Annual Report 2015

ANNUAL REPORT 2015

www.rhbgroup.com

RHB Capital Berhad (312952-H) Level 9, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur Tel : 603-9285 2233 Fax : 603-9281 9314 The cover for our 2015 Annual Report depicts a diamond shape formed with interlocking wire mesh. The diamond represents RHB’s clarity of focus towards achieving its vision of being a leading multinational financial services group. The wire links further symbolise our commitment to fostering greater ties with our customers and key stakeholders by placing them at the centre of what we do, as described by our revitalised Brand Promise, “Together We Progress”.

Our Brand Promise is anchored on being a trusted partner to our customers and stakeholders; delivering simple, fast and seamless experiences; providing solutions that help achieve their goals; and nurturing future generations. These principles will be translated through our daily operations, and drive us in pushing boundaries to create a positive impact for society as a whole, embodying our “Together We Progress” Brand Promise. FACTS AT A GLANCE

GROUP BANKING TOTAL INCOME TOTAL RM6,191 ASSETS NET PROFIT MILLION RM1,511 RM230,718 MILLION MILLION

>16,000 AS AT DECEMBER EMPLOYEES 2015

WITH PRESENCE MORE THAN ACROSS 590 COUNTRIES BRANCHES & OFFICES REGIONALLY WHAT’S INSIDE OVERVIEW KEY MESSAGES PERFORMANCE OVERVIEW pg 1 – pg 11 pg 12 – pg 25 pg 74 – pg 89

1 Facts at a Glance 14 Chairman’s Statement 74 Performance Review 4 RHB’s Aspirations & Vision 18 Group Managing Director’s 79 Actual vs Target for 2015 Statement 5 Values 80 Capital Management 6 Group Financial Highlights 82 RHB Share Information 7 Summary of Five-Year Group 83 Balance Sheet Management Financial Highlights ABOUT US 84 Investor Relations 8 Five-Year Group Financial pg 26 – pg 55 88 Financial Calendar Summary 9 Simplified Group Statements of Financial Positions 26 Corporate Profile BUSINESS OVERVIEW 10 Segmental Analysis 28 Corporate Information pg 90 – pg 127 11 Group Quarterly Performance 30 Profiles of the Board of Directors 34 Profiles of the Chairmen of the Key 90 Business Overview Operating Companies 92 Group Retail Banking 36 Group Shariah Committee Profiles 100 Group Business & Transaction Banking 39 Strategic Business Entities 104 Group Corporate & Investment Banking 40 Group Corporate Structure 14 112 Group Shariah Business 42 Group Organisation Structure Chairman’s Statement 114 Group Treasury and Global Markets 44 Group Senior Management Profiles 116 Group Insurance 51 Key Highlights 118 International Business 18 122 Economic Review Group Managing OUR STRATEGY GOVERNANCE Director’s Statement pg 56 – pg 73 pg 128 – pg 205

58 Business Model 132 Corporate Governance Statement 60 Our Strategy 158 Compliance with the Malaysian Code on Corporate Governance (MCCG) 2012 68 Driving an Innovative 165 Statement on Risk Management & Internal Control 34 Culture Key Operating 170 Board Nominating & Remuneration Committee Report Companies 177 Group Board Audit Committee Report Profiles of the Chairmen of the 182 Risk Management Statement Key Operating Companies 190 Shariah Committee Report 192 Business Continuity Management 193 Compliance Statement 199 Corporate Integrity 90 204 Code of Ethics and Conduct Business Overview SUSTAINABILITY SHAREHOLDERS’ INFORMATION pg 206 – pg 215 pg 244 – pg 268

208 Sustainability Report 244 Analysis of Shareholdings 246 Classification of Shareholders 247 List of Thirty (30) Largest Shareholders ACHIEVEMENTS 249 Authorised and Issued Share Capital pg 216 – pg 243 253 Key Internal Control Policies and Procedures 256 List of Top Ten (10) Properties 216 Awards and Recognition 257 Group Branch Network 222 Corporate Milestones 265 Notice of Twenty First Annual General Meeting 224 Significant Events 2015 267 Statement Accompanying Notice of 21st Annual 231 Calendar of Events 2015 General Meeting 242 Media Highlights 2015 • Proxy Form

st ANNUAL GENERAL MEETING FOR 21 RHB CAPITAL BERHAD Refer to page 265 to 268 for Annual General Meeting Information

Taming Sari Grand Ballroom, The Royale Chulan Kuala Lumpur, 5 Jalan Conlay, 50450 Kuala Lumpur, Malaysia

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www.rhbgroup.com 4 RHB Capital Berhad Annual Report 2015 RHB’S ASPIRATIONS & VISION

TOP 3 BY 2020... IN MALAYSIA/TOP 8 IN TO BE A ASEAN LEADING by performance MULTINATIONAL FINANCIAL SERVICES STRONG MARKET GROUP LEADERSHIP IN MALAYSIA across targeted products and segments

REGIONAL POWERHOUSE IN ASEAN+ 20% profit contribution from international operations

NEXT GENERATION CUSTOMER CENTRIC BANK delivering innovative and personalised customer offerings

PROMINENT EMPLOYER OF CHOICE within the region 5

OUR STRATEGY STATEMENT Our Brand Promise “To be a multinational regional financial services TOGETHER WE PROGRESS provider that is committed to deliver complete Being your trusted partner solutions to our clients through differentiated Delivering simple, fast and segment offerings and an ecosystem that supports a seamless experiences simple, fast and seamless customer experience, Providing solutions that help underpinned by our cohesive and inspired workforce achieve your goals and relationships built with our stakeholders.” Nurturing future generations

VALUES

PROFESSIONAL RESPECT INTEGRITY DYNAMIC EXCELLENCE We are committed to We are courteous, We are honest, We are proactive, We will continuously maintain a high level humble and we ethical and we responsive and achieve high of proficiency, show empathy to uphold a high forward thinking. standards of competency and everyone through standard of performance and reliability in all that our actions and governance. service deliverables. we do. interactions. 6 RHB Capital Berhad Annual Report 2015 GROUP FINANCIAL HIGHLIGHTS

2015 2014

PROFITABILITY (RM’million)

Revenue 6,191 6,235 Operating profit before allowances 2,398 2,824 Profit before taxation 2,107 2,735 Net profit attributable to equity holders of the Company 1,511 2,038

FINANCIAL POSITION (RM’million)

Total assets 230,718 219,354 Financial assets and investments portfolio 47,024 43,003 Gross loans, advances and financing 151,386 142,486 Total liabilities 207,608 200,460 Deposits from customers 158,151 157,134 Shareholders’ equity 23,085 18,794

FINANCIAL RATIOS (%)

Net return on average equity 7.3% 11.5% Net return on average total assets 0.7% 1.0% Gross impaired loans ratio 1.9% 2.0% Gross loans to deposits ratio 95.7% 90.7%

7 SUMMARY OF FIVE-YEAR GROUP FINANCIAL HIGHLIGHTS

TOTAL ASSETS PROFIT BEFORE TAXATION GROSS LOANS, ADVANCES (RM’million) (RM’million) AND FINANCING (RM’million) 219,354 230,718 191,090 152,304 142,486 2,735 151,386 2,107 121,753 2,471 2,250 97,438 189,112 2,385 111,474

’12’11 ’13 ’14 ’15 ’12’11 ’13 ’14 ’15 ’12’11 ’13 ’14 ’15

DEPOSITS FROM CUSTOMERS SHAREHOLDERS’ EQUITY NET DIVIDEND (RM’million) (RM’million) (RM’million) 157,134 18,794 154 158,151 23,085 369 137,741 16,739 414 115,861 11,615 450 138,228 15,117 535

’12’11 ’13 ’14 ’15 ’12’11 ’13 ’14 ’15 ’12’11 ’13 ’14 ’15 8 RHB Capital Berhad Annual Report 2015 FIVE-YEAR GROUP FINANCIAL SUMMARY

2015 2014 2013 2012* 2011**

OPERATING RESULTS (RM’million) Operating profit before allowances 2,398 2,824 2,899 2,536 2,473 Profit before taxation 2,107 2,735 2,471 2,385 2,250 Net profit attributable to equity holders of the Company 1,511 2,038 1,831 1,785 1,688

KEY BALANCE SHEET DATA (RM’million) Total assets 230,718 219,354 191,090 189,112 152,304 Gross loans, advances and financing 151,386 142,486 121,753 111,474 97,438 Total liabilities 207,608 200,460 174,147 173,772 140,676 Deposits from customers 158,151 157,134 137,741 138,228 115,861 Paid-up capital 3,075 2,572 2,547 2,494 2,205 Shareholders’ equity 23,085 18,794 16,739 15,117 11,615 Commitments and contingencies 186,762 133,504 100,232 83,160 74,161

SHARE INFORMATION Dividend per share – (sen) 12.00 6.00 16.30 22.09 25.41 Net assets per share – (RM) 7.5 7.3 6.6 6.1 5.3 Net tangible assets per share – (RM) 5.8 5.3 4.5 4.0 3.5 Basic earnings per share – (sen) 58.1 79.7 72.9 79.0 77.5 Share price – (RM) 5.67 7.62 7.90 7.69 7.48 Market capitalisation (RM'million) 17,433 19,602 20,121 19,180 16,492

FINANCIAL RATIOS (%) Profitability Ratios Net return on average equity 7.3 11.5 11.5 13.4 15.7 Net return on average assets 0.7 1.0 1.0 1.0 1.2 Cost to income ratio 61.3 54.7 51.3 47.5 43.5

Asset Quality Gross loans to deposits ratio 95.7 90.7 88.4 80.6 84.1 Gross impaired loans ratio 1.88 2.03 2.81 2.99 3.59

Ordinary Shares Net dividend yield 2.1 0.8 2.1 2.9 2.7 Dividend payout ratio 24.4 7.6 22.6 30.0 30.0

* Restated to reflect the adoption of MFRS 3. ** Restated as a result of retrospective application of MFRS 139 and FRSIC 18. 1% 1% 2% 6%

5% 9 SIMPLIFIED GROUP STATEMENTS OF FINANCIAL POSITIONS 20%

TOTAL ASSETS 2015 TOTAL ASSETS 2014

1% 1% 1% 1% 2% 2% 6% 65% 5%

5% 7%

20% 2% 20% 5% 3% 64% 65% 3% Loans, advances and financing Financial assets and investments portfolio Cash and short term funds 9% Statutory deposits Deposits and placements with banks and other financial institutions Loans, advances and financing Loans, advances and financing Financial assets and investments portfolioClients’ and brokers’ balances Financial assets and investments portfolio Cash and short term funds Other assets Cash and short term funds Statutory deposits Statutory deposits Deposits and placements with banks and other financial institutions Deposits and placements with banks and other financial institutions 10% Clients’ and brokers’ balances Clients’ and brokers’ balances TOTAL LIABILITIES Other& assetsEQUITY 2015 TOTAL LIABILITIES Other& assetsEQUITY 2014

2% 68% 2% 5% 4% 3% 3% 3% 10% 9%

9% 10%

68% 72%

Deposits from customers Shareholders’ equity Deposits and placements of banks and other financial institutions Subordinated obligations and Hybrid Tier-1 Capital Securities Deposits from customers Deposits from customers Shareholders’ equity Borrowings and senior debt securities Shareholders’ equity Deposits and placements of banks and otherObligations financial institutions on securities sold under repurchase agreements Deposits and placements of banks and other financial institutions Subordinated obligations and Hybrid Tier-1 Capital Securities Subordinated obligations and Hybrid Tier-1 Capital Securities Borrowings and senior debt securities Other liabilities Borrowings and senior debt securities Obligations on securities sold under repurchase agreements Obligations on securities sold under repurchase agreements Other liabilities Other liabilities 9% 10 RHB Capital Berhad Annual Report 2015 9% SEGMENTAL ANALYSIS For the financial year ended 31 December 2015 39% 15%

REVENUE BY BUSINESS SEGMENT ASSETS EMPLOYED BY BUSINESS SEGMENT

9% 12%

9% 28% 32%

39% 23% 15%

14% Retail 9% Corporate and Investment Banking 24% 28% Business Banking Treasury Group International Business

Retail Retail Corporate and Investment Banking Corporate and Investment Banking Business Banking Business Banking Treasury Treasury Group International Business Group International Business OPERATING REVENUE BY GEOGRAPHICAL LOCATION ASSETS EMPLOYED BY GEOGRAPHICAL LOCATION

14% 13% 86%

86% 87% Malaysia Overseas*

Malaysia Malaysia Overseas* Overseas* * Inclusive of RHB Investment overseas banking operations. 11 GROUP QUARTERLY PERFORMANCE

2015

First Second Third Fourth Quarter Quarter Quarter Quarter Total FINANCIAL PERFORMANCE (RM’000)

Revenue 1,508,756 1,486,519 1,513,827 1,682,069 6,191,171 Net interest income 799,779 784,416 843,709 871,894 3,299,798 Other operating income 506,487 487,992 447,589 573,388 2,015,456 Operating profit before allowances 688,845 643,993 344,762 720,409 2,398,009 Profit before taxation 644,821 692,381 294,336 475,206 2,106,744 Net profit attributable to equity holders of the Company 476,277 524,594 194,436 316,120 1,511,427 Earnings per share (sen) 18.5 20.3 7.5 11.9 58.1 Dividend per share (sen) – – – 12.0 12.0

2014

First Second Third Fourth Quarter Quarter Quarter Quarter Total FINANCIAL PERFORMANCE (RM’000)

Revenue 1,466,037 1,444,962 1,647,094 1,676,786 6,234,879 Net interest income 822,184 827,727 835,868 805,553 3,291,332 Other operating income 492,104 433,898 614,793 670,601 2,211,396 Operating profit before allowances 679,692 648,047 806,218 689,754 2,823,711 Profit before taxation 637,408 739,127 714,932 643,586 2,735,053 Net profit attributable to equity holders of the Company 450,691 556,508 544,610 486,191 2,038,000 Earnings per share (sen) 17.7 21.9 21.2 18.9 79.7 Dividend per share (sen) – – – 6.0 6.0

TOGETHER WE PROGRESS 14 RHB Capital Berhad Annual Report 2015 CHAIRMAN’S STATEMENT

Dear Shareholders, RHB Capital Berhad (“RHB Capital” or “the Group”) sustained its profitability in 2015, successfully weathering the headwinds in the global and Malaysian economies. Despite the challenging conditions, our goal of becoming a Leading Multinational Financial Services Group remained firmly intact. We also introduced measures to capitalise on new opportunities and mitigate risks, strengthening our ability to take on developments in the short- term horizon and enhance long-term shareholder STRENGTHENING value. OUR PRESENCE 15

DATO’ MOHAMED KHADAR MERICAN

“OUR GOAL OF BECOMING A LEADING MULTINATIONAL FINANCIAL SERVICES GROUP BY 2020 REMAINS FIRMLY INTACT.”

FINANCIAL PERFORMANCE

The Group reported Revenue of RM6.2 billion and Profit Before Tax (“PBT”) of RM2.1 billion in the financial year ended 31 December 2015 (“FY2015”), achieving strong growth in its total assets which rose to RM230.7 billion as at the end of 2015 from RM219.4 billion in FY2014. We also continued to improve our asset quality, with the Group’s impaired loans ratio strengthening to 1.88% from 2.03% in the previous year.

