Affin Bank 2013
Affin Bank 2013
Affin Bank 2013
growth
a n n u a l r e p o r t 2 0 1 3
our
mission
To provide innovative financial solutions and services to target customers
in order to generate profits and create value for our shareholders and other
stakeholders.
our
vision
A Premier Partner for Financial Growth and
Innovative Services.
our
mission
To provide innovative financial solutions and services to target customers
in order to generate profits and create value for our shareholders and other
stakeholders.
our
vision
A Premier Partner for Financial Growth and
Innovative Services.
our
mission
To provide innovative financial solutions and services to target customers
in order to generate profits and create value for our shareholders and other
stakeholders.
our
mission
To provide innovative financial solutions and services to target customers
in order to generate profits and create value for our shareholders and other
stakeholders.
CAPABILITIES
our
vision
A Premier Partner for Financial Growth and
Innovative Services.
our
mission
To provide innovative financial solutions and services to target customers
in order to generate profits and create value for our shareholders and other
stakeholders.
11 Corporate Structure
12 Board of Directors
13 Profile of Directors
17 Management Team
Affin Bank Berhad (Co. No.: 25046-T) Chairman 17th Floor, Menara AFFIN,
YBhg. Jen Tan Sri Dato’ Seri Ismail 80, Jalan Raja Chulan,
Bin Hj. Omar (Bersara) 50200 Kuala Lumpur.
DATE OF INCORPORATION (Non-Independent Non-Executive Director) Tel.: 03-2055 9000
Fax.: 03-2026 1415
23 October 1975 Directors
YBhg. Tan Sri Dato’ Seri Lodin
Bin Wok Kamaruddin AUTHORISED SHARE CAPITAL
PRINCIPAL ACTIVITIES (Non-Independent Non-Executive Director)
No of shares
Affin Bank Berhad is principally involved YM. Dr. Raja Abdul Malek 2,000,000,000
in the carrying out of banking and Bin Raja Jallaludin Par value
finance related services. The Bank (Independent Non-Executive Director) RM1.00
has twelve (12) subsidiary companies Total
and three (3) associate companies YBhg. Tan Sri Dato’ Sri Abdul Aziz RM2,000,000,000
which are principally engaged in Bin Abdul Rahman
property management, nominee/ trustee (Independent Non-Executive Director)
management and factoring services. ISSUED AND PAID-UP
Mr. Aubrey Li Kwok-Sing SHARE CAPITAL
(Non-Independent Non-Executive Director)
No of shares
Mr. Gary Cheng Shui Hee 1,518,336,765
(Alternate Director to Mr. Aubrey Li Kwok-Sing) Par value
RM1.00
En. Mohd Suffian Bin Hj. Haron Total
(Independent Non-Executive Director) RM1,518,336,765
SECRETARY
58.69%
4
35.18%
OTHERS
Boustead Holdings Berhad Bank of East Asia Limited
100% 20%
Affin Fund Management Berhad ABB Trustee Berhad 2
(80% held by Directors of Affin Bank Berhad
100% in trust for Affin Bank Berhad)
Merchant Nominees (Tempatan)
Sdn Bhd
100%
AFFIN Factors Sdn Bhd 1
67%
Classic Precision Sdn Bhd
100%
100% ABB Nominee (Asing) Sdn Bhd 1
Affin Nominees (Tempatan) Sdn
Bhd 100%
Affin Futures Sdn Bhd 1
100%
Affin Nominees (Asing) Sdn Bhd
100%
ABB IT & Services Sdn Bhd 3
51%
Axa Affin Life Insurance Berhad 100%
BSNCB Nominees (Tempatan)
Sdn Bhd 3
33.6%
Axa Affin General Insurance Berhad
YBhg. Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)
Chairman / Non-Independent Non-Executive Director
Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara), aged 72, was appointed as the Director
and Chairman of AFFINBANK on 21 May 2002.
He was formerly the Chief of Defence Force (CDF) of Malaysia from 1995 until his retirement in
1998, after 38 years of military service. He graduated from Royal Military Academy, Sandhurst,
United Kingdom in 1961 and subsequently attended professional and management development
courses at several institutions including The Land Forces Command and Staff College, Canada;
the United Nation International Peace Academy, Vienna; the National Defence College, India and
INTAN Malaysia.
His military service saw Key Command and Staff appointments at all levels of the Armed Forces.
As CDF, his responsibilities included key roles in Malaysia’s Regional and International Defence
Relations.
He was the Chairman of Affin Holdings Berhad and Affin-ACF Finance Berhad from 1999 prior to
joining AFFINBANK. He currently holds directorships in Affin Islamic Bank Berhad, ABB Trustee
Berhad, EP Engineering Sdn Bhd and Global Medical Alliance Sdn Bhd.
Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) attended all 14 Board Meetings held during
the financial year ended 31 December 2013.
Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin, aged 64, was reappointed to the Board of
Directors of AFFINBANK on 4 October 2010. He was appointed as the Managing Director of
Affin Holdings Berhad in February 1991 and redesignated as Deputy Chairman on 1 July 2008.
He is also the Chairman of Boustead Heavy Industries Corporation Berhad, Boustead Naval
Shipyard Sdn Bhd, Pharmaniaga Berhad, Boustead Petroleum Marketing Sdn Bhd, Boustead
REIT Managers Sdn Bhd and 1Malaysia Development Berhad. He sits on the Board of The
University of Nottingham in Malaysia Sdn Bhd, Minority Shareholder Watchdog Group, FIDE
Forum, Atlas Hall Sdn Bhd, Affin Islamic Bank Berhad, Affin Investment Bank Berhad, AXA Affin
Life Insurance Berhad and Boustead Plantations Berhad.
He graduated from the University of Toledo, Ohio, USA with a Bachelor of Business Administration
and a Master of Business Administration. Among the many awards Tan Sri Dato’ Seri Lodin
received to-date include the Chevalier De La Legion D’Honneur from the French Government,
the Malaysian Outstanding Entrepreneurship Award, the Degree of Laws honoris causa from
the University of Nottingham, United Kingdom, the UiTM Alumnus of the Year 2010 Award and
The BrandLaureate Most Eminent Brand ICON Leadership Award 2012 by Asia Pacific Brands
Foundation.
Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin attended all 14 Board Meetings held during the
financial year ended 31 December 2013.
Dr. Raja Abdul Malek Bin Raja Jallaludin, aged 68, was appointed to the Board of Directors of
AFFINBANK on 29 January 1991.
He graduated as a doctor from the University of Malaya in 1972 and, early in his career, worked
at the General Hospital, Kuala Lumpur and the Faculty of Medicine, UKM. In late 1975, he went
into private medical practice and became a senior partner of Drs. Catterall, Khoo, Raja Malek &
Partners until 2003 when he resigned from the firm. Professionally he is widely experienced and
has served in various peer and academic activities. Amongst others, he had been a clinical tutor
in the Faculty of Medicine, University Malaya; been a member of the Ethical Committee of the
Malaysian Medical Council, MOH; was the Chairman of Council Academy of Family Physicians,
Malaysia.
He also has vast experience in the pharmaceutical world and had actively been involved
since 1984. He had been the Medical Director (Malaysia-Singapore) for Parke Davis-Warner
Lambert from 1984-2000, and had remained briefly so too with Pfizer Malaysia when these two
Incorporations merged in 2001. In 2003, Dr. Raja Abdul Malek joined HOE Pharmaceuticals as
the Director of Medical and Scientific Affairs and holds this position to this day.
Presently he is also on the Board of ABB Trustee Berhad, StemLife Berhad and Boustead
Plantations Berhad.
Dr. Raja Abdul Malek Bin Raja Jallaludin attended all 14 Board Meetings held during the financial
year ended 31 December 2013.
YBhg. Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman
Independent Non-Executive Director
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman, aged 67, was appointed to the Board of Directors
of AFFINBANK on 28 January 2003.
He graduated with a Bachelor of Commerce from University of New South Wales, Sydney,
Australia. He is a member of the Malaysian Institute of Certified Public Accountants (MICPA) and
the Malaysian Institute of Accountants (MIA).
He has served as Chairman and Board member of several government institutions, agencies and
public listed companies, both in Australia and Malaysia.
At the corporate level he was with PricewaterhouseCoopers, Malaysia Airlines and Managing
Director of Bank Rakyat Bhd before venturing into politics and public service as the Pahang
State Assemblyman, State Executive Councillor and Deputy Chief Minister of Pahang. He was a
Senator of Malaysian Parliament for a maximum period of two (2) terms.
Presently he is a Board member of Affin Islamic Bank Berhad, the International Islamic University
Malaysia and University Malaysia Pahang.
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman attended all 14 Board Meetings held during the
financial year ended 31 December 2013.
Mr. Aubrey Li Kwok-Sing, aged 63, was appointed to the Board of Directors of AFFINBANK on
17 March 2008. He is a Director of The Bank of East Asia, Limited and Chairman of MCL Partners
Limited.
Mr. Aubrey Li Kwok-Sing attended 4 out of 14 Board Meetings held during the financial year
ended 31 December 2013.
Mr. Aubrey Li Kwok-Sing’s Alternate Director, Mr. Gary Cheng Shui Hee was appointed on 18
April 2011. He attended 7 out of 14 Board Meetings held during the financial year ended 31
December 2013.
En. Mohd Suffian Bin Haji Haron, aged 68, was appointed to the Board of Directors of
AFFINBANK on 15 August 2009.
He graduated with a Bachelor of Economics from University of Malaya (1970) and holds a Master
of Business Administration from University of Oregon (USA) in 1976.
He started his career as a Diplomatic and Administrative Officer, attached to the Prime Minister’s
Department, and after thirteen years, left the Government Service to be the General Manager,
International Business of a Government-Linked Company and after six years left for the Private
Sector. He brings with him vast experience in the financial services sector which include asset
management and insurance-related services, general trading, power/energy the oil and gas
services sectors.
Presently he is a Board member of Affin Islamic Bank Berhad, L.K. & Associates Sdn Bhd and
Pharmaniaga Berhad.
En. Mohd Suffian Bin Haji Haron attended all 14 Board Meetings held during the financial year
ended 31 December 2013.
Tan Sri Dato’ Seri Mohamed Jawhar, aged 69, was appointed to the Board of Directors of
AFFINBANK on 1 November 2011.
His other positions include: Independent Non-Executive Director, Affin Islamic Bank Berhad;
Chairman ISIS Malaysia, Non-Executive Chairman, New Straits Times Press (Malaysia) Berhad;
Member of Securities Commission Malaysia; Member, Advisory Board, Malaysian Anti-Corruption
Commission; Distinguished Fellow, Institute of Diplomacy and Foreign Relations (IDFR); Board
Member, Institute of Advanced Islamic Studies (IAIS); Chairman, Malaysian National Committee
of the Council for Security Cooperation in the Asia Pacific (CSCAP); and Member, International
Advisory Board, East West Center, USA. He is also the Expert and Eminent Person for the ASEAN
Regional Forum (ARF).
He was also the Co-Chair, Network of East Asia Think-tanks (NEAT) 2005-2006; Chairman,
Malaysian National Committee, Pacific Economic Cooperation Council (PECC) 2006-2010; and
Co-Chair, Council for Security Cooperation in the Asia Pacific (CSCSP) 2007-2009.
He served with the government before he joined ISIS Malaysia as Deputy Director-General in
1990. He was appointed Director-General in March 1997 and was subsequently appointed
Chairman and CEO in 2006. He was appointed Chairman ISIS Malaysia on 9 January 2010.
Tan Sri Dato’ Seri Mohamed Jawhar attended 13 out of 14 Board Meetings held during the
financial year ended 31 December 2013.
YBhg. Dato’ Zulkiflee Abbas En. Kamarul Ariffin Bin En. Shariffudin Bin Mohamad En. Amirudin Bin Abdul Halim
Bin Abdul Hamid Mohd Jamil Executive Director, Operations Director, Business Banking
Managing Director / Chief Executive Chief Executive Officer,
Officer Affin Islamic Bank
Mr. Ee Kok Sin Mr. Tan Kok Toon Mr. Kasinathan T.Kasipillai Pn. Khatimah Binti Mahadi
Chief Financial Officer Director, Treasury Group Chief Risk Officer Group Chief Internal Auditor
Pn. Nor Rozita Binti Nordin En. Nazlee Bin Khalifah En. Idris Bin Abd Hamid
Chief Human Resource Officer Chief Corporate Strategist Director, Consumer Banking
Dato’ Zulkiflee Abbas Bin Abdul Hamid is the Managing Director/ Chief Executive Officer of Affin
Bank Berhad, a position held since April 2009. Dato’ Zulkiflee also holds the mandate to drive
Affin Banking Group’s strategic and developmental agenda for all entities within the group. Dato’
Zulkiflee joined AFFINBANK on 1 March 2005 as Director of Enterprise Banking. Subsequently in
2008, Dato’ Zulkiflee was appointed as Executive Director of Banking, which encompassed both
Business and Consumer Banking. Dato’ Zulkiflee carries with him more than 30 years of banking
experience, both locally in Malaysia and internationally in London and New York. Dato’ Zulkiflee
has assumed pivotal roles in banking, which include Regional Manager, Chief Credit Officer, and
Global Head of Enterprise Banking, amongst others. Dato’ Zulkiflee holds a Master in Business
Administration (1981) and a Bachelor of Science degree in Marketing (1979), both from Southern
Illinois University.
En. Kamarul Ariffin Bin Mohd Jamil joined Affin Bank Berhad in 2003 as Head, Corporate
Strategy Division. In 2005, Kamarul was appointed as Head, Islamic Banking Division. With the
establishment of Affin Islamic Bank, Kamarul was appointed as its Chief Executive Officer. Prior
to AFFINBANK, Kamarul held various positions at Pengurusan Danaharta Nasional Berhad,
Trenergy Malaysia Berhad and Shell Malaysia Trading Sdn Bhd in various capacities including
business development, and strategic planning. Kamarul graduated from the University of
Cambridge in 1992 with a Bachelor of Arts in Economics.
En. Shariffudin Bin Mohamad joined Affin Bank Berhad in 2007 as Director of Operations and was
appointed as Executive Director, Operations in 2009. Shariffudin has 25 years local and overseas
experience in banking. His hands-on experience covers Branch Operations, Trade Finance,
Corporate Banking, Corporate Relationship Management, Credit Operations, Cash Management
and Securities Services. His last position was Head, Project Management Services (Technology &
Operations) in a leading foreign bank and its local outsourcing subsidiary. Shariffudin graduated
from Southern illinois University, with a Master in Business Administration (1981) and a Bachelor
of Science degree in Finance (1980).
En. Amirudin Bin Abdul Halim joined Affin Bank Berhad as Director, Business Banking in July
2009. Prior to AFFINBANK, Amirudin was at a leading local bank for more than 21 years where he
gained extensive banking experience in Branch Operations, Credit Control, Business Banking,
Retail Marketing, Consumer Banking and Corporate Services. He has served in several senior
strategic roles, including Deputy Head of Business Banking Division, Head of Mortgage and
Automobile Financing and as the Deputy Chief Executive Officer of a subsidiary of a leading local
bank. Amirudin graduated with a Bachelor of Arts degree in Finance from St. Louis University in
1986.
Mr. Ee Kok Sin joined Affin Bank Berhad in 2005 as the Chief Financial Officer. Prior to his
appointment at AFFINBANK, Ee was the General Manager of Finance & Services at Pengurusan
Danaharta Nasional Berhad. Ee began his career in 1982 as a Trainee Accountant with a firm of
Chartered Accountants in London. He has extensive experience in auditing, treasury functions,
financial accounting, financial management and information technology. Ee is a fellow Member of
the Association of the Chartered Certified Accountants (ACCA) and a member of The Malaysian
Institute of Certified Public Accountants (MICPA) and Malaysian Institute of Accountants (MIA).
Mr. Tan Kok Toon joined Affin Bank Berhad as its Head of Treasury in October 2004 and is
responsible for managing all aspects of Treasury Division. He is currently the Honorary Secretary
of Persatuan Pasaran Kewangan Malaysia (Association Cambiste Internationale) and Chair to
the Seminar and Education Committee. Prior to AFFINBANK, Tan was with a leading bank in
Malaysia. Tan has more than 20 years banking experience, particularly in Treasury Operations. He
has served as Treasury Manager with the New York Branch, and was Treasury Business Advisor
to turn around a business project in the Philippines. Tan graduated from University Malaya in
1987 with a Bachelor of Science degree (honours) in Mathematics.
Mr. Kasinathan T. Kasipillai joined Affin Bank Berhad in 2005 as its Chief Risk Officer. Kasinathan
has more than 35 years of local and overseas banking experience particularly in the areas of Risk
Management. He comes from a foreign bank background working in the risk function serving in a
number of countries including London, Singapore, Hong Kong, Mumbai and Jakarta. Kasinathan
holds a Masters in Business Administration from the University of Bath, UK and is a Certified
Risk Professional awarded by Bank Administration Institute, Chicago, USA. Kasinathan is also an
Associate Fellow of Institute of Bankers Malaysia, and continues to serve as an active member
of CCP Examination Committee.
Pn. Khatimah Binti Mahadi joined Affin Bank Berhad as Chief internal Auditor in 2004. Khatimah
has more than 30 years of experience in Internal Auditing. She has led the Audit and Compliance
function in a number of large local and foreign financial institutions. Khatimah graduated with a
Diploma in Accountancy from UITM in 1978.
Pn. Nor Rozita Binti Nordin was appointed as Chief Human Resource Officer of Affin Bank
Berhad in May 2011. Prior to joining AFFINBANK, Rozita was Executive Vice-President and Head
of Group Human Resources at a local banking group. Rozita has more than 30 years’ experience
in Human Resource Development and Customer Relations Strategy, in various industries which
include banking, oil and gas, manufacturing, retail, and shared services. Rozita has taken on
strategic and operational roles, both locally and abroad. Rozita graduated from Southern illinois
University with a Master of Science degree in 1984, a Bachelor of Science in Education and a
Bachelor of Arts degree in Linguistics, both in 1982.
En. Nazlee Bin Khalifah joined Affin Bank Berhad in February 2009 as Head of Business Strategy
and Support, Business Banking Division. Subsequently, in April 2011, Nazlee was appointed as
Chief Corporate Strategist. Nazlee has more than 20 years’ experience in the banking industry.
Prior to joining AFFINBANK, Nazlee was with a leading local bank for 17 years in various
capacities, mostly in Strategic Management positions. Nazlee graduated from Simon Fraser
University in Vancouver in 1991, with a Bachelor degree in Business Administration, majoring in
Accounting and Finance.
En. Idris Bin Abd Hamid is the Director of Consumer Banking, a position he has held since May
2009. Idris began his career with Affin Bank Berhad in 1994 as General Manager of Affin Finance
Berhad. He was appointed as Deputy Chief Executive Officer for Affin-ACF Finance Berhad from
2000 to 2005. Idris has over 30 years of experience in the banking industry, which includes
exposure as Branch Manager, and in Corporate and Consumer Loans Management. Idris
graduated with a Master in Business Administration from the University of Northern Colorado
in 1984.
Puan Nimma Safira Binti Khalid is the Head, Legal & Secretarial/Company Secretary of Affin Bank
Berhad, a position she has held since 2005. Nimma joined AFFINBANK in 2001 as Manager, Legal
& Secretarial. She was subsequently assigned to the President/CEO’s office as the Executive
Assistant from 2003 to 2005. Nimma started her career of 20 years as an Advocate & Solicitor of
the High Court of Malaya in 1994. She then moved in-house as Legal Officer/Company Secretary
of a commercial bank from 1995 to 2000. Nimma graduated with Bachelor of Laws in 1992 and
Bachelor of Laws (Shariah) in 1993; both from the International Islamic University, Malaysia.
Ramanathan Rajoo began his career in 1988 as an audit trainee with Coopers & Lybrand before
joining Affin Bank Berhad in 1991. He has held various positions within the Finance Division
before being appointed to his current position in 2003. He has more than 25 years of extensive
working experience in auditing, financial accounting and financial management. He holds a
Master degree from University Putra Malaysia, Bachelor of Accounting degree from the National
University of Malaysia and Certified Credit Professional from Institute Bank Bank Malaysia. He
is a member of the Certified Practising Accountants, Australia (CPA) and Malaysian Institute of
Accountants (MIA).
“
In 2013, the Bank registered
an 8.4% increase in its profit
before zakat and taxation,
which amounted to
RM762.2 million.
”
Jen. Tan Sri Dato’ Seri Ismail Bin Hj. Omar (Bersara)
Chairman
Dear Shareholders,
I am pleased to report that AFFINBANK Social Responsibility (CSR) is something Muslim converts from Pertubuhan
registered another year of robust growth that we place great importance on and Kebajikan Islam Malaysia (PERKIM).
in the financial year 2013. Although the Bank reinforced its commitment to This is an annual event where the Board
the general consensus was that 2013 society and their well-being through of Directors and senior management of
proved to be a competitive operating various donations, outreach programs the Bank will attend to host the dinner
environment for the banking industry as a and educational initiatives. and get to know the orphans and other
whole, AFFINBANK remained focused in guests on a more personal level. Besides
developing our strengths and continued In 2013, two Blood Donation Drives dinner, the guests were delighted to
to perform well. were organized at AFFINBANK’s Head receive “Duit Raya” to add to the festive
Office where over 300 staff volunteered celebration mood.
For the year under review, AFFINBANK and donated blood. This CSR initiative
continued to record a steady increase provides a platform for the Bank’s staff Being a part of the LTAT (Lembaga Tabung
in revenues and earnings. In 2013, the to participate and instills the culture and Angkatan Tentera), which is a corporation
Bank registered an 8.4% increase in its spirit of caring within the workplace. with the key objective of providing
profit before zakat and taxation, which maximum returns to non-pensionable
amounted to RM762.2 million. During the various festivities throughout members of the Armed Forces as well
the year, AFFINBANK reached out to the as other welfare benefits to members of
This year, we launched several new community through various activities. In the Armed Forces as a whole, the Bank
products, services and campaigns that conjunction with Chinese New Year this channels many of its CSR activities
boosted our revenue. AFFINBANK’s year, AFFINBANK visited the Ampang to the same cause. In 2013, several
business operations and market Old Folks Home, where residents were contributions were made by the Bank
presence also continued to thrive as a treated to lunch, money packets (“ang for the welfare of the Malaysian Armed
result of these new initiatives with growth pow”) and donation of a variety of Forces, i.e. RM160,000 sponsorship to
in deposits by 11.7% while loans and dry food. During Ramadan, the Bank the communication activities of Tabung
advances grew by 8.0%. organised a scrumptious “Buka Puasa” Hari Pahlawan; RM100,000 worth of Hari
dinner for approximately 130 orphans Raya gift packages to the Welfare Fund
The Bank continued to place its brand from selected orphanages and 30 new of the Malaysian Armed Forces; and our
in the market and enhance accessibility yearly contribution of RM1 million to the
by expanding our network of branches.
Three new branches were opened in 2013
and as at December 2013, AFFINBANK
has 103 branches nationwide in Malaysia
to serve our customers better.
8.4%
profit before zakat
& taxation growth
103 Malaysia
branches nationwide in
Chinese New Year visit to Ampang Old Folks Home. New branch at Danga Bay, Johor.
At this juncture, I would like to extend my deep appreciation to the Board of Directors,
Management team and every staff at AFFINBANK. It is your dedication and hard work
that has produced the results we have achieved thus far. I would also like to urge
the Management team and staff to continue relying on the enduring power of great
teamwork to achieve our corporate goals.
I encourage each staff to always exhibit prudence and professionalism when working
with our customers, and become the embodiment of a responsible banker. The Bank’s
Corporate Values will dictate our actions at work so that we are continually delivering
great service and meeting the needs of our customers by truly providing “Banking
without Barriers”.
Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)
Chairman
8.0%
year escalated by 8.5% to RM569.8
million, from RM525.3 million in 2012. AFFINBANK started the year with
AFFINBANK’s total assets achieved the Chinese New Year Triple Fortune
a growth of 8.3% to RM56.4 billion, Promotion, a deposit campaign that
compared to RM52.1 billion in the allowed customers to enjoy higher gross loans/advances
growth
previous financial year. Our Return-on- interest rates on their deposits and a
Equity (ROE) after tax was recorded at chance to win a limited edition gold
13.8%, while the Cost-to-Income ratio plated art.
11.7%
improved to 44.5% from 45.2%.
The AFFIN Junior Saver (a children’s
The Bank’s total deposits continued to savings account) was re-launched this
flourish in 2013 with an increase of 11.7% year with a new look and savings contest
to RM46.1 billion, compared to RM41.3 for young account holders to win cool total deposits growth
billion in 2012. Net interest income also IT gadgets and cash prizes. The fourth
grew to RM813.1 million from RM788.7 OMG campaign, called “The Invasion of
million recorded in 2012, while gross the OMG”, was launched in April 2013
loans and advances added by 8.0% and generated double-digit growth in
in 2013. AFFINBANK succeeded in retail deposits, and over 100,000 new
maintaining asset quality with a lower accounts compared to previous years.
net impaired loan ratio of 0.9% in 2013,
compared to 1.1% in 2012. During the AFFINBANK partnered with AXA Affin
year under review, the Bank continued to Life Insurance to provide a high interest
remain vigilant to the economic signals. rate of up to 5.0% for a 12-month
The emphasis is on pro-active account Fixed Deposit placement with AXA’s life
management to ensure that our assets insurance plan, called the Smart Income
remain healthy. Saver (SIS). This FD-SIS Combo Plan
allowed customers to enjoy the benefit
of insurance protection with high interest Re-launch of AFFIN Junior Saver for young
rate and guaranteed cash income. account holders.
At the start of the year, the Bank the Institute of Bankers Malaysia (IBBM) This year, we further extended our
embarked on Basel III, which introduced to enrol and sponsor our staff into The focus on developing strong talents
new capital rules that included leverage Chartered Banker Program. This is a and leadership among our employees.
ratio and liquidity standards, with recognized professional certification Various training programs were
phased-in arrangements. We are enroute that addresses vital areas of finance and conducted throughout 2013 on sectors
to full compliance by 2019. To date, the banking, and will prove to be a significant such as branch operations, marketing/
Bank has fulfilled the quarterly reporting advantage for our staff. This initiative account relationship management and
requirement to BNM for the current is part of the Bank’s “Upward Mobility soft-skills development, including online
Observation Period (starting June 2012), Program: Empowering Employees to learning program covering subjects in
with regard to our leverage and liquidity Grow” to equip staff to become leaders areas on risk management and Islamic
positions. at the forefront of the banking and finance banking.
industry. It will also undoubtedly provide
We have also been conducting periodic them with the recognition necessary to Outlook and Prospects
industry studies and portfolio reviews fulfil their role in the Bank.
on the economic and regulatory Building on 2013 performance, we
environment. In light of this, Group The Affin Management Programme have set a few goals for 2014. We are
Risk Management (GRM) closely tracks (AMP) recruited our 8th batch of AMP projecting a loans growth between 8% to
unfolding events and adopts appropriate trainees this year. This program is part of 10% and targeting deposits growth of a
measures to protect the Bank’s risk the Bank’s Human Capital Development minimum of 10%. AFFINBANK has also
position. To further strengthen our risk Plan and the Young Talent Management set a target for key ratios to be at par or
culture, GRM conducted several internal Programme, which aims to develop and above the industry average. The Bank
risk programs in 2013 to enhance the support the banking career of young will continue to enhance its customer
knowledge and skill sets of our officers. talents through engaging activities and touch point by expanding its network
competency programs. To-date, a total of branches, Business Loans Centres
These included workshops that are of 118 trainees have participated in this as well as off-branch ATMs. We are also
relevant to credit and operational risk program. continuously exploring potential Merger
management, credit clinics focusing on & Acquisition (M&A) opportunity, both
live case studies and assessments for Throughout 2013, the Bank also domestic and abroad, to expand our
Internal Certification in all three key areas participated in the Skim Latihan 1Malaysia presence.
of risk - Credit, Operations and Market. (SL1M) program, which was established
by the Economic Planning Unit (EPU)
The Bank was steadfast in managing of Prime Minister’s Department in 2011.
and monitoring our loan, and credit One of the reasons that AFFINBANK is
portfolios more efficiently in 2013. We committed to this program is its ability to
made certain that our focus was on increase the employability of Malaysian
booking quality assets. AFFINBANK has graduates, particularly those from rural
adopted prudent underwriting standards, areas and low-income families. Through
maintained a proactive approach to this initiative, young graduates possess
account management, and employed a higher potential to secure employment
strict control and monitoring of all through extensive classroom and on-the-
account portfolios. job training. AFFINBANK was recognised
by the Minister in the Prime Minister’s
Human Resources Development Department, Dato’ Seri Wahid Omar,
for its exemplary contribution to the
Our Human Resources division also program.
implemented several key initiatives in
2013 for human capital development.
