybank Board has approved the Risk Appetite Statement and Framework for implementation across the Maybank Group while the Board has approved the Risk Appetite Statement for the Bank. The risk appetite statements were articulated to better link the Issuer’s business strategies with its risk taking capacities and optimise risk-return tradeoffs.

9.5 Capital Management

The impact of the overall net risk earnings and adequacy of the Issuer’s capital to support the risk taking activities is assessed through group wide and business level stress testing as well as periodic review and update of the stress events library. Relevant business units are alerted on possible defensive actions.

9.6 Internal Capital Adequacy Assessment Process (“ICAAP”)

The Bank’s overall capital adequacy in relation to its risk profile is assessed through a process articulated in the ICAAP. The ICAAP Framework has been formalised and approved by the Maybank Islamic Board in February 2010, with the seventh version revised in October 2016. The ICAAP has been implemented within the organisation to ensure all material risks are identified, measured and reported, and adequate capital levels consistent with the risk profiles are held.

The Bank’s ICAAP closely integrates the risk and capital assessment processes. The ICAAP framework is designed to ensure that adequate levels, including capital buffers, are held to support the Bank’s current and projected demand for capital under existing and stressed conditions. Regular ICAAP reports are submitted on quarterly basis to the Bank’s Management



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Committee and the Maybank Islamic Board for comprehensive review of all material risks faced by the Bank and assessment of the adequacy of capital to support them.




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SECTION 10.0 OVERVIEW OF THE MALAYSIAN ECONOMY

10.1 Ministry of Finance Malaysia – Quarterly Update on the Malaysian Economy – 2nd

Quarter 2017, Ministry of Finance Malaysia Malaysian Economy Robust economy growth The Malaysian economy recorded a sterling growth of 5.8% during the second quarter of 2017 (Q2 2016: 4%) supported by domestic demand and improved external sector. On the supply side, all sectors recorded positive growth led by services and manufacturing sectors. Services remain robust The services sector posted a stronger growth of 6.3% during the second quarter of 2017, accounting for 54.2% of GDP (Q2 2016: 5.7%; 54%). Growth was supported by intermediate services which increased 6.8% (Q2 2016: 5.5%) driven by information and communication as well as finance and insurance subsectors. Meanwhile, the final services rose 6.6% (Q2 2016: 6.1%) attributed to robust wholesale and retail trade subsector. The wholesale and retail trade subsector increased further by 7.7% (Q2 2016: 6.6%) mainly contributed by stronger performance in the wholesale and retail segments. The retail trade segment expanded 11.4% (Q2 2016: 7.2%) driven mainly by sales of other goods in specialised stores. The wholesale trade segment grew 6% (Q2 2016: 8.7%) supported by other specialised wholesale and wholesales of agricultural raw material and live animals. Meanwhile, the motor vehicles segment turned around by 0.9% (Q2 2016: -2.7%) attributed to stronger sales of motor vehicles parts and accessories. The food & beverages and accommodation subsector rose 7.3% (Q2 2016: 6.9%) supported by all segments. The food & beverages segment expanded 8% (Q2 2016: 7.9%) while the accommodation segment increased 5% (Q2 2016: 3.4%). The finance and insurance subsector increased significantly by 5.1% (Q2 2016: 1.7%) supported by finance and insurance segments. The finance segment rose 5.6% (Q2 2016: -0.2%) led by higher growth in Financial Intermediation Services Indirectly Measured (FISIM) and fee-based income. Meanwhile, the insurance segment increased 3.4% (Q2 2016: 7.7%) following lower claims in general insurance amid moderate premium income. The real estate and business services subsector edged further to 7.3% (Q2 2016: 6.9%) with real estate segment expanding 5% (Q2 2016: 4.7%). The business services segment recorded 8.5% (Q2 2016: 7.9%) supported by professional services, particularly in engineering, legal and accounting services. The information and communication subsector continued to grow 8.5% (Q2 2016: 8.7%). The growth was contributed by data communication, computer services and information activities which expanded 9.4%, 6.8% and 6%, respectively (Q2 2016: 10.1%; 7.4%; 3%). This was attributed to promotional activities and introduction of new telephone models. The transport and storage subsector grew 6.2% (Q2 2016: 6%) supported by higher air-related activities and highway operations. The air transport segment rose 3.5% (Q2 2016: 2.4%) with total air passenger traffic nationwide recording a double-digit growth of 13% to 24.4 million passengers (Q2 2016: 0.4%, 21.6 million). Similarly, total air cargo handled rebounded 3.8% to 225,840 tonnes (Q2 2016: -13.1%; 217,554 tonnes) on account of stronger trade performance. The land transport segment increased 6.9% (Q2 2016: 6.7%) driven by strong construction activities. This was reflected by the performance of KTMB cargo tonnage which increased significantly by 7.3% to 1.5 million tonnes (Q2 2016: 2.6%; 1.4 million). The KTMB intercity train services increased 15.5% to 772,959 passengers (Q2 2016: 62.2%; 669,134). The Electric Train