For the year under review, the Company has declared an interim single-tier cash dividend of 12 sen per share, translating into a dividend payout of 24.4%.

RHB PERFORMANCE OPTIMISING SHAREHOLDER VALUE As part of our commitment to deliver long-term value to our shareholders, in 2015 the Group undertook proactive measures to safeguard our interests amid challenging PROFIT BEFORE TAX economic conditions.

BILLION In line with that, the Group embarked on a Corporate Restructuring exercise which is currently in progress. The exercise encompasses equity fundraising, an internal RM2.1 reorganisation, distribution and capital repayment by the Group to shareholders and the transfer of the Group’s listing status to RHB Bank Berhad (“RHB Bank” or “the Bank”). DIVIDEND PAYOUT RATIO The corporate restructuring exercise is centred on enhancing shareholders’ value and operational efficiencies for RHB Bank. The restructuring will benefit shareholders 24.4% by allowing direct equity participation in the Bank. 16 RHB Capital Berhad Annual Report 2015 CHAIRMAN’S STATEMENT (continued)

THE EQUITY FUNDRAISING The exercise will also achieve higher stock liquidity through the re-rating of the stock with the higher number of RHB Bank shares COMPRISED A ONE-FOR-FIVE in issue. RENOUNCEABLE RIGHTS The equity fundraising comprised a one-for-five renounceable rights issue of 486.19 million new ordinary shares of RM1 each in RHB ISSUE OF 486.19 MILLION Capital, at an issue price of RM4.82 per rights share. The rights issue was successfully completed on 21 December 2015, raising NEW ORDINARY SHARES OF RM2.34 billion with an over-subscription rate of 30.5%, reflecting shareholders’ continued confidence in the Group’s growth prospects. RM1 EACH IN RHB CAPITAL, The Group also embarked on a reframed IGNITE 2017 strategy to AT AN ISSUE PRICE OF strengthen our capabilities in becoming a Leading Multinational Financial Services Group and ensure we continue to deliver long- RM4.82 PER RIGHTS SHARE. term value to our shareholders.

CORPORATE GOVERNANCE Further details on our corporate responsibility practices are The Group is committed to upholding the highest standards of avaialble in our Sustainability Report 2015. I would like to add that corporate governance, gaining recognition for our continuous this year, we have reverted to our standard practice of publishing efforts to enhance corporate governance practices within the Group. our Sustainability Report separately from the Annual Report. This is For further details on our corporate governance activities this year, in line with sustainability reporting requirements by Bursa Malaysia I invite you to read our Corporate Governance Statement on pages Securities Berhad as we strive to embody our values as a responsible 132 – 157 of this Annual Report. corporate citizen.

CORPORATE RESPONSIBILITY AWARDS AND ACCOLADES

As a leading financial services group in Malaysia with a strong The Group’s continuous efforts to enhance customer service and presence in ASEAN, we believe that corporate responsibility is a experience were acknowledged through a number of awards in key element to attain sustainable growth. Guided by the corporate 2015. These include the Best Branch Experience, Best Contact responsibility pillars of Community, Workplace, Marketplace and Centre Experience and Best Online Experience awards at the Frost Environment, the Group’s sustainable corporate practices underscore & Sullivan Malaysia Excellence Awards 2015. our commitment to growing profitably in a responsible manner. RHB Bank also received the Best Loyalty Card Programme Award In the fourth quarter of 2015, the Group embarked on establishing under the Asia Technology and Strategy Awards category at the the RHB Foundation, marking an extension of our efforts in corporate Cards & Electronic Payments International (“CEPI”) Asia Summit & responsibility. We are confident that the Foundation will enable the Awards 2015, in recognition of our innovative RHB Lifestyle Group to spearhead even more meaningful contributions to our Privileges mobile application. We believe these awards are society and environment. significant milestones in our ambition towards becoming a next- generation digital bank. 17

Testament to our exemplary corporate governance practices, the MOVING FORWARD Minority Shareholder Watchdog Group (“MSWG”) – ASEAN Corporate Governance Transparency Index 2015 – The Malaysian Chapter The future holds great promise for the Group. We will continue to ranked the Group in the Top 6 among 870 Malaysian Public Listed forge ahead and remain responsive to opportunities and challenges Companies (“PLCs”) in terms of quality of disclosures and scope of as we seek to sustain and enhance shareholder value. corporate governance practices.

As a result, the Group was presented with the Top 10 Corporate APPRECIATION Governance Disclosure Merit Recognition Award by the MSWG. We On behalf of the Board of Directors, I would like to express our were also recognised among the Top 50 ASEAN PLCs based on our deepest gratitude to our customers, business partners, as well as governance and transparency practices. Both accolades are based regulatory and government bodies for their continued support. on a methodology guided by the Organisation for Economic Co- operation and Development’s Principles of Corporate Governance. We also extend our appreciation to the Senior Management team and the Group’s employees, who are instrumental in translating the Notably, the RHB Asset Management (“RHB-AM”) team was honoured Group’s strategies into meaningful outcomes. with a total of 15 recognitions from The Edge-Thomson Reuters Lipper Fund Awards 2016 held on 7 March 2016. Additionally, RHB- I would like to welcome Dato’ Khairussaleh Ramli as our new Group AM’s RHB Pre-IPO and Special Situation Fund III was awarded the Managing Director. We are confident that the RHB Banking Group Most Innovative Product for Malaysia and Singapore at Asia Asset will reap continued success under his leadership. Management’s 2015 Best of the Best Awards Annual Awards, while PT RHB Asset Management Indonesia was recognised as the year’s I offer my personal gratitude to my colleagues on the Board of Rising Star. Directors for their stewardship and commitment to the Group. Our appreciation is also extended to the Group’s valued shareholders Recognising our strong relationship with the SME community, the for their unwavering support in our journey of becoming a Leading SME Association of Malaysia has once again awarded us with the Multinational Financial Services Group. “Sahabat Negara Award”.

Finally, in the spirit of good corporate governance, I shall be Additionally, the Group earned accolades for Most Outstanding retiring from the RHB Banking Group at the conclusion of this year’s Islamic Corporate Banking and Most Outstanding Islamic Corporate Annual General Meeting. I would like to thank everyone, for the Banking Product: i-Financial Supply Chain during the 12th Kuala support given to me during my time at RHB. I wish all of you every Lumpur Islamic Finance Forum held in December 2015. success for the future. These awards acknowledge the dedication of our employees in providing innovative and valuable solutions to our customers, and also inspire us to continuously strive for excellence in all our activities.

DATO’ MOHAMED KHADAR MERICAN Non-Independent Non-Executive Chairman 18 RHB Capital Berhad Annual Report 2015 GROUP MANAGING DIRECTOR’S STATEMENT

DATO’ KHAIRUSSALEH RAMLI

“THE GROUP REPORTED A NET PROFIT OF RM1.5 BILLION IN 2015. WE SAW GROWTH IN MANY OF OUR BUSINESSES BUT MODERATION IN SOME, COUPLED BY OPPORTUNITIES TO RESET OUR COST BASE.”

OVERVIEW: BUSINESS & OPERATIONS

2015 was a challenging year caused primarily by volatility in direct equity participation in the Bank, create higher stock the external markets. Despite these challenges, the Group liquidity and has the potential to enhance shareholder value managed to record a net profit of RM1.5 billion. The Group’s through the re-rating of RHB Bank’s stock with a higher financial performance was broadly driven by growth across number of shares in issue. many of our businesses and moderation in some. Nevertheless, we are cognisant of the need to continuously strengthen the The exercise and the listing of RHB Bank on Bursa Malaysia is fundamentals of our company as we march forward. This was projected for completion by the end of June 2016. further reinforced by our Group Corporate Restructuring exercise and a reframing of our IGNITE 2017 strategy. On the business front, we have reframed our strategy, with a clear focus on performance measured by Return on Equity The Group Corporate Restructuring, which involves a Rights (“ROE”), and with that, refined our key initiatives under our Issue, an internal reorganisation, distribution and capital IGNITE 2017 Transformation Programme which focuses on three repayment by the Group to its shareholders and the transfer strategic themes, namely Funding Our Journey, Winning by of the Group’s listing status to RHB Bank, has resulted in the Differentiating Ourselves in the Medium-Term and Getting the strengthening of RHB Bank’s capital position. It will also People and Organisation Right. enhance RHB Bank’s operational efficiencies, and allow for 19

GROUP MANAGING DIRECTOR While our strategy has remained consistent throughout the three phases of our transformation journey, which began in 2007, we recognise the need PRE-TAX PROFIT OF to remain cognisant of and be responsive to developments materialising along the way.

Our ability to weather challenges and remain receptive to emerging BILLION opportunities is the key hallmarks of our success. This will enable us to RM2.1 continue achieving long-term profitability and delivering shareholder value. 20 RHB Capital Berhad Annual Report 2015 group managing director’s Statement (continued)

REFINING OUR STRATEGY

Under our IGNITE 2017 Transformation Programme, we aim for the RHB Banking Group to become a Leading Multinational Financial Services Group by 2020. This goal is quantified by five aspirations focusing on our performance in Malaysia and ASEAN, our profitability targets, our market positioning and our talent planning.

In the year under review, we refined our IGNITE 2017 strategy to prioritise performance over size, especially when capital is precious. This resulted in further refinement to two of our original aspirations, as depicted below.

e hae reraed our trate to ou on perorane intead o ie

B 2020 To be a Leading Multinational Financial Services Group

riinal Apiration Reied Apiration

Focus on op in alaiaop in AA RRAC 1 op in alaiaop in AA by size and performance instead of size by performance

tron aret leaderhip in alaia 2 tron aret leaderhip in alaia across targeted products and segments across targeted products and segments

Reional poerhoue in AA Focus on Reional poerhoue in AA 40% revenue contribution from international R 20% profit contribution from operations instead of revenue international operations

et eneration utoer entri an et eneration utoer entri an delivering innovative and personalised customer delivering innovative and personalised offerings customer offerings

roinent eploer o hoie 5 roinent eploer o hoie within the region within the region 21

We also realised that there was a gap between our manpower SUSTAINING OUR PROFITABILITY requirements and the manpower level that we had, especially in our Malaysian operations. As such, we decided to offer a As a result of our strategic and operational enhancements Career Transition Scheme (“CTS”) to our permanent staff in instituted during the year, the Group continued to deliver Malaysia. profits in 2015. This was despite slower activity in some of our businesses due to the challenging operating landscape. The Group accepted the applications of 1,812 employees, For the financial year ended 31 December 2015, the Group representing 13.1% of our permanent staff in Malaysia and recorded net profit of RM1.5 billion. 11.8% of our Malaysian workforce of 15,348, though the applications received were much higher. Among the highlights of our operations during the year, was the strong loans growth of 10.7% (excluding commercial The employees approved for the CTS were released in batches property loans and ASB financing) from our Group Retail from November 2015 to January 2016. Banking division, surpassing industry growth of 8.5%. We also recorded a total Deposit market share of 7.4%, while our While the Group incurred CTS payout costs of RM309 million, Current Accounts and Savings Account (“CASA”) growth of we expect to attain personnel cost rationalisation of 5.9% outpaced the industry’s growth of 0.3%. RM193 million annually and most importantly, enhance our relevance, competitiveness and resilience amid the challenging Our Group Business and Transaction Banking segment also economic conditions. continued to flourish, recording an 11.3% growth in Total Loans Outstanding. This was achieved through rapid growth in We would like to thank the employees who have left the Group our SME segment and by promoting accessibility of our SME for their valuable contributions throughout their tenure with services through our branch network and recalibrating the us. accountability of this business across the country. Overall, our SME market share improved to 8.7% in 2015 from 7.2%.

STRONG LOANS GROWTH % 10.7 SURPASSING 8.5% INDUSTRY GROWTH 22 RHB Capital Berhad Annual Report 2015 group managing director’s Statement (continued)

FURTHER HIGHLIGHTS OF OUR OPERATIONS % 17GROWTH IN FX SALES

Despite lower activity in the Corporate and Investment Banking RHB Insurance, recorded a 13% increase in gross premiums, space, RHB Investment Bank continued to be a pacesetter in outpacing the industry’s estimated growth rate of 3% and the market. During the year, it led the Malaysia Mergers and contributing towards the Group’s profit. Acquisitions league table by deal count and emerged in the Top 3 and Top 4 on the Equity Capital Markets and Debt Finally, our Group Shariah Business continued on its upward Capital Markets league tables, respectively. Our Asset trajectory with a 14.9% growth in Profit Before Tax to RM348.7 Management pillar also improved its overall ROE to 18% from million in 2015, with total outstanding assets rising 22% to 11% in 2014. The unit launched a total of 23 funds across the RM44.11 billion. Our Shariah business now contributes 23% of region during the year, of which two received the Most total domestic financing compared to 19.5% in 2014 and Innovative Product Award for Malaysia and Singapore in Asia 16.5% in 2013. Asset Management’s 2015 Best of the Best Awards Annual Awards. We also earned a total of 15 recognitions from The For further details on our operations in 2015, I invite you to Edge-Thomson Reuters Lipper Fund Awards 2016 held in read the overview of our key operating business presented on March 2016. pages 92 to 121 of this Report.

A further highlight of our operations during the year was the 17% growth in FX sales profits and 113% increase in FX trading profits from our Group Treasury and Global Markets.

We also saw higher profits from derivatives sales, greater volume in customer investment-linked and structured deposits as well as customer structured/long-term forwards, and stronger Fixed Income MYR primary market share and secondary sales revenue. RHB INSURANCE % 13 INCREASE IN GROSS PREMIUMS 23

THE JOURNEY AHEAD “OUR GROUP SHARIAH In the near-term, the Group will remain focused on the implementation of the initiatives identified under our reframed BUSINESS CONTINUED ON IGNITE 2017 strategy as we progress on our journey to becoming a Leading Multinational Financial Services Group. ITS UPWARD TRAJECTORY We will continue to invest for the future, especially in technology and digital capabilities. Additionally, training and WITH A 14.9% GROWTH IN talent management will continue to be a key agenda for us. PROFIT BEFORE TAX TO My first year in the capacity as Group Managing Director has been spent managing the volatile and highly competitive RM348.7 MILLION IN 2015, environment apart from reframing the direction for the Group. I would like to take this opportunity to thank the Board of WITH TOTAL OUTSTANDING Directors, my fellow colleagues at the Group and shareholders for their continued support. I look forward to working with the ASSETS RISING 22% TO Board and my fellow colleagues to achieve our ambitions and contribute to the delivery of shareholder value. RM44.11 BILLION.”

DATO’ KHAIRUSSALEH RAMLI Group Managing Director

TOGETHER WE PROGRESS PROVIDING SOLUTIONS THAT HELP ACHIEVE YOUR GOALS 26 RHB Capital Berhad Annual Report 2015 CORPORATE PROFILE 27

RHB Capital Berhad is the ultimate holding company for the RHB Banking Group of companies.