In May 2013, a Memorandum of
Understanding (MoU) was signed with
Earnings Per Share (EPS) Profit Before Zakat And Total Assets
(Sen) Taxation (RM’million) (RM’billion)
22.1 26.5 30.6 35.0 37.5 425.1 521.9 613.1 703.2 762.2 35.6 42.1 49.2 52.1 56.4
09 10 11 12 13 09 10 11 12 13 09 10 11 12 13
AFFINBANK’s EPS for the financial year AFFINBANK achieved profit before zakat AFFINBANK’s financial position as at
ended 31 December 2013 stood at and taxation of RM762.2 million, an 8.4% 31 December 2013 continued to remain
37.5 sen compared to 35.0 sen the year rise for the year ended 31 December strong with total assets of RM56.4 billion,
before. 2013, compared to RM703.2 million in an increase of 8.3% compared with
2012. AFFINBANK’s profit after zakat and RM52.1 billion as at 31 December 2012.
taxation also rose by 8.5% to RM569.8
million for the year ended 31 December
2013.
22.0 26.0 29.7 33.5 36.2 26.4 31.0 36.5 41.3 46.1 3.0 3.3 3.6 4.1 4.4
09 10 11 12 13 09 10 11 12 13 09 10 11 12 13
AFFINBANK’s net loans, advances and Total deposits increased by 11.7% Total shareholders’ equity of AFFINBANK
financing grew by 8.2% to RM36.2 billion year-on-year to RM46.1 billion as at 31 is RM4.4 billion as at 31 December 2013
compared to RM33.5 billion in 2012. December 2013 compared to RM41.3 compared to RM4.1 billion in 2012.
billion in the year before.
The “OMG The Trilogy” Prize Giving CNY CSR Activity – Visit to Ampang Langkawi International Maritime and
Ceremony Old Folks Home Aerospace Exhibition
The winner of the “OMG The Trilogy” AFFINBANK visited and brought cheers AFFINBANK sponsored the Langkawi
deposit campaign walked away with gold to senior residents at the Ampang Old International Maritime and Aerospace
worth RM333,888. Folks Home during the Chinese New Exhibition as the Official Bank & Foreign
Year celebration. Exchange Counter.
Personalised Banking Cocktail Event The Chartered Bankers Programme Affin Education Excellence
2013 MOU Signing Ceremony with IBBM Award 2013
Valued customers of the Bank were In a bid to develop top notch bankers, The Bank presented cash rewards to 107
rewarded with an evening of great food the Bank signed a MOU with IBBM to students who excel in SPM and PMR
and entertainment at this yearly event. sponsor and enroll its employees for the exams.
Chartered Bankers Programme.
Kuantan Branch Opening officiated Majlis Berbuka Puasa Bersama Anak- AFFIN Banking Group Hari Raya
by KDYMM Sultan Pahang Anak Yatim & Saudara-Saudari Baru Open House
Kuantan Branch relocated to a brand new 160 orphans and new Muslim converts AFFIN Banking Group management and
premise and the new office was officially were treated to a “Buka Puasa” dinner at staff came together as one entity to host
opened by KDYMM Sultan Pahang. the Bank’s head office at Menara Affin. customers and business partners to a
scrumptious dinner to celebrate the Hari
Raya.
New Branch Opening and Jom Sponsorship of Sports Equipment to TREES “Young Voices for
Karnival Schools Conservation”
As part of its expansion plans, the Bank In support of the “1Murid 1Sukan” Policy, AFFINBANK sponsors the TREES “Young
opened three (3) new branches in 2013, AFFINBANK sponsored RM50,000 worth Voices for Conservation” Programme
i.e. Kota Kemuning (Selangor), Danga of sports equipment to selected schools where students are guided to implement
Bay (Johor) and Lahad Datu (Sabah). in Malaysia. environment protection projects in their
schools. Winning teams are rewarded
with cash prizes at the end of the project.
The Board of Directors of AFFINBANK (“Board”) and Management seek to embrace high standards and principles of Corporate
Governance in all areas of its business; towards enhancing business prosperity and corporate accountability, having the ultimate
objective of safeguarding shareholder’s value and interests of the stakeholders.
The Board and Management are fully committed and constantly strive in ensuring AFFFINBANK operates in accordance to the
Financial Services Act 2013 and Islamic Financial Services Act 2013 (FSA/IFSA), Malaysian Code of Corporate Governance 2012
(MCCG 2012), Bank Negara Malaysia (BNM) Guidelines on Corporate Governance for Licensed Institutions (Revised BNM/GP1)
and other relevant regulations. The Board and Management place great importance on the safety and soundness of AFFINBANK
as a financial institution; where risks and business prudence are appropriately balanced. Throughout 2013 and to-date, AFFINBANK
continues to conduct its business with integrity and exercises high level of transparency and objectivity.
AFFINBANK specifies standard for fit and proper requirement for Directors as laid out under the FSA/IFSA. The Board and
Management are fully committed in ensuring employees adhere closely to BNM’s Guidelines (BNM/GP7) on Code of Ethics
(“COE”), which aims at instilling the five values namely discipline, integrity, humility, caring and creativity in AFFINBANK. The
Board and Management set high ethical business standards and practices for business conduct and the code of behaviour for
employees to adhere to. The Board believes in leadership by example, thus all Directors are guided by the Directors’ Code of
Ethics. The responsibility for implementation of COE policies and guidelines rests primarily with Management with oversight by
the Audit & Examination Committee.
The following statements set out the commitment of AFFINBANK in applying best principles of Corporate Governance and the
extent of compliance with the recommended practices.
BOARD OF DIRECTORS
The Board is committed in establishing long term sustainable value to the shareholders as well as the stakeholders. The Board
is pleased to report that, AFFINBANK has complied with the principles and recommendations of MCCG 2012 throughout the
financial year under review; save for the recommendation on the tenure of independent director which should not exceed nine (9)
years.
The Board composition of AFFINBANK comprises majority independent directors. It consists of representatives from the private
sector with suitable qualifications fulfilling the fit and proper criteria, a mixture of different skills, competencies, experience and
personalities. Directors’ profiles which appear on page 13 to 16 reflects clearly the depth and diversity in expertise and perspective
to lead AFFINBANK which allow for objective analysis of major issues.
Board Responsibilities
The Board acknowledges its roles and responsibilities for the overall performance of AFFINBANK.
The Board’s responsibilities remain within the framework of FSA/IFSA, BNM Policy Documents and AFFINBANK’s Board Policy
Manual. The Board exercises great care to ensure that high ethical standards are upheld, and that the interests of stakeholders are
not compromised. These include responsibility for determining AFFINBANK’s general policies and strategies for the short, medium
and long term, approving business plans, including targets and budgets, and approving major strategic decisions.
In carrying out its functions, the Board has delegated specific responsibilities to other Board Committees, which operate under
approved terms of reference, to assist the Board in discharging its duties. The Board Committees report the outcome of their
meetings to the Board and any further deliberation is made at the Board level, if required. Reports and deliberations are incorporated
into the Minutes of the Board meetings. The various Board Committees are listed below:-
The BRC is responsible for providing a formal and transparent procedure for developing the remuneration policy for Directors,
Managing Director/Chief Executive Officer and key responsible persons. BRC is to ensure that compensation is competitive and
consistent with AFFINBANK’s culture and strategic objectives. BRC obtains advice from experts in compensation and benefits,
both internally and externally.
The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors and Managing Director/
Chief Executive Officer and key responsible persons. BNC assesses the effectiveness of individual Director, the Board as a whole
and the performance of the Managing Director/Chief Executive Officer as well as key responsible persons.
The BNC also reviews and recommends the process for successions planning for the Board, Managing Director/CEO and key
responsible persons; making recommendations to the Board as appropriate.
The BRMC is responsible for overseeing management’s activities in managing credit, market, liquidity, operational, legal and other
risks so as to ensure that the risk management process is adequately in place and function effectively.
The BLRRC is responsible in providing critical review of loans and other credit facilities with higher risk implications, after due
process of checking, analysis, review and recommendation by the Credit Risk Management function, and if found necessary,
exercise the power to veto loan applications that have been approved by the Group Management Loan Committee.
The AEC is responsible for providing oversight on reviewing the adequacy and integrity of the internal control systems and
oversees the work of the internal and external auditors.
During the financial year under review, the Board comprises the following:
The Board composition of AFFINBANK meets the recommendations of the MCCG 2012 which states that the Board must comprise
a majority of Independent Directors where the Chairman of the Board is not an Independent Director. All Directors fulfilled the fit
and proper criteria in accordance with the Standard issued by BNM.
The Board adopts AFFIN Holdings Group policy that the maximum tenure for an Independent Director is 15 years until 2013.
Thereafter, the maximum tenure will be reduced to 12 years. Notwithstanding, the Nominating Committee determines on an annual
basis whether an Independent Director remains objective and is free from relationship or influence that could undermine his ability
to execute independent judgment.
The role of these Independent Non-Executive Directors are particularly important in ensuring that the strategies proposed by the
Management are fully deliberated and evaluated, in line with the long term objectives of AFFINBANK. No individual or small group
of individuals dominate the Board’s decision making process.
Board meetings are presided by a Non-Independent Non-Executive Chairman whose role is clearly separated from the role of the
Managing Director/Chief Executive Officer. The Chairman is responsible for ensuring the effectiveness and smooth functioning
of the Board, the governance structure and the independence of the Board. The Chairman also inculcates positive culture in the
Board.
The Board comprises Directors who, as a group, provides a mixture of core competencies such as finance, accounting, business,
management, marketing, information technology and investment management, which are essential for the effective functioning
in discharging Board’s responsibilities.
The Managing Director/Chief Executive Officer is responsible for the overall day-to-day business affairs of AFFINBANK while
providing strong leadership in the implementation of Board decisions.
It is the Directors’ responsibility to declare whether they have a potential or actual interest in any transaction of AFFINBANK. Where
issues involve conflict of interest, the interested Directors declared and abstained from discussing or voting on the matter. This is
important to mitigate risk arising from potential conflict of interest situation or undue influence from interested parties.
In 2013, BNM approved the re-appointment of one (1) Non-Independent Non-Executive Director. In accordance with the
Company’s Memorandum and Articles of Association, one-third (1/3) of the Directors, or, if their number is not three (3) or a
multiple of three (3), the number nearest to one-third (1/3), shall retire from office at each Annual General Meeting and they may
offer themselves for re-election.
Continuing Education
All newly appointed Non-Executive Directors are furnished by AFFINBANK with copies of the Financial Services Act 2013 (“FSA”),
Islamic Financial Services Act 2013 (“IFSA”) and other relevant legislation governing the banking industry to facilitate their
understanding and requirements of banking business. All Directors have attended various training programmes organised internally
as well as externally by the relevant authorities such as BNM, Securities Commission (“SC”) and Companies Commission of
Malaysia (“CCM”). All Directors are required to complete the Financial Institutions Directors’ Education training (“FIDE”) organised
by BNM within one year from the date of appointment. In addition, the members of the Board keep abreast with the relevant
developments in business, banking and finance industry as well as new regulatory requirements on a continuous basis through
various conferences, seminars and training programmes. The development and training programmes attended by the Directors
during the financial year ended 31 December 2013 are set out below.
YBhg. Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)
Trainer/Organiser Course Title Date
1. MICG Director Duties, Regulatory Updates, Governance for Directors of PLCs 29 January 2013
2013
2. Asian World Summit 5th Annual Corporate Governance Summit 2013 Conference 19 & 20 March 2013
3. MeLearn Global Corporate Governance Symposium 2013 - Corporate Governance in 9 & 10 April 2013
Vogue
4. Affin Holdings Berhad The new FSA 2013 and IFSA 2013 14 May 2013
5. FIDE Business Talk in conjunction with the 10th Islamic Financial Services 15 May 2013
Board Summit
6. ASLI The 17th Malaysian Banking Summit 2013 - Future Banking : Driving 23 & 24 July 2013
Growth, Prosperity and Transformation
7. FIDE FIDE luncheon & Forum : Managing Talent Board and Management Talk 1 October 2013
by Professor Dave Ulrich
8. Affin Holdings Berhad Half Day Talk on FSA 2013, Basel III and New Audit Opinion; Accounting 12 November 2013
and Other Regulatory Updates
9. FIDE Leadership Energy Summit Asia 2013 3 & 4 December
2013
5. Affin Holdings Berhad Half Day Talk on FSA 2013, Basel III and New Audit Opinion; Accounting 12 November 2013
and Other Regulatory Updates
YBhg. Tan Sri Dato‘ Sri Abdul Aziz Bin Abdul Rahman
Trainer/Organiser Course Title Date
1. MICG Director Duties, Regulatory Updates, Governance for Directors of PLCs 29 January 2013
2013
2. MeLearn Global Corporate Governance Symposium 2013 - Corporate Governance in 9 & 10 April 2013
Vouge
3. Affin Holdings Berhad The new FSA 2013 and ISFA 2013 14 May 2013
4. FIDE Breakfast Talk on Successful Corporate Banking - Focus on 27 June 2013
Fundamentals : A survey of Corporate Financial Executives
5. ASLI The 17th Malaysian Banking Summit 2013 - Future Banking : Driving 23 & 24 July 2013
Growth, Prosperity and Transformation
6. Islamic Financial IFSB-INCIEF Executive Forum : Towards strengthening Corporate and 26 & 27 August 2013
Services Board (IFSB) Shariah Governance in Islamic Banks
7. FIDE Mergers & Acquisition for Financial Institutions 19 & 20 September
2013
8. Affin Holdings Berhad Half Day Talk on FSA 2013, Basel III and New Audit Opinion; Accounting 12 November 2013
and Other Regulatory Updates
9. FIDE Human Capital Management in the Boardroom and C Suite - Board, 19 November 2013
Committee, Director and CEO Assessment
Mr. Aubrey Li Kwok-Sing & Mr. Gary Cheng Shui Hee (Alternate Director to Mr. Aubrey Li Kwok-Sing)
Trainer/Organiser Course Title Date
1. HKIoD, Hong Kong Company Performance Evaluation & Control for Directors 9 January 2013
2. HKIoD, Hong Kong Internal Control and Risk Management 30 January 2013
3. KPMG, Hong Kong KPMG Independent Non-Executive Directors Forum; Updated on Global 11 March 2013
Audit Committee Survey, Financing Reporting, Corporate Governance
themes and Tax developments
4. HKIoD, Hong Kong Perpetuating the Family Business through Succession Planning 24 April 2013
5. Mercer, Hong Kong Remuneration Committee Forum 26 June 2013
6. Deloitte, Hong Kong Deloitte Independent Non-Executive Directors Forum on Crisis 12 September 2013
Management
7. KMPG, Hong Kong KPMG Independent Non-Executive Directors Forum on Fraud and 16 September 2013
whistleblower, Tax update and Board effectiveness
8. HKIoD, Hong Kong Practical Aspects of Board Supervision for Authorised Institutions 10 October 2013
9. Deloitte, Hong Kong Deloitte INED Workshop on Accounting & auditing update for a smooth 19 November 2013
year-end reporting process
10. Mercer, Hong Kong Remuneration Committee Forum on Maintaining confidence and integrity 20 November 2013
in the Executive Pay System
11. HKIoD, Hong Kong How Boards and Directors can develop better peripheral vision 5 December 2013
12. KPMG, Hong Kong KPMG Independent Non-Executive Directors Forum on Financial 9 December 2013
reporting update, Future Audit reports, Tax update, Digital and
eCommerce and Competition Law
Board meetings are scheduled in advance at the beginning of calendar year with additional meetings duly convened as and when
necessary to review progress reports on AFFINBANK’s financial performance, approved strategies, business plans and significant
policies as well as to consider business and other proposals which require the Board’s approval. For the financial year ended 31
December 2013, fourteen (14) Board meetings were held. Meetings are usually held at the Board Room at 19th Floor, Menara Affin,
80, Jalan Raja Chulan, 50200 Kuala Lumpur.
The Board has full and timely access to information with Board papers distributed in advance of meetings to enable the Directors
to obtain further explanation, where necessary, in order to be properly briefed prior to the meetings. The Board papers include the
minutes of previous Board meeting, minutes of meeting of Board Committees and reports relevant to the issues of the meetings
covering all related banking aspects such as financial, investment, information technology, operational, human resource and
regulatory compliance matters. The Managing Director/Chief Executive Officer keeps the Board informed, on timely basis, of all
material matters affecting AFFINBANK’s performance and major developments.
Members of the Senior Management are invited to attend the Board meetings to present and brief the Board on matters/reports
relating to their areas of responsibility as and when required.
All the Board members have unrestricted access to timely and accurate information and access to the advice and services of the
Company Secretary, who is responsible for ensuring that the Board meeting’s procedures are followed and that all applicable rules
and regulations are complied with.
Procedures are in place for Directors to seek independent professional advice at AFFINBANK’s expense. AFFINBANK also
provides the Board full access to necessary materials and relevant information including the services of the Company Secretary
in order for the Board to fulfill their duties and specific responsibilities.
DIRECTORS’ REMUNERATION
AFFINBANK acknowledges the importance of attracting and retaining Directors with high calibre having the necessary skills,
qualifications and experience for effective Board oversight of AFFINBANK’s business activities and affairs.
The make-up of the Managing Director/Chief Executive Officer’s remuneration remained unchanged consisting of salary,
allowances, bonus and other customary benefits as appropriate. Any salary review, takes into account market rates and the
performance of the individual and of AFFINBANK.
Non-executive Directors’ emoluments consist of three components – an annual fee as a Board member, an allowance for
attendance of meetings and a committee fee. A revision of Directors’ Fees was effected in 2013. The Remuneration Committee
is responsible in recommending the remuneration framework of the Directors as well as the remuneration package of Managing
Director/Chief Executive Officer and key responsible persons so as to ensure that AFFINBANK attracts, motivates and retains
the Directors and Senior Management needed to run it successfully. The remuneration of Directors is in line with AFFIN Holdings
Group’s overall practice on compensation and benefits. Managing Director/Chief Executive Officer does not participate in any
way in determining his individual remuneration. The Board as a whole determines the remuneration of Non-Executive Directors.
Directors’ emoluments are disclosed in the relevant note to the financial statements as an aggregate sum, in conformance to the
relevant legislation.
SHAREHOLDER
AFFINBANK is a wholly-owned subsidiary of Affin Holdings Berhad, a company listed on Bursa Malaysia Securities Berhad.
The Annual Report and financial statements for the year ended 31 December 2012 were tabled at the 37th AGM on 25 March
2013. Likewise the Annual Report and financial statements for the year ended 31 December 2013 will be tabled at the 38th AGM
on Tuesday, 25 March 2014.
INTERNAL CONTROL
AFFINBANK has a well-established and fully operational risk management and internal control system. The Statement on internal
Control, which is set out in the Annual Report provides an overview on the risk management process/framework as well as on how
the internal control system has been designed to manage risks and avert failures. AFFINBANK continues to enhance its system of
internal control and risk management, in order to better quantify its compliance with the Code.
The Board has overall responsibility for maintaining the proper management and protection of AFFINBANK’s interests by ensuring
effective implementation of the risk management policy and process, as well as adherence to a sound system of internal control,
and by seeking regular assurance on their effectiveness. The Board also recognizes that risks cannot be eliminated completely. As
such, the inherent system of internal control is designed to provide a reasonable though not absolute assurance against the risk
on material errors, fraud or losses occurring.
The Audit & Examination Committee has an oversight responsibility for the adequacy and integrity of the internal control system.
Reliance is placed on the results of independent audits performed primarily by Group internal auditors, the outcome of statutory
audits on financial statements conducted by external auditors and on representations by Management based on their control self-
assessment on all areas of their responsibility.
Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to Board
members for notation and discussion.
AFFINBANK has an established Group internal Audit Division which reports functionally to the Audit & Examination Committee and
administratively to the Managing Director/ Chief Executive Officer. The division is responsible for conducting independent audits
in accordance with the approved annual Internal Audit Plan.
A professional and transparent relationship continues to exist between the Board/Audit & Examination Committee and the external
auditors. The Audit Committee is authorized to communicate directly with both the external and Group internal auditors. A full
Audit Committee report outlining its role in relation to the Auditors is also set out in the Annual Report. In addition, the external
auditors meet with the Board at least once a year when the annual audited financial statements are presented to the Board.
ASSURANCE
The Board through the Audit & Examination Committee has satisfactorily performed its oversight role in ensuring there is a sound
internal control system and regular review on the adequacy and integrity of the system. Assurance on the effectiveness of risk
management, control and governance process is obtained from the Management and Auditors (internal and external).
BNM auditors, Group internal auditors and external auditors conduct independent audits on AFFINBANK’s business operations,
support activities and financial records and statements respectively to derive an opinion on the adequacy and integrity of
AFFINBANK’s overall internal control framework.
Finally, with the benefit of the above assurances and the external auditor’s comments incorporated in their audit report to the
financial statements for the financial year ended 31 December 2013, the Board is able to conclude that AFFINBANK conducts its
business prudently and in line with good governance practice.
Responsibility
The Board acknowledges overall responsibility for AFFINBANK Group’s system of internal controls and its effectiveness. The
system of internal controls encompasses controls relating to financial, operational, risk management and compliance with
applicable laws, regulations, policies and guidelines.
However, the system of internal controls is designed to manage rather than eliminate the risks of failure to achieve the goals and
objectives of the Group. Therefore, it can only provide a reasonable and not absolute assurance against material misstatement of
management and financial information, or against financial losses or fraud.
The Board has an established process for identifying, evaluating, managing and reporting all significant risks that may impact the
achievement of business goals and objectives of the Group. The system of internal controls is dynamic and updated from time
to time to meet the changes in regulatory guidelines and business environment. This process is regularly reviewed by the Board
through its Board Risk Management Committee (BRMC) and Audit and Examination Committee (AEC).
The Board is of the view that the system of internal controls in place for the year under review is sound and sufficient to safeguard
the investment of the shareholders, the interest of the customers and regulators, and the assets of the Group.
The management assists the Board in implementing the policies approved by the Board, implementing risk and control procedures,
and developing, operating and monitoring internal controls to mitigate and control identified risks.
The key processes put in place to assist the Board in reviewing the adequacy and integrity of the system of internal controls
include the following:
• Relevant Board committees are established with specific responsibilities delegated by the Board to deliberate on matters within
the respective scope of responsibility. The committees are guided by written terms of reference and their minutes of meetings
are tabled to the Board.
• The BRMC assists the Board in its supervisory role concerning the overall management of risk in the Bank. it has responsibility
for reviewing and approving all risk management policies and risk management methodologies. BRMC also reviews guidelines
and portfolio management reports including risk exposure information.
• The Board Loan Review and Recovery Committee (BLRRC) critically reviews loans and other credit facilities with higher risk
implications, after due process of checking, analysis, review and recommendation by Group Risk Management and if found
necessary, exercise the power to veto loan applications that have been approved by the Group Management Loan Committee
(GMLC). BLRRC also reviews the non performing loan reports presented by the Management.
• Group Management Committee (GMCM), comprising the senior management team, assists the Board in managing day-to-
day operations and ensures its effectiveness. GMCM formulates tactical plans and business strategies, monitors the Bank’s
overall performance and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual
business plan and budget.
• The Group Management Loan Committee (GMLC) is established within senior management to approve complex and larger loans
and workout recovery proposals beyond the delegated authority of the concerned individual senior management personnel
of the Bank. The other committees comprising senior management include Asset & Liability Management Committee (ALCO)
which manages market and liquidity risks, Liquidity Management Committee (LMC) which is a sub-committee of the ALCO with
specific focus on liquidity matters, Group Operational Risk Management Committee (GORMC) which manages operational risk,
and Early Alert Committee (EAC) which monitors credit quality.
• A detailed budgeting process is in place with annual business plans and budgets prepared by the business divisions, reviewed
by the GMCM and approved by the Board. The actual business performances are monitored against the approved targets and
budgets of each business division by GMCM on a monthly basis.
• The business plan is supported by an annual credit plan, prepared by Group Risk Management and approved by BRMC. The
credit plan sets out the prevailing risk appetite and provides credit strategies and lending guidelines for the development and
management of new and existing customer relationships.
• Policies and procedures for key processes are documented and regularly updated to ensure relevance and compliance with
internal controls, directives, laws and regulations. To enhance risk culture and awareness, road shows are undertaken by Group
Risk Management across the Bank.
• Proper guidelines for the hiring and termination of employees, staff training programs and performance appraisals are established
and other relevant procedures in place to ensure staff are adequately trained and equipped to carry out their responsibilities
competently.
• An integrated risk management framework is in place. The risk management function operates in an independent capacity and
is a part of the Bank’s senior management structure which works closely as a team in managing risks to enhance stakeholders’
value. Its responsibilities extend to cover market, liquidity, credit and operational risks. The risk management function reports
to BRMC.
The Committee shall consist of at least three (3) members, appointed by the Board from amongst the independent non-executive
Directors of the Bank.
Meetings
Meetings shall be held at a frequency to be decided by the Audit and Examination Committee. At the request of the Group Chief
Internal Auditor, the Chairman shall convene a meeting to consider any matters that they may wish to bring to the attention of
the Directors or shareholders. A quorum shall consist of at least two (2) members. The Group Chief Internal Auditor shall be the
Secretary to the Audit and Examination Committee.
YBhg. Dato’ Sri Abdul Aziz YM. Dr. Raja Abdul Malek Bin YBhg. Tan Sri Dato’ Seri Associate Professor
Bin Abdul Rahman Raja Jallaludin Mohamed Jawhar Dr. Asyraf Wajdi Bin
AEC Chairman Member Member Dato’ Dusuki
Member
Authority
The Committee shall have unlimited access to all records, information and documents relevant to its activities, to the Group
Internal Audit and External Auditors and to senior management of the Bank and its subsidiaries. The Group Internal Auditors and
External Auditors shall have free access to the Audit and Examination Committee and be allowed to attend and to be heard at the
Committee meetings. The Committee is authorised by the Board to obtain outside and independent professional advice as and
when it is considered necessary.
The duties and responsibilities of the Audit and Examination Committee are:
1. To review AFFINBANK’s financial statements and to ensure compliance with disclosure requirements and any adjustments as
suggested by the External Auditors, prior to submission to the Board.
2. To review the reports of the Group Internal Auditor, the External Auditors, Bank Negara Malaysia examiners or any other
relevant parties and decide on actions to be taken on relevant issues raised in the reports.
3. To review with the External Auditors the scope of their audit plan, the system of internal accounting controls, the audit reports,
the assistance given by the management and its staff to the auditors, and any findings and action to be taken.
5. To review the effectiveness and performance of the Group Internal Audit functions from time to time.
6. To review and approve the annual audit plan and budget for Group Internal Audit, which sets out the audit objectives, auditable
areas, scope of coverage, frequency of audit and duration of each audit assignment.
7. To ensure that Group Internal Audit has adequate resources and support services to carry out its functions.
8. To review the overall performance of the Group Chief Internal Auditor, including the remuneration package.
9. To review any significant related party transactions that may arise within the Bank’s group or associate companies and report
to the Board any areas of concern.
10. To escalate to the Board via minutes of meetings or special reports on any exception identified.
11. To carry out such other responsibilities as may be delegated by the Board from time to time.
NOTICE IS HEREBY GIVEN THAT THE 38TH ANNUAL GENERAL MEETING OF AFFIN BANK BERHAD WILL BE
HELD AT THE BOARD ROOM, 19TH FLOOR, MENARA AFFIN, 80, JALAN RAJA CHULAN, 50200 KUALA LUMPUR
ON TUESDAY, 25 MARCH 2014 AT 9.00 A.M. FOR THE TRANSACTION OF THE FOLLOWING BUSINESS:-
Agenda:
1. To receive the Statutory Statements of Accounts for the year ended 31 December 2013 together with the Directors’ and
Auditors’ Reports thereon.
2. To declare a final single tier dividend of 6 Sen amounting to RM91,100,205.90 for the financial year ended 31 December
2013.
3 To re-elect the following Directors who retire pursuant to Article 91(a) of the Articles of Association and who, being eligible,
offer themselves for re-election:-
(a) YBhg. Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman
(b) YBhg. Tan Sri Dato’ Seri Mohamed Jawhar
4. To consider and if thought fit, to pass the following resolutions in accordance with Section 129(6) of the Companies Act,
1965:-
(a) “That pursuant to Section 129(6) of the Companies Act, 1965, YBhg. Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar
(Bersara) be and is hereby re-appointed as Director of the Company to hold office until the next Annual General
Meeting.”
5. To approve Directors’ fees and Committees’ fees for 2013.
6. To re-appoint Messrs PricewaterhouseCoopers as Auditors for the financial year ending 31 December 2014 and to authorise
the Directors to fix their remuneration.
7. To transact any other ordinary business of the Company.
NOTE:
1. A member entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote instead of him and the proxy need not be a member of the
Company.
The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing or, if the appointor is a corporation,
either under the seal or in some other manner approved by Directors.
The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power or authority
shall be deposited at the Company’s registered office at the 17th Floor, Menara Affin, 80, Jalan Raja Chulan, 50200 Kuala Lumpur, at least forty-eight (48) hours
before the time appointed for holding the Meeting or adjourned Meeting as the case may be otherwise the person so named shall not be entitled to vote in respect
thereof.