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Service (ETS) ridership continued to record a double-digit growth of 25.4% to 1.02 million passengers (Q2 2016: 91.2%; 0.8 million) following extension of service to other cities in the Peninsular. Meanwhile, traffic volume on tolled highways rebounded 9.1% to 455.9 million vehicles (Q2 2016: -8.5%; 417.9 million) attributed to higher usage during school holidays and festivities. The water transport segment continued to record a moderate growth at 1.5% (Q2 2016: 1.9%). The total volume of containers handled at seven major ports declined 4% to 5.9 million twenty-foot equivalent units (TEUs) (Q2 2016: 5%; 6.1 million). The slower performance was due to a decline in volume handled at most major ports following adverse weather conditions which affected the movement of ships. The utilities subsector grew at a slower pace of 2.1% (Q2 2016: 5.3%) due to slower demand from households. Electricity and gas segment moderated to 1.2% (Q2 2016: 5.2%) with the electricity output growing by 1% (Q2 2016: 9.3%). Similarly, the water and sewerage segment recorded a slower growth of 5.8% (Q2 2016: 6.6%) partly due to supply disruptions in Selangor, Penang and Johor. Other services subsector increased 5.2% (Q2 2016: 4.5%) led by private education which rose 6% (Q2 2016: 6.4%) and private health which expanded 5.3% (Q2 2016: 5.4%). Meanwhile, government services grew 4.5% (Q2 2016: 4.9%). Prices Manageable inflation Headline inflation, as measured by annual change in the Consumer Price Index (CPI), increased to 4% in the second quarter of 2017 (Q2 2016: 1.9%). This was mainly due to price increase in the transport group by 13.4% (Q2 2016: -6.6%). Meanwhile, prices in the food and non-alcoholic beverages as well as housing, water, electricity, gas and other fuels groups fell slightly to 4.1% and 2.2% (Q2 2016: 4.2%; 2.5%), respectively. These three major groups cumulatively contributed 3.46 percentage points to the CPI increase. Transport group was the major contributor to the CPI increase at 1.61 percentage points. Notable increase was in the operation of personal transport equipment (16.6%), particularly fuel and lubricant (22.9%). This was in line with the higher global crude oil prices. Meanwhile, food and non-alcoholic beverages group was the second largest contributor towards the CPI increase, constituting 1.33 percentage points. The major subgroup which contributed to the price increase was the oil and fats subgroup (39.2%) following rationalisation of cooking oil subsidy. Other factors contributing to the higher prices were the increase in prices of fish and seafood (7%) as well as meat (4.5%) subgroups following stronger demand leading up to festivities as well as school holidays. Prices in the housing, water, electricity, gas and other fuels contributed 0.52 percentage points to the CPI increase, mainly attributed to higher actual rental paid by the tenant subgroup (2.7%). The Producer Price Index (PPI) increased 7.3% (Q2 2016: -2.1%), mainly due to higher commodity prices. The increase in PPI was due to higher indices of four sectors, namely, mining (19.5%); manufacturing (6.6%); agriculture, forestry and fishing (5.1%); as well as electricity and gas supply (2.6%). However, water supply index declined by 0.5%. Meanwhile, the PPI for local production by stages of processing indicated that prices of crude materials for further processing rebounded 10.9%; followed by intermediate materials, supplies and components (8.9%); and finished goods stage (1.3%). Monetary and Financial Developments Monetary aggregates expanded steadily Money supply increased further in the second quarter of 2017. M1 or narrow money expanded 9.3% to RM397.7 billion as at end-June 2017 (end-June 2016: 0.9%; RM363.9 billion) following