• Fourth largest fully integrated financial services group in Malaysia

• Our business pillars are: – Group Retail Banking – Group Business & Transaction Banking

LAOS – Group Corporate and Investment Banking – Group Shariah Business HONG KONG/CHINA – Group Treasury and Global Markets MYANMAR VIETNAM – Group Insurance

THAILAND – Group International Business CAMBODIA BRUNEI • The Group’s main subsidiaries are: MALAYSIA SINGAPORE – RHB Bank Berhad – RHB Investment Bank Berhad – RHB Islamic Bank Berhad INDONESIA – RHB Insurance Berhad – RHB Asset Management Sdn Bhd

• The Group’s regional presence now spans 10 countries including Malaysia, Singapore, Indonesia, Thailand, Brunei, Cambodia, Hong Kong (with a representative office in China), Vietnam, Myanmar and Lao PDR. 28 RHB Capital Berhad Annual Report 2015 CORPORATE INFORMATION As at 25 February 2016

BOARD OF DIRECTORS BOARD RISK COMMITTEE# BOARD CREDIT COMMITTEE* Dato’ Mohamed Khadar Merican Tuan Haji Khairuddin Ahmad Dato’ Mohamed Khadar Merican Non-Independent Non-Executive Chairman Independent Non-Executive Director/ Non-Independent Non-Executive Director/ Chairman Chairman Tan Sri Azlan Zainol Non-Independent Non-Executive Director Patrick Chin Yoke Chung Tuan Haji Khairuddin Ahmad Independent Non-Executive Director Independent Non-Executive Director Datuk Haji Faisal Siraj Senior Independent Non-Executive Tuan Haji Md Ja’far Abdul Carrim Abdul Aziz Peru Mohamed Director Non-Independent Non-Executive Director Independent Non-Executive Director

Datuk Seri Saw Choo Boon Datuk Seri Saw Choo Boon Patrick Chin Yoke Chung Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director

Tan Sri Dato’ Teo Chiang Liang Chin Yoong Kheong Tuan Haji Md Ja’far Abdul Carrim Independent Non-Executive Director Independent Non-Executive Director Non-Independent Non-Executive Director

Mohamed Ali Ismaeil Ali AlFahim Dato’ Sri Haji Syed Zainal Abidin Dato’ Sri Haji Syed Zainal Abidin Non-Independent Non-Executive Director Syed Mohamed Tahir Syed Mohamed Tahir Independent Non-Executive Director Independent Non-Executive Director Dato’ Khairussaleh Ramli Group Managing Director/ BOARD NOMINATING & BOARD AUDIT COMMITTEE* Group Chief Executive Officer REMUNERATION COMMITTEE# Ong Seng Pheow Independent Non-Executive Director/ GROUP BOARD AUDIT COMMITTEE Datuk Haji Faisal Siraj Senior Independent Non-Executive Chairman Datuk Seri Saw Choo Boon Director/Chairman Independent Non-Executive Director/ Dato’ Othman Jusoh Chairman Tan Sri Azlan Zainol Independent Non-Executive Director Non-Independent Non-Executive Director Datuk Haji Faisal Siraj Datuk Seri Saw Choo Boon Senior Independent Non-Executive Datuk Seri Saw Choo Boon Independent Non-Executive Director Director Independent Non-Executive Director Datuk Haji Faisal Siraj Tan Sri Dato’ Teo Chiang Liang Tan Sri Dato’ Teo Chiang Liang Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director

Tuan Haji Md Ja’far Abdul Carrim Non-Independent Non-Executive Director 29

BOARD TECHNOLOGY COMMITTEE* GROUP SENIOR MANAGEMENT GROUP INTERNAL AUDIT Chin Yoong Kheong Dato’ Khairussaleh Ramli Wong Yih Yin Independent Non-Executive Director/ Group Managing Director/ Group Chief Internal Auditor Chairman Group Chief Executive Officer, RHB Banking Group; COMPANY SECRETARIES Ong Seng Pheow Managing Director, RHB Bank Berhad Independent Non-Executive Director Azman Shah Md Yaman Mike Chan Cheong Yuen (LS0006901) Charles Lew Foon Keong Managing Director, RHB Investment Bank Independent Non-Executive Director Berhad Ivy Chin So Ching (MAICSA No. 7028292) Ibrahim Hassan ISLAMIC RISK MANAGEMENT Managing Director, RHB Islamic Bank COMMITTEE^ Berhad REGISTERED OFFICE Dato’ Mohd Ali Mohd Tahir Level 9, Tower One Independent Non-Executive Director/ U Chen Hock RHB Centre Chairman Head, Group Retail Banking Jalan Tun Razak 50400 Kuala Lumpur Tuan Haji Md Ja’far Abdul Carrim Kong Shu Yin Non-Independent Non-Executive Director Managing Director, RHB Insurance Berhad Tel : 603 9285 2233 Fax : 603 9281 9314 Datuk Haji Faisal Siraj Yap Choi Foong Website : www.rhbgroup.com Independent Non-Executive Director Group Chief Financial Officer COMPANY NO. Datin Amy Ooi Swee Lian SHARIAH COMMITTEE^ Head, Group Business & Transaction 312952-H Dr. Ghazali Jaapar Banking Chairman AUDITORS Mohd Rashid Mohamad Professor Dr. Joni Tamkin Borhan Group Treasurer PricewaterhouseCoopers Chartered Accountants Assoc. Prof. Dr. Amir Shaharuddin Rohan Krishnalingam Level 10, 1 Sentral Wan Abdul Rahim Kamil Wan Group Chief Operations Officer Jalan Rakyat, Kuala Lumpur Sentral Mohamed Ali 50470 Kuala Lumpur Christopher Loh Meng Heng P.O. Box 10192 Mohd Fadhly Md. Yusoff Group Chief Strategy Officer 50706 Kuala Lumpur Shabnam Mohamad Mokhtar Tel : 603 2173 1188 Patrick Ho Kwong Hoong Fax : 603 2173 1288 Group Chief Risk Officer

Norazzah Sulaiman SHARE REGISTRAR Group Chief Marketing & Communications Symphony Share Registrars Sdn Bhd Officer Level 6, Symphony House Jamaluddin Bakri Pusat Dagangan Dana 1 Jalan PJU 1A/46 Group Chief Human Resource Officer 47301 Petaling Jaya, Selangor Tel : 603 7849 0777 Fax : 603 7841 8151/8152

Notes: # The Committee is shared with the relevant subsidiaries of the Group. * The Committee resides at RHB Bank Berhad. ^ The Committee resides at RHB Islamic Bank Berhad. 30 RHB Capital Berhad Annual Report 2015 PROFILES OF THE BOARD OF DIRECTORS

DATO’ MOHAMED KHADAR MERICAN TAN SRI AZLAN ZAINOL

Aged 59, Malaysian Aged 65, Malaysian Non-Independent Non-Executive Chairman Non-Independent Non-Executive Director

Appointment to the Board Appointment to the Board Appointed as an Independent Non-Executive Director on 1 January Appointed as a Non-Independent Non-Executive Director on 27 July 2008 and was subsequently appointed as the Chairman of RHB 2005. Capital Berhad on 12 May 2009. He was re-designated as Non- Independent Non-Executive Chairman on 30 April 2015. Board Committee Memberships Board Nominating & Remuneration Committee (Member) Board Committee Memberships Board Credit Committee (Chairman) Qualification • Fellow of the Institute of Chartered Accountants in England and Qualification Wales • Member of the Institute of Chartered Accountants in England and • Member of the Malaysian Institute of Accountants Wales • Member of the Malaysian Institute of Certified Public Accountants • Member of the Malaysian Institute of Accountants • Fellow, Chartered Banker of Asian Institute of Chartered Bankers

Skills and Experience Skills and Experience Dato’ Mohamed Khadar Merican (“Dato’ Mohamed Khadar”) has more Tan Sri Azlan Zainol was previously the Chief Executive Officer of than 40 years of experience in financial and general management. He the Employees Provident Fund Board until his retirement in April served as an auditor and a consultant in an international accounting 2013. He has more than 29 years of experience in the financial firm, before joining a financial services group in 1986. Dato’ Mohamed sector, having served as the Managing Director of AmBank Berhad Khadar has held various senior management positions in Pernas and prior to that, as the Managing Director of AmFinance Berhad. International Holdings Berhad (now known as Tradewinds Corporation He is also Council member of The Asian Institute of Chartered Berhad) between 1988 and April 2003, including those of President Bankers. and Chief Operating Officer. In 2013, Dato’ Mohamed Khadar, in his capacity as the Chairman of RHB Capital Berhad, was named as the Directorships in Other Public Companies ‘Chairman of The Year’ by the Minority Shareholders Watchdog Group • RHB Bank Berhad (Chairman) at its Malaysian-Asean Corporate Governance Index Awards 2013. • RHB Hong Kong Limited • Malaysian Resources Corporation Berhad (Chairman) Directorships in Other Public Companies • Kuala Lumpur Kepong Berhad • RHB Bank Berhad • Eco World International Berhad (Chairman) • RHB Investment Bank Berhad • Jardine Cycle & Carriage Limited (Singapore) • RHB Securities (Thailand) Public Company Limited (Chairman) • Yayasan Astro Kasih (Chairman/Trustee) • AirAsia Berhad • OSK Foundation (Trustee) • Astro Malaysia Holdings Berhad • Rashid Hussain Berhad (In Members’ Voluntary Liquidation) • Sona Petroleum Berhad • Rashid Hussain Berhad (In Members’ Voluntary Liquidation) No. of Board Meetings Attended in the Financial Year: 14/14

No. of Board Meetings Attended in the Financial Year: 14/14 Conflict of Interest with RHB Capital Berhad: Nil

Conflict of Interest with RHB Capital Berhad: Nil Family Relationship with any Director and/or Major Shareholder: Nil

Family Relationship with any Director and/or Major Shareholder: Nil List of Conviction for Offences within the Past 10 Years: Nil

List of Conviction for Offences within the Past 10 Years: Nil 31

DATUK HAJI FAISAL SIRAJ TAN SRI DATO’ TEO CHIANG LIANG

Aged 70, Malaysian Aged 65, Malaysian Senior Independent Non-Executive Director Independent Non-Executive Director

Appointment to the Board Appointment to the Board Appointed as an Independent Non-Executive Director on 24 May Appointed as an Independent Non-Executive Director on 20 May 2007. 2010.

Board Committee Memberships Board Committee Memberships • Board Nominating & Remuneration Committee (Chairman) • Board Nominating & Remuneration Committee (Member) • Group Board Audit Committee (Member) • Group Board Audit Committee (Member) • Board Audit Committee (Member) • Islamic Risk Management Committee (Member) Qualification • Bachelor of Arts (Honours) degree in Business Studies awarded Qualification by the Council for National Academic Awards, United Kingdom • Fellow of the Institute of Chartered Accountants in England & Wales • Bachelor of Science in Management Studies from University of • Member of the Malaysian Institute of Accountants Bradford, United Kingdom • Member of the Malaysian Institute of Certified Public Accountants Skills and Experience Skills and Experience Tan Sri Dato’ Teo Chiang Liang (“Tan Sri Dato’ Teo”) joined and Datuk Haji Faisal Siraj (“Datuk Haji Faisal”) started his career in served the See Hoy Chan Holdings Group, a well-diversified group 1968 with KPMG, London. On his transfer from KPMG, London to of companies, in different levels of management since 1975. He was KPMG, Kuala Lumpur, he was posted to KPMG Kota Kinabalu until the Secretary General of the Malaysian Association of Private 1976. Datuk Haji Faisal joined the Malaysia Mining Corporation Colleges & Universities from 1997 to March 2003 and is currently (“MMC”) Group in 1976. He was the Group Executive Director and its Council Member. Tan Sri Dato’ Teo was appointed as a member a Member of the MMC Board from 1981 to 1994. In 1995, he joined of the MSC Education Advisory Panel from 1998 to 2000 and a Life DRB-HICOM Berhad (“DRB-HICOM”) as the Group Chief Financial Member of the Malaysian Red Crescent Society since 1983. He was Officer in the capacity of Senior Group Director, Financial Services elected as an Executive Council Member of Malaysia Crime and Treasury Division and was a member of DRB-HICOM Board, Prevention Foundation from 2006 to 2012. before his retirement in 2005. Directorships in Other Public Companies Directorships in Other Public Companies • Ajinomoto (Malaysia) Berhad • RHB Islamic Bank Berhad • RHB Insurance Berhad No. of Board Meetings Attended in the Financial Year: 12/14 • RHB Trustees Berhad • Malaysian Trustees Berhad Conflict of Interest with RHB Capital Berhad: Nil

No. of Board Meetings Attended in the Financial Year: 14/14 Family Relationship with any Director and/or Major Shareholder: Nil

Conflict of Interest with RHB Capital Berhad: Nil List of Conviction for Offences within the Past 10 Years: Nil

Family Relationship with any Director and/or Major Shareholder: Nil

List of Conviction for Offences within the Past 10 Years: Nil 32 RHB Capital Berhad Annual Report 2015 PROFILEs of the BOARD OF DIRECTORS (continued)

DATUK SERI SAW CHOO BOON

Aged 69, Malaysian Independent Non-Executive Director

Appointment to the Board Directorships in Other Public Companies Appointed as an Independent Non-Executive Director on 20 May • RHB Investment Bank Berhad 2010. • Digi.Com Berhad • Phoenix Petroleum (M) Berhad Board Committee Memberships • Ranhill Holdings Berhad • Group Board Audit Committee (Chairman) • Guinness Anchor Berhad (Chairman) • Board Nominating & Remuneration Committee (Member) • Board Audit Committee (Member) In addition, he serves on the following associations: • Board Risk Committee (Member) • Government’s Public-Private Sector Special Task Force on Facilitating Business (PEMUDAH) (Co-Chair) Qualification • Federation of Malaysian Manufacturers Council (President) Bachelor of Science (Chemistry) from the University of Malaya • Socio-Economic Research Centre Board of the Associated Chinese Chambers of Commerce and Industry Malaysia Skills and Experience Datuk Seri Saw Choo Boon (“Datuk Seri Saw”) joined Shell in 1970 No. of Board Meetings Attended in the Financial Year: 14/14 as a Refinery Technologist in Shell Refining Company (Federation of Malaya) Berhad. He then served in various capacities in Conflict of Interest with RHB Capital Berhad: Nil manufacturing, supply, trading and planning in Malaysia, Singapore and Netherlands. In 1996, Datuk Seri Saw was appointed Managing Family Relationship with any Director and/or Major Shareholder: Nil Director of Shell MDS (Malaysia) Sendirian Berhad. In 1998 – 1999, he assumed the positions of Managing Director for Oil Products List of Conviction for Offences within the Past 10 Years: Nil (Downstream) Shell Malaysia and Managing Director of Shell Refining Company (Federation of Malaya) Berhad. In 1999, with the globalisation of the Shell Oil Products business, he was appointed the Vice-President of the commercial business in the Asia-Pacific region and in 2004 he became the President of Shell Oil Product East. In 2005, he assumed the role of Vice-President Global Marine Products.