2. Reference is made to Recommendation 3.2 of the Malaysian Code on Corporate Governance 2012 which states that the tenure of an Independent Director should
not exceed a cumulative term of nine (9) years.
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman has served on the Board as an Independent Non-Executive Director for a period exceeding nine (9) years. He remains
independent as he is free from any business or other relationship, which could interfere with the exercise of independent judgement or the ability to act in the best
interest of the Bank. The Nominating Committee and the Board have determined that Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman remains independent in mind
and character as well as objective in decision making process of the Board.
The Directors hereby submit their report together with the audited financial statements of the Group and the Bank for the financial
year ended 31 December 2013.
PRINCIPAL ACTIVITIES
The principal activities of the Bank during the financial year are banking and related financial services. The principal activities of
the subsidiaries are Islamic banking business, property management services, nominee and trustee services. Islamic banking
business refers generally to the acceptance of deposits and granting of financing under the Shariah principles. There were no
significant changes in the nature of these activities during the financial year.
FINANCIAL RESULTS
The Group The Bank
RM’000 RM’000
DIVIDENDS
The dividends on ordinary shares paid or declared by the Bank since 31 December 2012 were as follows:
In respect of the financial year ended 31 December 2012 as shown in the Directors’ report for that financial year:
RM’000
Final single-tier dividend of 6 sen per share paid on 30 April 2013 91,100
Single-tier interim dividend of 10 sen per share paid on 24 December 2013 151,834
The Directors now recommend the payment of a final single-tier dividend of 6 sen per share amounting to RM91,100,206 which
is subject to the approval of members at the forthcoming Annual General Meeting of the Bank.
All material transfers to or from reserves or provisions during the financial year are shown in the financial statements and notes to
the financial statements.
Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that
proper action had been taken in relation to the writing off of bad debts and financing and the making of allowance for bad and
doubtful debts and financing, and satisfied themselves that all known bad debts and financing had been written off and adequate
allowances made for doubtful debts and financing.
At the date of this report, the Directors are not aware of any circumstances which would render the amount written off for bad
debts and financing, or the amount of the allowance for doubtful debts and financing, in the financial statements of the Group and
the Bank inadequate to any substantial extent.
CURRENT ASSETS
Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that
any current assets, other than debts and financing, which were unlikely to realise in the ordinary course of business, their values
as shown in the accounting records of the Group and the Bank, have been written down to an amount which they might expected
so to realise.
At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current
assets in the financial statements of the Group and the Bank misleading.
VALUATION METHODS
At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the
existing methods of valuation of assets or liabilities in the Group’s and the Bank’s financial statements misleading or inappropriate.
(a) any charge on the assets of the Group or the Bank which has arisen since the end of the financial year which secures the
liabilities of any other person; or
(b) any contingent liability in respect of the Group or the Bank that has arisen since the end of the financial year other than in the
ordinary course of banking business or activities of the Group.
No contingent or other liability of the Group or the Bank has become enforceable, or is likely to become enforceable within
the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially
affect the ability of the Group or the Bank to meet their obligation as and when they fall due.
CHANGE OF CIRCUMSTANCES
At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial
statements of the Group and the Bank that would render any amount stated in the financial statements misleading.
The results of the operations of the Group and the Bank during the financial year were not, in the opinion of the Directors,
substantially affected by any item, transaction or event of a material and unusual nature.
There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event
of a material and unusual nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the
Group or the Bank for the current financial year in which this report is made.
SUBSEQUENT EVENTS
There were no material events subsequent to the reporting date that require disclosure or adjustments to the financial statements.
DIRECTORS
The Directors of the Bank who have held office during the period since the date of the last report are:
Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)
Chairman / Non-Independent Non-Executive
Mr Aubrey Li Kwok-Sing
Non-Independent Non-Executive Director
In the course of preparing the annual financial statements of the Group and of the Bank, the Directors are collectively responsible in
ensuring that these financial statements are drawn up in accordance with Malaysian Financial Reporting Standards, International
Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.
It is the responsibility of the Directors to ensure that the financial reporting of the Group and of the Bank present a true and fair
view of the state of affairs of the Group and of the Bank as at 31 December 2013 and of the financial results and cash flows of the
Group and of the Bank for the financial year then ended.
The financial statements are prepared on the going concern basis and the Directors have ensured that proper accounting records
are kept, applied the appropriate accounting policies on a consistent basis and made accounting estimates that are reasonable
and fair so as to enable the preparation of the financial statements of the Group and of the Bank with reasonable accuracy.
The Directors have also taken the necessary steps to ensure that appropriate systems are in place for the assets of the Group and
of the Bank to be properly safeguarded for the prevention and detection of fraud and other irregularities. The systems, by their
nature, can only provide reasonable and not absolute assurance against material misstatements, whether due to fraud or error.
The Statement by Directors pursuant to Section 169 of the Companies Act, 1965 is set out on page 194 of the financial statements.
DIRECTORS’ INTERESTS
According to the register of Directors’ shareholdings, the interest of Directors in office at the end of the financial year in shares,
warrants and options of related companies are as follows:
DIRECTORS’ INTERESTS
^ Share split on the basis of one (1) bonus share for every ten (10) subdivided shares held on 4 June 2013.
Bonus issue on 4 June 2013.
Other than the above, the Directors in office at the end of the financial year did not have any other interest in shares, warrants and
options over shares in the Bank or its related corporations during the financial year.
DIRECTORS’ BENEFITS
During and at the end of the financial year, no other arrangements subsisted to which the Bank or any of its subsidiaries is a party
with the object or objects of enabling Directors of the Bank or any of its subsidiaries to acquire benefits by means of the acquisition
of shares in, or debenture of, the Bank or any other body corporate, except for the share options granted to Directors of the Bank
by AFFIN Holdings Berhad, Boustead Holdings Berhad and Lembaga Tabung Angkatan Tentera.
Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive a benefit (other than
the fees and other emoluments shown in the Note 31 to the financial statements) by reason of a contract made by the Bank or
by a related corporation with the Director or with a firm of which he is a member or with a company in which he has a substantial
financial interest.
CORPORATE GOVERNANCE
The Board of Directors is committed to ensure the highest standards of corporate governance throughout the organisation with
the objectives of safeguarding the interests of all stakeholders and enhancing the shareholders’ value and financial performance
of the Bank. The Board considers that it has applied the Best Practices as set out in the Malaysian Code of Corporate Governance
throughout the financial year. The Bank is also required to comply with BNM’s Guidelines on Directorship in the banking institutions
(‘BNM/GP1’).
The direction and control of the Bank rest firmly with the Board as it effectively assumes the overall responsibility for corporate
governance, strategic direction, formulation of policies and overseeing the investments and operations of the Bank. The
Board exercises independent oversight on the management and bears the overall accountability for the performance of the
Bank and compliance with the principle of good governance.
There is a clear division of responsibility between the Chairman and the Managing Director/Chief Executive Officer to ensure
that there is a balance of power and authority. The Board is responsible for reviewing and approving the longer-term strategic
plans of the Bank as well as the business strategies. It is also responsible for identifying the principal risks and implementation
of appropriate systems to manage those risks as well as reviewing the adequacy and integrity of the Bank’s internal control
systems, management information systems, including systems for compliance with applicable laws, regulations and
guidelines.
Whilst, the Management Committee, headed by the Managing Director/Chief Executive Officer, is responsible for the
implementation of the strategies and internal control as well as monitoring performance. The Committee is also a forum
to deliberate issues pertaining to the Bank’s business, strategic initiatives, risk management, manpower development,
supporting technology platform and business processes.
The Board meets on a monthly basis, to review the Bank’s financial and business performance, to oversee the conduct of the
Bank’s business as well as to ensure that adequate internal control systems are in place. The Board met 14 times during the
financial year.
CORPORATE GOVERNANCE
Board Balance
The Board of Directors comprises of seven Non-Executive Directors and one alternate Non-Executive Director. There are four
Independent Non-Executive Directors and four Non-Independent Non-Executive Directors. The Board of Directors meetings
are presided by a Non-Independent Non-Executive Chairman whose role is clearly separated from the role of the Managing
Director/Chief Executive Officer.
In 2013, the Bank continues to have a strong and experienced Board, befitting its aspiration to become a mid size Bank of
prominence. It consists of representatives from the private sector with suitable qualifications and experience in relevant areas
particularly in banking.
The composition of the Board and the number of meetings attended by each director are as follows:
Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) 14 / 14
Chairman / Non-Independent Non-Executive Director
Mr Aubrey Li Kwok-Sing 4 / 14
Member / Non-Independent Non-Executive Director
CORPORATE GOVERNANCE
Board Committees
Nomination Committee
Nominating Committee was established to provide a formal and transparent procedure for the appointment of Directors
and Managing Director/Chief Executive Officer. The committee also assesses the effectiveness of the Board as a whole,
contribution of each Director, contribution of the Board’s various committees and the performance of Managing Director/Chief
Executive Officer and key senior management officers.
During the financial year ended 31 December 2013, a total of 6 meetings were held. The Nominating Committee comprises
the following members and the details of attendance of each member at the Nominating Committee meetings held during the
financial year are as follows:
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman 6/6
Member / Independent Non-Executive Director
Remuneration Committee
Remuneration Committee was established to evaluate and recommend a framework of remuneration for Directors, the Chief
Executive Officer and key senior management officers that is competitive and consistent with the Bank’s culture, objectives
and strategy.
During the financial year ended 31 December 2013, a total of 4 meetings were held. The Remuneration Committee comprises
the following members and the details of attendance of each member at the Remuneration Committee meetings held during
the financial year are as follows:
CORPORATE GOVERNANCE
Shariah Committee
AFFIN Islamic Bank Berhad’s business activities are subject to Shariah compliance and conformation by the Shariah
Committee. The Shariah Committee is formed as legislated under the Islamic Financial Services Act 2013 and as per Shariah
Governance Framework for Islamic Financial Institutions.
The duties and responsibilities of the Shariah Committee include the following:
• To advise the Board on Shariah matters in order to ensure that the business operations of the Bank comply with the
Shariah principles at all times;
• To endorse and validate relevant documentations of the Bank’s products to ensure that the products comply with Shariah
principles; and
• To advise the AFFIN Islamic Bank Berhad on matters to be referred to the Shariah Advisory Council.
The Shariah Committee was established in December 1995. During the year, a total of 21 meetings were held. The Shariah
Committee comprises the following members and the details of attendance of each member at the Shariah Committee
meetings held are as follows:
CORPORATE GOVERNANCE
The Group Risk Management function, operating in an independent capacity, is part of the Bank’s senior management
structure which works closely as a team in managing risks to enhance stakeholders’ value.
The Group Risk Management function provides support to the Board Risk Management Committee (‘BRMC’). Committees
namely Board Loan Review and Recovery Committee (‘BLRRC’), Management Committee (‘MCM’), Group Management
Loan Committee (‘GMLC’), Asset and Liability Management Committee (‘ALCO’), Liquidity Management Committee (‘LMC’),
Group Operational Risk Management Committee (‘GORMC’) and Early Alert Committee (‘EAC’) assist the BRMC in managing
credit, market, liquidity and operational risks respectively.
The main function of Board Risk Management Committee (‘BRMC’) is to assist the Board in its supervisory role in the
management of risk in the Bank. It has responsibility for approving and reviewing all risk management policies and
methodologies of the Bank. BRMC also reviews guidelines and portfolio management reports including risk exposure
information.
BRMC provides oversight and management of all risks in the Bank. The Committee also ensures that the procedures and
framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively. The Bank’s risk
management framework is set out in Note 38 to the financial statements.
The BRMC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31
December 2013, a total of 5 meetings were held. The BRMC comprises the following members and details of attendance of
each member at the BRMC meetings held during the financial year are as follows:
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman 5/5
Member / Independent Non-Executive Director
CORPORATE GOVERNANCE
Board Loan Review and Recovery Committee (‘BLRRC’) critically reviews loans and other credit facilities with higher risk
implications, after due process of checking, analysis, review and recommendation by the Credit Risk Management function,
and if found necessary, exercise the power to veto loan applications that have been accepted by the Group Management
Loan Committee (‘GMLC’). The Committee is also responsible to review the impaired loans presented by Management.
The BLRRC meeting for the Bank were jointly held with AFFIN Islamic Bank and during the financial year ended 31 December
2013, a total of 12 meetings were held. The BLRRC comprises the following members and details of attendance of each
member at the BLRRC meetings held during the financial year are as follows:
Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) 12 / 12
Chairman / Non-Independent Non-Executive Director
Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Mohd Nor (Bersara) 12 / 12
Member / Non-Independent Non-Executive Director
(Represent AFFIN Islamic Bank Berhad)
MCM comprising the senior management team chaired by the MD/CEO, assists the Board in managing the day-to-day
operations and ensure its effectiveness. MCM formulates tactical plans and business strategies, monitors the Bank’s overall
performance, and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual
business plan and budget.
Group Management Loan Committee (‘GMLC’) approves complex and larger loans and workout/recovery proposals beyond
the delegated authority of the concerned individual senior management personnel of the Bank.
CORPORATE GOVERNANCE
Individual Approvers
Credit authority is delegated based on skills, experience and track record of the officer assuming an approver’s position.
Delegation of credit authority is subject to credit checks to ensure approvers have a clean disciplinary record and not be in a
financially embarrassed position.
ALCO comprising the senior management team chaired by the MD/CEO, manages the Bank’s asset liability position and
oversees the Bank’s capital management to ensure that the Bank is adequately capitalised on an economic and regulatory
basis.
LMC is a sub-committee of the ALCO and its role is to augment the functions of the ALCO by directing its focus specifically
to liquidity issues.
Early Alert Committee (‘EAC’) is established within senior management to monitor credit quality through monthly review of
the Early Alert, Watchlist and Exit Accounts and review the actions taken to address the emerging risks and issues in these
accounts.
CORPORATE GOVERNANCE
In accordance with Bank Negara Malaysia’s GP10 guidelines, the Group Internal Audit Division (‘GIA’) conducts continuous
reviews on auditable areas within the Bank. The continuous reviews by GIA are focused on areas of significant risks and
effectiveness of internal control in accordance to the audit plan approved by the Audit and Examination Committee (‘AEC’).
The risk highlighted on the respective auditable areas as well as recommendation made by the GIA are addressed at AEC and
Management meetings on bi-monthly basis. The AEC also conduct annual reviews on the adequacy of internal audit function,
scope of work, resources and budget of GIA.
At present, GIA consists of Operational Audit, IS Audit, Credit Review, Investigation and Compliance. Audit activities include
these key components:
• Conduct audit on all auditable entities (Head Office, branches and subsidiaries) processes, services, products, system
and provide an independent assessment to the Board of Directors, AEC and Management that appropriate control
environment is maintained with clear authority and responsibility with sufficient staff and resources to carry out control
responsibilities.
• Perform risk assessments to identify risk and evaluate actions taken to provide reasonable assurance that procedures
and controls exist to contain those risks.
• Maintain strong control activities including documented processes and system incorporating adequate controls to
produce accurate financial data and provide for the safeguarding of assets, and a documented review of reported results.
• Monitor controls, including procedures to verify that controls are in place and functioning, follow up on corrective action
on control finding until its full resolution.
Based on GIA’s review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an opinion on
the effectiveness of internal controls maintained by each entity.
The AEC comprises members of the Bank’s Board of Directors whose primary function is to assist the Board of Directors in
its supervision over:
• The reliability and integrity of accounting policies and financial reporting and disclosure practices;
• The provision of advice to the Board with regards to the financial statements and business risks to enable the Board to
fulfill its fiduciary duties and obligations; and
CORPORATE GOVERNANCE
The AEC is made up of at least three but not more than five members appointed by the Board of Directors from among its
non-executive directors.
The AEC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31
December 2013, a total of 7 meetings were held. The Audit and Examination Committee comprises the following members
and details of attendance of each member at the Audit and Examination Committee meetings held during the financial year
are as follows:
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman 7/7
Chairman / Independent Non-Executive Director
Before each Board meeting, Directors are provided with a complete set of board papers itemised in the agenda for Board’s
review/approval and/or notation.
The Board monitors the Bank’s performance by reviewing the monthly Management Report, which provides a comprehensive
review and analysis of the Bank’s operations and financial issues. In addition, the minutes of the Board Committees and
Management Committees meetings and other issues are also tabled and considered by the Board.
Procedures are in place for Directors to seek both independent professional advice at the Bank’s expense and the advice and
services of the Company Secretary in order to fulfill their duties and specific responsibilities.
BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013
2013 was a challenging year for the AFFIN Bank Berhad. To address the issue of household debt level, Bank Negara Malaysia
(‘BNM’) had strengthened the existing measures on responsible lending guidelines by issuing more stringent guidelines in July
2013. These measures contributed to further softening of loans growth for the industry as a whole, and especially in the consumer
segment.
Despite these challenges, the Group remained resilient in the market, registering profit before tax growth of 8.4%, deposits growth
of 11.7% and growth of net loans and advances of 8.2 %.Our key financial ratios are within the industry average.
The Bank managed to register the performance through preservation of asset quality using proactive account management and
effective early detection of potential problematic assets.
Management will continue to remain prudent to ensure business sustainability and profitability growth. The bank is also continuously
seeking out for new growth opportunities.
Going into 2014, the Bank will be focusing on controlled loans growth and effective balance sheet management in order to
achieve financial year-ended 2014 business targets. Amid increasing competition, margin continues to come under pressure to the
banking industry due to the impact of potential hike in Overnight Policy Rate (‘OPR’). In view of this scenario, net interest margin
is expected to be dampened further. As such, more emphasis will be given on increasing our fee based income.
Business opportunities from Economic Transformation Plan (‘ETP’) projects are expected to be more significant for the Bank in the
coming year and will give positive impact to our business banking sector as a result of stronger collaboration on secondary project
financing between its major shareholders, the Lembaga Tabung Angkatan Tentera (‘LTAT’) and the Boustead Group of companies
as well as our existing/established customers.
For consumer segments, higher end auto financing and mortgage will remain as our main drivers for loan growth. The ensure
income sustainability, the bank will also emphasis on cross selling of its products such as cards, unit trust, insurance business and
promoting new banking products particularly in treasury, forex and wealth management.
With continued focus on productivity improvement and customer service enhancement from all our staff, we are optimistic in our
outlook for 2014.
The Bank has been rated by the following external rating agency:
RAM has reaffirmed the Bank’s long-term and short-term financial institution ratings, at A1 and P1, respectively, with a stable outlook.
‘A’ rating is defined by RAM as being able to offer adequate safety for timely payment of interest and principal, and has adequate
credit profile but possess one or more problem areas, giving rise to the possibility of future riskiness. Entities rated in this category
have generally performed at industry average and are considered to be more vulnerable to changes in economic condition than
those rated in the higher categories. The subscript 1 in this category indicates as higher end of its generic rating in the A category.
A P1 rating is defined by RAM as obligations which are supported by superior ability with regards to timely payment of obligations.
ZAKAT
The Bank’s subsidiary, AFFIN Islamic Bank Berhad (‘AFFIN ISLAMIC’) is obliged to pay zakat to comply with the principles of
shariah. AFFIN Islamic does not pay zakat on behalf of its depositors.
The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate
holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan Tentera
Act, 1973.
AUDITORS
Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)
Chairman
ASSETS
Cash and short-term funds 2 9,401,701 7,648,904 4,987,696 3,633,842
Reverse and repurchase agreements with
financial institutions - 20,057 - 20,057
Deposits and placements with banks and
other financial institutions 3 482,597 596,452 1,106,756 1,043,825
Financial assets held-for-trading 4 149,544 165,592 149,544 165,592
Derivative financial assets 5 56,274 68,872 56,274 68,872
Financial investments available-for-sale 6 7,614,537 7,640,654 6,331,414 5,658,161
Financial investments held-to-maturity 7 500,336 451,670 415,271 451,670
Loans, advances and financing 8 36,227,785 33,482,626 30,178,910 28,339,269
Other assets 9 220,097 293,658 176,555 227,790
Amount due from subsidiaries 10 - - 60,723 153,949
Amount due from jointly controlled entity 4,185 2,745 - -
Tax recoverable 17 16 - -
Deferred tax assets 11 9,945 - 6,985 -
Statutory deposits with
Bank Negara Malaysia 12 1,459,350 1,413,300 1,226,350 1,211,800
Investment in subsidiaries 13 - - 389,088 387,389
Investment in jointly controlled entity 14 - 60 - -
Property and equipment 15 158,740 171,922 150,803 163,951
Intangible assets 16 152,005 148,452 154,232 149,887
TOTAL ASSETS 56,437,113 52,104,980 45,390,601 41,676,054
The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements.
Attributable to:
Equity holders of the Bank 569,822 525,266 508,599 450,304
The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements.
The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements.
Comprehensive income:
Net profit for the financial year - - - - 569,822 569,822
Comprehensive income:
Net profit for the financial year - - - - 525,266 525,266
Non-distributable Distributable
AFS
Share Share Statutory revaluation Retained
capital premium reserves reserves profits Total
The Bank RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Comprehensive income:
Net profit for the financial year - - - - 508,599 508,599
Comprehensive income:
Net profit for the financial year - - - - 450,304 450,304
The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements.
Interest income:
- financial assets held-for-trading (160) (789) (160) (789)
- financial investments available-for-sale (202,084) (183,906) (201,936) (183,758)
- financial investments held-to-maturity (19,984) (23,912) (19,984) (23,912)
Dividend income:
- financial investments available-for-sale (4,058) (3,204) (4,058) (3,204)
Amortisation of premium less accretion of discount
- financial investments available-for-sale (12,004) (9,869) (12,004) (9,869)
- financial investments held-to-maturity (1,024) (964) (1,024) (964)
Gain on sale:
- financial assets held-for-trading (366) (697) (366) (697)
- financial investments available-for-sale (22,369) (20,634) (18,894) (19,870)
- financial investments held-to-maturity (6,144) (19,011) (6,144) (19,011)
Unrealised (gain)/loss on revaluation
- financial assets held-for-trading (455) 188 (455) 188
- derivatives (5,282) (12,925) (5,282) (12,925)
- foreign exchange 54,118 (42,325) 54,118 (42,325)
Allowance for impairment loss
- financial investments available-for-sale 499 812 499 812
- financial investments held-to-maturity - 9,590 - 9,590
Depreciation of property and equipment 16,019 17,784 15,166 16,579
Property and equipment written-off 91 179 91 178
Foreclosed properties - diminution in value - 2,122 - 2,122
Gain on sale of property and equipment (3,910) (1,098) (3,910) (1,093)
Amortisation of intangible assets 7,989 8,568 7,197 7,771
Gain on sale of foreclosed properties (11,041) (10,141) (11,041) (10,097)
Net individual impairment 43,872 69,497 43,615 66,845
Net collective impairment 15,253 6,672 15,011 24,242
Bad debt and financing written-off 4,583 7,784 4,509 7,702
Interest expense - subordinated term loan 41,473 40,453 41,473 40,453
Zakat 8,583 6,064 - -
Subsidiary - diminution in value - - (1,707) -
Share of joint venture’s results 210 230 - -
Operating profit before changes in working capital 657,438 537,633 567,243 443,523
Reverse repurchase agreements with financial institutions 20,057 (20,057) 20,057 (20,057)
Deposits and placements with banks and other financial institutions 113,855 (109,758) (62,931) 55,163
Financial assets held-for-trading 16,869 (15,252) 16,869 (15,252)
Interest income from financial assets held-for-trading 160 789 160 789
Foreign exchange transaction (29,935) (1,463) (30,378) (161)
Loans, advances and financing (2,808,867) (3,874,313) (1,902,776) (3,119,997)
Other assets 48,145 (98,483) 27,551 (82,270)
Derivative financial instruments 47,457 (56,707) 47,457 (56,707)
Statutory deposits with Bank Negara Malaysia (46,050) (144,650) (14,550) (103,150)
Amount due from subsidiaries - - 98,257 203,169
Amount due from jointly controlled entity (1,440) - - -
Investment in subsidiaries - - 9 -
Investment in associate 30 - 30 -
Investment in joint controlled entity (150) - - -
Interest received:
- financial investments available-for-sale 202,084 183,906 201,936 183,758
- financial investments held-to-maturity 19,984 23,912 19,984 23,912
Dividend income:
- financial investments available-for-sale 4,058 3,204 4,058 3,204
Redemption of financial investments held-to-maturity net of purchase (41,497) 79,820 43,568 79,820
Net purchase of financial investments available-for-sale (42,036) (911,810) (729,623) (412,881)
Proceeds from disposal of
- property and equipment 7,377 4,091 7,377 3,441
- foreclosed properties 21,961 21,611 21,961 21,371
Purchase of property and equipment (17,443) (20,616) (16,624) (19,480)
Purchase of intangible assets (1,236) (458) (1,236) (458)
Net cash generated from/(used in) investing activities 153,132 (616,340) (448,560) (117,313)
Net increase/(decrease) in cash and cash equivalents 1,758,488 (2,244,952) 1,359,102 (1,906,785)
Net (decrease)/increase in foreign exchange (5,691) 14,490 (5,248) 13,188
Cash and cash equivalents at beginning of the financial year 7,648,904 9,879,366 3,633,842 5,527,439
CASH AND CASH EQUIVALENTS AT
END OF THE FINANCIAL YEAR (Note 2) 9,401,701 7,648,904 4,987,696 3,633,842
The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements.
The following accounting policies have been used consistently in dealing with items which are considered material in relation to the
financial statements. These policies have been consistently applied to all the financial years presented, unless otherwise stated.
The financial statements of the Group and the Bank have been prepared in accordance with the provisions of the Malaysian
Financial Reporting Standards (‘MFRS’), International Financial Reporting Standards and the requirements of the Companies
Act 1965 in Malaysia. The financial statements incorporate those activities relating to Islamic banking business which have
been undertaken by AFFIN Islamic Bank Berhad, a wholly owned subsidiary of the Bank. Islamic banking business refers
generally to the acceptance of deposits and granting of financing under the Shariah principles.
The financial statements of the Group and the Bank have been prepared under the historical cost convention, unless otherwise
indicated in this summary of significant accounting policies.
The preparation of financial statements in conformity with MFRS requires the use of certain critical accounting estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also
requires Directors to exercise their judgment in the process of applying the Group and Bank’s accounting policies. Although
these estimates and judgment are based on the Directors’ best knowledge of current events and actions, actual results
may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are
significant to the financial statements are disclosed in Note 44.
Standards and amendments to published standards that are effective and applicable to the Group and the Bank
The new accounting standards and amendments to published standards that are effective and applicable to the Group and
the Bank for the financial year beginning 1 January 2013 are as follows:
• MFRS 3 “Business Combinations” (IFRS 3 Business Combinations issued by IASB in March 2004)
• Amendment to MFRS 7 “Financial instruments: Disclosures – offsetting financial assets and financial liabilities”
• Amendments to MFRS 10, MFRS 11 and MFRS 12 “Consolidated financial statements, joint arrangements and disclosure
of interests in other entities: Transition Guidance”
Standards and amendments to published standards that are effective and applicable to the Group and the Bank
(continued)
o MFRS 1 “First-time Adoption of Malaysian Financial Reporting Standards” - Repeated application of MFRS 1 and
borrowing costs
o MFRS 101 “Presentation of Financial Statements” - Clarification of the requirements for comparative information
o MFRS 132 “Financial Instruments: Presentation” - Tax effect of distribution to holders of equity instruments
o MFRS 134 “Interim Financial Reporting” - Interim financial reporting and segment information for total assets and
liabilities
The adoption of the new accounting standards, amendments and improvements to published standards did not have material
impact on the financial statements of the Group and the Bank.
Standards, amendments to published standards and interpretations to existing standards that are applicable to the
Group and the Bank but not yet effective
The Group and the Bank will apply these standards, amendments to published standards from:
• Amendment to MFRS 132 “Financial instruments: Presentation” (effective from 1 January 2014) does not change
the current offsetting model in MFRS 132. It clarifies the meaning of ‘currently has a legally enforceable right of set-
off’ that the right of set-off must be available today (not contingent on a future event) and legally enforceable for all
counterparties in the normal course of business. It clarifies that some gross settlement mechanisms with features
that are effectively equivalent to net settlement will satisfy the MFRS 132 offsetting criteria.
• Amendments to MFRS 10, MFRS 12 and MFRS 127 (effective 1 January 2014) introduce an exception to consolidation
of investment entities. Investment entities are entities whose business purpose is to invest funds solely for returns from
capital appreciation, investment income or both and evaluate the performance of its investments on fair value basis.
The amendments require investment entities to measure particular subsidiaries at fair value instead of consolidating
them.
• Amendment to MFRS 136, ‘Impairment of Assets’ (effective 1 January 2014) clarify that disclosure of recoverable
amount is required for an asset or cash generating unit when an impairment loss has been recognised or reversed
during the period. When the recoverable amount of impaired assets is based on fair value less costs of disposal,
additional information about fair value measurement is required. This amendment removes the unintended
requirement to disclose the recoverable amount for a cash-generating unit (containing goodwill or indefinite lived
intangible assets) when no impairment loss has been recognised or reversed during the period.