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an increase in both demand deposits and currency in circulation. Similarly, M3 or broad money expanded 4.3% to RM1,680.5 billion as at end-June 2017 (end-June 2016: 1.9%; RM1,611.1 billion) driven mainly by net portfolio inflows, higher net claims on Government and higher extension of credit to the private sector. Interest rates remained stable The Overnight Policy Rate (OPR) remained at 3.00% during the quarter. Meanwhile, the weighted average lending rate (ALR) and savings deposit rate of commercial banks stood at 5.20% and 0.96%, respectively. However, weighted base rate (BR) of commercial banks decreased to 3.61%. During the quarter, interest rates on fixed deposits of 1-month to 12-month maturities ranged between 2.87% and 3.10%. Higher private sector financing Total gross private sector financing raised through the banking system and capital market rebounded 4.1% to RM293 billion in the second quarter of 2017 (Q2 2016: -2.1%; RM281.6 billion). Gross private debt securities (PDS) excluding Cagamas recorded RM26.3 billion (Q2 2016: RM20.1 billion). Meanwhile, loans disbursed by the banking system turned around and remained as the major source of private sector financing. Loan disbursements increased 1.4% to RM263.1 billion (Q2 2016: -1.6%; RM259.4 billion) mainly for household sector (27.4%) followed by manufacturing (19.2%) as well as wholesale and retail trade, accommodation and restaurants (18.8%) sectors. In terms of loans disbursed by purpose, purchase of securities recorded the highest increase (23.9%) followed by construction (15.3%) and purchase of consumer durable goods (15.1%). Likewise, loan approvals rebounded 2.5% to RM91.8 billion (Q2 2016: -13%; RM89.6 billion), particularly for household, construction and manufacturing sectors. However, loan applications declined 3.7% to RM204.8 billion (Q2 2016: 2%; RM212.6 billion), especially from construction, manufacturing as well as transport, storage and communication sectors. Total loans outstanding grew 5.6% to RM1,548.5 billion (end-June 2016: 5.6%; RM1,465.2 billion). Total loans outstanding were mainly held by household (56.9%), wholesale and retail trade, accommodation and restaurants (7.4%) as well as real estate (7.1%) sectors. Meanwhile, the bulk of total loans outstanding was for the purchase of residential properties (32.2%), followed by working capital (24%) and purchase of nonresidential properties (13.6%). Well-capitalised banking system The banking system remained strong and was well-capitalised during the second quarter of 2017. As at end-June 2017, the common equity tier 1 capital ratio; tier 1 capital ratio; and the total capital ratio stood at 12.9%, 13.8% and 17%, respectively (end-June 2016: 13.4%; 14.3%; 16.8%). The banking sector recorded a pre-tax profit of RM9.2 billion due to higher dividend income from subsidiaries and net interest income from financing activities. The quality of loans in the banking system remained stable with the net impaired loans ratio stood at 1.2% as at end-June 2017 (end-June 2016: 1.2%). Ringgit stronger against greenback Ringgit, the best performer among regional currencies, firmed up by 3.1% against the US dollar during the second quarter. The ringgit also advanced in the range of 1.2% to 5.3% against other selected currencies except the euro (3.8%) and the pound (1.1%). Ringgit’s performance was contributed by high inflow of funds into both the bond and equity markets. Stronger ringgit was also supported by the Financial Markets Committee (FMC) measures, particularly on enhancing liquidity in the bond market and allowing for greater hedging flexibility in the onshore market. In addition, the ringgit strengthened further following stronger-than-expected first quarter economic growth. However, the trend of inflow reversed in second half of June following another US interest rate hike on 14 June 2017.