Datuk Seri Saw was appointed the Chairman of Shell Malaysia on 1 March 2006. He was also the Vice President Business Development Asia Pacific responsible for developing the commercial businesses in new market entries in Asia – China, India, Indonesia and Vietnam. From 1 January 2010, Datuk Seri Saw was appointed the Senior Advisor of Shell Malaysia until his retirement on 30 June 2010. 33

MOHAMED ALI ISMAEIL ALI ALFAHIM DATO’ KHAIRUSSALEH RAMLI

Aged 39, United Arab Emirates Aged 48, Malaysian Non-Independent Non-Executive Director Group Managing Director/Group Chief Executive Officer

Appointment to the Board Appointment to the Board Appointed as a Non-Independent Non-Executive Director of RHB Appointed as Group Managing Director/Group Chief Executive Capital on 9 May 2014. Officer of RHB Banking Group and Managing Director (“MD”)/Chief Executive Officer (“CEO”) of RHB Capital Berhad on 5 May 2015. Board Committee Memberships Nil He joined the Group as Deputy Group MD and MD/CEO of RHB Bank Berhad in December 2013. He continues to hold the position of MD/ Qualification CEO of RHB Bank Berhad. Bachelor of Science in Business Administration from the University of Suffolk, Boston Board Committee Memberships Nil Skills and Experience Mr Mohamed Ali Ismaeil Ali AlFahim (“Mr AlFahim”) commenced Qualification his professional career at Abu Dhabi National Oil Company from • Bachelor of Science in Business Administration from Washington 2000 to 2008. His role as Head of Group Financing Department University focused on the identification and pursuit of investment strategies • Graduate of the Advanced Management Programme, Harvard reflecting a balanced investment portfolio. During that time, Mr Business School AlFahim also worked as a corporate finance consultant for KPMG- • Chartered Banker, Asian Institute of Chartered Bankers Dubai from 2001 to 2002 and for HSBC Bank at Project and Export Finance Division-London in 2006. Skills and Experience Dato’ Khairussaleh Ramli has more than 20 years of experience in Since September 2008, Mr AlFahim has been Head of Finance at the financial services and capital markets industry, where he has the Finance & Accounts Department of International Petroleum held senior positions in well-established regional financial Investment Company PJSC (“IPIC”). He represents IPIC as a board institutions. He is also a council member of The Association of member on various boards of investee companies. Banks in Malaysia and Asian Institute of Chartered Bankers.

Directorships in Other Public Companies His knowledge and experience earned him the “Best CFO in Malaysia • RHB Bank Berhad Award” in 2010 and 2011 from Finance Asia and the “Best CFO in • RHB Investment Bank Berhad Malaysia Award” in 2012 from Alpha Southeast Asia. • EDP Energia de Portugal • Aabar Investments PJS Directorships in Other Public Companies • Arabtec Holdings PJSC • RHB Bank Berhad • Al Izz Islamic Bank • Depa Interiors No. of Board Meetings Attended in the Financial Year: 9/9

No. of Board Meetings Attended in the Financial Year: 12/14 Conflict of Interest with RHB Capital Berhad: Nil

Conflict of Interest with RHB Capital Berhad: Nil Family Relationship with any Director and/or Major Shareholder: Nil

Family Relationship with any Director and/or Major Shareholder: Nil List of Conviction for Offences within the Past 10 Years: Nil

List of Conviction for Offences within the Past 10 Years: Nil 34 RHB Capital Berhad Annual Report 2015 PROFILES OF THE CHAIRMEN OF THE KEY OPERATING COMPANIES

DATO’ MOHAMED KHADAR MERICAN

Aged 59, Malaysian, Non-Independent Non-Executive Chairman, RHB Capital Berhad Board Committee memberships Skills and experience Board Credit Committee (Chairman) Dato’ Mohamed Khadar Merican (“Dato’ Mohamed Khadar”) has more than 40 years of experience in financial and general management. He served as an Qualifications auditor and a consultant in an international accounting firm, before joining a • Member of the Institute of Chartered financial services group in 1986. Dato’ Mohamed Khadar has held various Accountants in England and Wales senior management positions in Pernas International Holdings Berhad (now • Member of the Malaysian Institute of known as Tradewinds Corporation Berhad) between 1988 and April 2003, Accountants including those of President and Chief Operating Officer. In 2013, Dato’ Mohamed Khadar, in his capacity as the Chairman of RHB Capital Berhad, was named as the ‘Chairman of The Year’ by the Minority Shareholders Watchdog Group at its Malaysian-Asean Corporate Governance Index Awards 2013.

TAN SRI AZLAN ZAINOL

Aged 65, Malaysian, Non-Independent Non-Executive Chairman, RHB Bank Berhad Board Committee memberships Skills and experience Board Nominating & Remuneration Committee Tan Sri Azlan Zainol was previously the Chief Executive Officer of the (Member) Employees Provident Fund Board until his retirement in April 2013. He has more than 29 years of experience in the financial sector, having served as the Qualifications Managing Director of AmBank Berhad and prior to that, as the Managing • Fellow of the Institute of Chartered Director of AmFinance Berhad. He is also a council member of The Asian Accountants in England and Wales Institute of Chartered Bankers. • Member of the Malaysian Institute of Accountants • Member of the Malaysian Institute of Certified Public Accountants • Fellow, Chartered Banker of Asian Institute of Chartered Bankers

TAN SRI ONG LEONG HUAT @ WONG JOO HWA

Aged 71 , Malaysian, Non-Independent Non-Executive Chairman, RHB Investment Bank Berhad

Board Committee memberships Skills and experience Nil For over 17 years since 1969, Tan Sri Ong Leong Huat (“Tan Sri Ong”) was attached to a leading financial institution where he last held the position of Qualifications Senior General Manager. He was the Managing Director/Chief Executive Officer • Senior Cambridge, Federation of Malaysia (“CEO”) of OSK Investment Bank Berhad (now known as OSKIB Sdn Bhd) from Certificate awarded by Methodist English July 1985 to January 2007 and thereafter was appointed as the Group Managing School Director/CEO. He was then re-designated as a Non-Independent Non-Executive • Capital Markets and Services Representative’s Director and subsequently resigned on 30 April 2013. licence issued by the Securities Commission of Malaysia under the Capital Markets and Tan Sri Ong was also a Director of MESDAQ from July 1999 to March 2002 and Services Act, 2007 for dealing in securities a member of the Capital Market Advisory Council appointed by the Securities Commission in 2004 to advise on issues relating to the implementation of the Capital Market Master Plan. He was a director on the Board of Bursa Malaysia Berhad from 2008 to 2015 and was previously a member of the Securities Market Consultative Panel of Bursa Malaysia. 35

TUAN HAJI MD JA’FAR ABDUL CARRIM

Aged 61, Malaysian, Non-Independent Non-Executive Chairman, RHB Islamic Bank Berhad Board Committee memberships Skills and experience • Board Nominating & Remuneration Committee (Member) A civil engineer by training, Tuan Haji Md Ja’far Abdul Carrim’s • Board Risk Committee (Member) career of some 32 years include a stint in the public sector as • Board Credit Committee (Member) well as a broad range of activities in the corporate sector as • Islamic Risk Management Committee (Member) Chief Executive Officer and at the Board of Directors level. His extensive experience covers inter alia, the areas of manufacturing, Qualifications property development and construction. • Member of the Institution of Engineers, Malaysia • Bachelor of Science in Civil Engineering from Loughborough Tuan Haji Md Ja’far Abdul Carrim is a Council Member for the University, United Kingdom Chair on Financial Planning for Old Age at University Malaya. • Ordinary National Diploma in Civil Engineering from Brighton He also sits on the Board of Employees Provident Fund, Technical College, Brighton, United Kingdom Malaysia.

ONG SENG PHEOW

Aged 67, Malaysian, Independent Non-Executive Chairman, RHB Insurance Berhad Board Committee memberships Skills and experience • Board Audit Committee (Chairman) Mr Ong Seng Pheow has over 34 years of audit and accounting • Board Technology Committee (Member) experience. He was a partner of Ernst & Young from 1984 to • Investment Committee of RHB Insurance Berhad (Member) 2003. His last held position in Ernst & Young was as the National Director of Assurance and Advisory Business Services. Qualifications He also served on committees and working groups of Malaysian • Member of the Malaysian Institute of Accountants Institute of Certified Public Accountants. • Member of the Malaysian Institute of Certified Public Accountants

PATRICK CHIN YOKE CHUNG

Aged 70, Malaysian, Independent Non-Executive Chairman, RHB Asset Management Sdn Bhd

Board Committee memberships Skills and experience • Board Credit Committee (Member) Mr Patrick Chin Yoke Chung rose from the Head of Corporate • Board Risk Committee (Member) Finance to become the Deputy Chief Executive Officer of Asian International Merchant Bankers Berhad from 1973 to 1993. He Qualifications was appointed as the Executive Director of Morgan Grenfell • Fellow of The Institute of Chartered Accountants in England Asia-Kenanga Sdn Bhd and also the Chief Representative of and Wales. Morgan Grenfell responsible for co-coordinating Morgan • Attended the Management Development Program at Harvard Grenfell’s activities and business interests in Malaysia from Business School. 1994 to 1995. Subsequently, he joined Bankers Trust Company, Kuala Lumpur as Chief Representative/Country Head from 1995 to 1999, managing and overseeing its Malaysian operations including the offshore bank in Labuan. He also served as the Chairman of Schroders Malaysia Sdn Bhd in 2000. 36 RHB Capital Berhad Annual Report 2015 GROUP SHARIAH COMMITTEE PROFILES

Aged 45, Malaysian Present Membership of Shariah Committee in Other Chairman, Shariah Committee of RHB Islamic Bank Berhad Institutions • HSBC Amanah Takaful Date Appointed: 01 April 2011 Skills, Experience and Expertise: Dr. Ghazali bin Jaapar is currently serving as Assistant Date of Last Re-appointment: Professor of Ahmad Ibrahim Kulliyyah of Laws (“AIKOL”), 01 April 2015 International Islamic University Malaysia (“IIUM”). Prior to that, he was the Director of Harun M. Hashim Law Centre, Number of Shariah Committee Meetings Attended in the IIUM. His areas of expertise are Islamic Legal System, Financial Year Principles of Islamic Jurisprudence (Usul al-Fiqh), Islamic 11/11 Legal Maxims, Siyasah Shar’iyyah (Shariah-oriented policy). He had written numerous journals and articles and presented DR. GHAZALI Qualifications: papers in various forums and seminars. JAAPAR • B.A. Shariah (Hons.), University of Malaya, Kuala Lumpur • Master of Comparative Law, International Islamic University Malaysia, Kuala Lumpur • Ph.D. Law, University of Birmingham, United Kingdom

Aged 49, Malaysian Present Membership of Shariah Committee in Other Member, Shariah Committee of RHB Islamic Bank Berhad Institutions • MAA Takaful Berhad Date Appointed: 01 April 2005 Skills, Experience and Expertise: Prof. Dr. Joni Tamkin bin Borhan is currently a professor at Date of Last Re-appointment: Shariah and Economics Department, Academy of Islamic 01 April 2015 Studies, University of Malaya, Kuala Lumpur. His areas of specialisation are Islamic banking, Islamic transactions and Number of Shariah Committee Meetings Attended in the Islamic economics. He has been teaching at the University of Financial Year Malaya since 1997 both at postgraduate and undergraduate 10/11 levels and successfully supervised more than 80 postgraduate thesis and dissertations. He has written and presented more PROFESSOR DR. Qualifications: than 200 articles and papers in journals and conference JONI TAMKIN • B.Sh (Shariah) (Hons.), University of Malaya, Kuala both locally and internationally. He has served as Senate BORHAN Lumpur Member, Deputy Director of Undergraduate and Postgraduate • Master of Islamic Economics (Shariah), University of Degrees and Head of Shariah and Economics Department at Malaya, Kuala Lumpur the Academy of Islamic Studies, University of Malaya. He • Ph.D. in Islamic Banking, University of Edinburgh, was also a member of National Shariah Advisory Council on Scotland Islamic Banking and Takaful (1999 – 2004), Visiting Professor of Edinburgh University (January – October 2010), Fellow at University of Leiden, Holland (June – September 2004) and Fellow at Religious Department at Victoria University of Wellington, New Zealand (March – May 2002). 37

Aged 38, Malaysian Present Membership of Shariah Committee in Other Member, Shariah Committee of RHB Islamic Bank Berhad Institutions • Malaysian Airport Consultancy Berhad Date Appointed: 01 April 2011 Skills, Experience and Expertise: Assoc. Prof. Dr. Amir bin Shaharuddin was the first recipient Date of Last Re-appointment: of Scholar of Residence in Islamic Finance Award, jointly 01 April 2015 initiated by Malaysia Securities Commission and Oxford Centre for Islamic Studies (“OCIS”). He is presently the Dean Number of Shariah Committee Meetings Attended in the of Economic and Muamalat Faculty, Islamic Science Financial Year University of Malaysia (“USIM”) since December 2013. He 11/11 has published numerous articles in refereed journals including Journal of Muamalat and Islamic Finance Research, Qualifications: Jurnal Syariah and ISRA International Journal of Islamic ASSOC. PROF. • B.A. Shariah (Hons), Al-Azhar University, Egypt Finance. He has written various journals and articles in DR. AMIR • Master of Business Administration in Islamic Banking & Islamic Banking & Finance, Zakat, Islamic Law Principles of SHAHARUDDIN Finance, International Islamic University Malaysia, Kuala Islamic Jurisprudence (Usul al-Fiqh), Islamic Legal Maxims Lumpur and Siyasah Shar’iyyah (Shariah-oriented policy) for forums • Ph.D. in Islamic Studies, University of Exeter, United and seminars. He has also presented academic papers in Kingdom various international seminars such as in Indonesia, Bahrain, United Kingdom and Italy.