Standards, amendments to published standards and interpretations to existing standards that are applicable to the
Group and the Bank but not yet effective (continued)
• Amendment to MFRS 139 “Financial Instruments: Recognition and Measurement’ - Novation of Derivatives and
Continuation of Hedge Accounting (effective 1 January 2014) provides relief from discontinuing hedge accounting
in a situation where a derivative (which has been designated as a hedging instrument) is novated to effect clearing
with a central counterparty as a result of laws or regulation, subject to meeting the following criteria - the parties to
the hedging instrument agree that the central counterparty replaces the original counterparty, other changes to the
hedging instrument are limited to those that are necessary to effect replacement of the counterparty.
• MFRS 9 “Financial instruments - classification and measurement of financial assets and financial liabilities” (effective
from 1 January 2017) replaces the parts of MFRS 139 that relate to the classification and measurement of financial
instruments. MFRS 9 requires financial assets to be classified into two measurement categories: those measured as
at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification
depends on the entity’s business model for managing its financial instruments and the contractual cash flow
characteristics of the instrument.
For financial liabilities, the standard retains most of the MFRS 139 requirements. The main change is that, in case
where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit
risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting
mismatch.
The financial effect of adoption of MFRS 9 is still being assessed by the Group and the Bank.
The Group and the Bank will apply these standards when effective. The adoption standards, amendments to published
standards and interpretations to existing standards do not have significant impact on the financial statements of the
Group and the Bank except for MFRS 9.
(B) CONSOLIDATION
The consolidated financial statements include the financial statements of the Bank, subsidiaries and a jointly controlled entity,
made up to the end of the financial year.
(i) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity.
(B) CONSOLIDATION
The Group applies the acquisition method to account for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the
acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset
or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date.
The Group applies predecessor accounting to account for business combinations under common control. Under the
predecessor accounting, assets and liabilities acquired are not restated to their respective fair values but at the carrying
amounts from the consolidated financial statements of the ultimate holding company of the Group and adjusted to ensure
uniform accounting policies of the Group. The difference between any consideration given and the aggregate carrying
amounts of the assets and liabilities (as of the date of the transaction) of the acquired entity is recorded as an adjustment
to retained earnings. No additional goodwill is recognised.
The acquired entity’s results, assets and liabilities are consolidated from the date on which the business combination
between entities under common control occurred. Consequently, the consolidated financial statements do not reflect the
results of the acquired entity for the period before the transaction occurred. The corresponding amounts for the previous
year are not restated.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity
interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance
with MFRS 139 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is
classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-
date fair value of any previous equity interest in the acquiree over the fair value of the identified net assets acquired
is recorded as goodwill. If the total of the consideration, non-controlling interest recognised previously held interest
measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the
difference is recognised directly in the income statement.
Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated.
Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting
policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the
Group.
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions –
that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration
paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or
losses on disposals to non-controlling interests are also recorded in equity.
(B) CONSOLIDATION
When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when
control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount
for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In
addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as
if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised
in other comprehensive income are reclassified to profit or loss.
The Group’s interest in jointly controlled entities are accounted for in the financial statements by the equity method of
accounting. Under the equity method of accounting, interests in jointly controlled entities are initially recognised at cost
and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements in other
comprehensive income. When the Group’s share of losses in a jointly controlled entities equals or exceeds its interests
in the jointly controlled entities (which includes any long-term interests that, in substance, form part of the Group’s net
investment in the jointly controlled entities), the Group does not recognise further losses, unless it has incurred obligations
or made payments on behalf of the jointly controlled entities.
Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets
at the date of acquisition.
Goodwill on acquisition of subsidiaries are included in the statement of financial position as intangible assets. Goodwill is
tested for impairment annually or more frequently if events or changes in circumstances indicated that the goodwill may be
impaired. The amount retained in the consolidated financial statements is stated at cost less accumulated impairment losses.
Impairment losses on goodwill (inclusive of impairment losses recognised in a previous interim period) are not reversed. Gains
and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units (‘CGU’) for the purpose of impairment testing. The allocation is made to those
CGUs that are expected to benefit from the synergies of the business combination in which goodwill arose identified according
to operating segment.
Computer software
Acquired computer software are capitalised on the basis of the cost incurred to acquire and bring to use the specific software.
These costs are amortised over their estimated useful lives (five years). Computer software classified as intangible asset are
stated at cost less accumulated amortisation and accumulated impairment losses, if any.
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for
impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating
units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment
at each reporting date.
The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged
to the revaluation surplus. Any subsequent increase in recoverable amount is recognised in the income statement unless it
reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus.
Interest and financing income and expense for all interest/profit-bearing financial instruments measured at amortised cost
and interest/profit bearing financial assets as held-for-trading and available-for-sale are recognised within “interest income”,
“interest expense” and “net Islamic banking income” respectively in the income statement using the effective interest/profit
method.
The effective interest/profit method is a method of calculating the amortised cost of a financial asset or a financial liability and
of allocating the interest and financing income or expense over the relevant period. The effective interest/profit rate is the rate
that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments or,
when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the
effective interest/profit rate, the Group and the Bank take into account all contractual terms of the financial instrument and
includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective
interest rate, but not future credit losses.
Interest or income on impaired financial assets is recognised using the rate of interest/profit used to discount the future cash
flows for the purpose of measuring the impairment loss. A financial asset or a group of financial assets is deemed to be
impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the
initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future
cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Fees and commissions are recognised as income when all conditions precedent are fulfilled. Commitment fees for loans,
advances and financing that are likely to be drawn down are deferred (together with related direct costs) and income which
forms an integral part of the effective interest rate of a financial instrument is recognised as an adjustment to the effective
interest/profit rate on the financial instrument.
Commitment fees and guarantee fees which are material are recognised as income based on a time apportionment method.
All financial assets which include derivative financial instruments have to be recognised in the statement of financial position
and measured in accordance with their assigned category.
The Group and the Bank allocate financial assets in the following MFRS 139 categories:
Loans, advances and financing, financial assets at fair value through profit or loss, financial investments available-for-sale;
and financial investments held-to-maturity. Management determines the classification of its financial instruments at initial
recognition.
Loans, advances and financing are non-derivative financial assets with fixed or determinable payments that are not quoted in
active market.
Loans, advances and financing are initially recognised at fair value which is the cash consideration to originate or purchase the
loan including any transaction costs and measured subsequently at amortised cost using the effective interest rate method,
less impairment allowance.
An uncollectible loan, advance and financing or portion of a loan, advance and financing classified as bad is written off
after taking into consideration the realisable value of collateral, if any, when in the judgment of the management, there is no
prospect of recovery.
At each reporting date, the Group and the Bank assess whether there is objective evidence that a loan or group of loans
is impaired. A loan or a group of loans is impaired and impairment losses are incurred only if there is objective evidence of
impairment as a result of one or more events that occurred after the initial recognition of the loan (a ‘loss event’) and that loss
event (or events) has an impact on the estimated future cash flows of the loan or group of loans that can be reliably estimated.
The criteria that the Group and the Bank use to determine that there is objective evidence of an impairment loss include
among others:
The estimated period between a loss occurring and its identification for credit cards is six months and for all other loans are
twelve months.
The Group and the Bank first assess whether objective evidence of impairment exists individually for loans that are individually
significant, and individually or collectively for loans that are not individually significant. If the Group and the Bank determine
that no objective evidence of impairment exists for an individually assessed loan, whether significant or not, it includes the
loan in a group of loans with similar credit risk characteristics and collectively assesses them for impairment. Loans that are
individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a
collective assessment of impairment. Loans that are individually assessed for impairment and for which no impairment loss is
required (over collateralised loans) are collectively assessed as a separate segment.
The amount of the loss is measured as the difference between the loan’s carrying amount and the present value of estimated
future cash flows (excluding future credit losses that have not been incurred) discounted at the loan’s original effective interest
rate. The carrying amount of the loan is reduced through the use of an allowance account and the amount of the loss is
recognised in the income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss
is the current effective interest rate determined under the contract.
For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics.
Those characteristics are relevant to the estimation of future cash flows for groups of such loans by being indicative of the
borrowers’ ability to pay all amounts due according to the contractual terms of the loans being evaluated.
Future cash flows in a group of loans that are collectively evaluated for impairment are estimated on the basis of the contractual
cash flows of the loans in the Bank and historical loss experience for loans with credit risk characteristics similar to those in the
Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions
that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the
historical period that do not currently exist.
Estimates of changes in future cash flows for groups of loans should reflect and be directionally consistent with changes
in related observable data from period to period (for example, changes in unemployment rates, property prices, payment
status, or other factors indicative of changes in the probability of losses in the Group and the Bank and their magnitude). The
methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group and the Bank to
reduce any differences between loss estimates and actual loss experience.
Where a loan shows evidence of credit weaknesses, the Group and the Bank may seek to renegotiate the loan rather than to
take possession of collateral. This may involve an extension of the payment arrangements via rescheduling or the renegotiation
of new loan terms and conditions via restructuring. Management monitors the renegotiated loan to ensure that all the revised
terms are met and that the repayments are made promptly for a continuous period. Where an impaired loan is renegotiated,
the borrower must adhere to the revised and/or restructured repayment terms for a continuous period of six months before the
loan is classified as non-impaired. These loans continue to be subjected to individual or collective impairment assessment.
This category comprises two sub-categories: financial assets classified as held-for-trading and financial assets designated by
the Group and the Bank as at fair value through profit or loss upon initial recognition.
A financial asset is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing
it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there
is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless
they are designated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as
‘Derivative financial assets’ when their fair values are positive. Financial assets held-for-trading consist of debt instruments,
including money-market paper, traded corporate and bank loans, and equity instruments, as well as financial assets with
embedded derivatives. They are recognised in the statement of financial position as ‘Financial assets held-for-trading’.
Financial instruments included in this category are recognised initially at fair value; transaction costs are taken directly to the
income statement. Financial assets at fair value through profit or loss are subsequently carried at fair value. Changes in fair
values including the effects of currency translation, interest and dividend income are recognised in the income statement in
the period in which the changes arise.
The Group and the Bank may designate certain financial assets upon initial recognition as at fair value through profit or loss
(fair value option). This designation cannot subsequently be changed. The fair value option is only applied when the following
conditions are met:
• the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise; or
• the financial assets are part of a portfolio of financial instruments which is risk managed and reported to senior management
on a fair value basis; or
• the financial assets consists of debt host and an embedded derivatives that must be separated.
Financial assets for which the fair value option is applied are recognised in the statement of financial position as ‘Financial
assets designated at fair value’. Fair value changes relating to financial assets designated at fair value through profit or loss
are recognised in the income statement.
The Group and the Bank may choose to reclassify a non-derivative financial assets held-for-trading out of this category where:
• in rare circumstances, it is no longer held for the purpose of selling or repurchasing in the near term; or
• it is no longer held for purpose of trading, it would have met the definition of a loan and receivable on initial classification
and the Group and the Bank have the intention and ability to hold it for the foreseeable future or until maturity.
Financial investments available-for-sale are non-derivative financial assets that are either designated in this category or not
classified as loans and receivables, held-for-trading or held-to-maturity investments.
Financial instruments available-for-sale are initially recognised at fair value plus transaction costs and subsequently measured
at fair value.
Investments in equity instruments where there is no quoted market price in an active market and whose fair value cannot be
reliably measured, will be stated at cost.
Any gains or losses arising from the change in fair value adjustments are recognised directly in statement of comprehensive
income except for impairment losses and foreign exchange gains or losses. When the financial asset is derecognised, the
cumulative gains or loss previously recognised in statement of comprehensive income shall be transferred to the income
statement.
A financial investments available-for-sale that would have met the definition of loans and receivables may only be transferred
from the available-for-sale classification where the Group and the Bank have the intention and the ability to hold the asset for
the foreseeable future or until maturity.
Impairment of financial investments available-for-sale is assessed when there is an objective evidence of impairment.
Cumulative unrealised losses that had been recognised directly in equity shall be removed and recognised in income
statement even though the securities have not been de-recognised. Impairment loss in addition to the above unrealised
losses is also recognised in the income statement. Subsequent reversal of impairment on debt instrument in the income
statement is allowed when the decrease in impairment can be related objectively to an event occurring after the impairment
was recognised.
For debt securities, the Group set the criteria similar to assets carried at amortised cost.
In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the
security below its cost is objective evidence of impairment resulting in the recognition of an impairment loss. Impairment
losses recognised in the income statement on equity instruments shall not be reversed.
Financial investments held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed
maturity that the Group and the Bank have the positive intention and ability to hold to maturity.
Financial investments held-to-maturity are initially recognised at fair value plus transaction costs, and subsequently measured
at amortised cost using the effective interest method.
Financial investments held-to-maturity are measured at amortised cost using the effective interest method. Gains or losses
are recognised in income statement when the securities are derecognised or impaired and through the amortisation process.
If, as a result of a change in intention or ability, it is no longer appropriate to classify a financial investment as held-to-maturity,
the Group and the Bank shall reclassify the investment as available-for-sale and remeasured at fair value, and the difference
between its carrying amount and fair value shall be recognised in other comprehensive income, except for impairment losses
and foreign exchange gains and losses.
Any sale or reclassification of a significant amount of financial investments held-to-maturity before maturity during the
current financial year or last two preceding financial years will “taint” the entire category and result in the remaining financial
investments held-to-maturity being reclassified to available-for-sale except for sales or reclassification that:
• are so close to maturity or call date that changes in the market rate of interest would not have significant effect on the
financial asset’s fair value; or
• occur after the Group and the Bank have collected substantially all of the financial asset’s original principal; or
• are attributable to an isolated event that is beyond the Group and the Bank’s control are non-recurring and could not have
been reasonably anticipated by the Group and the Bank.
Impairment of financial investments held-to-maturity is assessed when there is an objective evidence of impairment. The
impairment loss is measured as the difference between the financial investments’ carrying amount and the present value of
estimated future cash flows discounted at the financial investments’ original effective interest rate. Subsequent reversal of
impairment is allowed in the event of an objective decrease in impairment. Recognition of impairment losses and its reversal
is made through the income statement.
Recognition
The Group and the Bank use settlement date accounting for regular way contracts when recording financial asset transactions.
Financial assets that are transferred to a third party but do not qualify for derecognition are presented in the statement of
financial position as ‘Assets pledged as collateral’, if the transferee has the right to sell or repledge them.
De-recognition
Financial assets are de-recognised when the contractual rights to receive the cash flows from these assets have ceased
to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also
transferred (that is, if substantially all the risks and rewards have not been transferred, the Group and the Bank tests control
to ensure that continuing involvement on the basis of any retained powers of control does not prevent de-recognition).
All financial liabilities which include derivative financial instruments have to be recognised in the statement of financial position
and measured in accordance with their assigned category.
The Group and the Bank’s holding in financial liabilities are in financial liabilities at fair value through profit or loss (including
financial liabilities held-for-trading and those that designated at fair value) and financial liabilities at amortised cost. Financial
liabilities are de-recognised when extinguished.
This category comprises two sub-categories: financial liabilities classified as held-for-trading, and financial liabilities designated
by the Group and the Bank as at fair value through profit or loss upon initial recognition.
A financial liability is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing
it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there
is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless
they are designated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as
‘Derivative financial liabilities’ when their fair values are negative.
Gains and losses arising from changes in fair value of financial liabilities classified held-for-trading are included in the income
statement.
Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are measured at
amortised cost. All the financial liabilities except for derivative financial liabilities of the Group and the Bank are measured at
amortised cost.
De-recognition
Financial liabilities are de-recognised when they have been redeemed or otherwise extinguished.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a
legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets
and settle the liability simultaneously.
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes
expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be
measured reliably. The carrying amount of the replaced part is de-recognised. All other repairs and maintenance are charged
to the income statement during the financial period in which they are incurred.
Freehold land is not depreciated as it has an infinite life. Other property and equipment are depreciated on the straight-line
basis to write off the cost of the assets or their revalued amounts, to their residual values over their estimated useful lives,
summarised as follows:
Buildings 50 years
Leasehold buildings 50 years or over the remaining lease period, whichever is shorter
Renovation and leasehold premises 5 years or the period of the lease whichever is greater
Office equipment and furniture 10 years
Computer equipment and software 5 years
Motor vehicles 5 years
Depreciation on capital work in progress commences when the assets are ready for their intended use.
Residual value and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date.
At each reporting date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis
is performed to assess whether the carrying amount of the asset is recoverable. A write down is made if the carrying amount
exceeds the recoverable amount. Any subsequent increase in the recoverable amount is recognised in the income statement
(refer to accounting policy E on impairment of non-financial assets).
Gains and losses on disposal are determined by comparing proceeds with carrying amount and are recognised within other
operating income in the income statement.
(L) LEASES
Accounting by lessee
Finance leases
Leases of property and equipment where the Group assumes substantially all the benefits and risks of ownership are classified
as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased
property and the present value of the minimum lease payments.
(L) LEASES
Each lease payment is allocated between the liability and finance charges so as to achieve a periodic constant rate on the
finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The
interest element of the finance charge is charged to the income statement over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability for each period. Property and equipment acquired under
finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.
Initial direct costs incurred by the Group in negotiating and arranging finance leases are added to the carrying amount of
the leased assets and recognised as an expense in income statement over the lease term on the same basis as the lease
expense.
Operating leases
Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the
income statement on the straight-line basis over the lease period.
Initial direct costs incurred by the Group in negotiating and arranging operating leases are recognised in income statement
when incurred.
Accounting by lessor
Finance leases
When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The
difference between the gross receivable and the present value of the receivable is recognised as unearned finance income.
Lease income is recognised over the term of the lease using the net investment method so as to reflect a constant periodic
rate of return.
Operating leases
When assets are leased out under an operating lease, the asset is included in the statement of financial position based on the
nature of the asset. Lease income is recognised over the term of the lease on a straight-line basis.
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are
presented in Ringgit Malaysia, which is the Group and the Bank’s functional and presentation currency.
Foreign currency transactions are translated into the functional currency using the exchanges rate prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in
the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
Changes in the fair value of monetary financial assets denominated in foreign currency classified as available-for-sale are
analysed between translation differences resulting from changes in the amortised cost of the financial asset and other changes
in the carrying amount of the financial asset. Translation differences related to changes in the amortised cost are recognised
in income statement, and other changes in the carrying amount are recognised in other comprehensive income.
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit and
loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as
equities classified as available-for-sale are included in the fair value reserve in other comprehensive income.
Derivatives are initially recognised at fair values on the date on which derivative contracts are entered into and are subsequently
remeasured at their fair values. Fair values are obtained from quoted market prices in active markets, including recent market
transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. All
derivatives are carried as assets when fair values are positive and as liabilities when fair values are negative.
The best evidence of fair value of a derivative at initial recognition is the transaction price (i.e the fair value of the consideration
given or received) unless fair value of the instrument is evidenced by comparison with other observable current market
transactions in the same instrument (i.e without modification or repackaging) or based on a valuation technique whose
variables include only data from observable markets.
The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of
the fair value of recognised assets or liabilities or firm commitments (fair value hedge); or (2) hedges of highly probable future
cash flows attributable to a recognised asset or liability, or a forecasted transaction (cash flow hedge). Hedge accounting is
used for designated derivatives in this way provided certain criterias are met.
The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as
well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its
assessment, both at hedge inception and an on-going basis, of whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in fair values or cash flows of hedged items.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income
statement, together with any changes in the fair value of the hedged assets or liabilities that are attributable to the hedged risk.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for
which the effective interest method is used, is amortised to income statement over the period to maturity. The adjustment to
the carrying amount of a hedged equity security remains in retained earnings until the disposal of the equity security.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are
recognised in other comprehensive income. The gain and loss relating to the ineffective portion is recognised immediately in
the income statement.
Amounts accumulated in other comprehensive income are recycled to the income statement in the periods in which the
hedged item will affect income statement (for example, when the forecast sale that is hedged take place).
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing at that time remains in other comprehensive income and is recognised when the forecast
transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in other comprehensive income is immediately transferred to the income statement.
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that
does not qualify for hedge accounting are recognised immediately in the income statement.
Gains and losses on interest rate swaps, futures, forward and option contracts that qualify as hedges are deferred and
amortised over the life of hedged assets or liabilities as adjustments to interest income or interest expense. Gains and losses
on interest rate swaps, futures, forward and option contracts that do not qualify as hedges are recognised in the current
financial year using the mark-to-market method and are included in the income statement.
Current tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in income statement, except to the
extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also
recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the
reporting period where the Group’s subsidiaries and branch operate and generate taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation
is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities. This liability is measured using the single best estimate of the most likely outcome.
Deferred tax
Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed
to assets and liabilities for tax purposes and their carrying amounts in the financial statements. However, deferred tax is not
accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that
at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences or unused tax losses can be utilised.
Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the end of the
reporting date and are expected to apply when the related deferred tax assets is realised or the deferred tax liability is settled.
Deferred tax is recognised on temporary differences arising on investment in subsidiaries and jointly controlled entity except
where the timing of the reversal of the temporary difference can be controlled by the Group and it is possible that the
temporary difference will not reverse in the foreseeable future.
Deferred and income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income tax assets and liabilities relate to taxes levied by the same taxation
authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on net basis.
(P) ZAKAT
Zakat represents business zakat payable by the Group to comply with the principles of Shariah and as approved by the
Shariah Committee. The Bank’s subsidiary, AFFIN Islamic Bank Berhad only pays zakat on its business and does not pay
zakat on behalf of depositors. Zakat provision is calculated based on 2.5775% of the prior year’s net asset method.
Cash and cash equivalents consists of cash in hand, bank balances and deposits and placements maturing within one month
which are held for the purpose of meeting short term commitments and are readily convertible to cash without significant risk
of changes in value.
Foreclosed properties are stated at the lower of cost and net realisable value.
The Group and the Bank do not recognise a contingent liability but disclose its existence in the financial statements. A
contingent liability is possible obligation that arises from past events whose existence will be confirmed by the occurrence or
non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank or a present obligation
that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A
contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot
be measured reliably. However, contingent liabilities do not include financial guarantee contracts.
A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or
non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank. The Group and the
Bank does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but
not virtually certain.
Bills and acceptances payable represent the Bank’s own bills and acceptances rediscounted and outstanding in the market.
Provisions are recognised by the Group and the Bank when all of the following conditions have been met:
• the Group and the Bank has a present legal or constructive obligation as a result of past events;
• it is probable that an outflow of resources to settle the obligation will be required; and
Where the Group and the Bank expect a provision to be reimbursed (for example, under an insurance contract), the
reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not
recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to
any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a
pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The
increase in the provision due to passage of time is recognised as finance cost expense.
Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the
associated services are rendered by employees of the Group.
The defined contribution plan is a pension plan under which the Group pays fixed contributions to the National Pension
Scheme, the Employees’ Provident Fund (‘EPF’) and will have no legal or constructive obligations to pay further contributions
if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior
periods.
The Group’s contribution to defined contribution plans are charged to the income statement in the period to which they relate.
Once the contributions have been paid, the Group has no further payment obligations.
Termination benefits
Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination
benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed
formal plan without any possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage
voluntary redundancy.
Financial guarantee contracts are contracts that require the Group or Bank to make specified payments to reimburse the
holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt
instrument. Such financial guarantees are given to financial institutions and other bodies on behalf of customers to secure
loans, overdrafts and other banking facilities.
Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The fair value of a
financial guarantee at the time of signature is zero because all guarantees are agreed on arm’s length terms and the value of
the premium agreed corresponds to the value of the guarantee obligation. No receivable for the future premiums is recognised.
The liability is subsequently recognised at the higher of the amount determined in accordance with MFRS 137 “Provisions,
contingent liabilities and contingent assets” and the amount initially recognised less cumulative amortisation, where
appropriate.
The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the
contractual payments under the debt instrument and the payments that would be required without the guarantee, or the
estimated amount that would be payable to a third party for assuming the obligations.
Where financial guarantees in relation to loans or payables of subsidiaries are provided by the Group for no compensation,
the fair values are accounted for as contributions and recognised as part of the cost of investment in subsidiaries.
Securities purchased under resale agreements are securities which the Group and the Bank have purchased with a commitment
to resell at future dates. The commitment to resell the securities is reflected as an asset on the statements of financial position.
Conversely, obligations on securities sold under repurchase agreements are securities which the Group and the Bank have
sold from its portfolio, with a commitment to repurchase at future dates. Such financing and the obligation to repurchase the
securities is reflected as a liability on the statement of financial position.
The difference between sale and repurchase price as well as purchase and resale price are amortised as interest income and
interest expense respectively on an effective yield method.
AFFIN Islamic Bank Berhad (‘AFFIN Islamic’) a wholly owned and subsidiary of the Bank has adopted the revised Guidelines
on PER and has apply in managing the Displaced Commercial Risk (‘DCR’) in accordance with Shariah principles. The PER is
for Mudharabah accounts/deposit products.
Under the PER Guidelines, the release of PER shall be appropriated from both Investment Account Holder (‘IAH’) and AFFIN
Islamic’s portion based on the contractual profit sharing ratio at the point of utilisation. The amount of PER shall be limited to
the maximum of the either PER of the IAH or AFFIN Islamic depending on prevailing profit sharing ratio.
The IAH portion of the existing PER shall be classified as a liability and is recognised at cost. Subsequent apportionments will
be recognised in the income statement. The eventual distribution of PER as profit distributable to the IAH will be treated as
an outflow of funds due to the settlement of the obligation to the IAH.
The PER of the AFFIN Islamic shall be classified as a separate reserve in equity and subsequent apportionments from and
distributions to retained earnings will be treated as a transfer between reserves.
1 GENERAL INFORMATION
The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the Bank’s
subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been
no significant changes in these principal activities during the financial year.
The number of employees in the Group and the Bank as at 31 December 2013 was 3,417 (2012: 3,342) and 3,187 (2012:
3,122) employees respectively.
The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the
ultimate holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung
Angkatan Tentera Act, 1973.
At fair value
Bank Negara Malaysia Monetary Notes 149,544 - 149,544 -
Negotiable Instruments of Deposit - 150,276 - 150,276
Private debt securities in Malaysia - 15,316 - 15,316
149,544 165,592 149,544 165,592
The Group and The Bank The Group and The Bank
2013 2012
Contract/ Contract/
notional notional
amount Assets amount Assets
RM’000 RM’000 RM’000 RM’000
At fair value
Foreign exchange derivatives:
Currency forwards 312,991 6,979 601,636 9,504
Cross currency swaps 1,230,649 19,660 1,871,775 37,661
At fair value
Malaysian Government securities - 5,070 - 5,070
Malaysian Government investment issues 1,759,211 1,879,076 1,142,371 1,004,366
Sukuk Perumahan Kerajaan 337,661 120,550 269,361 120,550
Bank Negara Malaysia Monetary Notes 629,674 884,069 571,160 517,015
Negotiable Instruments of Deposit and
Islamic Debt Certificates 882,314 752,059 882,314 752,059
Bankers’ acceptances and Islamic
accepted bills 196,522 163,751 196,522 163,751
Khazanah Bonds/Sukuk 237,441 193,746 207,756 157,556
4,042,823 3,998,321 3,269,484 2,720,367
Quoted securities:
Shares in Malaysia 13,604 17,736 13,122 12,806
Private debt securities in Malaysia 2,167 4,173 2,167 4,173
Unquoted securities:
Shares in Malaysia 148,155 135,595 148,086 135,526
Private debt securities
- in Malaysia 2,947,839 3,067,124 2,438,124 2,365,334
- outside Malaysia 504,721 465,736 504,721 465,736
7,659,309 7,688,685 6,375,704 5,703,942
At amortised cost
Quoted securities:
Private debt securities in Malaysia 31,781 31,781 31,781 31,781
Unquoted securities:
Private debt securities in Malaysia 524,919 482,037 439,854 482,037
556,700 513,818 471,635 513,818
Allowance for impairment of securities (56,364) (62,148) (56,364) (62,148)
500,336 451,670 415,271 451,670
(i) By type
- Included in term loans are housing loans sold to Cagamas Berhad with recourse amounting to RM397,790,000 (2012:
RM413,549,000).
- Included in Group’s business term loans/financing as at reporting date is RM47.4 million (2012: RM35.2 million) of term
financing disbursed by AFFIN Islamic Bank Bhd to jointly controlled entity, AFFIN-i Nadayu Sdn Bhd.