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From end-June 2017 to 18 August 2017, the ringgit remained unchanged against the US dollar and appreciated against the peso (2.1%), the pound (1%) and the rupiah (0.3%). However, the ringgit weakened against other major and regional currencies within the range of 0.2% to 2.5%. Stronger fund raising activity The fund raising activity in the capital market remains active in the second quarter of 2017. Gross funds raised in the capital market rebounded significantly by 19% to RM56.9 billion (Q2 2016: -11.1%; RM48 billion). The gross funds raised by public sector turned around 5% to RM27.1 billion (Q2 2016: -14.4%; RM25.8 billion). However, net funds raised by the public sector was lower at RM21.4 billion (Q2 2016: RM23.6 billion), mainly attributed to higher redemptions. Gross funds raised by the private sector also rebounded 35% to RM29.9 billion (Q2 2016: -6.8%; RM22.2 billion). The new issuances of debt securities were mainly contributed by medium-term notes accounting for 96.2% of the total PDS. The PDS raised were mainly held in finance, insurance, real estate and business services (67.2%) as well as electricity, gas and water (17.4%) sectors. In addition, the funds raised in the equity market also increased significantly by 71.8% to RM3.5 billion (Q2 2016: -37.4%; RM2.1 billion). The increase was driven by five new listings of Initial Public Offerings (IPOs) during the quarter with one notable IPO issued in June, the largest since 2012. The yield of corporate bonds for the 5-year AAA-rated and AA-rated notes stood at 4.30% and 4.64%, respectively (Q2 2016: 4.17%; 4.61%). Meanwhile, the yield of Government securities increased across the entire maturity and rating bands with the yields on 3-year, 5-year and 10-year papers at 3.36%, 3.61% and 3.93%, respectively (Q2 2016: 3.15%; 3.37%; 3.74%). (Source: Quarterly Malaysian Economy – 2nd Quarter 2017, Ministry of Finance Malaysia)

10.2 Ministry of Finance Malaysia - Economic Report 2016/2017

Islamic Finance Developments Further innovation in Islamic banking The Islamic banking industry showed significant growth over the last five years, with total assets growing to RM685.4 billion (end-2010: RM351.2 billion) at a compounded annual growth rate (CAGR) of 14.3% as at end-2015. For the first seven months of 2016, total assets of the Islamic banking system, including direct foreign investment (“DFIs”) grew 9.7% to RM715.6 billion (end-July 2015: 13.4%; RM652.5 billion). Total Islamic deposits and investment accounts of the Islamic banking system increased 9.6% to RM580.7 billion (end-July 2015: 15.3%; RM530 billion) with investment accounts being the growth driver, following the migration to the new investment account classification since July 2015. During the same period, total financing of the Islamic banking system grew 10.2% to RM513.2 billion (end-July 2015: 17.3%; RM465.8 billion). The strong growth and progressive development of the Islamic banking has translated into an increase in the market share of Islamic banking assets (including DFIs), accounting for 27.5% of the total banking system assets (end-July 2015: 26.4%). The bulk of the Islamic financing was channeled to the household sector, which recorded a total of RM316.4 billion, accounting for 61.6%; followed by the finance, insurance and business activities (RM56.3 billion, 11%); construction (RM22.7 billion, 4.4%); education, health and others (RM22.6 billion, 4.4%); and manufacturing (RM22.4 billion, 4.4%) sectors, respectively. In accordance to the new requirements under the Islamic Financial Services Act 2013, Islamic banks can mobilise funds either through Islamic deposits or investment accounts. Consequently, the Investment Account Platform (“IAP”) was launched in February 2016 to provide an efficient intermediation channel utilizing technology to existing retail and corporate customers to access, capitalize and efficiently monitor a wide range of Shariah-compliant ventures. Meanwhile, the IAP also expands the financing opportunities for new ventures with viable projects to reach a wider investor base.