Aged 67, Malaysian Skills, Experience and Expertise: Member, Shariah Committee of RHB Islamic Bank Berhad Wan Abdul Rahim Kamil possesses extensive experience in Islamic Banking and has been actively involved in various Date Appointed: areas of operations including Corporate Financing and 13 April 2013 Syndication, Debt Capital Market and Corporate Advisory. He started his career in Corporate Finance Department with Date of Last Re-appointment: Aseambankers (Malaysia) Berhad in 1977 before moving to 01 April 2015 Bank Islam Malaysia Berhad in 1983 under various capacities. He was the Chief Executive Officer of ABRAR Discounts Berhad Number of Shariah Committee Meetings Attended in the from 1994 to 2006. Since then he has been an Islamic Capital Financial Year Market consultant and trainer to various bodies. He is a 9/11 regular trainer and speaker for various seminars and in-house training workshops organised by Bank Negara Malaysia Qualifications: (“BNM”), Securities Industries Development Corporation WAN ABDUL RAHIM • Professional Member, Institute of Statisticians, United (“SIDC”), Islamic Banking and Finance Institute Malaysia KAMIL WAN Kingdom (“IBFIM”) and other event organisers, both locally and MOHAMED ALI • Post Graduate Degree in Islamic Banking & Economics, internationally. He pioneered the development of the Islamic International Institute of Islamic Banking & Economics Capital Market in Malaysia and has innovated the development (in association with Al Azhar University, Cairo) of several benchmark capital market securities through securitisation of Islamic contracts. He has been awarded as “Outstanding Leadership in Islamic Finance” by London Sukuk 2011 organised by ICG Events and UK Trade and Industry Ministry in London, United Kingdom. 38 RHB Capital Berhad Annual Report 2015 group Shariah committee profiles (continued)

Aged 45, Malaysian Skills, Experience and Expertise: Member, Shariah Committee of RHB Islamic Bank Berhad Mohd Fadhly bin Md. Yusoff was a manager at Islamic Capital Market Department of Securities Commission Date Appointed: Malaysia from 1995 to 2008 where he involved in Shariah 13 April 2013 compliance supervision in relation to submissions for the issuances of Sukuk, structured products, collective investment Date of Last Re-appointment: schemes and Islamic REITs. In addition, he has also 01 April 2015 undertaken in-depth research for the development of new Islamic Capital Market instruments as well as providing Number of Shariah Committee Meetings Attended in the technical inputs for the preparation of various guidelines Financial Year issued by Securities Commission Malaysia. He has actively 10/11 participated in various industry development initiatives namely the International Organization of Securities MOHD FADHLY Qualifications: Commission (“IOSCO”) Task Force on Islamic Capital Market, MD. YUSOFF • Bachelor of Syariah (1st Class Honours) from University Islamic Financial Services Board’s (“IFSB”) Governance of of Malaya Islamic Investment Funds Working Group, technical member for the publication of Resolutions of the Securities Present Membership of Shariah Committee in Other Commission Shariah Advisory Council and Islamic Capital Institutions Market educational and promotional programs. • Sun Life Malaysia Takaful Bhd • Universiti Tenaga Nasional • National Farmers Organization (NAFAS)

Aged 38, Malaysian Skills, Experience and Expertise: Member, Shariah Committee of RHB Islamic Bank Berhad Shabnam binti Mohamad Mokhtar is presently the Vice President of SHAPE® Knowledge Services; an Islamic finance Date Appointed: consulting firm based in Kuwait. She spearheads research 01 May 2015 (New Appointment) and development activities including financial analysis, strategic & business plan formulation, design and Date of Last Re-appointment: implementation of customised survey, research and training NIL for different clients at SHAPE®. Formerly, she was heading the capital markets research for the International Shariah Number of Shariah Committee Meetings Attended in the Research Academy (“ISRA”). She has conducted various Financial Year training programs on Islamic banking, sukuk & Islamic 06/07 capital market products, risk management and financial reporting for clients in ASEAN region, Gulf Cooperation SHABNAM Qualifications: Council (“GCC”) and European market. She has also MOHAMAD • Bachelor of Accountancy, University Putra Malaysia contributed chapters in Housing the Nation (Cagamas 2013), MOKHTAR • Master of Accounting, University of Illinois, Managing Fund Flows, Risks and Derivatives: Applications in Urbana-Champaign, U.S.A Islamic Institutions (Sweet & Maxwell 2012), Islamic Financial System: Principles & Operations Market (ISRA, 2011), Sukuk (Sweet & Maxwell 2009), and Partnership Accounting, Principles and Practice (McGraw Hill). She served as a member of the Shariah Board of Malaysian Ratings Corporation (“MARC”) from 2010 to 2014. 39 STRATEGIC BUSINESS ENTITIES

RHB BANK BERHAD

RHB Bank Berhad is a wholly-owned subsidiary of RHB Capital.

RHB Bank today has over 590 delivery channels including a network of branches and offices located regionally in Malaysia, Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar and Vietnam and its award winning EASY by RHB.

RHB INVESTMENT BANK BERHAD RHB Investment Bank Berhad (“RHBIB”) is a leading player in the Malaysian capital markets with presence in Singapore, Hong Kong/Shanghai, Indonesia, Thailand, Cambodia and Vietnam. A wholly-owned subsidiary of RHB Capital Berhad, RHBIB is also the largest investment bank in Malaysia by asset size. Supported by an award-winning team of research analysts, RHBIB offers a complete suite of capital market solutions, securities broking, asset management and trustee services to a wide range of corporate, institutional, retail and high net worth clients. RHBIB continues to win industry awards and accolades which recognise its leading roles in successfully completing numerous landmark capital market transactions locally and regionally.

RHB ISLAMIC BANK BERHAD

Established in 2005, RHB Islamic Bank Berhad is the first full-fledged Malaysian Islamic bank that has matured from an Islamic banking window operations. As a wholly-owned subsidiary of RHB Bank Berhad, it is the key driver of Shariah business for the entire RHB Banking Group offering a full suite of shariah compliant financial products and solutions to all retail, commercial and corporate customers.

RHB INSURANCE BERHAD

RHB Insurance Berhad (“RHB Insurance”) is a subsidiary of RHB Capital Berhad. Established since 1979, the company has close to four decades of experience in providing a full range of general insurance products and services to its customers.

The company offers its products and renders its services via a wide network of RHB Insurance branches, RHB Bank Berhad branches and Easy-by-RHB outlets, Pos Malaysia Bhd offices and more than 1500 authorised agents’ offices throughout Malaysia.

RHB ASSET MANAGEMENT SDN BHD

RHB Asset Management Sdn Bhd is a wholly-owned subsidiary of RHB Investment Bank Berhad. On 1 December 2013, RHB Asset Management Sdn Bhd officially merged with OSK- UOB Investment Management Berhad and the merged entity now operates under the legal entity name of RHB Asset Management Sdn Bhd (RHBAM). The combined strength of these two businesses has greatly enhanced the strength and depth of our service capabilities across Malaysia, ASEAN and Greater China markets.

RHBAM offers a full suite of award winning investment management products and solutions to retail, corporate and institutional customers, and continues to be recognised for its investment performance as well as market innovation. 40 RHB Capital Berhad Annual Report 2015 GROUP CORPORATE STRUCTURE

CRCA BA R BA R HR

100.00% RHB Bank Berhad 100.00% RHB Investment Bank Berhad 100.00% OSK Investment Bank (Labuan) Ltd* 94.70% RHB Insurance Berhad

100.00% 100.00% RHB Bank (L) Ltd 100.00% RHB International Investments Pte Ltd 100.00% OSK Futures and Options Sdn Bhd * 40.05% RHB Finexasia.Com Sdn Bhd 59.95% 100.00% RHB Equities Sdn Bhd (1) RHB Islamic 100.00% RHB International Trust (L) Ltd 100.00% RHB Asset Management Pte Ltd 100.00% OSK Research Sdn Bhd * 100.00% RHB OSK Stock 188.Com Sdn Bhd * 100.00% KYB Sdn Bhd (4) * Bank Berhad (5) 100.00% RHB Corporate Services Sdn Bhd 40.00% RHB GC-Millennium Capital Pte Ltd 100.00% RHB OSK International Asset 49.00% Vietnam Securities Corporation (5) 100.00% RHB Capital (Jersey) Limited Management Sdn Bhd * 100.00% RHB Leasing Sdn Bhd 100.00% RHB Hong Kong Limited 100.00% RHB (Philippines) Inc (2) * 100.00% RHB Securities Hong Kong Limited 100.00% OSK Nominees (Tempatan) Sdn Berhad * 100.00% RHB Capital Nominees (Tempatan) Sdn Bhd 100.00% RHB Hartanah Sdn Bhd 100.00% OSK Nominees (Asing) Sdn Berhad * 100.00% RHB Capital Nominees (Asing) Sdn Bhd 100.00% RHB Nominees Hong Kong Limited 100.00% Positive Properties Sdn Bhd 100.00% TCL Nominees (Tempatan) Sdn Bhd * 100.00% RHB Capital Properties Sdn Bhd 100.00% RHB Futures Hong Kong Limited 100.00% RHB Property Management 100.00% Utama Assets Sdn Bhd 100.00% RHB Finance Hong Kong Limited 100.00% TCL Nominees (Asing) Sdn Bhd * Sdn Bhd 100.00% RHB Bank Nominees Pte Ltd (Singapore) 100.00% RHB Capital Hong Kong Limited 100.00% KE-ZAN Nominees (Tempatan) Sdn Bhd * 100.00% Straits Asset Holdings Sdn Bhd 100.00% Banfora Pte Ltd (Singapore) 100.00% RHB Fundamental Capital Hong Kong Limited 100.00% KE-ZAN Nominees (Asing) Sdn Bhd * 100.00% SSSB Services (Melaka) Sdn Bhd (4) * 100.00% RHB Investment Ltd (Singapore) 100.00% RHB Asset Management Limited 80.00% RHB Trustees Berhad (6) 20.00% 100.00% SFSB Services (Melaka) 100.00% RHB Trade Services Limited (Hong Kong) 51.00% RHB Fideus Asia and Emerging Markets Value Fund Ltd. 80.00% Malaysian Trustees Berhad (6) 20.00% Sdn Bhd * (3) 100.00% OSK Investment Management Berhad * 100.00% Utama Gilang Sdn Bhd * 100.00% RHB Wealth Management Hong Kong Limited 100.00% RHBF Sdn Bhd * 100.00% UMBC Sdn Bhd * 100.00% RHB (China) Investment Advisory Co Ltd 100.00% RHB Asset Management Sdn Bhd 100.00% RHB Venture Capital Sdn Bhd * (3) 100.00% RHB Islamic International Asset Management Berhad 100.00% RHB Delta Sdn Bhd * 99.00% PT RHB Securities Indonesia 100.00% RHB Kawal Sdn Bhd 100.00% RHB Islamic Asset Management Sdn Bhd * 100.00% RHB Indochina Bank Limited 99.62% PT RHB Asset Management Indonesia 100.00% OSKIB Sdn Bhd * 100.00% RHB Bank Lao Limited 100.00% RHB Securities Singapore Pte Ltd 100.00% RHB Research Institute Sdn Bhd 100.00% RHB Merchant Nominees (Tempatan) Sdn Bhd 100.00% RHB Nominees Singapore Pte Ltd # ote 100.00% RHB Merchant Nominees (Asing) Sdn Bhd * Dormant Company 100.00% Summit Nominees Pte Ltd # # Inactive 100.00% RHB Nominees Sdn Bhd (1) With effect from 1 July 2001, the company's activities 100.00% RHB Research Institute Singapore Pte Ltd relate primarily to recovery of outstanding debts. 100.00% RHB Nominees (Tempatan) Sdn Bhd 99.95% RHB Securities (Thailand) Public Company Limited (2) The company has ceased operations from the close of business on 10 December 2001. (7) 100.00% RHB Nominees (Asing) Sdn Bhd 100.00% RHB OSK Indochina Securities Limited (3) The company has commenced members’ voluntary 100.00% RHB Excel Sdn Bhd (4) winding-up on 16 February 2011. (4) The company has commenced members' voluntary (4) 100.00% RHB Progressive Sdn Bhd winding-up on 28 March 2012. 100.00% RHB Marketing Services Sdn Bhd (3) (5) Jointly controlled entity. (6) Held by: (i) RHB Investment Bank Berhad; (ii) RHB 100.00% RHB Unit Trust Management Berhad (4) Nominees (Tempatan) Sdn. Bhd.; (iii) RHB Nominees (Asing) Sdn. Bhd.; and (iv) OSK Futures and Options 100.00% RHB Private Equity Holdings Sdn Bhd Sdn. Bhd. with direct shareholdings of 20.00% each. 100.00% RHB Private Equity Management Ltd (7) The Company became a wholly-owned subsidiary of RHB Investment Bank Berhad on 9 December 2015. 100.00% RHB Private Equity Fund Ltd (Cayman Islands) 41

* As at 25 February 2016

CRCA BA R BA R HR

100.00% RHB Bank Berhad 100.00% RHB Investment Bank Berhad 100.00% OSK Investment Bank (Labuan) Ltd* 94.70% RHB Insurance Berhad

STRATEGIC BUSINESS GROUP

U Chen Hock Datin Amy Ooi Mike Chan Cheong Yuen Group Retail Banking Group Business & Group Corporate & Transaction Banking Investment Banking

Dato’ Khairussaleh Ramli Group Managing Director, RHB Banking Group Managing Director, RHB Bank Berhad

STRATEGIC FUNCTIONAL GROUP

Yap Choi Foong Rohan Krishnalingam Patrick Ho Group Finance Group Technology & Group Risk, Compliance & Operations Credit Management 43

Ibrahim Hassan Christopher Loh Kong Shu Yin Mohd Rashid Mohamad Group Shariah Business Group Strategy & Group Insurance Group Treasury & International Business Global Markets

Norazzah Sulaiman Jamaluddin Bakri Group Marketing & Group Human Resource Communications 44 RHB Capital Berhad Annual Report 2015 GROUP SENIOR MANAGEMENT PROFILES

Dato’ Khairussaleh Ramli is the Group Managing Director/Group Chief Executive Officer of RHB Dato’ Khairussaleh Ramli Banking Group and the Managing Director (“MD”)/Chief Executive Officer (“CEO”) of RHB Capital Berhad since 5 May 2015. Group Managing Director, RHB Banking Group He holds a Bachelor of Science in Business Administration from Washington University. He also Managing Director, RHB Bank Berhad graduated from the Advanced Management Programme in Harvard Business School, apart from being a Chartered Banker from the Asian Institute of Chartered Bankers.

He joined the Group as Deputy Group MD and MD/CEO of RHB Bank Berhad in December 2013. He continues to hold the position of MD/CEO of RHB Bank Berhad.

Dato’ Khairussaleh Ramli has more than 20 years of experience in the financial services and capital markets industry, where he has held senior positions in well-established regional financial institutions. He is also a council member of The Association of Banks in Malaysia and Asian Institute of Chartered Bankers.

His knowledge and experience earned him the “Best CFO in Malaysia Award” in 2010 and 2011 from Finance Asia and the “Best CFO in Malaysia Award” in 2012 from Alpha Southeast Asia.

U Chen Hock is currently the Executive Director/Head of Group Retail Banking, RHB Banking U CHEN HOCK Group. In this role, he is responsible for the overall growth and profitability of the Retail Banking and Wealth Management business in Malaysia and the ASEAN region. Executive Director/Head Group Retail Banking U Chen Hock was previously the Chief Executive Officer of OSK Investment Bank Berhad RHB Banking Group (“OSKIB”), before the latter’s merger with RHB Investment Bank in 2013. Prior to joining OSKIB, he had a long career with a global bank during which time, he had acquired broad based experience in corporate, commercial and consumer banking from holding numerous senior positions and responsibilities in Malaysia, Taiwan and Hong Kong.

U Chen Hock graduated from the National University of Malaysia (“UKM”) with a Bachelor of Economics (Honours) degree in 1980. 45

Amy has been in the banking industry since 1983, staring with a leading top local bank in the DATIN AMY OOI SWEE LIAN credit and marketing division. She had worked overseas for seven years in wholesale banking. Head, Group Business and Transaction She joined RHB Bank on 1 November 1994 as a Manager Corporate Banking and was appointed Banking as Head of Foreign Corporate on 1 May 1995. She was subsequently appointed as the Deputy RHB Banking Group Division Head of the Corporate Banking Division.

Pursuant to the enlarged organisational structure of the RHB Banking Group, in November 2007, she was appointed as Head of Commercial Product Management. Following the Group’s strategic transformation in 2010, she was appointed as Director of Business Banking. Currently she is the Head of Group Business and Transaction Banking where she is responsible for the growth of SME business and transaction Banking.

Amy graduated with a Bachelor of Economics (Honours) majoring in Business Administration from University Malaya.