Fixed rate
- Housing loans/financing 309,977 306,969 237,886 223,958
- Hire purchase receivables 10,524,043 9,595,286 8,728,354 8,157,056
- Other fixed rate loans/financing 4,178,246 4,238,013 3,556,430 3,575,916
Variable rate
- BLR plus 14,098,831 13,680,021 11,458,345 11,284,216
- Cost plus 7,640,703 6,195,338 6,653,607 5,561,093
36,751,800 34,015,627 30,634,622 28,802,239
Individual impairment
Collective impairment
9 OTHER ASSETS
The Bank
2013 2012
RM’000 RM’000
The advances of RM60,115,000 (2012: RM153,296,000) to subsidiary are unsecured, bear interest at 3.00% per annum
(2012: 3.08%) and have no fixed terms of repayment.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts determined after
appropriate offsetting, are shown in the statement of financial position:
The movements in deferred tax assets and liabilities during the financial year are as follows:
The amount of unused tax losses for which no deferred tax asset is recognised in the statement of financial position are as
follows:
A non-interest bearing statutory deposit is maintained with Bank Negara Malaysia in compliance with requirements of
Section 26(2)(c) of the Central Bank of Malaysia Act 2009, the amounts of which is determined at a set percentages of total
eligible liabilities.
13 INVESTMENT IN SUBSIDIARIES
The Bank
2013 2012
RM’000 RM’000
13 INVESTMENT IN SUBSIDIARIES
The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows:
The Group
2013 2012
RM’000 RM’000
The jointly controlled entity was incorporated on 1 April 2008 and the details are as follows:
On 1 April 2008, AFFIN Islamic Bank Berhad and Jurus Positif Sdn Bhd, a subsidiary of Nadayu Properties Berhad (fka
Mutiara Goodyear Development Berhad), entered into a joint venture agreement under the Shariah principles (‘Musharakah
Agreement’) to develop a land into a housing scheme at Bukit Gambir, Pulau Pinang.
The agreement also includes an arrangement where Jurus Positif Sdn Bhd may acquire the Bank’s shares upon the
completion of the project at a mutually agreed price, unless if both shareholders decide to continue the joint venture for
subsequent projects.
Major strategic operation and financial decisions relating to the activities of AFFIN-i Nadayu requires unanimous consent by
both joint venture parties. The Group’s interest in AFFIN-i Nadayu Sdn Bhd has been treated as investment in jointly controlled
entity, which has been accounted for in the consolidated financial statements using the equity method of accounting.
On 2 January 2013, AFFIN Islamic Bank Berhad (‘AiBB’) entered into a Musharakah Joint Venture Agreement (‘JV Agreement’)
with Albatha Bukit Kiara Holdings Sdn Bhd (‘Albatha’), a subsidiary of Bukit Kiara Capital Sdn Bhd, to joint develop a
property project namely “VERVE Suites KL South” at Jalan Klang Lama, Kuala Lumpur.
Pursuant to the JV agreement, AiBB acquired 30% stake in the joint venture company namely KL South Development Sdn
Bhd (‘KL South’)(formerly known as Grand Duplex Sdn Bhd) by way of subscription of 150,000 shares of RM1.00 each in KL
South at par. The remaining stake of 70% in KL South is held by Albatha.
Under the Musharakah structure, AiBB would be the sole banker to KL South, providing financing using the Islamic concept
such as Ijarah for the purchase of building and Istisna’ for the bridging financing.
Major strategic operation and financial decisions relating to the activities of KL South requires consent by both joint venture
parties. The Group’s interest in KL South has been treated as investment in jointly controlled entity, which has been accounted
for in the consolidated financial statements using the equity method of accounting.
KL South has commenced operations and the project is scheduled for completion by mid 2016.
Cost
At 1 January 2013 21,126 12,862 5,380 29,950 89,069 110,842 57,561 68,775 3,609 7,839 407,013
Additions - - - - - 5,146 2,438 1,785 2,077 5,997 17,443
Disposals (1,450) - - (3,147) - (1,238) (1) - (332) - (6,168)
Write-off - - - - - (755) (572) - - - (1,327)
Reclassification - - - - - 89 1 - - (11,138) (11,048)
At 31 December 2013 19,676 12,862 5,380 26,803 89,069 114,084 59,427 70,560 5,354 2,698 405,913
At 31 December 2013 140 2,146 1,693 12,273 25,160 98,526 41,001 63,037 3,197 - 247,173
Cost
At 31 December 2012 21,126 12,862 5,380 29,950 89,069 110,842 57,561 68,775 3,609 7,839 407,013
At 31 December 2012 140 2,034 1,572 12,962 23,371 94,065 38,232 59,630 3,085 - 235,091
Cost
At 1 January 2013 18,618 10,972 5,380 28,651 88,161 107,089 55,482 66,364 3,148 7,839 391,704
Additions - - - - - 4,999 2,367 1,680 1,581 5,997 16,624
Disposals (1,450) - - (3,147) - (1,238) (1) - (332) - (6,168)
Write-off - - - - - (755) (571) - - - (1,326)
Reclassification - - - - - 89 3 - - (11,138) (11,046)
At 31 December 2013 17,168 10,972 5,380 25,504 88,161 110,184 57,280 68,044 4,397 2,698 389,788
At 31 December 2013 - 1,903 1,693 11,481 24,621 95,485 40,034 61,082 2,686 - 238,985
Cost
At 31 December 2012 18,618 10,972 5,380 28,651 88,161 107,089 55,482 66,364 3,148 7,839 391,704
At 31 December 2012 - 1,800 1,572 12,196 22,850 91,329 37,456 57,911 2,639 - 227,753
16 INTANGIBLE ASSETS
Computer
Goodwill Software Total
The Group RM’000 RM’000 RM’000
Cost
At 1 January 2013 133,430 120,959 254,389
Additions - 1,236 1,236
Write-off - (9) (9)
Reclassification from property and equipment (Note 15) - 11,048 11,048
Adjustment - (742) (742)
At 31 December 2013 133,430 132,492 265,922
Cost
At 1 January 2012 133,430 120,072 253,502
Additions - 458 458
Reclassification from property and equipment (Note 15) - 429 429
At 31 December 2012 133,430 120,959 254,389
16 INTANGIBLE ASSETS
Computer
Goodwill Software Total
The Bank RM’000 RM’000 RM’000
Cost
At 1 January 2013 137,323 114,557 251,880
Additions - 1,236 1,236
Write-off - (9) (9)
Reclassification from property and equipment (Note 15) - 11,048 11,048
Adjustment - (742) (742)
At 31 December 2013 137,323 126,090 263,413
Cost
At 1 January 2012 137,323 113,670 250,993
Additions - 458 458
Reclassification from property and equipment (Note 15) - 429 429
At 31 December 2012 137,323 114,557 251,880
16 INTANGIBLE ASSETS
Goodwill
The carrying amount of the Bank’s goodwill has been allocated to the following business segments, which represent the
Bank’s cash-generating units (‘CGUs’):
2013 2012
RM’000 RM’000
Goodwill is allocated to the Bank’s CGU which are expected to benefit from the synergies of the acquisitions. For annual
impairment testing purposes, the recoverable amount of the CGUs are determined based on value-in-use calculations using
the cash flow projections based on the 2013 financial budgets approved by the Directors, covering a period of 5 years based
on the historical Gross Domestic Product (‘GDP’) growth rate of Malaysia, revised for current economic conditions. The cash
flow beyond the fifth year are projected based on the assumption that the Year 5 operating cash flow will be generated by
the respective CGUs at a growth rate of 5% (2012: 5%) on perpetual basis.
The cash flow projections are derived based on a number of key factors including past performance and management’s
expectations of the market developments. The discount rates used are based on the pre-tax weighted average cost of
capital plus an appropriate risk premium where applicable (‘WACC’), at the date of assessment of the CGUs.
No impairment charge was required for goodwill arising from all the business segments. Management views that any
reasonable possible change to the assumptions applied is not likely to cause the recoverable amount of all the business
segments to be lower than its carrying amount.
The Group and the Bank The Group and the Bank
2013 2012
Contract/ Contract/
notional notional
amount Liabilities amount Liabilities
RM’000 RM’000 RM’000 RM’000
At fair value
Foreign exchange derivatives:
Currency forwards 498,726 5,099 340,155 2,870
Cross currency swaps 2,284,085 51,018 1,188,783 23,725
In the normal course of banking operations, the Bank sells loans to Cagamas Berhad with recourse at values equivalent to
the unpaid principal balances of loans and advances due from the borrowers.
The Bank is liable in respect of housing loans and hire purchase portfolio sold directly and indirectly to Cagamas Berhad,
under the condition that the Bank undertakes to administer these loans on behalf of Cagamas Berhad and to buy back
any loans which are regarded as defective based on an agreed prudential criteria. Such financing transactions and the
obligations to buy back the loans are reflected as a liability on the statement of financial position.
21 OTHER LIABILITIES
(a) The Group and the Bank contributes to the Employee Provident Fund (‘EPF’), the national defined contribution plan.
Once the contributions have been paid, the Group and the Bank has no further payment obligations.
(b) This refers to the accruals for short-term employee benefits for leave entitlement. Under employment contract,
employees earn their leave entitlement which they are entitled to carry forward and will lapse if not utilised in the
following accounting period. Accruals are made for the estimated liability for unutilised annual leave.
The amount due to subsidiaries is unsecured, interest-free and have no fixed terms of repayment.
On 10 March 2009, the Bank has taken the first 10 year subordinated loan amounting to RM300 million. The first subordinated
loan was constituted by agreement date 6 March 2009 and were issued on 10 March 2009.
On 26 May 2011, the Bank has taken the second 10 year subordinated loan amounting to RM300 million. The second
subordinated loan was constituted by agreement date 20 May 2011 and were issued on 26 May 2011.
On 16 January 2012, the Bank has taken the third 10 year subordinated loan amounting to RM300 million. The third
subordinated loan was constituted by agreement date 3 January 2012 and were issued on 16 January 2012.
All the subordinated loans were taken with the Bank’s Holding Company.
The subordinated loans have a prepayment option on the first prepayment date or any interest payment date subsequent to
the first prepayment date, giving the Bank the right, subject to Bank Negara Malaysia (‘BNM’) approval, to prepay the loans
in whole or in part.
Subordinated loan I
Interest rate : Cost of Fund (‘COF’) plus 0.75% per annum for period of thirty six months from the issue date, COF plus
1.75% per annum for the next twenty four months and thereafter COF plus 2.00% for the next 5 years.
Interest rate : Cost of Fund (‘COF’) plus 1.00% per annum for the 10 years.
COF refers to rate determined by the lender on an interest determination date falling within the interest duration.
24 SHARE CAPITAL
Number of ordinary
shares of RM1 each The Group and The Bank
2013 2012 2013 2012
‘000 ‘000 RM’000 RM’000
Authorised
At beginning/end of the financial year 2,000,000 2,000,000 2,000,000 2,000,000
25 RESERVES
Statutory reserves
At beginning of the financial year 1,160,651 1,011,044 1,017,200 904,624
Transfer from retained profits 156,725 149,607 127,150 112,576
At end of the financial year 1,317,376 1,160,651 1,144,350 1,017,200
(a) A single tier company tax was introduced effective 1 January 2008. Under this single tier system, tax on a company’s
profits is a final tax, and dividends distributed to shareholders will be exempted from tax. Companies with Section 108
tax credit balance are given an option to elect to move to a single tier system immediately or allowed to use the Section
108 credit balance for the purpose of dividend distribution during a transitional period of 6 years until 31 December
2013.
The Bank has elected to use its Section 108 credit balance for the purpose of dividend distribution during a transitional
period of 6 years until 31 December 2013. The Section 108 balance of the Bank as at 31 December 2007 will be frozen
and can only be adjusted downwards for any tax discharged, remitted or refunded during the 6 years period.
As at 31 December 2013, the Bank has a tax credit balance of RM2,469,704 (2012: RM2,533,928) under Section 108
of the Income Tax Act, 1967 and tax exempt account balance of RM10,931,988 (2012: 83,016,257) under Section 12
of the Income Tax (Amendment) Act 1999, subject to agreement by the Inland Revenue Board.
(b) The statutory reserves of the Group and the Bank are maintained in compliance with the provisions of the Financial
Services Act 2013 and Islamic Financial Services Act 2013 and are not distributable as cash dividends.
(c) AFS revaluation reserves represent the unrealised gains or losses arising from the change in fair value of investments
classified as financial investment available-for-sale. The gains or losses are transferred in the income statement upon
disposal or when the securities become impaired.
26 INTEREST INCOME
of which:
Interest income earned on impaired loans,
advances and financing 10,957 6,838 10,957 6,838
27 INTEREST EXPENSE
The Group
2013 2012
RM’000 RM’000
Income derived from investment of depositors’ funds and others 428,386 459,994
Income derived from investment of shareholders’ funds 29,781 23,650
Total distributable income 458,167 483,644
Income attributable to depositors (237,422) (266,872)
220,745 216,772
Fee income
Commission 14,046 13,918 14,046 13,918
Service charges and fees 62,785 63,999 62,785 63,999
Guarantee fees 20,615 22,567 20,615 22,567
97,446 100,484 97,446 100,484
Gains on derivatives:
- realised 3,156 2,711 3,156 2,711
- unrealised 5,282 12,925 5,282 12,925
8,438 15,636 8,438 15,636
Other income
Foreign exchange gains/(losses):
- realised 121,093 29,901 121,093 29,901
- unrealised (54,118) 42,325 (54,118) 42,325
Rental income 1,673 1,692 1,631 1,649
Gain on sale of property and equipment 3,910 1,098 3,910 1,093
Gain on disposal of foreclosed properties 11,041 10,141 11,041 10,097
Other non-operating income 14,491 12,428 13,797 12,111
Subsidiaries - diminution in value written back - - 1,707 -
98,090 97,585 99,061 97,176
The Directors of the Bank who have held office during the financial year are as follows:
Non-Executive Directors
Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) (Chairman)
Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin
Dr Raja Abdul Malek Bin Raja Jallaludin
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman
Tan Sri Dato’ Seri Mohamed Jawhar
En. Mohd Suffian Bin Haji Haron
Mr Aubrey Li Kwok-Sing
Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing)
The aggregate amount of remuneration for the Directors of the Bank for the financial year were as follows:
Non-Executive Directors
Fees 1,844 1,648 1,451 1,305
Benefits-in-kind 29 27 29 27
Directors’ remuneration (Note 30) 8,281 7,715 7,888 7,372
A summary of the total remuneration of the Directors, distinguishing between Executive and Non-Executive Directors.
Managing Director/
Chief Executive Officer
Dato’ Zulkiflee Abbas Bin Abdul Hamid 1,935 3,315 - 1,006 152 6,408
Non-executive Directors
Jen Tan Sri Dato’ Seri Ismail Bin Haji
Omar (Bersara) - - 188 96 29 313
Tan Sri Dato’ Seri Lodin Bin Wok
Kamaruddin - - 188 - - 188
Dr. Raja Abdul Malek Bin Raja Jallaludin - - 226 - - 226
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul
Rahman - - 212 - - 212
Tan Sri Dato’ Seri Mohamed Jawhar - - 208 - - 208
En. Mohd Suffian Bin Haji Haron - - 214 - - 214
Mr Aubrey Li Kwok-Sing - - 112 - - 112
Mr Gary Cheng Shui Hee (Alternate
Director to Mr Aubrey Li Kwok-Sing) - - 7 - - 7
Managing Director/
Chief Executive Officer
Dato’ Zulkiflee Abbas Bin Abdul Hamid 1,825 3,150 - 910 155 6,040
Non-executive Directors
Jen Tan Sri Dato’ Seri Ismail Bin Haji
Omar (Bersara) - - 149 116 27 292
Tan Sri Dato’ Seri Lodin Bin Wok
Kamaruddin - - 164 - - 164
Dr. Raja Abdul Malek Bin Raja Jallaludin - - 204 - - 204
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul
Rahman - - 191 - - 191
Tan Sri Dato’ Seri Mohamed Jawhar - - 187 - - 187
En. Mohd Suffian Bin Haji Haron - - 192 - - 192
Mr Aubrey Li Kwok-Sing - - 97 - - 97
Mr Gary Cheng Shui Hee (Alternate
Director to Mr Aubrey Li Kwok-Sing) - - 5 - - 5
Individual impairment
- made in the financial year 47,903 72,213 47,213 69,391
- written-back (4,031) (2,716) (3,598) (2,546)
Collective impairment
- made in the financial year 15,253 6,672 15,011 24,242
Bad debts and financing
- recovered (120,645) (106,465) (119,702) (105,880)
- written-off 4,583 7,784 4,509 7,702
(56,937) (22,512) (56,567) (7,091)
Lembaga Tabung Angkatan Tentera (‘LTAT’) Ultimate holding corporate body, which is
Government-Link Investment Company (‘GLIC’) of
the Government of Malaysia
Subsidiaries and associates of LTAT Subsidiary and associate companies of the ultimate holding
corporate body
Subsidiaries and associates of AHB as disclosed in Subsidiary and associate companies of the holding company
its financial statements
Voting shares in body corporate not less than 15% Other related companies
of votes
Key management personnel The key management personnel of the Bank consist of:
- Chief Executive Officer
- Members of Senior Management team and the company
secretary
Related parties of key management personnel - Close family members and dependents of key management
(deemed as related to the Bank) personnel
- Entities that are controlled, jointly controlled or for which
significant voting power in such entity resides with, directly
or indirectly by key management personnel or its close family
members
Key management personnel are those persons having the authority and responsibility for planning, directing and controlling
the activities of the Group and the Bank either directly or indirectly. Key management personnel includes the Chief Executive
Officer of the Bank in office during the financial year and his remuneration for the financial year are disclosed in Note 33(b).
The Group and the Bank do not have any individually or collectively significant transactions with the Government of Malaysia and government related
entities. In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other significant related party
transactions and balances.
Income
Interest on private
debt securities - - - - 27,296 25,217 - - - -
Interest on loans,
advances and financing - - - - 41,151 42,567 - - 81 55
Interest on deposits and
placements with banks
and other financial
institutions - - - - 8,401 12,254 - - - -
Other income - - - - 7,590 7,003 - - - -
- - - - 84,438 87,041 - - 81 55
Expenditure
Interest on fixed deposits 5,448 3,873 5,989 6,143 11,325 10,532 - - 242 166
Interest on negotiable
instruments of deposit - - - - 838 13 - - - -
Interest on deposits and
placements of banks
and other financial
institutions - - - - 9,165 15,839 - - - -
Interest on special
investment account 1 - - - 1,565 1,759 - - - -
Interest on money
market deposits 9,911 7,620 93 61 2,004 2,901 - - - -
Brokerage fees - - - - 431 532 - - - -
Rental 239 301 - - 11,426 11,467 - - - -
Others - 5 41,473 40,453 5,877 4,875 638 - - -
15,599 11,799 47,555 46,657 42,631 47,918 638 - 242 166
Amount due to
Demand and fixed deposits 361,574 643,575 136,512 133,987 804,111 738,807
Negotiable instruments of deposit - - - - 120,656 -
Deposits and placement of banks and
other financial institutions - - 904,964 904,960 211,042 409,437
Special investment account - - - - 68,726 9,366
Money market deposits 399,838 162,269 300 400 129,938 75,000
761,412 805,844 1,041,776 1,039,347 1,334,473 1,232,610
Amount due to
Demand and fixed deposits 45 13 17,125 15,061
45 13 17,125 15,061
Commitment - - - -
Income
Interest on special
investment account - - - - 25,311 24,175 - - - - - -
Interest on private debt
securities - - - - - - 27,296 25,217 - - - -
Interest on loans,
advances and financing - - - - - - 38,336 40,764 - - 81 55
Interest on deposits and
placements with banks
and other financial
institutions - - - - 576 525 5,552 8,441 - - - -
Other income - - - - 71,745 68,020 7,590 7,003 - - - -
Expenditure
Interest on fixed deposits 5,371 3,873 5,989 6,143 35 34 9,754 9,286 - - 202 151
Interest on negotiable
instruments of deposit - - - - - - 838 13 - - - -
Interest on deposits and
placements of banks
and other financial
institutions - - - - 14 - 9,165 15,839 - - - -
Interest on money
market deposits 9,911 7,620 93 61 - - 2,004 2,901 - - - -
Brokerage fees - - - - - - 431 532 - - - -
Rental 239 301 - - 407 386 11,426 11,467 - - - -
Others - 5 41,473 40,453 - - 5,738 4,637 638 - - -
15,521 11,799 47,555 46,657 456 420 39,356 44,675 638 - 202 151
Amount due to
Demand and fixed deposits 315,251 642,838 136,517 133,987 3,724 3,542
Deposits and placement of banks
and other financial institutions - - 904,964 904,960 26,720 -
Money market deposits 399,838 162,269 300 400 - -
Intercompany balances - - - - 53,559 48,481
715,089 805,107 1,041,781 1,039,347 84,003 52,023
Commitment - - - - - 350
Amount due to
Demand and fixed deposits 741,369 655,405 - - 13,967 12,760
Negotiable instruments of deposit 120,656 - - - - -
Deposits and placement of banks
and other financial institutions 211,042 409,437 - - - -
Money market deposits 129,938 75,000 - - - -
1,203,005 1,139,842 - - 13,967 12,760
The remuneration of key management personnel of the Group and the Bank during the year are as follows:
Included in the above table are Directors’ remuneration as disclosed in Note 31.
34 TAXATION
Tax savings of the Group as a result of utilisation of tax losses brought forward from previous years from which the
related credit is recognised during the financial year amounted to RM922,320 (2012: RM61,226).
The basic and fully diluted earnings per ordinary share for the Group and the Bank have been calculated based on
the net profit attributable to equity holders of the Group and the Bank of RM568,822,000 (2012: RM525,266,000) and
RM508,599,000 (2012: RM450,304,000) respectively. The weighted average number of shares in issue during the financial
year of 1,518,337,000 (2012: 1,499,330,000) is used for the computation.
36 DIVIDENDS
The Group and The Bank The Group and The Bank
2013 2012
Dividend Amount of Dividend Amount of
per share dividend per share dividend
sen RM’000 sen RM’000
Ordinary shares
Interim dividend paid 10.00 151,834 9.00 136,650
Proposed final dividend (*) 6.00 91,100 6.00 91,100
Dividends in respect of the financial year 16.00 242,934 15.00 227,750
* At the forthcoming Annual General Meeting, a single-tier final dividend in respect of the current financial year of 6 sen
per share amounting to RM91,100,206 will be proposed for shareholder’s approval. These financial statements do not
reflect this final dividend which will be accounted for in the shareholder’s equity as an appropriation of retained profits
in the financial year ending 31 December 2014 when approved by the shareholder.
The Group and The Bank The Group and The Bank
2013 2012
Dividend Amount of Dividend Amount of
per share dividend per share dividend
sen RM’000 sen RM’000
Ordinary shares
Interim dividend 10.00 151,834 9.00 136,650
Final dividend 6.00 91,100 5.00 71,964
16.00 242,934 14.00 208,614
In the normal course of business, the Group and the Bank make various commitments and incurs certain contingent liabilities with legal recourse to their
customers. No material losses are anticipated as a result of these transactions.
* The credit equivalent amount and risk-weighted amount is arrived at using the credit conversion factors as per Bank Negara Malaysia’s revised Risk Weighted Capital
Adequacy Framework (“RWCAF”) and Capital Adequacy for Islamic Banks (“CAFIB”) guidelines.
# The fair value of these derivatives have been recognised as “derivative financial assets” and “derivative financial liabilities” in the statement of financial position and
disclosed in Note 5 and 19 to the financial statements.
notes to the financial statements
for the financial year ended 31 December 2013
The table below analyses the contractual or underlying principal amounts of derivative financial instruments held or issued.
In addition, they also set out the corresponding gross positive credit equivalent of the derivative financial instruments.
The Group and The Bank The Group and The Bank
2013 2012
Credit Credit
Principal equivalent Principal equivalent
amount amount amount amount
RM’000 RM’000 RM’000 RM’000
Foreign exchange related contracts and interest rate related contracts are subject to market risk and credit risk.
Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the
financial and contractual obligations to the Bank. Credit risk emanates mainly from loans, advances and financing,
loan commitments arising from such lending activities, as well as through financial transactions with counterparties
including interbank money market activities, derivative instruments used for hedging and debt securities.
The management of credit risk in the Bank is governed by a set of approved credit policies, guidelines and procedures.
Approval authorities are delegated to Senior Management and Group Management Loan Committee (‘GMLC’) to
implement the credit policies and ensure sound credit granting standards.
An independent Group Risk Management (‘GRM’) function, headed by Group Chief Risk Officer (‘GCRO’), with direct
reporting line to Board Risk Management Committee (‘BRMC’) is in place to ensure adherence to risk standards and
discipline. Portfolio management risk reports are submitted regularly to BRMC.
Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses
are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Annual
Credit Plan. The Annual Credit Plan is reviewed at least annually and approved by the BRMC.
Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank’s
underwriting criteria and the ability of the Bank to make a return commensurate to the level of risk undertaken. A
critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in
the risk assessment and decision making process. The Bank has developed internal rating models to support the
assessment and quantification of credit risk.
For consumer mass market products, statistically developed application scorecards are used by the Business to
assess the risks associated with the credit application. The scorecards are used as a decision support tool at loan
origination.
The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure
method, computation of credit equivalent exposure for interest rate and exchange rate related contracts is derived
from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and
the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to
maturity).
The Bank employs various policies and practices to control and mitigate credit risk.
Lending limits
The Bank establishes internal limits and related lending guidelines to manage large exposures and avoid undue
concentration of credit risk in its credit portfolio. The limits include single customer groupings, large exposures,
connected parties, and geographical and industry segments. These risks are monitored regularly and the limits
reviewed annually or sooner depending on changing market and economic conditions.
The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customers
together with potential exposure from market movements.
Collateral
Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral
may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:
Documentary and commercial letters of credit are collateralised by the underlying shipments of goods to which they
relate and therefore carry less risk than a direct loan.
Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees
or letters of credit. In terms of credit risk, the Bank is potentially exposed to loss in an amount equal to the total
unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most
commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.
The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a
greater degree of credit risk than short-term commitments.
Retail credits are actively monitored and managed on a portfolio basis by product type. A collection management
system in place to promptly identify, monitor and manage delinquent accounts at early stages of delinquency.
Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against
updated information. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses
or deterioration in the credit quality. Remedial action is taken where evidence of deterioration exists.
Early Alert Process is in place as part of a means to pro-actively identify, report and manage deteriorating credit quality.
Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning
impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.
Active portfolio monitoring enables the Bank to understand the overall risk profile and identify any adverse trends or
areas of risk concentrations affecting asset quality so that appropriate actions are adopted to manage and mitigate
risks.
The Bank recognises that learning is a continuous journey and is committed to enhance the knowledge and required
skills set of its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation.
For effective and efficient staff learning, an E–Learning Program is implemented with an online Learning Management
System (‘LMS’). The LMS provides staff with a progressive self-learning alternative at own pace.
Group Risk Management implements an Internal Credit Certification (‘ICC’) Programme for both Business Banking and
Consumer Credit.
The aim of the ICCs is to assist the core credit related group of personnel in the Bank achieve a minimum level of
knowledge and analytical skills required to make sound corporate and commercial loans to customers.
For financial assets recognised on the statement of financial position, the exposure to credit risk equals their carrying
amount. For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that the Group
and the Bank would have to pay if guarantee were to be called upon. For loan commitments and other commitments,
the maximum exposure to credit risk is the full amount of the undrawn credit facilities granted to customers.
All financial assets of the Group and the Bank are subject to credit risk except for cash in hand, equity securities held
as financial assets held-for-trading or financial investments available-for-sale, as well as non-financial assets.
The exposure to credit risk of the Group and the Bank equals their carrying amount in the statement of financial position
as at reporting date, except for the followings:
The following have been excluded for the purpose of maximum credit risk exposure calculation:
* cash in hand
# investment in quoted and unquoted shares
@ prepayment
^ amount stated at notional value
Whilst the Group and the Bank’s maximum exposure to credit risk is the carrying value of the assets, or in the case of off-
balance sheet items, the amount guaranteed, committed or accepted, in most cases the likely exposure is far less due to
collateral, credit enhancements and other actions taken to mitigate the credit exposure.
The financial effect of collateral held for loans, advances and financing of the Group and the Bank are 68% (2012: 68%)
and 66% (2012: 66%) respectively. The financial effects of collateral for the other financial assets are insignificant.
Credit risk is the risk of financial loss from the failure of customers to meet their obligations. Exposure to credit risk is managed through portfolio management.
The credit portfolio’s risk profiles and exposures are reviewed and monitored regularly to ensure that an acceptable level of risk diversification is maintained.
Exposure to credit risk is also managed in part by obtaining collateral security and corporate and personal guarantees.
The credit risk concentrations of the Group and the Bank, by industry concentration, are set out in the following tables:
Total assets 9,234,368 - 482,597 149,544 56,274 7,495,386 500,336 36,528,099 191,679 54,638,283 5,360,227
Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT
Total assets 7,477,429 20,057 596,452 165,592 68,872 7,531,197 451,670 33,805,255 257,706 50,374,230 4,583,089
Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37.
Total assets 4,820,362 - 1,106,756 149,544 56,274 6,212,331 415,271 30,445,504 148,663 43,354,705 4,881,968
Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT
Total assets 3,462,366 20,057 1,043,825 165,592 68,872 5,551,454 451,670 28,626,962 192,354 39,583,152 4,108,009
Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37.