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As part of the efforts to strengthen the nation’s position as the leading global hub for Islamic finance, Malaysia continues to develop various Shariah standards aimed at promoting effective application of Shariah contracts in providing Islamic financial products and services. These comprehensive standards will support innovation in the industry by providing greater clarity on each Shariah contractual requirement. As of July 2016, six Shariah and operational standards have been issued, bringing a total of 11 Shariah standards issued thus far, while the remaining three Shariah standards will be finalised by the end of 2016. Takaful industry remains strong The assets of the takaful funds grew steadily by 6.4% amounting to RM26.3 billion for the first seven months of 2016 (end-2015: 8.8%; RM24.7 billion). The growth was supported by a significant holding corporate sukuk valued at RM14.5 billion (55.1% of the total takaful funds’ assets). During the same period, the amount of investment in Shariah-approved equities reduced further, mainly due to realization of the investments which led to a corresponding increase in cash and deposits. Meanwhile, the capital position of the takaful industry remained stable where the capital adequacy ratio (CAR) at 187.1% as at end-June 2016 (end-2015: 191.5%), with a capital buffer in excess of the minimum requirement of RM3.6 Billion (end-2015: RM3.7 billion). During the first seven months of 2016, the new business of family takaful recorded higher gross contributions of 7.4% amounting to RM2.3 billion (January – July 2015: 5.5%; RM2.1 billion). This was mainly contributed by a strong increase of term takaful (financing-related) as well as medical and health takaful. This was partly due to an increase in awareness on the need of medical coverage among consumers and higher level of takaful contributions required following rising private healthcare cost. In addition, the growth of investment-linked takaful business started to improve during the first seven months of 2016 after experiencing uncertain growth trend in 2015 in line with volatile movement of investment performance in the financial market. Net benefit payments, however, recorded an increase of 13.1% to RM1.5 billion (January – July 2015: 25.1%; RM1.4 billion). As at end-July 2016, the market penetration rate of family takaful business stood at 14.3% (end-July 2015: 14.4%). General takaful business expanded further with gross direct contributions of RM1,421.7 million in the first seven months of 2016 (January – July 2015: RM1,395.9 million), mainly driven by fire and motor classes of business. The net contributions of the general takaful also increased 1.5% to RM1.1 billion (January – July 2015: 12.8%; RM1 billion). Net claims paid, recorded an increase of 14.9% to RM476.7 million (January – July 2015: 7.1%; RM414.7 million), mainly due to higher claims from motor takaful business segment. During the same period, new key regulatory measures for takaful were introduced to promote a more rigorous process for capital management. Two policy documents were issued on Internal Capital Adequacy Assessment Process (ICAAP) for Takaful Operators and Stress Testing in April and June 2016, respectively. These measures aim to strengthen capital adequacy assessment and risk management, whereby takaful operators are expected to establish internal capital level targets and assess their overall capital adequacy and ability to meet future claims. (Source: Economic Report 2016/2017, Ministry of Finance Malaysia)



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10.3 BNM – Economic and Financial Developments in Malaysia in the Second Quarter of 2017

The Malaysian economy grew by 5.8% in the second quarter of 2017 The Malaysian economy recorded a stronger growth of 5.8% in the second quarter of 2017 (1Q 2017: 5.6%). Private sector spending continued to be the main driver of growth. On the external front, growth was further supported by the robust expansion in real exports of goods and services (9.6%; 1Q 2017: 9.8%) following strong demand for manufactured and commodity products. Real imports moderated slightly to 10.7% (1Q 2017: 12.9%) following more moderate expansion in investment. On a quarter-on-quarter seasonally-adjusted basis, the economy recorded a growth of 1.3% (1Q 2017: 1.8%). Domestic demand driven by private sector Domestic demand grew by 5.7% in the second quarter of the year (1Q 2017: 7.7%), supported by continued expansion in both private sector expenditure (7.2%; 1Q 2017: 8.2%) and public sector spending (0.2%; 1Q 2017: 5.8%). Private consumption recorded a growth of 7.1% (1Q 2017: 6.6%), supported by the improvement in private sector wages amid continued strength in employment growth. During the quarter, consumer sentiments continued to improve, providing further impetus to household spending. Private investment expanded by 7.4% in the second quarter (1Q 2017: 12.9%), mainly in the services and manufacturing sectors. In line with the recovery in demand, manufacturers undertook capacity expansions, machinery and equipment (M&E) acquisitions and replacements to cater for new orders. This was evident across both the export and domestic-oriented manufacturing sub-sectors. In the services sector, investment was supported mainly by expansions in the utilities, healthcare and food & beverage and accommodation sub-sectors. During the quarter, business sentiments continued to improve in tandem with better external and domestic conditions amid lower financial market volatility. Public consumption growth moderated to 3.3% (1Q 2017: 7.5%) following slower growth in the spending on emoluments, and supplies and services. Public investment declined by 5.0% in the second quarter (1Q 2017: 3.2%). This was attributable to the lower spending on fixed assets by public corporations, which more than offset the higher expenditure by the Federal Government. Gross fixed capital formation (GFCF) expanded at a moderate pace of 4.1% (1Q 2017: 10.0%). This was due to lower growth in private investment and a decline in public sector capital spending. By type of assets, the moderation in machinery and equipment (4.4%; 1Q 2017: 21.8%) and contraction in other type of assets (-3.7%; 1Q 2017: 1.4%) more than offset the improvement in structures investment (5.1%; 1Q 2017: 3.8%). Continued expansion across major economic sectors On the supply side, all economic sectors continued to expand. The services sector registered higher growth during the quarter. Growth in the wholesale and retail sub-sector improved, driven by higher household spending. The finance and insurance sub-sector also continued to benefit from the improvement in performance of the capital market and insurance segment. In the transportation and storage sub-sector, growth was principally supported by robust external trade and higher air passenger traffic. The manufacturing sector growth was driven by both the export and domestic-oriented industries. The strong performance of electronics and electrical segment, in line with higher global demand for semiconductors, continued to spur the export-oriented industries. The domestic-oriented industries benefitted from the strength in demand for food-related products in