Mike Chan Cheong Yuen was appointed as the Managing Director/Chief Executive Officer of RHB MIKE CHAN CHEONG YUEN Investment Bank on 15 August 2013. Managing Director/Chief Executive Officer He holds a Master of Science in Finance from Boston College, United States of America (USA) RHB Investment Bank and a Bachelor of Science in Business Administration from California State University, USA.

Mike brings with him more than 24 years of experience in the financial services industry, where he has held positions in well-established local and foreign financial institutions.

He joined RHB Banking Group in May 2010 as the Head of Corporate Banking of RHB Bank Berhad. In addition to his role in RHB Bank Berhad then, he was also the Officer-in-Charge of RHB Investment Bank Berhad prior to his appointment as the Managing Director/Chief Executive Officer in August 2013. He played an important role in the merger and integration of RHB Investment Bank-OSK Investment Bank Berhad.

Mike other directorships include RHB Private Equity Holdings Sdn Bhd, RHB Private Equity Management Ltd, RHB Bank (L) Ltd, Vietnam Securities Corporation (Chairman) and Financial Park (Labuan) Sdn Bhd. 46 RHB Capital Berhad Annual Report 2015 group Senior management profiles (continued)

Ibrahim Hassan (“Ibrahim”) was appointed as the Managing Director/Chief Executive Officer IBRAHIM HASSAN (“MD/CEO”) of RHB Islamic Bank in September 2013. For the RHB Banking Group, he is the Head of the Group Shariah Business. Managing Director/Chief Executive Officer RHB Islamic Bank Ibrahim has over 30 years of banking experience having previously served as the President Director of Maybank Syariah Indonesia and the CEO of Maybank Islamic Berhad.

Ibrahim began his banking career in the dealing rooms of three Maybank international offices in Hong Kong, New York and London where he worked for more than 10 years. Upon returning to Malaysia, he was instrumental in strengthening the treasury operations of Maybank Group.

He was then appointed as the CEO of Maybank Discount for a period of two years from 1996- 1998 and subsequently became the head of the market risk division whereby he developed the market risk management policies and model for Maybank Group.

He then Headed the International Banking Division in 2001 to oversee the operations of the international branches and subsidiaries in 14 countries. In 2007, Ibrahim was later reassigned to lead a team to de-merge the operations of Maybank Islamic window operations into a separate fully-fledged Islamic banking subsidiary of Maybank Group. He was appointed as CEO Maybank Islamic Berhad when it started operations in January 2008.

Christopher Loh is the Group Chief Strategy Officer of RHB Banking Group. He is responsible for CHRISTOPHER LOH developing the Group’s strategic priorities, driving the Group’s Transformation Programme (“IGNITE 2017”) across the region and working closely with the businesses to execute strategies Group Strategy & International Business towards achieving the Group’s aspirations. RHB Banking Group He recently assumed the position of overseeing the Group International Business (excluding Singapore), where he is responsible for leading and managing the Group’s business operations outside of Malaysia and Singapore, driving the growth strategies, strategic partnerships and expansion into other ASEAN countries. He also oversees the Group Customer Experience to deliver superior customer service across the organisation.

Christopher joined RHB Banking Group in September 2013 as the Deputy Group Chief Risk Officer. Prior to joining RHB Banking Group, Christopher was a partner with a global management consulting firm where he worked with regional and global financial institutions across Asia- Pacific, United States and the United Kingdom to transform their business and risk capabilities. After his stint with a leading UK banking group in London, he returned to Asia to help build and lead a very successful risk management practice where he was the managing director before his departure. He has also spent several years with a leading insurer in Singapore, and had established and run a technology and media startup.

Christopher graduated with an honours degree in engineering and business from Nanyang Technological University, Singapore and is an alumni of the RHB-INSEAD Senior Leadership Programme. 47

Kong Shu Yin was appointed as Managing Director of RHB Insurance on 13 March 2011. KONG SHU YIN Kong Shu Yin has 30 years of experience in the insurance business. Prior to joining RHB Managing Director Insurance, he was with one of the largest general insurers in Malaysia, in various capacities RHB Insurance including CEO. He also has experience with the Thailand and Indonesian insurance markets.

Kong Shu Yin is a graduate from the University of Malaya in Civil Engineering and is a Fellow of the Chartered Insurance Institute and Fellow of the Malaysian Insurance Institute.

Kong Shu Yin is currently the Chairman of ISM Insurance Services Malaysia Berhad, an organisation established by the insurance and takaful industry to provide statistical services to its members and the public. He is also the Chairman of the Malaysian Motor Insurance Pool and the Deputy Chairman of Persatuan Insurans Am Malaysia (“PIAM”) between 2012 – April 2015.

Mohd Rashid was appointed as Group Treasurer for the RHB Banking Group in March 2014 and MOHD RASHID MOHAMAD is responsible to drive the Treasury and Global Markets businesses in line with the strategic direction and aspirations of the Group. The Treasury function of RHB Bank, RHB Islamic Bank Head Group Treasury and RHB Investment Bank have been consolidated under the Group Treasury banner since April RHB Banking Group 2014 to benefit from group synergy and to better serve RHB customers.

Mohd Rashid started his career in Investment Operations & Treasury Department of Bank Negara Malaysia in 1994 and has over 20 years of treasury experience in senior level positions within several Financial Institutions.

Mohd Rashid holds a Master degree in Business Administration with distinction from University of Wales, Cardiff, United Kingdom. 48 RHB Capital Berhad Annual Report 2015 group Senior management profiles (continued)

Yap Choi Foong was appointed as Group Chief Financial Officer (“Group CFO”) of the RHB YAP CHOI FOONG Banking Group on 1 June 2013. As the Group CFO, Yap Choi Foong oversees the overall finance functions, which include financial reporting, budgeting, capital planning and management, Group Chief Financial Officer group taxation, finance operations, procurement, property management as well as the Investor RHB Banking Group Relations for the Group.

Yap Choi Foong started her career as an auditor with Deloitte KassimChan. In 1993, she joined Southern Bank Berhad and held several positions during her 10 years with the Bank where her last held position was Senior Vice President, Corporate Finance. In November 2003, she joined RHB Capital as the General Manager of Group Finance. She has held various positions within the Group including Head of Corporate and Strategic Planning, Head of Central Finance, Group Financial Controller as well Head of Investor Relations and M&A Integration prior to her appointment as Group CFO.

She is a Fellow member of the Association of Chartered Certified Accountants (“ACCA”) in the United Kingdom.

Rohan Krishnalingam was appointed as Group Chief Operations Officer of the RHB Banking Group on ROHAN KRISHNALINGAM 6 January 2014. His primary responsibilities include overseeing of Group-wide Technology and Operations functions, ensuring accurate and timely Technology and back-office operations and services Group Chief Operations Officer support for the relevant business/functional units, overseeing the implementation of the transformation RHB Banking Group projects and taking a lead role in driving RHB Banking Group to be a Digital Bank.

Prior to this, Rohan was a Senior Partner with an established technology and management consulting firm. Rohan has more than 20 years’ experience working with financial services organisations to design and implement large scale transformation programmes, predominantly in the areas of technology and operations. He has worked with several large corporations and clients from various industries in Malaysia and the ASEAN region.

Rohan has strong technology delivery and programme management skills, particularly in the implementation of large-scale technology and IT Strategic Planning. He has led major banking and financial services projects including the implementation of Core Banking Systems, Enterprise Resource Planning (“ERP”) and Customer Relationship Management (“CRM”), IT Transformation programmes, IT Merger Integration programmes as well as Industry-wide Payment Systems.

Rohan holds a Bachelor of Electrical and Electronics Engineering (Hons) from the University of New South Wales, Australia. 49

Patrick Ho is the Group Chief Risk Officer of the RHB Banking Group, where he oversees the Group PATRICK HO Risk, Compliance and Credit Management functions of the Group. He is responsible for the overall leadership and direction on the implementation of integrated risk management frameworks within the Group Chief Risk Officer Group. RHB Banking Group Patrick started his career with the RHB Banking Group in 1984 with the Treasury Department of RHB Sakura Merchant Bankers (now known as RHB Investment Bank). In 1998, he was assigned the responsibility to set up the Risk Management & ALCO Support Department of RHB Sakura Merchant Bankers Berhad. He was responsible to provide overall leadership and direction for the implementation of an integrated risk management framework for RHB Sakura Merchant Bankers Berhad.

In 2007, he became the Chief Operating Officer of RHB Investment Bank and in 2008, he was appointed as the Head of Central Operations of the RHB Banking Group. His responsibilities included strategic planning, process re-engineering and overall centralised back-office operations of the Group. He was later appointed as the Head of Group Risk Management of the RHB Banking Group in 2010 and subsequently as Director of Group Risk Management in November 2012.

Patrick holds a Bachelor of Science (Honours) degree in Actuarial Science from The City University in London and a Masters in Business Administration (Finance) with Distinction from the University of Hull, United Kingdom.

Norazzah Sulaiman is the Group Chief Marketing & Communications Officer. In her current role, NORAZZAH SULAIMAN she provides leadership and oversees the development and execution of integrated marketing and communications strategies for the RHB Banking Group. She leads enterprise-wide marketing Group Chief Marketing & Communications and branding programmes as well as strategic communications functions. Officer RHB Banking Group She commenced her career in the Human Resource Division of a leading local banking group. In 1994, she was appointed the Head of Human Resource at Bank Utama, and subsequently became Utama Banking Group’s Company Secretary and Group Legal Advisor.

Norazzah came on board the RHB Banking Group on 1 March 2003 as Group Legal Advisor and Group Company Secretary. In 2007, she was appointed Chief Operating Officer of RHB Capital. Following the Group’s strategic transformation in 2010, she was appointed as Director of Group Corporate Services, and subsequently as Group Chief Governance Officer in 2013. Norazzah’s areas of expertise include legal advisory and company secretarial functions, compliance, strategic communications and brand management. She is also instrumental in establishing the Group’s corporate responsibility framework and initiatives.

She holds a Bachelor of Law (LLB) degree with Honours from the University of Warwick, United Kingdom and is an Associate Member of the Institute of Company Secretaries Malaysia. 50 RHB Capital Berhad Annual Report 2015 group Senior management profiles (continued)

Jamaluddin Bakri is the Group Chief Human Resource Officer of the RHB Banking Group. In his JAMALUDDIN BAKRI current role, he is responsible to develop and execute long-term Human Resources (“HR”) strategies, build HR capability that will be able to support the Group’s long-term strategic goals. Group Chief Human Resource Officer He is also responsible in managing various aspects of HR functions across the Group which RHB Banking Group includes strategic planning and organisational development, human capital development, succession planning, rewards and performance management that will be aligned to the Group’s Business Strategies.

Jamaluddin brings with him more than 20 years of solid track record in HR functions and have spent more than 15 years overseas where he gained experience working with different nationalities, diverse cultures and working styles. He has also partnered with Business Leaders of multi-national and local organisations in driving various HR strategies globally and locally.

Prior to joining the RHB Banking Group, he was the Group Head of HR for IHH Healthcare Berhad, one of the largest private healthcare company in the world. He also spent 14 years with Microsoft in various HR leadership functions, with his last role as Regional HR Director for Asia Services.

He holds an MBA in Human Resources from the University of Hull, United Kingdom with a background in Mechanical Engineering. 51 KEY HIGHLIGHTS

MALAYSIA TOTAL INCOME

MYR5,297 million

PRE TAX PROFIT

MYR1,948 million

NO. OF EMPLOYEES 14,083 as at end December 2015

NO. OF BRANCHES/ OFFICES

562 branches & offices

202 Conventional 14 Islamic 281 Easy 49 Investment Bank Offices 14 Asset Management 1 Insurance 1 Trustees

RHB BANKING GROUP Products & Services • Commercial Banking • Islamic Banking • Investment Banking • Asset Management • Insurance Services 52 RHB Capital Berhad Annual Report 2015 Key Highlights (continued)

THAILAND TOTAL INCOME WONG KEE POH Country Head million RHB Bank Berhad, Thailand THB 1,192

YONG SIONG SUNG Officer-in-Charge PRE TAX PROFIT RHB Securities (Thailand) PCL THB 62 million

NO. OF EMPLOYEES

RHB BANKING GROUP 412 Products & Services • Current Account • Loan Facilities and Working • Investment Banking NO. OF BRANCHES/ • Savings Account Capital Financing • Derivatives & Structured Products OFFICES • Fixed Deposit • Foreign Exchange • Fixed Income • Trade Finance and Remittance • Equities & Derivatives Trading • Mutual Fund Sales 12 branches

INDONESIA TOTAL INCOME CHAN KONG MING Chief Executive Officer million PT RHB Securities Indonesia IDR 279,986

PRE TAX PROFIT

IDR37,082 million

NO. OF EMPLOYEES

RHB BANKING GROUP 373 Products & Services • Institutional and Retail Brokerage • Investment Services • Coverage and Equity Capital Markets NO. OF BRANCHES/ • Fixed Income Trading – Corporate Finance and Debt Capital • Financial Advisory and M&A OFFICES – Corporate, Government, Markets – Corporate Restructuring Conventional and Sukuk Bond – IPO and Bond Underwriting – Pre-IPO Structuring – Investment Research • Asset Management 14 branches 53

CAMBODIA TOTAL INCOME LIM LOONG SENG Managing Director USD18 million RHB Indochina Bank

DING MING TEIK Chief Executive Officer PRE TAX PROFIT RHB OSK Indochina Securities

USD 8 million

NO. OF EMPLOYEES

RHB BANKING GROUP 225 Products & Services Retail & Commercial Equity Sales and Brokerage NO. OF BRANCHES/ • Current Account OFFICES • Savings Account Corporate Finance Services • Fixed Deposits • Initial Public Offerings • Remittance • Placements and Rights Issue 11 branches • Trade Financing • Corporate Restructuring • Loans • Mergers and Acquisitions

LAOS TOTAL INCOME DANNY LING CHII HIAN Country Head, RHB Bank Lao Limited USD2 million

PRE TAX PROFIT

USD0.1 million

NO. OF EMPLOYEES 28 RHB BANKING GROUP Products & Services • Current Account • Loan Facilities NO. OF BRANCHES/ • Savings Account – Overdraft Facility OFFICES • Fixed Deposit – Term Loan • Remittance – Housing Loan • Foreign Exchange Service – Revolving Credit Facility 1 Branch 54 RHB Capital Berhad Annual Report 2015 Key Highlights (continued)

BRUNEI TOTAL INCOME ISHAK BIN OTHMAN Country Head BND million RHB Bank Berhad, 3 Brunei PRE TAX PROFIT

BND0.3 million

NO. OF EMPLOYEES

RHB BANKING GROUP 24 Products & Services Deposits Products Loans & Advances Remittances NO. OF BRANCHES/ • Current Account • Overdraft • Foreign Telegraphic Transfers (USD, EUR, OFFICES • Savings Account • Housing Loans JPY, THB, IDR, AUD, GBP, SGD) • Fixed Deposits Account • Term Loans, Business Loans • Fast TT (MYR) and Bridging Loans • Cashier’s Order (BND) 1 branch • Trade Financing • Demand Draft (SGD, BND)

HONG KONG TOTAL INCOME WILLIAM WU WAI LEUNG Chief Executive Officer, RHB Hong Kong Limited HK$ 195 million