Collaterals
The main types of collateral obtained by the Group and the Bank are as follows:
- for personal housing loans, mortgages over residential properties;
- for commercial property loans, charges over the properties being financed;
- for hire purchase, charges over the vehicles or plant and machineries financed; and
- for other loans, charges over business assets such as premises, inventories, trade receivables or deposits.
All loans, advances and financing are categorised into “neither past due nor impaired”, “past due but not impaired”
and “impaired”. Past due loans refer to loans that are overdue by one day or more. Impaired loans are loans with
months-in-arrears more than 3 months (i.e. 90 days) or with impairment allowances.
Neither past due nor impaired (a) 33,612,968 30,688,227 28,026,769 26,047,661
Past due but not impaired (b) 2,432,647 2,574,206 2,033,298 2,131,175
Impaired (c) 706,185 753,194 574,555 623,403
Gross loans, advances and financing 36,751,800 34,015,627 30,634,622 28,802,239
less: Allowance for impairment
- Individual (223,701) (210,372) (189,117) (175,277)
- Collective (300,314) (322,629) (266,595) (287,693)
Net loans, advances and financing 36,227,785 33,482,626 30,178,910 28,339,269
Past due but not impaired includes accounts within grace period of the Group and the Bank amounting to RM1.0
billion (2012: RM1.0 billion) and RM0.9 billion (2012: RM0.9 billion) respectively.
Analysis of loans, advances and financing that are neither past due nor impaired analysed based on the Group
and the Bank’s internal credit grading system is as follows:
Quality classification
Satisfactory: Exposures demonstrate a strong capacity to meet financial commitments, with negligible or low
probability of default and/or levels of expected loss.
Special mention: Exposures require varying degrees of special attention and default risk is of greater concern.
Certain loans, advances and financing are past due but not impaired as the collateral values of these loans are in
excess of the principal and profit outstanding. Allowances for these loans may have been set aside on a portfolio
basis. The Bank’s loans, advances and financing which are past due but not impaired are as follows:
During the year, the Bank has not obtained any assets by taking possession of collateral held as security or
calling upon other credit enhancements.
Private debt securities, treasury bills and other eligible bills included in financial assets held-for-trading and
financial investments available-for-sale are measured on a fair value basis. The fair value will reflect the credit risk
of the issuer.
Most listed and some unlisted securities are rated by external rating agencies. The Group and the Bank mainly
uses external credit ratings provided by RAM, MARC, Standard & Poors’ or Moody’s.
The table below presents an analysis of debt securities, treasury bills and other eligible bills by rating agency.
The Group AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
The Group AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Collateral is not generally obtained directly from the issuers of debt securities. Certain debt securities may be collateralised by specifically identified assets that would
be obtainable in the event of default.
The Bank AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
The Bank AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Collateral is not generally obtained directly from the issuers of debt securities. Certain debt securities may be collateralised by specifically identified assets that would
be obtainable in the event of default.
notes to the financial statements
for the financial year ended 31 December 2013
Market risk is defined as the risk of losses to the Bank’s portfolio positions arising from movements in market factors
such as interest rates, foreign exchange rates and changes in volatility. The Bank is exposed to market risks from
its trading and investment activities. The Bank’s market risk management objective is to ensure that market risk is
appropriately identified, measured, controlled, managed and reported.
The Bank’s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate
risk arises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives. The
Bank is also exposed to basis risk when there is a mismatch between the change in price of a hedge and the change
in price of the assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers’ requirements
and proprietary positions.
The Bank’s market risk management control strategy is established based on its risk appetite, market liquidity and
business strategies as well as macroeconomic conditions. These limits are reviewed at least on an annual basis.
Market risk arising from the Bank’s trading book is primarily controlled through the imposition of Cut-loss and Value-at-
Risk (‘VaR’) Limits.
The Bank quantifies interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate
sensitive liabilities. It also conducts Net Interest Income simulations to assess the variation in earnings under various
rates scenarios. The potential long term effects of the Bank’s overall exposure is also tracked by assessing the impact
on economic value of equity (‘EVE’).
The Bank’s interest rate risk is managed through Earnings-at-Risk (‘EaR’) and Economic Value-at-Risk (‘EVaR’) limits.
In addition, the Bank conducts periodic stress test of its respective business portfolios to ascertain market risk under
abnormal market conditions.
The Bank’s Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.
Value-at-Risk (‘VaR’)
Value-at-Risk (‘VaR’) is used to compute the maximum potential loss amount over a specified holding period of a
trading portfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign
exchange rates that could affect values of financial instruments.
The Variance-Covariance Parametric methodology is adopted to compute the potential loss amount. This is a
statistically defined, probability-based approach that uses volatilities and correlations to quantify price risks. Under
this methodology, a matrix of historical volatilities and correlations is computed from the past 100 business days’
market data. VaR is then computed by applying these volatilities and correlations to the outstanding trading portfolio.
The table below sets out a summary of the Bank’s VaR profile by financial instrument types for the trading portfolio:
Average
for the
The Group and The Bank Balance fi
nancial year Minimum Maximum
2013 RM’000 RM’000 RM’000 RM’000
Instruments
FX swap 713 607 252 1,375
FX spot (Metro Desk) 88 150 6 678
Government securities 2 - - 2
Private debt securities - - - 60
Average
for the
The Group and The Bank Balance financial year Minimum Maximum
2012 RM’000 RM’000 RM’000 RM’000
Instruments
FX swap 634 906 604 1,468
FX spot (Metro Desk) 34 144 9 672
Government securities - - - 4
Private debt securities 60 48 - 329
• Mark-to-market
Mark-to-market valuation tracks the current market value of the outstanding financial instruments.
• Stress testing
Stress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market
movements. Stress tests measure the changes in values arising from extreme movements in interest rates and
foreign exchange rates based on past experience and simulated stress scenarios.
• Sensitivity/Dollar Duration
Sensitivity/Dollar Duration measures the change in value of a portfolio resulting from a 0.001% increase in interest
rates. This measure identifies the Bank’s interest rate exposures that are most vulnerable to interest rate changes
and facilitates the implementation of hedging strategies.
The table below shows the pre-tax net interest income sensitivity for the financial assets and financial liabilities held
at reporting date. The sensitivity has been measured using the Repricing Gap Simulation methodology based on 100
basis points parallel shifts in the interest rate.
Open position
Ringgit Impact of
Malaysia 1% fall in
US Ringgit equivalent US
Dollar Malaysia amount for Dollar
equivalent equivalent 1 % fall in exchange
The Group amount amount US Dollar rate
2013 ‘000 ‘000 ‘000 ‘000
The impact on the outstanding foreign exchange position as at 31 December 2013 for a one percent change in USD
exchange rate from 3.2775 to 3.2447 was an increase of RM148,185.
Open position
Ringgit Impact of
Malaysia 1% fall in
US Ringgit equivalent US
Dollar Malaysia amount for Dollar
equivalent equivalent 1 % fall in exchange
The Group amount amount US Dollar rate
2012 ‘000 ‘000 ‘000 ‘000
The impact on the outstanding foreign exchange position as at 31 December 2012 for a one percent change in USD
exchange rate from 3.0590 to 3.0284 was an increase of RM111,000.
Open position
Ringgit Impact of
Malaysia 1% fall in
US Ringgit equivalent US
Dollar Malaysia amount for Dollar
equivalent equivalent 1 % fall in exchange
The Bank amount amount US Dollar rate
2013 ‘000 ‘000 ‘000 ‘000
The impact on the outstanding foreign exchange position as at 31 December 2013 for a one percent change in USD
exchange rate from 3.2775 to 3.2447 was an increase of RM150,477.
Open position
Ringgit Impact of
Malaysia 1% fall in
US Ringgit equivalent US
Dollar Malaysia amount for Dollar
equivalent equivalent 1 % fall in exchange
The Bank amount amount US Dollar rate
2012 ‘000 ‘000 ‘000 ‘000
The impact on the outstanding foreign exchange position as at 31 December 2012 for a one percent change in USD
exchange rate from 3.0590 to 3.0284 was an increase of RM116,000.
The Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial
position and cash flows. Limits are set on the level of exposure by currency and in aggregate for both overnight
and intra-day positions, which are monitored daily. The table summarises the Bank’s exposure to foreign currency
exchange rate risk at reporting date. Included in the table are the Bank’s financial instruments at carrying amounts,
categorised by currency.
United Great
States Britain Australian Japanese
The Group Euro Dollar Pound Dollar Yen Others Total
Assets
Cash and short-term funds 7,594 245,259 4,637 16 1,399 31,534 290,439
Deposits and placements with banks
and other financial institutions - 67,299 - 29,289 - 26,969 123,557
Derivative financial assets - 1,121 - - - 213 1,334
Financial investments available-for-sale 46,552 254,631 - 56,450 - 147,088 504,721
Loans, advances and financing 207 1,294,883 107,860 - 422 264,128 1,667,500
Other assets - 892 - - - 928 1,820
Total financial assets 54,353 1,864,085 112,497 85,755 1,821 470,860 2,589,371
Liabilities
Deposits from customers 77,562 221,478 14,962 6,010 9,839 16,520 346,371
Deposits and placements of banks
and other financial institutions - - - 11,319 - 45 11,364
Derivative financial liabilities - 4,597 - - - 1,077 5,674
Other liabilities - 2,904 - - - - 2,904
Total financial liabilities 77,562 228,979 14,962 17,329 9,839 17,642 366,313
Net on-balance sheet financial position (23,209) 1,635,106 97,535 68,426 (8,018) 453,218 2,223,058
Off balance sheet credit commitments 285,323 3,679,237 57,795 87,955 9,932 54,566 4,174,808
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT
United Great
States Britain Australian Japanese
The Group Euro Dollar Pound Dollar Yen Others Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Assets
Cash and short-term funds 6,724 132,764 2,170 229 972 25,761 168,620
Deposits and placements with banks
and other financial institutions - 129,692 - 79,833 - - 209,525
Financial assets held-for-trading - 15,316 - - - - 15,316
Derivative financial assets - 1,811 - 1,155 - 231 3,197
Financial investments available-for-sale - 220,664 - 144,654 - 100,418 465,736
Loans, advances and financing 185 1,598,937 98,514 - 1,114 1,871 1,700,621
Other assets - 487 - - - - 487
Total financial assets 6,909 2,099,671 100,684 225,871 2,086 128,281 2,563,502
Liabilities
Deposits from customers 110,212 173,009 7,337 8,996 170 6,153 305,877
Deposits and placements of banks
and other financial institutions - 612,055 - 8,873 - - 620,928
Derivative financial liabilities - 6,940 - 596 - 2,457 9,993
Other liabilities - 6,583 - 265 - - 6,848
Total financial liabilities 110,212 798,587 7,337 18,730 170 8,610 943,646
Net on-balance sheet financial position (103,303) 1,301,084 93,347 207,141 1,916 119,671 1,619,856
Off balance sheet credit commitments 689,007 1,927,908 39,134 131,679 47,591 455,321 3,290,640
United Great
States Britain Australian Japanese
The Bank Euro Dollar Pound Dollar Yen Others Total
Assets
Cash and short-term funds 6,089 310,064 4,381 16 1,355 30,691 352,596
Deposits and placements with banks
and other financial institutions - 95,667 - 29,289 - 26,969 151,925
Derivative financial assets - 1,121 - - - 213 1,334
Financial investments available-for-sale 46,552 254,631 - 56,450 - 147,088 504,721
Loans, advances and financing 207 1,158,914 107,860 - 422 264,129 1,531,532
Other assets - 892 - - - 928 1,820
Total financial assets 52,848 1,821,289 112,241 85,755 1,777 470,018 2,543,928
Liabilities
Deposits from customers 77,544 220,879 14,955 6,003 9,835 16,519 345,735
Deposits and placements of banks
and other financial institutions - 26,720 - 12,046 - 45 38,811
Derivative financial liabilities - 4,597 - - - 1,077 5,674
Other liabilities - 2,987 - - - - 2,987
Total financial liabilities 77,544 255,183 14,955 18,049 9,835 17,641 393,207
Net on-balance sheet financial position (24,696) 1,566,106 97,286 67,706 (8,058) 452,377 2,150,721
Off balance sheet credit commitments 231,559 3,521,399 56,676 87,955 10,195 54,258 3,962,042
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT
United Great
States Britain Australian Japanese
The Bank Euro Dollar Pound Dollar Yen Others Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Assets
Cash and short-term funds 5,365 191,827 1,791 17 742 25,492 225,234
Deposits and placements with banks
and other financial institutions - 170,921 - 79,833 - - 250,754
Financial assets held-for-trading - 15,316 - - - - 15,316
Derivative financial assets - 1,811 - 1,155 - 231 3,197
Financial investments available-for-sale - 220,664 - 144,654 - 100,418 465,736
Loans, advances and financing 185 1,434,581 98,514 - 1,114 1,871 1,536,265
Other assets - 487 - - - - 487
Total financial assets 5,550 2,035,607 100,305 225,659 1,856 128,012 2,496,989
Liabilities
Deposits from customers 109,047 172,765 7,330 8,996 167 6,153 304,458
Deposits and placements of banks
and other financial institutions - 612,055 - 8,873 - - 620,928
Derivative financial liabilities - 6,940 - 596 - 2,457 9,993
Other liabilities - 6,661 - 265 - - 6,926
Total financial liabilities 109,047 798,421 7,330 18,730 167 8,610 942,305
Net on-balance sheet financial position (103,497) 1,237,186 92,975 206,929 1,689 119,402 1,554,684
Off balance sheet credit commitments 525,244 1,870,422 36,464 131,679 47,591 445,785 3,057,185
Sensitivity to interest rates arises from mismatches in the interest rate characteristics of the assets and their corresponding liability funding. One of
the major causes of these mismatches is timing differences in the repricing of the assets and liabilities. These mismatches are actively managed
as part of the overall interest rate risk management process which is conducted in accordance with Group policy guidelines.
Non-trading book
Non-
interest / Effective
Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Group month months months years years sensitive book Total rate
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %
Assets
Cash and short-term funds 9,178,632 - - - - 223,069 - 9,401,701 2.99
Deposits and placements with bank
and other financial institutions 90,000 286,741 101,437 - - 4,419 - 482,597 4.20
Financial assets held-for-trading - - - - - - 149,544 149,544 2.94
Derivative financial assets - - - - - 26,639 29,635 56,274
Financial investments available-for-sale 210,041 767,998 1,318,762 3,056,311 2,087,340 174,085 - 7,614,537 3.82
Financial investment held-to-maturity 1,525 268,102 85,000 73,658 - 72,051 - 500,336 4.69
Loans, advances and financing
- non-impaired 19,430,962 2,113,869 3,518,151 8,648,969 2,333,664 (300,314) * - 35,745,301 5.37
- impaired - - - - - 482,484 # - 482,484
Others (1) - - - - - 2,004,339 - 2,004,339
Total assets 28,911,160 3,436,710 5,023,350 11,778,938 4,421,004 2,686,772 179,179 56,437,113
* The negative balance represents collective allowance for loans, advances and financing.
# Net of individual allowance.
(1) Others include property and equipment, intangible assets, statutory deposits with BNM, tax recoverable, deferred tax assets, other assets and amount due from
jointly controlled entity.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT
Non-trading book
Non-
interest / Effective
Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Group month months months years years sensitive book Total rate
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %
Liabilities
Deposits from customers 18,347,659 9,935,597 14,499,590 119,512 - 3,185,724 - 4
6,088,082 3.20
Deposits and placements of banks
and other financial institutions 2,263,614 1,517,415 274,925 - - 9,590 - 4,065,544 3.18
Derivative financial liabilities - - - - - 56,116 38,406 94,522
Bills and acceptances payable - - - - - 90,208 - 90,208
Recourse obligation on loans sold
to Cagamas Berhad - - - 394,708 - 3,082 - 397,790 4.77
Subordinated term loan 900,000 - - - - 4,964 - 904,964 4.59
Other liabilities (2) - - - - - 428,379 - 428,379
Total liabilities and equity 21,511,273 11,453,012 14,774,515 514,220 - 8,145,687 38,406 56,437,113
On-balance sheet interest sensitivity gap 7,399,887 (8,016,302) (9,751,165) 11,264,718 4,421,004 (5,458,915) 140,773
Off-balance sheet interest sensitivity gap (3) 274,205 1,576,740 (642,495) (1,502,538) 294,088 - -
Total interest sensitivity gap 7,674,092 (6,439,562) (10,393,660) 9,762,180 4,715,092 (5,458,915) 140,773
(2) Other liabilities include provision for taxation and other liabilities.
(3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments.
Non-trading book
Non-
interest / Effective
Assets
Cash and short-term funds 7,427,433 - - - - 221,471 - 7,648,904 2.95
Reverse repurchase agreements with
financial institutions - - 19,939 - - 118 - 20,057 3.07
Deposits and placements with banks
and other financial institutions 80,000 513,931 - - - 2,521 - 596,452 3.76
Financial assets held-for-trading - - - - - - 165,592 165,592 3.09
Derivative financial assets - - - - - 47,165 21,707 68,872
Financial investments available-for-sale 485,983 794,694 701,194 3,206,109 2,294,827 157,847 - 7,640,654 3.61
Financial investment held-to-maturity 197,337 92,000 - 72,634 - 89,699 - 451,670 4.27
Loans, advances and financing
- non-impaired 17,571,338 2,625,107 2,746,329 8,123,871 2,195,788 (322,629) * - 32,939,804 5.48
- impaired - - - - - 542,822 # - 542,822
Others (1) - - - - - 2,030,153 - 2,030,153
* The negative balance represents collective allowance for loans, advances and financing.
# Net of individual allowance.
(1) Others include property and equipment, intangible assets, statutory deposits with BNM, tax recoverable, other assets, investment in jointly controlled entity
and amount due from jointly controlled entity.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT
Non-trading book
Non-
interest / Effective
Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Group month months months years years sensitive book Total rate
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %
Liabilities
Deposits from customers 16,137,700 10,080,985 11,870,486 255,720 - 2,918,645 - 41,263,536 3.16
Deposits and placements of banks
and other financial institutions 2,318,559 2,466,046 11,489 - - 13,229 - 4,809,323 2.74
Derivative financial liabilities - - - - - 26,595 33,068 59,663
Bills and acceptances payable - - - - - 152,400 - 152,400
Recourse obligation on loans sold
to Cagamas Berhad - - - 410,345 - 3,204 - 413,549 4.77
Subordinated term loan 900,000 - - - - 4,960 - 904,960 4.52
Other liabilities (2) - - - - - 383,597 - 383,597
Total liabilities and equity 19,356,259 12,547,031 11,881,975 666,065 - 7,620,582 33,068 5
2,104,980
Total interest sensitivity gap 6,908,186 (7,918,509) (8,506,318) 9,588,236 4,625,589 (4,851,415) 154,231
(2) Other liabilities include provision for taxation, deferred tax liabilities and other liabilities.
(3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments.
Non-trading book
Non-
interest / Effective
Assets
Cash and short-term funds 4,777,182 - - - - 210,514 - 4,987,696 2.88
Deposits and placements with banks
and other financial institutions 90,000 520,155 163,679 197,210 100,000 35,712 - 1,106,756 4.20
Financial assets held-for-trading - - - - - - 149,544 149,544 2.94
Derivative financial assets - - - - - 26,639 29,635 56,274
Financial investments available-for-sale 210,041 702,959 904,603 2,466,357 1,884,482 162,972 - 6,331,414 3.82
Financial investment held-to-maturity 1,525 268,101 - 73,658 - 71,987 - 415,271 4.16
Loans, advances and financing
- non-impaired 16,143,542 1,904,549 3,003,968 7,313,314 1,694,694 (266,595) * - 29,793,472 5.41
- impaired - - - - - 385,438 # - 385,438
Others (1) - - - - - 2,104,013 - 2,104,013
Amount due from subsidiaries 60,115 - - - - 608 - 60,723 3.00
* The negative balance represents collective allowance for loans, advances and financing.
# Net of individual allowance.
(1) Others include property and equipment, intangible assets, statutory deposits with Bank Negara Malaysia, deferred tax assets, investment in subsidiaries and
other assets.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT
Non-trading book
Non-
interest / Effective
Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Bank month months months years years sensitive book Total rate
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %
Liabilities
Deposits from customers 13,043,316 8,579,819 11,940,823 116,771 - 3,119,999 - 36,800,728 3.33
Deposits and placements of banks
and other financial institutions 955,762 1,517,415 179,392 - - 6,966 - 2,659,535 3.19
Derivative financial liabilities - - - - - 56,116 38,406 94,522
Bills and acceptances payable - - - - - 90,208 - 90,208 -
Recourse obligation on loans sold
to Cagamas Berhad - - - 394,708 - 3,082 - 397,790 4.77
Subordinated term loan 900,000 - - - - 4,964 - 904,964 4.59
Other liabilities (2) - - - - - 394,188 - 394,188
Amount due to subsidiaries - - - - - 53,559 - 53,559
Total liabilities and equity 14,899,078 10,097,234 12,120,215 511,479 - 7,724,189 38,406 4
5,390,601
On-balance sheet interest sensitivity gap 6,383,327 (6,701,470) (8,047,965) 9,539,060 3,679,176 (4,992,901) 140,773
Off-balance sheet interest sensitivity gap (3) 274,205 1,576,740 (642,495) (1,502,538) 294,088 - -
Total interest sensitivity gap 6,657,532 (5,124,730) (8,690,460) 8,036,522 3,973,264 (4,992,901) 140,773
(2) Other liabilities include provision for taxation and other liabilities.
(3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments.
Non-trading book
Non-
interest / Effective
Assets
Cash and short-term funds 3,420,615 - - - - 213,227 - 3,633,842 2.89
Reverse repurchase agreements with
financial institutions - - 19,939 - - 118 - 20,057 3.07
Deposits and placements with banks
and other financial institutions 80,000 646,200 49,037 197,210 46,627 24,751 - 1,043,825 3.76
Financial assets held-for-trading - - - - - - 165,592 165,592 3.09
Derivative financial assets - - - - - 47,165 21,707 68,872
Financial investments available-for-sale 353,932 585,506 320,505 2,346,475 1,911,552 140,191 - 5,658,161 3.67
Financial investment held-to-maturity 197,337 92,000 - 72,634 - 89,699 - 451,670 4.27
Loans, advances and financing
- non-impaired 14,782,179 2,466,733 2,334,730 7,016,986 1,578,208 (287,693) * - 27,891,143 5.50
- impaired - - - - - 448,126 # - 448,126
Others (1) - - - - - 2,140,817 - 2,140,817
Amount due from subsidiaries 153,296 - - - - 653 - 153,949 3.08
* The negative balance represents collective allowance for loans, advances and financing.
# Net of individual allowance.
(1) Others include property and equipment, intangible assets, statutory deposits with Bank Negara Malaysia, investment in subsidiaries and other assets.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT
Non-trading book
Non-
interest / Effective
Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Bank month months months years years sensitive book Total rate
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %
Liabilities
Deposits from customers 10,885,801 8,348,808 9,894,452 244,355 - 2,851,401 - 32,224,817 3.29
Deposits and placements of banks
and other financial institutions 1,252,267 2,451,800 11,489 - - 12,707 - 3,728,263 2.74
Derivative financial liabilities - - - - - 26,595 33,068 59,663
Bills and acceptances payable - - - - - 152,400 - 152,400 -
Recourse obligation on loans sold
to Cagamas Berhad - - - 410,345 - 3,204 - 413,549 4.77
Subordinated term loan 900,000 - - - - 4,960 - 904,960 4.52
Other liabilities (2) - - - - - 349,420 - 349,420
Amount due to subsidiaries - - - - - 48,528 - 48,528
Total liabilities and equity 13,038,068 10,800,608 9,905,941 654,700 - 7,243,669 33,068 41,676,054
On-balance sheet interest sensitivity gap 5,949,291 (7,010,169) (7,181,730) 8,978,605 3,536,387 (4,426,615) 154,231
Off-balance sheet interest sensitivity gap (3) 502,354 602,790 (91,805) (1,148,313) 134,974 - -
Total interest sensitivity gap 6,451,645 (6,407,379) (7,273,535) 7,830,292 3,671,361 (4,426,615) 154,231
(2) Other liabilities include provision for taxation, other liabilities and deferred tax liabilities.
(3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments.
Liquidity risk is the current and prospective risk to earnings or capital arising from a bank’s inability to meet its
obligations when they fall due. Liquidity risk includes the inability to manage sudden decreases or changes in funding
sources. Liquidity risk also arises from the failure to recognise changes in market conditions that affect the ability to
liquidate assets quickly and with minimal loss in value.
To measure and manage net funding requirements, the Bank adopts BNM’s New Liquidity Framework (‘NLF’).
The NLF ascertains the liquidity condition based on the contractual and behavioral cash-flow of assets, liabilities and
off-balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets.
The NLF is also supported by indicative ratios on the Bank’s funding structure to monitor the reliance on particular
funding sources.
The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management.
Liquidity risk is tracked using internal and external qualitative and quantitative indicators. The Bank also conducts
liquidity stress tests to gauge the Bank’s resilience in the event of a liquidity crisis. In addition, the Bank has in place
the Contingency Funding Plan, which provides a systematic approach in handling liquidity disruption. The document
encompasses strategies, decision-making authorities, and courses of action to be taken in the event of liquidity crisis
and emergencies.
The liquidity positions in the major currencies are being closely monitored by tracking the availability of medium to long
term foreign currency funding and adhering to the guiding principles for foreign currency assets creations.
The Basel Committee developed the Liquidity Coverage Ratio (‘LCR’) and Net Stable Funding Ratio (‘NSFR’) with the
goal of strengthening the resilience of the banking systems. The LCR and NSFR are tracked monthly to assess the
short term and long term liquidity risk profile of the Bank.
The BRMC is responsible for the Bank’s liquidity policy although the strategic management of liquidity has been
delegated to the ALCO. The BRMC is informed regularly of the liquidity situation in the Bank.
Liquidity risk disclosure table which is based on contractual undiscounted cash flow
The table below provides analysis of cash flow payables for financial liabilities based on remaining contractual
maturities on undiscounted basis. The balances in the table below do not agree directly to the balances reported in the
statement of financial position as the table incorporates all contractual cash flows, on an undiscounted basis, relating
to both principal and interest payments.
Liquidity risk disclosure table which is based on contractual undiscounted cash flow (continued)
Liquidity risk for assets and liabilities based on remaining contractual maturities
The maturities of on-balance sheet assets and liabilities as well as other off-balance sheet assets and liabilities,
commitments and counter-guarantees are important factors in assessing the liquidity of the Group and the Bank.
The table below provides analysis of assets and liabilities into relevant maturity tenures based on remaining contractual
maturities.
Maturities of assets and liabilities of the Group and the Bank by remaining contractual maturities profile are as follows:
Assets
Cash and short-term funds 9,401,701 - - - - 9,401,701
Deposits and placements with banks
and other financial institutions - 201,906 41,668 197,738 41,285 482,597
Financial assets held-for-trading 149,544 - - - - 149,544
Derivative financial assets 8,965 22,884 8,136 4,566 11,723 56,274
Financial investments available-for-sale 190,150 797,941 1,450,706 3,088,400 2,087,340 7,614,537
Financial investments held-to-maturity 70,913 1,075 16,064 149,826 262,458 500,336
Loans, advances and financing 1,631,991 1,489,733 1,994,497 7,855,233 23,256,331 36,227,785
Other assets 186,368 - 12,277 5,341 16,111 220,097
Amount due from jointly
controlled entity 4,185 - - - - 4,185
Other non-financial assets (1) 1,469,294 - 17 - 310,746 1,780,057
13,113,111 2,513,539 3,523,365 11,301,104 25,985,994 56,437,113
(1) Other non-financial assets include deferred tax assets, tax recoverable, statutory deposits with BNM, property
and equipment and intangible assets.
Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)
Liabilities
Deposits from customers 21,256,343 10,056,459 14,615,566 149,714 10,000 46,088,082
Deposits and placements of banks
and other financial institutions 2,268,127 1,521,311 276,106 - - 4,065,544
Derivative financial liabilities 9,234 22,725 20,786 23,847 17,930 94,522
Bills and acceptances payable 90,208 - - - - 90,208
Recourse obligation on loans
sold to Cagamas Berhad 1,297 1,786 123,243 271,464 - 397,790
Subordinated term loan 2,756 302,208 - - 600,000 904,964
Other liabilities 391,977 - - - - 391,977
Other non-financial liabilities (2) - - 36,402 - - 36,402
24,019,942 11,904,489 15,072,103 445,025 627,930 52,069,489
Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)
Assets
Cash and short-term funds 7,648,904 - - - - 7,648,904
Reverse repurchase agreements with
financial institutions - - 20,057 - - 20,057
Deposits and placements with banks
and other financial institutions - 440,905 18,705 61,186 75,656 596,452
Financial assets held-for-trading 165,592 - - - - 165,592
Derivative financial assets 11,209 26,370 18,534 6,693 6,066 68,872
Financial investments available-for-sale 461,116 711,629 796,643 3,350,026 2,321,240 7,640,654
Financial investments held-to-maturity 88,623 1,076 16,000 148,634 197,337 451,670
Loans, advances and financing 1,872,459 1,673,483 1,586,057 10,804,209 17,546,418 33,482,626
Other assets 251,776 - 9,622 5,215 27,045 293,658
Amount due from jointly
controlled entity 2,745 - - - - 2,745
Other non-financial assets (1) 1,413,300 - 16 - 320,434 1,733,750
11,915,724 2,853,463 2,465,634 14,375,963 20,494,196 52,104,980
(1) Other non-financial assets include tax recoverable, statutory deposits with BNM, investment in jointly controlled
entity, p
roperty and equipment and intangible assets.
Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)
Liabilities
Deposits from customers 18,846,259 10,175,444 11,985,784 256,049 - 41,263,536
Deposits and placements of banks
and other financial institutions 2,324,410 2,473,276 11,637 - - 4,809,323
Derivative financial liabilities 9,769 19,817 8,655 17,247 4,175 59,663
Bills and acceptances payable 152,400 - - - - 152,400
Recourse obligation on loans sold to
Cagamas Berhad 1,364 1,840 - 410,345 - 413,549
Subordinated term loan 2,755 2,205 - - 900,000 904,960
Other liabilities 306,481 - - - - 306,481
Other non-financial liabilities (2) - - 63,751 - 13,365 77,116
21,643,438 12,672,582 12,069,827 683,641 917,540 47,987,028
On balance sheet gap (9,727,714) (9,819,119) (9,604,193) 13,692,322 19,576,656 4,117,952
Off balance sheet credit
commitments - - (12,020,705) - - (12,020,705)
Derivatives 143,621 331,915 1,041,996 126,594 - 1,644,126
Net maturity mismatch (9,584,093) (9,487,204) (20,582,902) 13,818,916 19,576,656 (6,258,627)
(2) Other non-financial liabilities include provision for taxation and deferred tax liabilities.
Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)
Assets
Cash and short-term funds 4,987,696 - - - - 4,987,696
Deposits and placements with banks
and other financial institutions - 441,606 104,090 417,622 143,438 1,106,756
Financial assets held-for-trading 149,544 - - - - 149,544
Derivative financial assets 8,965 22,884 8,136 4,566 11,723 56,274
Financial investments available-for-sale 189,331 724,763 1,034,393 2,498,445 1,884,482 6,331,414
Financial investments held-to-maturity 70,912 1,075 16,000 133,658 193,626 415,271
Loans, advances and financing 1,444,624 1,366,165 1,754,008 6,437,263 19,176,850 30,178,910
Other assets 143,359 - 12,166 5,341 15,689 176,555
Amount due from subsidiaries 60,723 - - - - 60,723
Other non-financial assets (1) 1,233,335 - - - 694,123 1,927,458
8,288,489 2,556,493 2,928,793 9,496,895 22,119,931 45,390,601
(1) Other non-financial assets include statutory deposits with BNM, investment in subsidiaries, deferred tax assets,
property and equipment and intangible assets.
Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)
Liabilities
Deposits from customers 15,944,196 8,676,352 12,023,218 146,962 10,000 36,800,728
Deposits and placements of banks
and other financial institutions 957,882 1,521,311 180,342 - - 2,659,535
Derivative financial liabilities 9,234 22,725 20,786 23,847 17,930 94,522
Bills and acceptances payable 90,208 - - - - 90,208
Recourse obligation on loans sold to
Cagamas Berhad 1,297 1,786 123,243 271,464 - 397,790
Subordinated term loan 2,756 302,208 - - 600,000 904,964
Other liabilities 359,837 - - - - 359,837
Amount due to subsidiaries 53,559 - - - - 53,559
Other non-financial liabilities (2) - - 34,351 - - 34,351
17,418,969 10,524,382 12,381,940 442,273 627,930 41,395,494
On balance sheet gap (9,130,480) (7,967,889) (9,453,147) 9,054,622 21,492,001 3,995,107
Off balance sheet credit
commitments (1,259,138) - (10,303,371) - - (11,562,509)
Derivatives 226,284 901,165 389,163 690,184 - 2,206,796
Net maturity mismatch (10,163,334) (7,066,724) (19,367,355) 9,744,806 21,492,001 (5,360,606)
Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)
Assets
Cash and short-term funds 3,633,842 - - - - 3,633,842
Reverse repurchase agreements with
financial institutions - - 20,057 - - 20,057
Deposits and placements with banks
and other financial institutions - 579,475 67,851 272,166 124,333 1,043,825
Financial assets held-for-trading 165,592 - - - - 165,592
Derivative financial assets 11,209 26,370 18,534 6,693 6,066 68,872
Financial investments available-for-sale 328,225 490,350 411,229 2,490,392 1,937,965 5,658,161
Financial investments held-to-maturity 88,623 1,076 16,000 148,634 197,337 451,670
Loans, advances and financing 1,784,693 1,581,005 1,397,768 9,756,008 13,819,795 28,339,269
Other assets 186,437 - 9,514 5,215 26,624 227,790
Amount due from subsidiaries 153,949 - - - - 153,949
Other non-financial assets (1) 1,211,800 - - - 701,227 1,913,027
7,564,370 2,678,276 1,940,953 12,679,108 16,813,347 41,676,054
(1) Other non-financial assets include statutory deposits with BNM, investment in subsidiaries, property and
equipment and intangible assets.
Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)
Liabilities
Deposits from customers 13,579,032 8,419,079 9,982,086 244,620 - 32,224,817
Deposits and placements of banks
and other financial institutions 1,257,846 2,458,780 11,637 - - 3,728,263
Derivative financial liabilities 9,769 19,817 8,655 17,247 4,175 59,663
Bills and acceptances payable 152,400 - - - - 152,400
Recourse obligation on loans sold to
Cagamas Berhad 1,364 1,840 - 410,345 - 413,549
Subordinated term loan 2,755 2,205 - - 900,000 904,960
Other liabilities 282,144 - - - - 282,144
Amount due to subsidiaries 48,528 - - - - 48,528
Other non-financial liabilities (2) - - 54,177 - 13,099 67,276
15,333,838 10,901,721 10,056,555 672,212 917,274 37,881,600
On balance sheet gap (7,769,468) (8,223,445) (8,115,602) 12,006,896 15,896,073 3,794,454
Off balance sheet credit commitments - - (10,687,961) - - (10,687,961)
Derivatives 143,621 331,915 1,041,996 126,594 - 1,644,126
Net maturity mismatch (7,625,847) (7,891,530) (17,761,567) 12,133,490 15,896,073 (5,249,381)
(2) Other non-financial liabilities include provision for taxation and deferred tax liabilities.
Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people,
infrastructure or technology or events which are beyond the bank’s immediate control which have an operational
impact, including natural disaster, fraudulent activities and money laundering/financing of terrorism.
The Bank manages operational risk through a control based environment in which policies and procedures are
formulated after taking into account individual unit’s business activities, the market in which it is operating and
regulatory requirement in force.
The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational
risk. The capital requirement is calculated by taking 15% of the Bank’s average annual gross income over the previous
three years.
Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix.
Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up
procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by
periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational
Risk Management process.
The Bank gathers, analyses and reports operational risk loss and ‘near miss’ events to Group Operational Risk
Management Committee and Board Risk Management Committee. Appropriate preventive and remedial actions are
reviewed for effectiveness and implemented to minimize the recurrence of such events.
As a matter of requirement, all Operational Risk Coordinators must satisfy an Internal Operational Risk (including
anti-money laundering/counter financing of terrorism and business continuity management) Certification Program.
These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to
measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training
and development activities for the coordinators.
Financial instruments comprise financial assets, financial liabilities and also off balance sheet financial instruments.
The fair value of a financial instrument is the amount at which the instruments could be exchanged or settled between
knowledgeable and willing parties in an arm’s length transaction. The information presented herein represents estimates
of fair values as at reporting date.
Fair value information for non-financial assets and liabilities are excluded as they do not fall within the scope of MFRS
132 which requires fair values to be disclosed. This includes property and equipment, statutory deposits with Bank
Negara Malaysia, investment in subsidiaries, other assets, tax recoverable, deferred tax and intangible assets.
The fair values of the financial assets and financial liabilities of the Group and the Bank approximated to their respective
carrying value as at reporting date, except for the following:
Financial assets
Deposits and placement with bank and
other financial institutions 482,597 509,644 1,106,756 1,142,272
Financial investments held-to-maturity 500,336 491,129 415,271 409,049
Loans, advances and financing 36,227,785 35,935,141 30,178,910 29,916,913
37,210,718 36,935,914 31,700,937 31,468,234
Financial liabilities
Deposits from customers 46,088,082 46,080,076 36,800,728 36,795,136
Deposit and placement of bank and
other financial institutions 4,065,544 4,066,031 2,659,535 2,660,006
Recourse obligation on loans sold to Cagamas Berhad 397,790 406,113 397,790 406,113
50,551,416 50,552,220 39,858,053 39,861,255
Financial assets
Deposits and placements with banks and
other financial institutions 596,452 626,914 1,043,825 1,085,003
Financial investments held-to-maturity 451,670 441,716 451,670 441,716
Loans, advances and financing 33,482,626 33,185,614 28,339,269 28,087,568
34,530,748 34,254,244 29,834,764 29,614,287
Financial liabilities
Deposits from customers 41,263,536 41,261,007 32,224,817 32,222,524
Deposit and placement of banks and
financial institutions 4,809,323 4,816,360 3,728,263 3,735,300
Recourse obligation on loans sold to Cagamas Berhad 413,549 426,331 413,549 426,331
46,486,408 46,503,698 36,366,629 36,384,155
The fair values of derivative financial instruments at the reporting date are as follows:
The Group and the Bank The Group and the Bank
2013 2012
Underlying Underlying
notional Asset Liability notional Asset Liability
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
The derivative financial instruments become favorable (assets) or unfavorable (liabilities) as a result of fluctuation in
market interest rates or foreign exchange rates relative to their terms. The extent to which instruments are favorable
or unfavorable and the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from
time to time.
The following tables analyse within the fair value hierarchy the Group’s and the Bank’s assets and liabilities not
measured at fair value at 31 December 2013 but for which fair value is disclosed:
The Group
2013
Financial Assets
Deposits and placements with banks and
other financial institutions - 509,644 - 509,644
Financial investments held-to-maturity - 491,129 - 491,129
Loans, advances and financing - 35,935,141 - 35,935,141
Financial Liabilities
Deposits from customers - 46,080,076 - 46,080,076
Deposits and placements of banks and
other financial institutions - 4,066,031 - 4,066,031
Recourse obligation on loans
sold to Cagamas Berhad - 406,113 - 406,113
The Group
2012
Financial Assets
Deposits and placements with banks and
other financial institutions - 626,914 - 626,914
Financial investments held-to-maturity - 441,716 - 441,716
Loans, advances and financing - 33,185,614 - 33,185,614
Financial Liabilities
Deposits from customers - 41,261,007 - 41,261,007
Deposits and placements of banks and
other financial institutions - 4,816,360 - 4,816,360
Recourse obligation on loans
sold to Cagamas Berhad - 426,331 - 426,331
The Bank
2013
Financial Assets
Deposits and placements with banks and
other financial institutions - 1,142,272 - 1,142,272
Financial investments held-to-maturity - 409,049 - 409,049
Loans, advances and financing - 29,916,913 - 29,916,913
Financial Liabilities
Deposits from customers - 36,795,136 - 36,795,136
Deposits and placements of banks and
other financial institutions - 2,660,006 - 2,660,006
Recourse obligation on loans
sold to Cagamas Berhad - 406,113 - 406,113
The Bank
2012
Financial Assets
Deposits and placements with banks and
other financial institutions - 1,085,003 - 1,085,003
Financial investments held-to-maturity - 441,716 - 441,716
Loans, advances and financing - 28,087,568 - 28,087,568
Financial Liabilities
Deposits from customers - 32,222,524 - 32,222,524
Deposits and placements of banks and
other financial institutions - 3,735,300 - 3,735,300
Recourse obligation on loans
sold to Cagamas Berhad - 426,331 - 426,331
The fair value estimates were determined by application of the methodologies and assumptions described below.
Short-term funds and placements with banks and other financial institutions
For short-term funds and placements with banks and other financial institutions with maturity of less than six months,
the carrying amount is a reasonable estimate of fair value.
For amounts with maturities of six months or more, fair values have been estimated by reference to current rates at
which similar deposits and placements would be made to banks with similar credit ratings and maturities.
The fair values of financial assets held-for-trading, financial investments available-for-sale and financial investments
held-to-maturity are reasonable estimates based on quoted market prices. In the absence of such quoted prices, the
fair values are based on the expected cash flows of the instruments discounted by indicative market yields for the
similar instruments as at reporting date or the audited net tangible asset of the invested company.
Loans, advances and financing of the Group comprise of floating rate loans and fixed rate loans. For performing
floating rate loans, the carrying amount is a reasonable estimate of their fair values.
The fair values of performing fixed rate loans are arrived at using the discounted cash flows based on the prevailing
market rates of loans and advances with similar credit ratings and maturities.
The fair values of impaired loans and advances, whether fixed or floating are represented by their carrying values, net
of individual and collective allowances, being the reasonable estimate of recoverable amount.
The carrying value less any estimated allowance for financial assets and liabilities included in other assets and other
liabilities are assumed to approximate their fair values as these items are not materially sensitive to the shift in market
interest rates.
Deposits from customers, banks and other financial institutions, bills and acceptances payable
The carrying values of deposits and liabilities with maturities of six months or less are assumed to be reasonable
estimates of their fair values. Where the remaining maturities of deposits and liabilities are above six months, their
estimated fair values are arrived at using the discounted cash flows based on prevailing market rates currently offered
for similar remaining maturities.
The estimated fair value of deposits with no stated maturity, which include non-interest bearing deposits, approximates
carrying amount which represents the amount repayable on demand.
For floating rate loans sold to Cagamas Berhad, the carrying value is generally a reasonable estimate of their fair
values.
The fair values of fixed rate loans sold to Cagamas Berhad are arrived at using the discounted cash flow methodology
at prevailing market rates of similarly profiled loans.
For fixed rate borrowings, the estimate of fair value is based on discounted cash flow model using prevailing lending
rates for borrowings with similar risks and remaining term to maturity.
For floating rate borrowings, the carrying value is generally a reasonable estimate of their fair values.
The fair value of exchange rate and interest rate contracts is the estimated amount the Group would receive or pay to
terminate the contracts at the reporting date.
The following table presents assets and liabilities measured at fair value and classified by level of the following fair
value measurement hierarchy:
(a) Level 1 - quoted price (unadjusted) in active markets for identical assets and liabilities;
(b) Level 2 - inputs other than quoted price included within level 1 that are observable for the assets or liability, either
directly (i.e. as prices) or indirectly (i.e.derived from prices); and
(c) Level 3 - inputs for the asset and liability that are not based on observable market data (unobservable inputs).
The Group
2013
Assets
Financial assets held-for-trading - 149,544 - 149,544
Financial investments available-for-sale *
- Private debt securities - 3,452,561 - 3,452,561
- Equity securities 150 - 119,003 119,153
- Other financial assets - 4,042,823 - 4,042,823
Derivative financial assets - 56,274 - 56,274
Liabilities
Derivative financial liabilities - 94,522 - 94,522
The Group
2012
Assets
Financial assets held-for-trading - 165,592 - 165,592
Financial investments available-for-sale *
- Private debt securities - 3,532,861 - 3,532,861
- Equity securities 3,030 - 106,444 109,474
- Other financial assets - 3,998,319 - 3,998,319
Derivative financial assets - 68,872 - 68,872
Liabilities
Derivative financial liabilities - 59,663 - 59,663
The Bank
2013
Assets
Financial assets held-for-trading - 149,544 - 149,544
Financial investments available-for-sale *
- Private debt securities - 2,942,846 - 2,942,846
- Equity securities 150 - 118,934 119,084
- Other financial assets - 3,269,484 - 3,269,484
Derivative financial assets - 56,274 - 56,274
Liabilities
Derivative financial liabilities - 94,522 - 94,522
The Bank
2012
Assets
Financial assets held-for-trading - 165,592 - 165,592
Financial investments available-for-sale *
- Private debt securities - 2,831,071 - 2,831,071
- Equity securities 349 - 106,375 106,724
- Other financial assets - 2,720,366 - 2,720,366
Derivative financial assets - 68,872 - 68,872
Liabilities
Derivative financial liabilities - 59,663 - 59,663
# The Bank has determined that the net asset value of unquoted equity securities represents fair value at the
financial year ended 31 December 2013, therefore there is no unobservable input used for these financial
investments classified as Level 3.
Financial instruments that are valued using quoted prices in active market are classified as Level 1 of the valuation
hierarchy. These would include listed equities which are actively traded.
Where fair value is determined using quoted prices in less active markets or quoted prices for similar assets and
liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available,
the Group and the Bank then determine fair value based upon valuation techniques that use as inputs, market
parameters including but not limited to yield curves, volatilities and foreign exchange rates. The majority of valuation
techniques employ only observable market data and so reliability of the fair value measurement is high. These would
include corporate private debt securities, corporate notes and most of the Group’s OTC derivatives.
The Group and the Bank classify financial instruments as Level 3 when there is reliance on unobservable inputs
to the valuation model attributing to a significant contribution to the instrument value. Valuation reserves or pricing
adjustments where applicable will be used to converge to fair value.
The Group and the Bank may also use valuation models or discounted cash flow technique to determine the fair value.
Most of the OTC derivatives are priced using valuation models. Where derivative products have been established in
the markets for some time, the Group and the Bank use models that are widely accepted by the industry.
The valuation techniques and inputs used generally depend on the contractual terms and the risks inherent in the
instrument as well as the availability of pricing information in the market. Principal techniques used include discounted
cash flows, and other appropriate valuation models. OTC derivatives which are valued using unobservable inputs that
are supported by little or no market activity which are significant to the fair value of the assets or liabilities are classified
as Level 3.
The following table present the changes in Level 3 instruments for the financial year ended:
As at reporting date, financial instruments measured with valuation techniques using significant unobservable inputs
(Level 3) mainly include unquoted shares held for socio economic purposes.
In estimating its significance, the Group and the Bank used an approach that is currently based on methodologies
used for fair value adjustments. These adjustments reflects the values that the Group and the Bank estimate are
appropriate to adjust from the valuations produced to reflect for uncertainties in the inputs used. The methodologies
used can be a statistical or other relevant approved techniques.
39 LEASE COMMITMENTS
The Bank has lease commitments in respect of rented premises and hired equipment, all of which are classified as operating
leases. A summary of the non-cancelable long-term commitments, net of sub-leases are as follows:
Capital commitments
Capital expenditure approved by the Directors but not provided for int the financial statements amounted to approximately:
Operating commitments
Operating expenditure approved by the Directors but not provided for int the financial statements amounted to approximately:
41 CAPITAL MANAGEMENT
With effect from 1 January 2013, the total capital and capital adequacy ratios of the Group and the Bank are computed in
accordance with Bank Negara Malaysia’s Capital Adequacy Framework (Capital Components) dated 28 November 2012.
The Group and the Bank are currently adopting Standardised Approach for Credit Risk and Market Risk, the Basic Indicator
Approach for Operational Risk. In line with the transitional arrangements under the Bank Negara Malaysia’s Capital Adequacy
Framework (Capital Components), the minimum capital adequacy requirement for Common Equity Tier 1 Capital Ratio
(‘CET 1’) and Tier 1 Capital Ratio are 3.5% and 4.5% respectively for year 2013. The minimum regulatory capital adequacy
requirement remains at 8.0% (2012: 8.0%) for total capital ratio.
The Group and the Bank’s objectives when managing capital are:
• To comply with the capital requirements set by the regulators of the banking markets where the entities within the
Group and the Bank operates;
• To safeguard the Group and the Bank’s ability to continue as a going concern so that it can continue to provide returns
for shareholders and benefits for other stakeholders; and
The Group and the Bank maintain a ratio of total regulatory capital to its risk-weighted assets above a minimum level agreed
with the management which takes into account the risk profile of the Group and the Bank.
The table in Note 42 below summarises the composition of regulatory capital and the ratios of the Group and the Bank for
the financial year ended 31 December 2013.
42 CAPITAL ADEQUACY
42 CAPITAL ADEQUACY
* Deferred tax assets exclude deferred tax arising from AFS revaluation reserves.
@ Qualifying collective impairment is restricted to allowances on unimpaired portion of the loans, advances and financing.
# The Group comprises the Bank and the Bank’s subsidiary, AFFIN Islamic Bank Berhad.
## The Group comprises the Bank and all the Bank’s financial and non-financial subsidiaries.
^ Net proposed dividends of RM91,100,000 (2012: RM91,100,000).
(a) A syndicate of lenders, including AFFIN Bank Berhad (the ‘Bank’), had granted facilities of RM62.5 million (the ‘Facilities’)
to a borrower to, inter alia, finance a development project. At borrower’s request, the Facilities were restructured in
1999 but in July 2000, continued drawdown under the restructured Facilities was refused as borrower had failed to
comply with conditions precedent for such drawdown. The lenders and borrower negotiated to resolve the default
and the Facilities were restructured again in 2003. Further financing was also granted in 2004 and the Project was
completed with certificate of fitness in January 2005.
Subsequent to the completion of the project, borrower brought a claim against the lead banker, as the agent of the
syndicate lenders, for loss and damage arising from alleged breach of duty and obligations owed by the lead banker
to the borrower in relation to various actions taken or omitted to be taken in disbursements and transactions under the
Facilities. The lead banker filed an action against the borrower and its guarantor of the Facilities, for recovery of the
amounts outstanding under the Facilities.
The 2 actions were consolidated and heard together at full trial. On 6 May 2009, the High Court granted judgment in
favour of borrower against the lead banker, as an agent of the lenders, and dismissed the lenders’ action for recovery
of the Facilities. The judgment against the lead banker included a sum of RM115.5 million to be paid, as well as further
damages to be assessed and an immediate release of all security granted by the borrower and its guarantors for the
Facilities. The award of damages of RM115.5 million was made despite parties’ agreement that the trial proceed only
on issue of liability and no evidence of damage/loss was produced. If the judgment of 6 May 2009 is maintained, lead
banker will seek contribution from the lenders, including the Bank. The Bank’s share is about RM34.65 million.
The lead banker and agent appealed to the Court of Appeal against the High Court decision. An effort at mediation on
9 March 2012 failed as the parties could not come to a settlement. Hearing dates were then fixed for the appeal. The
appeal has been argued twice before the Court of Appeal i.e. on 3 August 2012 and 9 November 2012. The hearing
was continued on 23 January 2013 and 31 January 2013 and decision was given on 27 September 2013 wherein
the Court of Appeal allowed the appeal and set aside the High Court Judgment. The Court of Appeal also entered
judgment against the borrower for the amount outstanding under the Facilities. The borrower applied for leave to the
Federal Court.
The borrower obtained a limited order of stay from the Court the Appeal on 22 November 2013 whereby the enforcement
of money judgment obtained by the lenders under Court of Appeal decision was stayed pending disposal of the
Federal Court appeal application. However the right of the Receiver & Manager to enter into the premises was not
stayed but the borrower continued to resist the Receiver & Manager (R & M) appointed by the lenders.
The borrower filed an application to stay the R & M from doing their job but the lenders counterclaimed to restrain the
borrower’s directors, officers and solicitors from dealing with the charged assets and the right to continue with the R &
M. Hearing proceeded on 13 January 2014.
The solicitors for the lead banker and the lenders have expressed the view that the lead banker and the lenders have
a more than even chance of success in defending the leave application.
(b) Other than above, there are various legal suits against the Bank in respect of claims and counter claims of approximately
RM117.6 million (2012: RM73.8 million). Based on legal advice, the Directors are of the opinion that no provision for
damages need to be made in the financial statements, as the probability of adverse adjudication against the Bank is
remote.
The Group and the Bank make estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. To enhance the information content of the estimates, certain variables that
are anticipated to have material impact to the Group’s and the Bank’s results and financial position are tested for sensitivity
to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.
The accounting estimates and judgments related to the impairment of loans and provision for off-balance sheet positions is a
critical accounting estimate for because the underlying assumptions used for both the individually and collectively assessed
impairment can change from period to period and may significantly affect the Group and the Bank’s results of operations.
In assessing assets for impairment, management judgment is required. The determination of the impairment allowance
required for loans which are deemed to be individually significant often requires the use of considerable management
judgment concerning such matters as local economic conditions, the financial performance of the counterparty and the
value of any collateral held, for which there may not be a readily accessible market. The actual amount of the future cash
flows and their timing may differ from the estimates used by management and consequently may cause actual losses to
differ from the reported allowances.
The impairment allowance for portfolios of smaller-balance homogenous loans, such as those to individuals and small
business customers of the private and retail business, and for those loans which are individually significant but for which
no objective evidence of impairment exists, is determined on a collective basis. The collective impairment allowance is
calculated on a portfolio basis using statistical models which incorporate numerous estimates and judgments, and therefore
is subject to estimation uncertainty. The Group and the Bank perform a regular review of the models and underlying data and
assumptions as far as possible to reflect the current economic circumstances. The probability of default, loss given defaults,
and loss identification period, amongst other things, are all taken into account during this review.
The Group performs an impairment review on an annual basis to ensure that the carrying value of the goodwill does not
exceed its recoverable amounts from cash generating units to which the goodwill is allocated. The recoverable amount
represents the present value of the estimated future cash flows expected to arise from continuing operations. Therefore,
in arriving at the recoverable amount, management exercise judgment in estimating the future cash flows, growth rate and
discount rate.
The following credit exposures are based on Bank Negara Malaysia’s revised Guidelines on Credit Transaction and Exposures
with Connected Parties, which are effective 1 January 2008.
(i) The aggregate value of outstanding credit exposures with connected parties (RM’000) 3,013,895
(ii) The percentage of outstanding credit exposures to connected parties as a proportion of total
credit exposures 6%
(iii) The percentage of outstanding credit exposures with connected parties which is impaired or in default Nil
The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 26
February 2014.
We, JEN TAN SRI DATO’ SERI ISMAIL BIN HAJI OMAR (BERSARA) and EN. MOHD SUFFIAN BIN HAJI HARON, two of the
Directors of AFFIN BANK BERHAD, state that, in the opinion of the Directors, the accompanying financial statements set out on
pages 68 to 193 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Bank as at 31 December
2013 and of the results and cash flows of the Group and the Bank for the financial year ended on the date in accordance with
Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies
Act, 1965 in Malaysia.
JEN TAN SRI DATO’ SERI ISMAIL BIN HAJI OMAR (BERSARA)
Chairman
STATutory
Declaration
PURSUANT TO SECTION 169 (16) OF THE COMPANIES ACT, 1965
I, EE KOK SIN, the officer of AFFIN BANK BERHAD primarily responsible for the financial management of the Group and the
Bank, do solemnly and sincerely declare that, in my opinion, the accompanying financial statements set out on pages 68 to 193,
are correct and I make this solemn declaration conscientiously believing the same to be true, by virtue of the provisions of the
Statutory Declarations Act, 1960.
EE KOK SIN
Subscribed and solemnly declared by the abovenamed EE KOK SIN at Kuala Lumpur in Malaysia on 26 February 2014, before me.
We have audited the financial statements of AFFIN Bank Berhad on pages 68 to 193 which comprise the statements of financial
position as at 31 December 2013 of the Group and of the Bank, and the statements of income, comprehensive income, changes
in equity and cash flows of the Group and of the Bank for the year then ended, and a summary of significant accounting policies
and other explanatory notes, as set out on Notes 1 to 45.
The directors of the Bank are responsible for the preparation of financial statements that give a true and fair view in accordance
with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965, and for
such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance
with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s
preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the
directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements have been properly drawn up in accordance with Malaysian Financial Reporting Standards,
International Financial Reporting Standards and the Companies Act, 1965 so as to give a true and fair view of the financial position
of the Group and of the Bank as of 31 December 2013 and of their financial performance and cash flows for the year then ended.
In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:
(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Bank and its
subsidiaries have been properly kept in accordance with the provisions of the Act.
(b) We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Bank’s financial
statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of
the Group and we have received satisfactory information and explanations required by us for those purposes.
(c) The audit reports on the financial statements of the subsidiaries did not contain any qualification or any adverse comment
made under Section 174(3) of the Act.
OTHER MATTERS
This report is made solely to the members of the Bank, as a body, in accordance with Section 174 of the Companies Act, 1965 in
Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.
198 1. Introduction
198 1.1 Background
198 1.2 Scope of Application
202 3. Capital
202 3.1 Internal Capital Adequacy Assessment Process (‘ICAAP’)
202 3.2 Capital Structure
204 3.3 Capital Adequacy
218 Appendices
1 Introduction
1.1 Background
AFFIN Bank Berhad (‘the Bank’) adopted Basel II in January 2008 in line with the directive from Bank Negara Malaysia
(‘BNM’). The Basel II framework is structured around three fundamental Pillars.
- Pillar 1 defines the minimum capital requirement to ensure that financial institutions hold sufficient capital to cover their
exposure to credit, market and operational risks.