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view of the improved consumer sentiments, and higher production of construction related materials supported by robust construction activity. In the agriculture sector, growth remained firm as crude palm oil yields continued to recover from the negative impact of El Niño. Growth in the construction sector was higher, driven mainly by civil engineering activity in the transportation and power plant segments. Growth in the mining sector moderated on lower crude oil production as part of the global initiative to reduce oil supply. The performance of the sector was also affected by lower natural gas production amid a major maintenance shutdown of a large gas field in Sabah. Financial account recorded net inflows In the second quarter of 2017, the financial account registered a net inflow of RM7.3 billion (1Q 2017: net outflow of RM8.8 billion), attributed mainly to a turnaround in the portfolio investment account (net inflow of RM16.0 billion; 1Q 2017: net outflow of RM31.9 billion). Portfolio investment by non-residents recorded a net inflow of RM18.8 billion (1Q 2017: net outflow of RM22.9 billion), due mainly to a resumption in purchases of Malaysian Government Securities (MGS) and higher participation in the equity market. Investor sentiments improved during the quarter, supported by the announcement of initiatives to develop the onshore financial market, stronger ringgit performance, expectations of better corporate earnings outlook and domestic growth prospects. Resident portfolio investment registered a lower net outflow of RM2.8 billion (1Q 2017: net outflow of RM9.0 billion), as the continued net acquisition of equity securities abroad by domestic fund managers was partially offset by net liquidation of debt securities overseas. The direct investment account registered a net outflow of RM7.1 billion (1Q 2017: net inflow of RM8.3 billion), as the accumulation of direct investment assets more than offset the incurrence of direct investment liabilities during the quarter. Direct investment abroad (DIA) by Malaysian companies rose to RM15.4 billion (1Q 2017: net outflow of RM8.7 billion), on account of higher earnings retained for reinvestment and drawdown of intercompany loans by subsidiaries abroad. DIA was channeled mainly into the financial services sub-sector and the mining sector. Foreign direct investment (FDI) decreased to RM8.3 billion (1Q 2017: net inflow of RM17.0 billion), due mainly to lower reinvestment of earnings and injection of equity capital from parent companies. FDI inflows were concentrated in the real estate activities and information and communication sub-sectors, followed by the mining sector. The other investments account recorded a net outflow of RM1.3 billion (1Q 2017: net inflow of RM14.2 billion), due mainly to the maturity of currency and deposits placed by foreign financial institutions in Malaysian banks and the net extension of trade credits by Malaysian exporters. Following these developments, the overall balance of payments registered a surplus of RM2.7 billion in the second quarter (1Q 2017: a deficit of RM1.8 billion). Errors and omissions, which include the revaluation changes on reserves, amounted to -RM14.3 billion or -3.3% of total trade. Sustained financial health of the banking system In the second quarter of 2017, the banking system recorded a higher pre-tax profi t of RM9.2 billion (1Q 2017: RM8 billion), contributed by dividend income from subsidiaries and higher net interest income from financing activities. The average cost of funds declined marginally to 2.71% as at end-June 2017, lower than the 3-year average of 2.75%. The weighted average lending and financing rates of conventional and Islamic banks declined marginally to 5.19% and 5.17%, respectively (1Q 2017: 5.21% and 5.18%, respectively). Healthy asset quality supported the lower loan loss provisions that were observed during the quarter. Banks’ interest margin (net of operating costs and loss provisions) increased marginally to 0.65 percentage points (ppts) (1Q 2017 average: 0.62 ppts), attributed to lower interest expense and provisions.