PRE TAX PROFIT

HK$ 26 million

NO. OF EMPLOYEES

RHB BANKING GROUP Products & Services 128 Securities Trading Corporate Finance Derivatives Trading • Hong Kong and Global Markets • Initial Public Offerings • Hong Kong Futures/Option Contract • Margin Financing – including IPOs • Public Company Takeover/Privatisations • Global Futures Trading NO. OF BRANCHES/ • Online trading – through our • Capital Raisings Exercise for Primary OFFICES Financial Portal rhbinvest.com.hk and Secondary Market Asset Management • Equity Research • Mergers and Acquisitions • Discretionary Portfolio Management • Equity Capital Markets Activities • Restructuring Advisory – Corporate Service Reorganisations and Debt Restructuring • Fund Management Service 1 branch 55

SINGAPORE TOTAL INCOME JASON WONG HON LURN Chief Executive Officer, RHB Bank Berhad, Singapore S$ 207 million ROBERT HURAY Chief Executive Officer, RHB Securities Singapore Pte. Ltd. PRE TAX PROFIT

S$ 34 million

NO. OF EMPLOYEES 988

NO. OF BRANCHES/ OFFICES

8 branches Cecil Street (Main Office) Jalan Besar, Tai Seng, Katong, Geylang, Westgate, Bukit Timah, Ocean Financial Centre

In addition, we also operate Bureau de Change at Changi Airport Terminal 1, 2 and 3

RHB BANKING GROUP Products & Services Securities Trading Advisory & Capital Markets Retail & Commercial • Singapore and Global Markets • Corporate Finance • Deposits • Business Banking • Institutional, Retail Equities and Fixed Income • Initial Public Offering • Loans • Insurance • Margin Financing • Mergers and Acquisitions • Retail Banking • Treasury • eBroking via Online Portal rhbinvest.com.sg • Acquisition Financing Advisory • Premier Banking • Fixed Income Distribution • Equity Research • Debt Capital Markets • Wealth Management • Equity Capital Markets • Corporate & Investment Banking Asset Management • Retail and Wholesale Unit Trust Funds • Discretionary and Non-Discretionary Mandates • Alternative Investments

VIETNAM MYANMAR Representative Office Representative Office

WILSON CHEAH HUI PIN WILSON CHEAH HUI PIN Chief Representative Chief Representative

TOGETHER WE PROGRESS DELIVERING SIMPLE, FAST AND SEAMLESS EXPERIENCES 58 RHB Capital Berhad Annual Report 2015 BUSINESS MODEL

RHB has a customer-focused business model that enables us to fulfil our role as a trusted partner in helping our customers and their businesses prosper.

Provide holistic, innovative and segment-driven offerings

1 CUSTOMER-SEGMENT FOCUSED

RHB’s business model is designed to satisfy the needs of all types of customers: individuals with different income levels; companies of any size and different sectors of activity; private companies and public institutions. We have structured our business by key pillars focusing on retail customers, commercial customers, SMEs and corporate clients, respectively. This allows us to better serve the different segments according to their different needs.

2 PRODUCTS & SERVICES THAT GO BEYOND BANKING We offer a diverse range of financial products and services, OUR CU covering commercial banking, Islamic banking, transaction banking, investment banking, treasury, stock broking and offshore banking. We also provide non-banking offerings such as general insurance, unit trust management, asset management/nominee and custodian services. Our products and services are offered through personal and digital channels.

3 GEOGRAPHICAL DIVERSIFICATION

RHB has a growing regional presence in ASEAN, with our geographical footprint spanning 10 countries: Malaysia, Singapore, Thailand, Indonesia, Cambodia, Lao PDR, Brunei, Hong Kong/China, Vietnam and Myanmar. We will be focused on growing our existing franchise, and continue to explore other strategic partnerships and expansion into other ASEAN countries. 59

Our Balanced Scorecard provides us with the framework against which we track the progress we have made in serving the interests of our stakeholders.

In an efficient, safe and integrated manner

4 HIGH-PERFORMING TALENT, WITH A POSITIVE WORK CULTURE & STRONG BRAND VALUES

The RHB brand synthesises the Group’s identity and commitment to become the customers’ trusted partner in helping them and their businesses prosper, as well as to attract and retain top talent. RHB’s employees share a positive corporate culture focused on fulfilling the Group’s purpose and achieving the Group’s aspirations. They are provided with a professional development journey to help them progress and find fulfilment in their careers.

5 STRONG BALANCE SHEET, PRUDENT RISK MANAGEMENT AND INTERNAL CONTROL STOMER RHB has a solid capital base consistent with its business model, balance sheet structure, risk profile, and is well above regulatory requirements. We have put in place a Group Governance framework that ensures effective governance and oversight on a Group-wide basis. Robust risk management and functions framework have been established to enable effective risk management and compliance across all parts of the Group.

6 INNOVATION, DIGITAL TRANSFORMATION AND BEST PRACTICES

We have embarked on the “RHB Digital Journey”, to effectively deliver meaningful, high value-adding interactions and customised services for our customers by leveraging on digital innovations. This transformation not only impacts the services provided to customers but also the Group’s operations, both internal and external: i.e: how to use data to spur business growth, updating and modernising systems, and streamlining processes and the organisation as a whole. 60 RHB Capital Berhad Annual Report 2015 OUR STRATEGY

“TO BE A MULTINATIONAL REGIONAL FINANCIAL SERVICES PROVIDER THAT IS COMMITTED TO DELIVER COMPLETE SOLUTIONS TO OUR CLIENTS THROUGH DIFFERENTIATED SEGMENT OFFERINGS AND AN ECOSYSTEM THAT SUPPORTS A SIMPLE, FAST AND SEAMLESS CUSTOMER EXPERIENCE, UNDERPINNED BY OUR COHESIVE AND INSPIRED WORKFORCE AND RELATIONSHIPS BUILT WITH OUR STAKEHOLDERS.”

OUR REFRESHED ASPIRATIONS OUR STRATEGIC PRIORITIES

In 2015 we refreshed our aspirations with an emphasis on value In steering us towards our revised aspirations, our focus on value creation, anchored on return on equity (“ROE”). Our aspiration is to creation for stakeholders will be anchored on three broad themes be among the Top 3 in Malaysia/Top 8 in ASEAN by performance by and six strategic priorities: 2020, and our focus on performance instead of size represents our • Funding Our Journey – focuses on boosting revenue from key foundation as we look to improve revenue, not just from asset growth areas, managing cost and enhancing productivity, and growth but also from an increase in productivity. At the same time, optimising risk-adjusted returns we will maintain our drive towards being a regional powerhouse in ASEAN+ with a sharpened focus on profit instead of revenue. To • Winning by Differentiating Ourselves in the Medium Term – this end, we have set a realistic target of 20% of profit from through delivering superior customer experience and building overseas operations considering the market conditions as well as an ecosystem for digital and payments enablement our business priorities. We believe that our refreshed aspirations • Getting the People & Organisation Right – by engaging and will strengthen our footing and capabilities needed to be a leading developing our talent into high-performing teams multinational financial services group by 2020. 61

aret R o 1 in 201 and 15 in 2020

ne r e i u r n o Optimise portfolio n “...Address fundamentals r e in “...Creating the competitive u risk-adjusted l e of our business to advantage to drive returns Deliver i n n sustained growth and generate profits to fund i superior t i d h our journey and reward n market leadership...” customer e e u r shareholders...” Manage experience e e n cost & d t i i a u enhance t i

productivity

ou on r erorane Build ecosystem for ie R Digital & Payments 5 Boost enablement revenue from key growth areas Engage & develop our talent into high performing teams

ettin the eople “...Making sure our people raniation Riht have the right capabilities and incentives to drive the change...” 62 RHB Capital Berhad Annual Report 2015 Our STRATEGY (continued)

As such, our strategic priorities have been revised to support our reframed strategy and sharpened to focus on 17 key initiatives within the six strategic focus areas:

Boosting revenue from key growth areas Delivering a superior customer experience To increase profitability, we have identified seven key high-margin Having recognised and appreciated the significance of customer and profitable areas to drive our income growth – Affluent, Mass experience in an increasingly competitive market, we have made Affluent, SME, CIB, Regional Treasury, Singapore and Asset customer experience and service our key differentiator in the Management. Since the launch of our reframed strategy, we have medium term in the reframed strategy. We are committed to foster solidified our plans for these areas with respective teams mobilised customer loyalty by delivering a superior customer experience to execute and drive our top line. through the realisation of our “RHB Way” group customer charter, our Branch Sales and Service Transformation initiative – “CONNECT”, Managing cost and enhancing productivity Central Client On-Boarding and group-wide operational improvement We remain committed to prudent management of our cost and and innovation to enable the “RHB Way”. The formation of Group productivity enhancements in order to optimise our profitability. Customer Experience in Q4 2015 marks our full commitment to Tactical cost savings and structural changes have been and will be deliver superior customer service to all our customers across all continuously undertaken to improve our cost-to-income ratio. Our channels, and we are excited to be embarking on this journey. structural changes include addressing the productivity of our staff across the Group, optimising our network to achieve greater Building an ecosystem for digital and payments enablement synergies and lowering our cost to serve, as well as rewiring our Complementing our commitment to provide superior customer structure for greater operational efficiency. experience, a core part of the reframed strategy to differentiate RHB in the medium term is to deliver a segment-driven lifestyle Optimising portfolio risk-adjusted returns ecosystem through digital and payments innovation with industry In promoting sustainable growth for the Bank, it has become collaboration. Our strategy is to leverage on digital technology to increasingly important to seek out efficiencies in our capital usage, provide customers with services that go beyond banking, fulfilling which is why one of our core focus areas is to drive increase in PBT their everyday lifestyle needs and exceeding customer expectations and ROE by re-evaluating and re-allocating capital to higher- at every point of interaction. yielding assets and portfolios. We are determined to achieve this through model refinements with the aim of improving our portfolio Engaging and developing our talent into high-performing teams risk weights, as well as through running risk-adjusted return on As we progress towards our 2020 aspirations, our employees are capital (“RAROC”) analysis to assess the profitability of our undoubtedly our most valuable asset in this journey and RHB will individual portfolios. As a result, we will be able to further improve continue to train, upskill and equip our employees with the skill our portfolios towards more effective capital utilisation. sets that are necessary to turn aspirations into impactful outcomes. Employee engagement will continue to remain a priority as we endeavour to become an Employer of Choice. We are developing a holistic Talent Management programme encompassing all aspects of the employee lifecycle, carefully designed to engage, sustain and develop our talent into high-performing teams. 63

OUR TRANSFORMATION IGNITE 2017 Differentiated Customer Experience Group Customer Experience (“GCX”) 2015 – THE YEAR IN REVIEW Group Customer Experience was formed in Q4 2015 and is an Launched in 2014, IGNITE 2017 is focused on driving the Group integral component of the Group’s reframed strategy to drive RHB towards becoming a leading multinational financial services group towards becoming the market leader in customer service by 2020. in the region by 2020. Despite the challenging market conditions in The Group Customer Experience Strategy sets a transformational 2015, our efforts in IGNITE 2017 enabled us to realise significant approach to achieve our aspiration to be a customer-centric value from the various initiatives and positively contribute to the organisation and strengthen the service culture across the Group. Group’s pre-tax profit. The team oversees group-wide initiatives, which entail strategically collaborating with our business associates and service partners, to The successful implementation of the leverage model for our build an ecosystem to deliver a simple, fast and seamless customer Islamic business in 2014 saw a marked improvement in our Islamic experience. asset market share from 7.4% to 8.2% in 2015. The integrated Group Treasury & Global Markets business has sharpened focus and Through listening to the voices of our customers and truly created greater synergies bringing improvement towards a year-on- understanding their needs, we steered our immediate focus towards year PBT growth of 35%. Our CASA balances grew 11%, outpacing perfecting the key service areas (the basic hygiene factors) across the industry and our competitors as a result of the Branch Sales all segments and channels, while we lay the foundations for a and Service Transformation initiative “CONNECT”. Assets under superior customer experience. This continuous engagement with our management (AUM) for our Asset Management business grew to customers will lead to the charting of a holistic “RHB’s Customer RM51.9 billion in 2015, with retail AUM growing 29.5%. Experience Journey Roadmap” that will serve as the core around which we will build a holistic understanding of customers’ needs The new Business Banking Operating Model (“BBOM”) implemented and expectations, thus enabling skilful management of the entire in 2014 led to a significant increase of our SME market share from experience. 7.2% to 8.7% in 2015, driven by improvements in staff productivity and SME loan approval turn-around-time amongst others. This has CONNECT culminated in RHB being awarded the ‘Highly Commended: CONNECT, our Branch Sales and Service Transformation initiative, Excellence in SME Banking’ at the 7th Annual Retail Banker was launched in June 2014 and has since transformed all our International Asia Trailblazer Summit & Awards. branches and Commercial Business Banking Centres (“CBBCs”) to focus on delighting customers and delivering a superior customer Throughout the course of 2015, initiatives under IGNITE 2017 were experience that has resulted in an overall increase in performance. centred around the themes of delivering differentiated customer We have redefined the way we operate through successful experience, beginning our RHB Digital Journey, and driving greater introduction and implementation of the five elements of CONNECT profitability and efficiency. nationwide across 214 branches and 28 CBBCs in 2015.

The design and implementation of this new sales and services model, that is more structured and standardised across the distribution channel, saw significant improvement in the overall performance of our branches and CBBCs. We also embarked on Capability Building through our Change Leaders who were selected from our talent pool to lead and facilitate the transformation across all the branches and CBBCs with high collaboration and engagement from the leadership team. Our efforts saw us receiving the “Outstanding Customer Experience” award from Frost & Sullivan and also being recognised as “Malaysia Best Employer” by the Employer Branding Institute in 2015. 64 RHB Capital Berhad Annual Report 2015 Our STRATEGY (continued)

Beyond this, the launch of the Multi-Channel Leads Management Despite the challenging environment, we are well positioned to system enabled better facilitation and tracking of systematic leads seek opportunities by leveraging on our strengths and in particular, generation, driving greater efficiency and profitability through end- drawing upon the successes of the CCM framework. RHB continued to-end customer acquisition. We further implemented our network to reap benefits with the GAM/CCM initiative and saw the Banking strategy, leveraging on our strengths and capabilities to give us an Group realising further incremental revenue of RM169.0 million in edge over our competitors. Our value propositions were refined 2015. with specific focus on different segments, which provided us with valuable insights on the needs of our customers, ensuring that they Our key involvement in landmark transactions across the region receive relevant product and services offerings tailored to their garnered a number of regional awards and recognitions during the unique needs. In addition to all this, we also enhanced our year, including the following as testimonies to our achievements in processes and created a differentiated customer experience that is 2015: “Best M&A House” from The Asset, “Best M&A House in unique to RHB, which makes up the “RHB Way”. ASEAN and Best Ringgit Sukuk House in Malaysia” from Alpha Southeast Asia, “Best Small to Mid-Cap Corporate Finance House in Founded upon the setup of CONNECT’s solid achievements, we look Malaysia (RHB Investment Bank)” from Alpha Southeast Asia, and towards enhanced market share for various products, increased “Best Small to Mid-Cap Corporate Finance House in Singapore (RHB sales force effectiveness and unmatched service excellence. Securities Singapore)” from Alpha Southeast Asia.