- Pillar 2 requires financial institutions to have a process for assessing their overall capital adequacy in relation to their risk
profile and a strategy for maintaining their capital levels.
- Pillar 3 requires financial institutions to establish and implement an appropriate disclosure policy that promotes
transparency regarding their risk management practices and capital adequacy positions.
The Bank elected to adopt the following approaches under Pillar 1 requirements:
This document contains the disclosure requirements under Pillar 3 for the Bank for the year ended 31 December 2013. The
disclosures are made in line with the Pillar 3 disclosure requirements under the Basel II framework as laid out by BNM.
The disclosures should be read in conjunction with the Bank’s 2013 Annual Report for the year ended 31 December 2013.
The Group’s capital requirements are generally based on the principles of consolidation adopted in the preparation of its
financial statements. The Group’s consolidated entities comprises the Bank and the Bank’s subsidiary, AFFIN Islamic Bank
Berhad.
2.1 Overview
The Board of Directors of the Bank is ultimately responsible for the overall performance of the Bank. The Board’s
responsibilities remain within the framework of BNM Guidelines. The Board also exercises great care to ensure that high
ethical standards are upheld, and that the interests of stakeholders are not compromised. These include responsibility
for determining the Bank’s general policies and strategies for the short, medium and long term, approving business plans,
including targets and budgets, and approving major strategic decisions.
The Board has overall responsibility for maintaining the proper management and protection of the Bank’s interests by
ensuring effective implementation of the risk management policy and process, as well as adherence to a sound system
of internal control, and by seeking regular assurance on their effectiveness. The Board also recognises that risks cannot
be eliminated completely. As such, the inherent system of internal control is designed to provide a reasonable though
not absolute assurance against the risk of material errors, fraud or losses occurring. The system of internal controls
encompasses controls relating to financial, operational, risk management and compliance with applicable laws, regulations,
policies and guidelines.
The terms of reference of the Board Committees as disclosed in the Annual Report provide an outline of its role and
functions. In carrying out its functions, the Board has delegated specific responsibilities to other Board Committees,
which operate under approved terms of reference, to assist the Board in discharging their duties. The Chairmen of
the various Committees report on the outcome of their Committee meetings to the Board and any further deliberation
is made at Board level, if required. These reports and deliberations are incorporated into the Minutes of the Board
meetings. The Board meets on a monthly basis.
The Board of the Bank has a balance composition with a strong independent element. It consists of representatives
from the private sector with suitable qualifications fulfilling the fit and proper criteria as required by BNM/GP1, a
mixture of different skills, competencies, experience and personalities.
The BRC is responsible for providing a formal and transparent procedure for developing the remuneration policy
for Directors, Managing Director/Chief Executive Officer and key senior management officers and ensuring that
compensation is competitive and consistent with the Bank’s culture, objectives and strategy.
The Committee obtains advice from experts in compensation and benefits, both internally and externally.
The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors and
Managing Director/Chief Executive Officer, assessing the effectiveness of individual Directors, the Board as a whole
and the performance of the Managing Director/Chief Executive Officer and key senior management personnel.
The BRMC is responsible for overseeing management’s activities in managing credit, market, liquidity, operational,
legal and other risks and to ensure that the risk management process is in place and functioning.
It has responsibility for reviewing and approving all risk management policies and risk management methodologies.
BRMC also reviews guidelines and portfolio management reports including risk exposure information.
The Committee also ensures that the procedures and framework in relation to identifying, measuring, monitoring and
controlling risk are operating effectively.
The BLRRC is responsible in providing critical review of loans and other credit facilities with higher risk implications,
after due process of checking, analysis, review and recommendation by the Credit Risk Management function, and if
found necessary, exercise the power to veto loan applications that have been approved by the Group Management
Loan Committee (‘GMLC’). BLRRC also reviews the impaired loans reports presented by the Management.
The AEC is responsible for providing oversight on reviewing the adequacy and integrity of the internal control systems
and oversees the work of the internal and external auditors.
Reliance is placed on the results of independent audits performed primarily by internal auditors, the outcome of
statutory audits on financial statements conducted by external auditors and on representations by Management based
on their control self-assessment of all areas of their responsibility.
Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to
Board members for notation and discussion. The Bank has an established Group Internal Audit Division (GIA) which
reports functionally to the Audit Committee and administratively to the Managing Director/Chief Executive Officer.
Shariah Committee
AFFIN Islamic Bank Berhad’s business activities are subject to Shariah compliance and conformation by the Shariah
Committee. The Shariah Committee is formed as legislated under the Islamic Financial Services Act 2013 and as per
Shariah Governance Framework for Islamic Financial Institutions.
(i) To advise the Board on Shariah matters in order to ensure that the business operations of the Bank comply with
the Shariah principles at all times;
(ii) To endorse and validate relevant documentations of the Bank’s products to ensure that the products comply with
Shariah principles; and
(iii) To advise the AFFIN Islamic Bank Berhad on matters to be referred to the Shariah Advisory Council.
MCM comprising the senior management team chaired by the MD/CEO, assists the Board in managing the day-to-day
operations and ensures its effectiveness. MCM formulates tactical plans and business strategies, monitors the Bank’s
overall performance, and ensures that the activities are in accordance with corporate objectives, strategies, policies
and annual business plan and budget.
GMLC is established within senior management chaired by the MD/CEO to approve complex and larger loans and
workout/recovery proposals beyond the delegated authority of the concerned individual senior management personnel
of the Bank.
ALCO comprising the senior management team chaired by the MD/CEO, manages the Bank’s asset liability position
and oversees the Bank’s capital management to ensure that the Bank is adequately capitalised on an economic and
regulatory basis.
LMC is a sub-committee of the ALCO and its role is to augment the functions of the ALCO by directing its focus
specifically to liquidity issues.
GORMC is established within senior management chaired by MD/CEO to deliberate and manage operational risks. Its
responsibilities include:
(ii) To review and recommend on broad operational risks management policies/best practices for adoption by the
Bank’s operating units;
(iii) To review the effectiveness of broad internal controls and making recommendation/approve on changes, if
necessary;
(iv) To review/approve recommendation of operational risk management groups set up to address specific area;
(vii) To review and approve the strategic operational risk management initiatives/plans and to endorse for BRMC’s
approval if necessary; and
(viii) To update BRMC on loss events and relevant key issues that may adversely impact core processes, system
defects and any changes to critical business or system related processes.
EAC is established within senior management to monitor credit quality through monthly review of the Early Alert,
Watchlist and Exit Accounts and review the actions taken to address the emerging risks and issues in these accounts.
An integrated risk management framework is in place. The Group Risk Management (‘GRM’) function, headed by
Group Chief Risk Officer (‘GCRO’) and operating in an independent capacity, is part of the Bank’s senior management
structure which works closely as a team in managing risks to enhance stakeholders’ value.
GRM reports to BRMC. Committees namely BLRRC, MCM, GMLC, ALCO, LMC, GORMC and EAC assist BRMC
in managing credit, market, liquidity and operational risks. The responsibilities of these Committees include risk
identification, risk assessment and measurement, risk control and mitigation; and risk monitoring.
In accordance with BNM’s GP10 guidelines, GIA conducts continuous reviews on auditable areas within the Bank. The
continuous reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance
to the audit plan approved by the AEC.
Based on GIA’s review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an
opinion on the effectiveness of internal controls maintained by each entity. The risks highlighted on the respective
auditable areas as well as recommendation made by the GIA are addressed at AEC and Management meetings on
bi-monthly basis. The AEC also conduct annual reviews on the adequacy of internal audit function, scope of work,
resources and budget of GIA.
3 Capital Management
In line with the BNM guideline on Risk-Weighted Capital Adequacy Framework - Internal Capital Adequacy Assessment
Process (Pillar 2), the Bank has put in place the ICAAP Framework to assess the capital adequacy to ensure the level of
capital maintained by the Bank is adequate at all times, taking into consideration the Bank’s risk profile and business
strategies.
The Bank’s capital management approach is focused on maintaining an appropriate level of capital to meet its business
needs and regulatory requirements as capital adequacy and risk management are closely aligned. The Bank operates
within an agreed risk appetite whilst optimising the use of shareholders’ funds to deliver sustainable returns.
With effect from 1 January 2013, the total capital and capital adequacy ratios of the Group and the Bank are computed
in accordance with Bank Negara Malaysia’s Capital Adequacy Framework (Capital Components) dated 28 November
2012.
The Group and the Bank are currently adopting Standardised Approach for Credit Risk and Market Risk, the Basic
Indicator Approach for Operational Risk. In line with the transitional arrangements under the Bank Negara Malaysia’s
Capital Adequacy Framework (Capital Components), the minimum capital adequacy requirement for Common Equity
Tier 1 Capital Ratio (‘CET 1’) and Tier 1 Capital Ratio are 3.5% and 4.5% respectively for year 2013. The minimum
regulatory capital adequacy requirement remains at 8.0% (2012: 8.0%) for total capital ratio.
The following table sets forth details on the capital resources and capital adequacy ratios for the Group and the Bank
as at 31 December 2013.
3 Capital Management
3 Capital Management
The Group and the Bank have in place an internal limit for its CET1 capital ratio, Tier I capital ratio and Total capital ratio,
which is guided by the need to maintain a prudent relationship between available capital and the risks of its underlying
businesses. The capital management process is monitored by senior management through periodic reviews.
Refer to Appendix I.
The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the Bank’s
subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been
no significant changes in these principal activities during the financial year.
The Bank’s business activities involve the analysis, measurement, acceptance, and management of risks but it operates
within well defined risk acceptance criteria covering customer segments, industries and products. The Bank does not enter
into risk it cannot administer, book, monitor or value, or deal with persons of questionable integrity.
The Bank’s risk management policies are established to identify all the key risks, assess and measure these risks, control
and mitigate these risks, and manage and monitor the risk positions.
The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and best
practice in risk management processes. The Bank’s aim is to achieve an appropriate balance between risk and return and
minimise any potential adverse effects.
The key business risks to which the Bank is exposed are credit risk, liquidity risk, market risk and operational risk.
5 Credit Risk
Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial
and contractual obligations to the Bank. Credit risk emanates mainly from loans and advances, loan commitments
arising from such lending activities, as well as through financial transactions with counterparties including interbank
money market activities, derivative instruments used for hedging and debt securities.
The management of credit risk in the Bank is governed by a set of approved credit policies, guidelines and procedures.
Approval authorities are delegated to Senior Management and GMLC to implement the credit policies and ensure
sound credit granting standards.
An independent GRM function, headed by Group Chief Risk Officer (‘GCRO’) with direct reporting line to BRMC is in
place to ensure adherence to risk standards and discipline.
Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses
are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Annual
Credit Plan. The Annual Credit Plan is reviewed at least annually and approved by the BRMC.
5 Credit Risk
The Bank uses the following External Credit Assessment Institutions (‘ECAIs’) to determine the risk weights for the
rated credit exposures:-
The external ratings of the ECAIs are used to determine the risk weights of the following types of exposure: sovereigns,
banks, public sector entities and corporates.
The mapping of the rating categories of different ECAIs to the risk weights is in accordance with the guidelines provided
by BNM. In cases where there is no issuer or issue rating, the exposures are treated as unrated and accorded a risk
weight appropriate for unrated exposure in the respective category.
The external ratings are updated in the core banking system, and extracted and matched by the risk system according
to the above rules to determine the appropriate risk weights.
Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank’s
underwriting criteria and the ability of the Bank to make a return commensurate to the level of risk undertaken. A
critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in
the risk assessment and decision making process. The Bank has developed internal rating models to support the
assessment and quantification of credit risk.
For consumer mass market products, statistically developed application scorecards are used by the Business to
assess the risks associated with the credit application. The scorecards are used as a decision support tool at loan
origination.
The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure
Method, computation of credit equivalent exposure for interest rate and exchange rate related contracts is derived
from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and
the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to
maturity).
5 Credit Risk
The Bank employs various policies and practices to control and mitigate credit risk.
Lending limits
The Bank establishes internal limits and related lending guidelines to manage large exposures and avoid undue
concentration of credit risk in its credit portfolio. The limits include single customer groupings, connected parties, and
geographical and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner
depending on changing market and economic conditions.
The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customers
together with potential exposure from market movements.
Collateral
Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral
may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:
In order to be recognised as security, all items pledged must have value and the Bank must have physical control and/
or legal title thereto, together with the necessary documentation to enable the Bank to realise the asset without the
co-operation of the asset owner. Other items, such as personal or corporate guarantees, may be taken for comfort
but will not be treated as security for approval purposes. Valuations are updated on a regular basis.
Prior to acceptance of any item as security, verification must be done to ensure that the security exists and an accurate
and up-to-date valuation can be placed upon it. A pre-facility disbursement site visit must be undertaken in respect of
landed security of significant value. Where third parties are used to undertake a valuation they must be taken from a
list of approved valuers.
All assets which provide security to the Bank must be adequately insured with an insurer from the list of approved
insurers.
The security documentation process is centralised in an independent Security Documentation Section at Head Office.
The Bank adopts standardised Letter of Offer and Legal Documents. Variations/amendments require the approval from
the relevant approving authority in the Bank.
Documentary and commercial letters of credit are collateralised by the underlying shipments of goods to which they
relate and therefore carry less risk than a direct loan.
5 Credit Risk
Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees or
letters of credit. In terms of credit risk, the Bank is potentially exposed to loss in an amount equal to the total
unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most
commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.
The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a
greater degree of credit risk than short-term commitments.
Retail credits are actively monitored and managed on a portfolio basis by product type. A new collection management
system has been implemented with a dedicated team in place to promptly identify, monitor and manage delinquent
accounts at early stages of delinquency.
Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against
updated information. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses
or deterioration in the credit quality. Remedial action is taken where evidence of deterioration exists.
Early Alert Process is in place as part of a means to pro-actively identify, report and manage deteriorating credit quality.
Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning
impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.
Active portfolio monitoring enables the Bank to understand the overall risk profile and identify any adverse trends or
areas of risk concentrations affecting asset quality so that appropriate actions are adopted to manage and mitigate
risks.
Significant loans, with or without past due status, are subject to individual assessment for impairment when an
evidence of impairment surfaces or at the very least once annually during the annual review process.
If impaired, the amount of loss is measured as the difference between the asset’s carrying value and the present value
of estimated future cash flows discounted at the financial assets original effective interest rate. The level of impairment
allowance on significant loans is reviewed regularly, at least quarterly or more often when circumstances require.
Significant loans that are deemed not impaired after individual assessment are included in a group of loans with similar
characteristics and collectively assessed for impairment.
5 Credit Risk
All loans are grouped in respective business segments according to similar credit risk characteristics and is generally
based on industry, asset or collateral type, credit grade and past due status grouped based on business segments.
Portfolio provisioning is determined for each segment based on its respective loss probabilities and other information
relevant to estimation of the future cash flows of each segment.
Collective provisioning is applicable to all loans not covered under individual assessment as well as significant loans
that are deemed not impaired after individual assessment.
All loans, advances and financing are categorised into “neither past due nor impaired”, “past due but not impaired”
and “impaired”. Past due loans refer to loans that are overdue by one day or more. Impaired loans are loans with
months-in-arrears more than 90 days or with impaired allowances.
5 Credit Risk
5 Credit Risk
5 Credit Risk
Analysed by geographical area
5 Credit Risk
5 Credit Risk
The Bank recognises that learning is a continuous journey and is committed to enhance the knowledge and required
skills set of its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation.
For effective and efficient staff learning, the Bank has implemented an E–Learning Program with an online Learning
Management System (‘LMS’). The LMS provides staff with a progressive self-learning alternative at own pace.
GRM implements an Internal Credit Certification (‘ICC’) Programme for both Business Banking and Consumer Credit.
The aim of the ICCs is to assist the core credit related group of personnel in the Bank achieve a minimum level of
knowledge and analytical skills required to make sound corporate and commercial loans to customers.
6 Market Risk
Market risk is defined as the risk of losses to the Bank’s portfolio positions arising from movements in market factors
such as interest rates, foreign exchange rates and changes in volatility. The Bank is exposed to market risks from
its trading and investment activities. The Bank’s market risk management objective is to ensure that market risk is
appropriately identified, measured, controlled, managed and reported.
The Bank’s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate
risk arises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives.
The Bank is also exposed to basis risk when there is a mismatch between the change in price of a hedge and the
change in price of the assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers’
requirements and proprietary positions.
The Bank adopts the Standardised Approach for the purpose of calculating the capital requirement for market risk.
Refer to Appendix I.
6 Market Risk
The Bank’s market risk management control strategy is established based on its risk appetite, market liquidity and
business strategies as well as macroeconomic conditions. These limits are reviewed at least on an annual basis.
Market risk arising from the Bank’s trading book is primarily controlled through the imposition of Cut-loss and Value-
at-Risk (‘VaR’) Limits.
The Bank quantifies interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate
sensitive liabilities. It also conducts Net Interest Income simulations to assess the variation in earnings under various
rates scenarios. The potential long term effects of the Bank’s overall exposure is also tracked by assessing the impact
on economic value of equity (‘EVE’).
The Bank’s interest rate risk is managed through Earnings-at-Risk (‘EaR’) and Economic Value-at-Risk (‘EVaR’) limits.
In addition, the Bank conducts periodic stress test of its respective business portfolios to ascertain market risk under
abnormal market conditions.
The Bank’s Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.
Value-at-Risk (‘VaR’) is used to compute the maximum potential loss amount over a specified holding period of a
Trading portfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign
exchange rates that could affect values of financial instruments.
The Variance-Covariance Parametric methodology is adopted to compute the potential loss amount. This is a
statistically defined, probability-based approach that uses volatilities and correlations to quantify price risks. Under
this methodology, a matrix of historical volatilities and correlations is computed from the past 100 business days’
market data. VaR is then computed by applying these volatilities and correlations to the outstanding trading portfolio.
(i) Mark-to-Market valuation tracks the current market value of the outstanding financial instruments.
(ii) Stress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market
movements. Stress tests measure the changes in values arising from extreme movements in interest rates and
foreign exchange rates based on past experience and simulated stress scenarios.
(iii) Sensitivity/Dollar Duration is an additional measure of interest rate risk that is computed on a daily basis. It
measures the change in value of a portfolio resulting from a 0.01% increase in interest rates. This measure
identifies the Bank interest rate exposures that are most vulnerable to interest rate changes and it facilitates the
implementation of hedging strategies.
6 Market Risk
The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its
financial position and cash flows. The Board sets limits on the level of exposure by currency and in aggregate for both
overnight and intra-day positions, which are monitored daily.
7 Liquidity Risk
Liquidity risk is the current and prospective risk to earnings or capital arising from a bank’s inability to meet its
obligations when they fall due. Liquidity risk includes the inability to manage sudden decreases or changes in funding
sources. Liquidity risk also arises from the failure to recognise changes in market conditions that affect the ability to
liquidate assets quickly and with minimal loss in value.
To measure and manage net funding requirements, the Bank adopts BNM’s New Liquidity Framework (‘NLF’). The
NLF ascertains the liquidity condition based on the contractual and behavioural cash-flow of assets, liabilities and off-
balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets. The
NLF is also supported by indicative ratios on the Bank’s funding structure to monitor the reliance on particular funding
sources.
The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. The
risk is measured monthly using internal and external qualitative and quantitative liquidity risk indicators. The Bank
also conducts liquidity stress tests to gauge ABB’s resilience in the event of a funding crisis. In addition, the Bank has
in place the Contingency Funding Plan, which provides a systematic approach in handling liquidity disruption. The
document encompasses strategies, decision-making authorities, and courses of action to be taken in the event of
liquidity crisis and emergencies.
The liquidity positions in the major currencies are being closely monitored by tracking the availability of medium to long
term foreign currency funding and adhering to the guiding principles for foreign currency assets creations.
The Basel Committee developed the Liquidity Coverage Ratio (‘LCR’) and Net Stable Funding Ratio (‘NSFR’) with the
goal of strengthening the resilience of the banking systems. The LCR and NSFR are tracked monthly to assess the
short term and long term liquidity risk profile of the Bank.
BRMC is responsible for the Bank’s liquidity policy although the strategic management of liquidity has been delegated
to ALCO. The BRMC is informed regularly of the liquidity situation in the Bank.
8 Operational Risk
Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people,
infrastructure or technology or events which are beyond the bank’s immediate control which have an operational
impact, including natural disaster, fraudulent activities and money laundering/financing of terrorism.
The Bank manages operational risk through a control based environment in which policies and procedures are
formulated after taking into account individual unit’s business activities, the market in which it is operating and
regulatory requirement in force.
The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational
risk. The capital requirement is calculated by taking 15% of the Bank’s average annual gross income over the previous
three years.
Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix.
Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up
procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by
periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational
Risk Management process.
The Bank gathers, analyses and reports operational risk loss and ‘near miss’ events to Group Operational Risk
Management Committee and Board Risk Management Committee. Appropriate preventive and remedial actions are
reviewed for effectiveness and implemented to minimize the recurrence of such events.
As a matter of requirement, all Operational Risk Coordinators must satisfy an Internal Operational Risk (including
anti-money laundering/counter financing of terrorism and business continuity management) Certification Program.
These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to
measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training
and development activities for the coordinators.
9 Shariah Compliance
Shariah compliance is the fundamental of Islamic banking and finance. It gives legitimacy to the practices and business
operations of the Islamic financial institutions (‘IFIs’) concerned. Comprehensive compliance with Shariah principles would
also boosts confidence of shareholders and public that all the practices and activities by the IFIs are in compliance with the
Shariah principles at all times.
Shariah Governance Framework for Islamic Financial Institutions (the ‘Framework’) issued by Bank Negara Malaysia becomes
the main reference to oversee the Shariah governance process within AFFIN Islamic Bank Berhad. In order to comply with
all the requirements in the Framework, Board of Directors of the Bank are very committed to ensure among others all the
required Shariah compliance and research functions include Shariah Risk Management, Shariah Review, Shariah Research
and Shariah Audit are properly established to effectively perform its respective functions.
Continuous training programs are provided to Shariah Committee members to equip them with better understanding and
exposure on banking operations and to Board of Directors, management members and staff for fundamental and advanced
knowledge on Shariah and Islamic commercial law matters.
The following information concerning the Group and the Bank’s risk exposures are disclosed as accompanying information to the annual report, and does not form part of the
audited accounts.
Group
2013
Total for On and Off-Balance Sheet Exposures 61,910,259 60,722,173 36,529,227 36,529,227 2,922,338
Group
2012
Total for On and Off-Balance Sheet Exposures 56,718,503 54,235,855 32,659,779 32,659,779 2,612,782
Bank
2013
Total for On and Off-Balance Sheet Exposures 49,827,223 48,742,842 31,911,266 31,911,266 2,552,901
Bank
2012
Total for On and Off-Balance Sheet Exposures 45,284,263 43,154,904 28,731,138 28,731,138 2,298,491
Appendix I
Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. The
Bank’s Capital-at-Risk (‘CaR’) is defined as the amount of the Bank’s capital that is exposed to the risk of unexpected losses
arising particularly from movements in interest and foreign exchange rates. A CaR Limit is set as a management trigger to ensure
that the Bank’s exposure to such movements do not compromise the Bank’s capital adequacy. The Bank is currently adopting
BNM’s Standardised Approach for the computation of market risk capital charges. The market risk capital charges addresses
among others, capital requirement for market risk which includes the interest rate risk pertaining to the Bank’s exposure in the
trading book as well as foreign exchange risk in the trading and banking books.
The computation of market risk capital charge covers the following outstanding financial instruments:
a) Foreign Exchange
b) Interest Rate Swap (‘IRS’)
c) Cross Currency Swap (‘CCS’)
d) Fixed Income Instruments (i.e. Private Debt and Government Securities)
Group
2013
Insurance Total
Companies, Exposure
Sovereigns Banks, Securities Higher Specialised after Netting Total Risk
Risk & Central MDBs and Firms & Fund Regulatory Residential Risk Other Financing / & Credit Risk Weighted
Weights Banks PSEs FDIs Managers Corporates Retail Mortgages Assets Assets Investment Securitisation Equity Mitigation Assets
Average - - -
Risk Weight
Deduction
from - - - - - - - - - - - - -
Capital
Base
Group
2012
Insurance Total
Companies, Exposure
Sovereigns Banks, Securities Higher Specialised after Netting Total Risk
Risk & Central MDBs and Firms & Fund Regulatory Residential Risk Other Financing / & Credit Risk Weighted
Average - - -
Risk Weight
Deduction
from - - 10.034 - - - - - - - - - 10,034
Capital
Base
Bank
2013
Insurance Total
Companies, Exposure
Sovereigns Banks, Securities Higher Specialised after Netting Total Risk
Risk & Central MDBs and Firms & Fund Regulatory Residential Risk Other Financing / & Credit Risk Weighted
Weights Banks PSEs FDIs Managers Corporates Retail Mortgages Assets Assets Investment Securitisation Equity Mitigation Assets
Average
Risk Weight
Deduction
from - - - - - - - - - - - - -
Capital
Base
Disclosure on Credit Risk: Disclosures on Risk Weights under the Standardised Approach (RM’000)
Bank
2012
Insurance Total
Average
Risk Weight
Deduction
from - - 10.034 - - - - - - - - - 10,034
Capital
Base
Total - 11,011,702 - - - -
Total - 9,814,633 - - - -
Total - 5,952,212 - - - -
Total - 4,745,271 - - - -
Counterparty Credit Risk is the risk that the counterparty to a transaction could default before the final settlement of the transaction’s cashflows. An economic loss could
occur if the transactions with the counterparty has a positive economic value for the Bank at the time of default.
In contrast to the exposure to credit risk through a loan, where the exposure to credit risk is unilateral and only the lending bank faces the risk of loss, Counterparty Credit
Risk creates a bilateral risk of loss where the market value for many types of transactions can be positive or negative to either counterparty.
In respect of off-balance sheet items, the credit risk inherent in each off-balance sheet instrument is translated into an on-balance sheet exposure equivalent (credit
equivalent) by multiplying the nominal principal amount with a credit conversion factor (‘CCF’) as prescribed by the Standardised Approach under the Risk Weighted Capital
Adequacy Framework. The resulting amount is then weighted against the risk weight of the counterparty. In addition, counterparty risk weights for over-the-counter (‘OTC’)
derivative transactions will be determined based on the external rating of the counterparty and will not be subject to any specific ceiling.
Group
2013
Group
2012
Positive Fair
Principle Amount Value of Credit Equivalent Risk Weighted
Description
Derivative Amount Amount
Contracts
Direct Credit Substitutes 445,529 445,529 430,042
Bank
2013
Bank
2012
Positive Fair
Principle Amount Value of Credit Equivalent Risk Weighted
Description
Derivative Amount Amount
Contracts
Direct Credit Substitutes 436,156 436,156 422,310
Interest rate risk is the current and prospective impact to the Bank’s financial condition due to adverse changes in the interest rates to which the balance sheet is
exposed. The objective is to manage interest rate risk to achieve stable and sustainable net interest income in the long term which impact can be viewed from the
perspectives of (1) earnings in the next 12 months, and (2) economic value.
(1) Next 12 months’ Earnings - Interest rate risk from the earnings perspective is the impact based on changes to the net interest income over the next 12 months.
This risk is measured monthly through sensitivity analysis including the application of an instantaneous 100 basis point parallel shock in interest rates across the yield
curve. The prospective change to the net interest income is measured using an Asset Liability Management simulation model which incorporates the assessment of
both existing and new business.
(2) Economic Value - Measuring the change in the economic value of equity is an assessment of the long term impact to the earnings potential. This is assessed through
the application of relevant duration factors to capture the net economic value impact over the long term or total life of all balance sheet assets and liabilities to adverse
changes in interest rates.
2013
Group Bank
Impact on Positions Impact on Positions
Type of Currency (RM million)
(100 basis points) Parallel Shift (100 basis points) Parallel Shift
Increase/(Decline) Increase/(Decline) Increase/(Decline) Increase/(Decline)
in Earnings in Economic Value in Earnings in Economic Value
Ringgit Malaysia (32.7) 488.0 (36.2) 386.4
US Dollar 12.3 10.7 12.7 10.7
Euro (0.4) - (0.4) -
Great Britain Pound 0.8 0.2 0.8 0.2
Australian Dollar 0.1 2.4 0.1 2.4
Singapore Dollar 0.5 0.8 0.5 0.8
Japanese Yen (0.1) - (0.1) -
Others (#) 1.0 1.5 1.1 1.5
Total (18.5) 503.6 (21.5) 402.0
# Others comprise of CNH, NZD, HKD and AED currencies where the amount of each currency is relatively small.
2012
Group Bank
Impact on Positions Impact on Positions
Type of Currency (RM million)
(100 basis points) Parallel Shift (100 basis points) Parallel Shift
Increase/(Decline) Increase/(Decline) Increase/(Decline) Increase/(Decline)
in Earnings in Economic Value in Earnings in Economic Value
# Others comprise of NZD, HKD and AED currencies where the amount of each currency is relatively small.
AFFIN BANK BERHAD (25046-T)