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In the insurance and takaful sector, general insurers and takaful operators recorded higher operating profi t of RM761 million in the second quarter (1Q 2017: RM495 million) on account of improved claims incurred across key business lines. In particular, claims incurred on fi re insurance and takaful decreased by 40%. Correspondingly, industry claims ratio improved to 55.2% (1Q 2017: 62.9%). On the other hand, life insurers and family takaful operators recorded a reduction in profi tability with excess income over outgo decreasing to RM4.4 billion (1Q 2017: RM6.1 billion). This was largely attributed to lower net capital gains particularly from equity holdings, as the FBM KLCI index rallied at a slower rate compared to the previous quarter. Domestic funding conditions remained favourable and supportive of financing activities. Total banking system placements, reverse repos and statutory reserves with Bank Negara Malaysia which can be unwound to meet liquidity needs, stood at RM175.7 billion, providing comfortable buffers against unexpected cash outflows or adverse liquidity shocks. Under the Basel III Liquidity Coverage Ratio (LCR), the banking system LCR stood at 141% (1Q 2017: 131%), with all banks reporting LCR levels above 100%, well above the current minimum regulatory requirement of 80%. Both the average cost of deposits for banks and the 3-month KLIBOR were relatively unchanged at 2.51% and 3.43% (1Q 2017: 2.55% and 3.43%, respectively) as at June 2017, respectively. Domestic operations were predominantly funded by ringgit deposits (65% of total funding). Banking system deposits annual growth moderated slightly to +3% (1Q 2017: +3.3%), driven by lower deposit growth from individuals (2Q 2017: +3.9%; 1Q 2017: +5.7%). While the bulk of banks’ funding remained in the form of deposits, banks continued to diversify their funding structure through the issuance of medium-term ringgit and foreign currency denominated funding instruments. The total new issuance of debt securities by the banking sector for the second quarter of 2017 amounted to RM7.1 billion (1Q 2017: RM3.4 billion). This contributed towards further reducing maturity and currency mismatches in the banks’ funding structure. Taking into account the broadened funding structure, the loan-to-funds ratio (LTF) stood at 83.3% (1Q 2017: 82.8%) at the end of the quarter. (Source: BNM Economics and Financial Developments in Malaysia in 2nd Quarter of 2017)




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SECTION 11.0 CONFLICT OF INTEREST AND APPROPRIATE MITIGATING MEASURES

11.1 MAYBANK IB

Save as disclosed below, after making enquiries as were reasonable in the circumstances, Maybank IB confirms that, to the best of its knowledge, there is no existing or potential conflict-of-interest situation in its capacity as, amongst others, the PA, LA, LM and Facility Agent for the AT1 Sukuk Wakalah Programme. Maybank IB and the Issuer are wholly-owned subsidiaries of Malayan Banking Berhad (“Maybank”). As such, Maybank IB and the Issuer are related corporations. Potential conflict of interest situations may arise on the part of Maybank IB in terms of duties owed to potential investors on one hand and its relationship with the Issuer on the other. Notwithstanding the aforementioned, Maybank IB, in its roles as the PA, LA, LM and Facility Agent in respect of the AT1 Sukuk Wakalah Programme, has considered the factors involved and believes objectivity and independence in carrying out its role has been and/or will be maintained at all times based on the following mitigating measures that will be adopted by Maybank IB in order to mitigate or address the potential conflict of interest situation set out above: (i) the appointment of Messrs Adnan Sundra & Low as an external independent legal

counsel to conduct a legal due diligence inquiry on the Issuer; (ii) Maybank IB is a licenced investment bank under the laws of Malaysia and its

appointment as the PA, LA, LM and Facility Agent are in the ordinary course of its business. The appointments are governed by various mandate letters, agreements and/or documents which set out the rights, duties and obligations of Maybank IB acting in such capacities;

(iii) the conduct of Maybank IB is regulated by the Financial Services Act 2013 (“FSA”) and

Maybank IB has in place its own internal controls and checks with regards to transactions involving its related corporations;

(iv) The AT1 Sukuk Wakalah may be issued by way of direct/private placement, book-

building or bookrunning basis whereby the pricing of the AT1 Sukuk Wakalah will be market driven;

(v) The Issuer and its Board of Directors have confirmed that they are aware of the above

potential conflict of interest situation and that notwithstanding such potential conflict, they are agreeable to proceed with the appointment of Maybank IB as the PA, LA, LM and Facility Agent in respect of the AT1 Sukuk Wakalah Programme.

11.2 MESSRS ADNAN SUNDRA & LOW

After making enquiries as were reasonable in the circumstances, Messrs Adnan Sundra & Low has confirmed that it is not aware of any circumstances that would give rise to a conflict of interest or potential conflict of interest situation in its capacity as the solicitors in relation to the AT1 Sukuk Wakalah Programme.

11.3 MALAYSIAN TRUSTEES BERHAD

After making enquiries as were reasonable in the circumstances, Malaysian Trustees Berhad has confirmed that it is not aware of any circumstances that would give rise to a conflict-of-interest situation or potential conflict-of-interest situation in its capacity as the Sukuk Trustee in relation to the AT1 Sukuk Wakalah Programme.



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11.4 MAYBANK ISLAMIC BERHAD

Maybank Islamic as the Shariah Adviser for the AT1 Sukuk Wakalah Programme, has provided the confirmation that the AT1 Sukuk Wakalah Programme’s structure is in compliance with the approved Shariah principles as stated in the LOLA Guidelines.

Maybank Islamic’s role as the Shariah Adviser should not result in any conflict of interest situation arising as the Maybank Islamic Shariah Committee (“Shariah Committee”), which comprises of independent Shariah scholars from various jurisdictions, is an independent Shariah Committee by virtue that none of the members of the Shariah Committee is an executive officer or a member of the board of Maybank Islamic. The Shariah Committee’s role does not result in any conflict of interest or potential conflict of interest as any Shariah decision is free from any commercial considerations.




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SECTION 12.0 OTHER INFORMATION

12.1 Material Contracts

There are no material contracts, being contracts entered into outside the ordinary course of business, which are subsisting and have been entered into by Maybank Islamic during the past two (2) years preceding the LPD.

12.2 Material Litigation

As at the LPD, Maybank Islamic is not involved in any material litigation, claims or arbitration which would have had a significant and material effect on the financial position of Maybank Islamic.




APPENDIX I

Audited Financial Statements for the Financial Year Ended 31 December 2016



APPENDIX II

Unaudited Financial Statements for the Financial Second Quarter Ended 30 June 2017



The Issuer

MAYBANK ISLAMIC BERHAD

(Company No:787435-M)

Registered Office Address

15th Floor, Tower A

Dataran Maybank

1, Jalan Maarof

59000 Kuala Lumpur

Principal Adviser/Lead Aranger/Lead Manager

Maybank Investment Bank Berhad


32nd Floor, Menara Maybank

100, Jalan Tun Perak

50050 Kuala Lumpur

Facility Agent

Maybank Investment Bank Berhad


32nd Floor, Menara Maybank

100, Jalan Tun Perak

50050 Kuala Lumpur

Sukuk Trustee

Malaysian Trustees Berhad

(Company No. 21666-V)

Level 11, Tower 1

RHB Centre, JalanTun Razak

50400 Kuala Lumpur

Rating Agency

RAM Rating Services Berhad

(Company No. 763588-T)

Suite 20.01 Level 20

The Gardens South Tower

Mid Valley City Lingkaran Syed Putra

59200 Kuala Lumpur

Legal Counsel for the Principal Adviser/ Lead Arranger

Adnan Sundra & Low

Level 11, Menara Olympia

No. 8, Jalan Raja Chulan

50200 Kuala Lumpur