Client Coverage Model RHB Digital Journey In 2015, RHBIB rolled out the Client Coverage Model (“CCM”), as Since the conceptualisation of the RHB Digital Strategy, we have an extension of the Global Account Management (“GAM”) framework developed a sharper digital approach to effectively deliver launched in 2014. GAM was initially launched for RHBIB’s top 50 meaningful, high value-adding interactions and customised services corporate accounts and mid cap accounts in Malaysia and Singapore, for our customers, based on the differentiated segment needs of our and has since been successfully expanded to cover 182 corporate customers. We aim to provide our customers with simplified, clients with multiple RHB Banking Group product holdings, across convenient and easy access to digital services, thus enabling our Malaysia, Singapore and Thailand. customers to bank anywhere and at any time.

The expertise of the product partners within different product With the RHB Mobile Lifestyle App launched in June 2015, we took groups continues to be a pillar upon which we build our aspirations strides towards the creation of a lifestyle-centric ecosystem around for successful CCM rollout. The product groups cut across Corporate banking services. Our customers are now able to enjoy and locate Banking, Investment Banking, Treasury & Global Markets, Asset lifestyle deals and privileges obtained directly through the app, and Management, Trade Business, Cash Management, Bank @ Work, locate RHB ATMs and branches by merely holding up their Insurance and Mortgage End-Financing. smartphones, using the in-built augmented reality feature. The Mobile Lifestyle App won “Best Card Loyalty Program” at the Cards Drawing on the success of GAM, CCM will remain focused on & Electronic Payments International Asia Summit organised by the improving internal coordination, providing superior customer Retail Banker International (Timetric) in 2015. experience to the Group’s top corporate clients and focusing on client account penetration. Moving forward in 2016, we will In order to support the growing digital needs of small- and medium- continue to draw upon our dominance in the mid-cap space for size enterprises (“SMEs”) in line with their business requirements, support. In addition, the CCM framework has further improved the we launched the first-of-its-kind, all-in-one e-Retail business, management of our client relationships and established a clearer promoting the development of SMEs in Malaysia. The holistic SME picture of the contribution of key accounts to the Group. start-up solution provides SME customers real-time access to sales dashboards, inventory levels and business reports from anywhere and at any time in order to manage and monitor their business effectively and efficiently. 65

In the FinTech and start-up space, we are looking to embrace the Beyond achievements seen in Singapore, we maintained our fintech world by partnering and collaborating with innovative start- dedication in delivering value-added services to our customers by ups that can complement our financial business. To this end, we improving our operational efficiencies on the SME front. Towards have partnered with Startupbootcamp FinTech, a leading global this end, we rolled out our SME field collection model to ensure our start-up accelerator focused on financial innovation, providing collection and recovery remain robust, and initiated refinement of funding, mentorship and access to a global network of investors the SME end-to-end credit process for greater efficiency. This and VCs, for up to ten selected FinTech start-ups. Our partnership refinement is aimed at reducing SME TAT for financing approval by with Startupbootcamp gives us access to FinTech start-ups through ~15% – ~50%. 2016 will see further enhancements such as the various events such as Hackathons, Fast Track Days, FinTech implementation of the Retail SME credit model and the SME Loans Lounge and the three-month Accelerator Programme. Origination System to enrich the end-to-end credit process. The rollout of the Business Banking Operating Model in 2014 continued As a first step towards creating a digital ecosystem to fulfil the to reap benefits in 2015 with significant improvement in TAT and everyday lifestyle needs of our customers, we have partnered with sales productivity, registering increased SME sales as a result. In TableApp, Malaysia’s first restaurant reservations application to order to ensure the sustainability of this initiative, we have also provide simplified dining reservation processes for customers. This upskilled our sales force for PLM and MM through a holistic training collaboration represents RHB’s first with a start-up providing programme. innovative lifestyle offerings and e-commerce payment services. With this partnership running parallel with increased adoption of Another key highlight of 2015 was the merging of RHB Bank and technology, RHB is one step closer to realising a core part of our RHB Investment Bank Treasury functions for the Singapore and transformational strategy – to be a next generation digital bank Thailand offices, which created a more streamlined and cohesive that provides our customers with services beyond banking. function, sharpening our focus in pursuit of increased revenue growth. 2015 also saw the introduction of a plethora of new Given our drive to increase our focus on digital growth, the Digital Treasury products as we continued to develop and deepen our Centre of Excellence was also established in November 2015, to relationships with our customers in efforts to firmly establish drive delivery of key digital initiatives aimed at fulfilling RHB’s ourselves in the Treasury market. digital aspirations, as well as to look at digital innovations to keep RHB at the forefront of digital banking. Looking ahead to 2016, we Alongside boosting revenue growth, we also worked on driving will continue to pursue digital innovations for the bank and down our cost-to-income ratio through tactical and structural cost implement further enhancements that will take us closer to being management. We implemented multiple cost saving initiatives as an innovative digital banking leader in line with the needs of our well as improved productivity through the Career Transition Scheme customers. and Performance Improvement Programme. In order for us to better reach our customers, we are in the midst of harmonising our Driving Profitability & Efficiency branches and EASY outlets, and this will continue through to 2016. Throughout 2015, one of the main avenues to drive profitability was through our key revenue levers, predominantly Singapore, SME Another core driver to boost profitability was through optimising and Regional Treasury. An increased regional collaboration and our capital and balance sheet. Benefits reaped in 2015 included a synergy of functions across the Group saw the expansion of the reduction in risk weighted assets (“RWA”) through various RWA Client Coverage Model (previously Global Account Management) to optimisation initiatives and model refinement. Further, the rollout Singapore. Our extended reach has allowed us to drive cross-selling of the enhanced risk-adjusted performance management model and improve operational efficiencies to further strengthen our (“RAROC”) has provided valuable insights to facilitate the businesses market position. Other notable achievements in Singapore included in managing their respective portfolios with a view to optimise the completion of the target operating model for transaction capital utilisation and thus increase profitability. We believe that banking customers’ on-boarding process and the setting up of a this is a powerful tool that can push us towards greater profitability cross-border referral desk which has opened up increased revenue in the long term, which is why considerable time and resources will opportunities. be invested to embed RAROC capabilities across our core businesses. 66 RHB Capital Berhad Annual Report 2015 Our STRATEGY (continued)

THE JOURNEY AHEAD

In light of RHB’s reframed strategy to prioritise performance (i.e. ROE) over size, we had in 2015 sharpened our focus on 17 initiatives to deliver IGNITE 2017 objectives and 2020 aspirations.

atial Cot ain Capital ptiiation – Career Transition Scheme Optimise capital consumption – Reducing non-payroll cost by 10% through model refinements rodutiit proeent RARC roitailit nhaneent Drive productivity improvement Drive ROE and profitability uplift across the group through RAROC analysis and portfolio improvement strategies ptiiin etor nerie Aluent eent trate Optimise network across the group Leverage strong relationship and EASYnise the branches with SME owners and corporate C-suites to increase market share CC2 RHB a Delight customers through a Aluent eent trate personalising our service, Deepen share of wallet by e n e in making it simple and fast r r n offering suitable solutions u e i o l n and being their trusted r Optimise portfolio and a digital customer e partner u risk-adjusted experience i n returns Deliver n t i i superior h Central Client noardin e d e roth trate n 2 customer r Deliver quality and u e Manage experience e Build proposition around SME n seamless customer d cost & t ecosystem to capture i i enhance u a interactions across the

end-to-end value chain and i

productivity n group for corporate clients

strengthen credit capabilities e

Build r ecosystem nhane Cutoer periene Aet anaeent trate for Digital & throuh perational iien Rapid expansion of agency Boost Payments Enable RHB Way through and RHB Group distribution revenue enablement operational improvements from key Reional reaur trate growth & innovations areas Engage & develop Establish Singapore as 1 non-MYR hub with country our talent into high performing teams specific strategies iital aent trate inapore roth trate Deliver segment-driven lifestyle Focus growth through ettin the eople ecosystem through digital and regional treasury, SME and raniation Riht payments innovation with C+IB collaboration industry collaboration CB roth trate Rewire CIB across the region and increase share of wallet alent anaeent through GAM1 and regional Engage, sustain and develop our collaboration talent into high performing teams

ote 1 GAM (Global Account Management) is an initiative to improve RHB’s internal coordination and external service quality with our top corporate customers. 2 CONNECT is RHB’s branch sales management model covering key elements such as sales model, sales tools, sales routine and planning, sales performance management and branch organisation. 67

Our priorities for 2016 are centred around our customers and a relentless focus on managing our cost and productivity. Despite the strong headwinds, we are resolved in strengthening our foothold by synergising and upskilling our organisation, deepening share of wallet of better quality segments and retaining market leadership in our areas of strength.

What we can expect for the year ahead includes the execution of our growth strategies for the following areas: Affluent, Mass Affluent, CIB and Asset Management, Regional Treasury, Singapore and SME. Our ultimate aim is to provide holistic, innovative and segment-driven product offerings to capture the end-to-end value chain of high-margin and profitable segments, while delivering a superior customer experience across all segments and channels at the same time. 2016 will also see the operationalising of our Client Coverage Model to improve internal coordination, provide a superior customer experience to the Group’s top corporate clients and focus on client account penetration.

The year ahead will also see considerable work done around managing cost, driving productivity improvement and cultivating greater collaboration across the Group. We will be working on realigning and rewiring our operating models, as well as optimising our network synergies to unlock greater efficiencies and improve our reach to customers. Running in parallel will be our commitment to continuously mark our presence in the digital space by revitalising digital customer experience and enablement through innovative solutions.

At the heart of our organisation is our people and we will continue to invest in the development of our talents and provide them with the platform to grow professionally and personally. Programmes will continue to be established to drive greater employee engagement and galvanise our employees behind our newly launched brand promise to deliver superior service to our customers. 68 RHB Capital Berhad Annual Report 2015 DRIVING AN INNOVATIVE CULTURE

AS PART OF OUR CONTINUING EFFORTS TO GROOM OUR NEXT GENERATION OF LEADERS, WE ENDEAVOUR TO PROVIDE OUR EMPLOYEES WITH OPPORTUNITIES FOR PERSONAL GROWTH AND PROFESSIONAL DEVELOPMENT. WE BELIEVE THAT OUR HUMAN RESOURCE CAPABILITIES PLAY A VITAL ROLE IN DRIVING A CULTURE OF INNOVATION WITHIN THE GROUP, WHICH IS CRUCIAL FOR REALISING OUR AMBITIONS OF BECOMING A LEADING MULTINATIONAL FINANCIAL SERVICES GROUP BY 2020.

In support of this endeavour, our state-of-the-art RHB Academy In line with this, we strive to promote equal opportunities for all offers innovative programmes through various forms such as employees, avoid discrimination of any kind and accommodate the e-learning and action-based learning, encompassing a broad range needs of those challenged by disability or personal circumstances. of technical and soft skills. We also recognise and reward our employees, particularly exceptional performers, through various initiatives. In 2015, our talent management efforts were focused on identifying and nurturing potential leaders. Measures were also undertaken to At the end of the year under review, the Group’s workforce was diversify our talent pool and equip them with the necessary skills represented by 16,117 permanent employees, with the majority to enhance the Group’s capabilities. Additionally, we adopted a based in our Malaysian operations. We also employed a total of more holistic view in encouraging a high-performance culture, 1,392 contract/temporary staff. implementing various initiatives to motivate and reward our workforce. The Group recorded an attrition rate of 26.8% in 2015, of which Regrettable attrition1 accounted for 11.8% and 14.9% represented Non-Regrettable attrition2. The attrition rate from sales personnel RHB AS AN EQUAL OPPORTUNITY EMPLOYER stood at 17.71%. In terms of gender diversity, our ratio of female to male employees was 58:42. We also registered a 52:48 ethnicity Guided by the principles of meritocracy and fairness, RHB is proud ratio of Bumiputera to non-Bumiputera employees. Moving forward, to advocate equal opportunity employment. We seek to ensure that we aim to achieve a more balanced and equitable representation of all our staff enjoy the same opportunities and access to self- gender and ethnicity throughout the Group. development within the Group regardless of gender, ethnicity, religion or disabilities.

Note: 1 Regrettable – performance rates of ‘Meets Expectations and above’ 2 Non-regrettable – attrition due to employer’s decision, expiry of contracts, disciplinary actions 69

Gender Representation in 2015 4.2 Attrition/Total Headcount

Gender All %

Male 6,757 41.92 Female 9,360 58.08

Regrettable-Attrition Senior Non-Regrettable-Attrition Management Gender & Above % 2014 2015 Male 170 73.91 (Jan-Dec) (Jan-Dec) Female 60 26.09

4.3 Total Attrition by Employment Status Generation Representation in 2015

Generation All %

Gen Y 7,479 46.40 Gen X 6,926 42.97 Baby Boomers 1,708 10.60

Traditionalists 4 0.02 Permanent Contract Temporary Ethnicity Representation in 2015

Ethnicity All %

Bumi 8,416 52.22 Non-Bumi 7,701 47.78 2014 2015 (Jan-Dec) (Full Year)

Personnel Cost

Generation Ratios

Personnel Cost to Income 32.4 PBT vs Personnel Cost 0.9 Average PBT per employee RM130,716 Average Personnel Cost per employee RM143,892 Cost to Income 61.3% 70 RHB Capital Berhad Annual Report 2015 driving an innovative culture (continued)

MANAGING TALENT & SUCCESSION PLANNING INNOVATION THROUGH EFFECTIVE MANAGEMENT OF HUMAN RESOURCES In 2015, we completed our talent review based on businesses and functions within the Group for positions deemed key and critical to In our continuous effort to enhance operational efficiency and the organisation. Following this exercise, we identified 270 improve productivity, we had in 2015 launched the Internal successors for the GMD-1 and GMD-2 positions, of which 40% were Customer Effectiveness Survey (“ICES”). This survey had resulted in categorised as High Potentials and 28% as Emerging Leaders. These better engagement amongst employees and has led to a significant talents have since completed 97% of the associated leadership rise in staff engagement and participation of 31.07% for our assessments in collaboration with Development Dimensions employees in Malaysia, and 12.18% for our overseas operations. International (“DDI”) and have been categorised as “Ready Now Successors” or “Ready Soon Successors”. The assessments have The ICES is aimed at boosting internal staff collaboration and also provided the Group with a better view and understanding of greater understanding of job functions and internal processes. This the strengths and development needs of the successors and enabled also serves as a preparatory tool for staff (especially front-liners) to a more targeted and structured approach towards developing our provide quality services to external customers and stakeholders. leadership pipeline. In recognising the importance of communication and to enhance In a further effort to develop the Group’s future leaders, we have productivity within the organisation, during the year we launched introduced a new leadership development programme for our high the Senior Management Roadshow. This nationwide initiative aims potential talents in collaboration with the Australian Institute of to increase interaction and boost engagement with employees on Management West Australia (“AIMWA”), called the Core Leadership the ground. Development Programme. We have also put in place an intensive learning programme known as the RHB Accelerated Leadership Led by our Group Managing Director, this initiative saw our Senior Development Programme that spreads over a period of six months, leaders visiting a total of 143 branches by the end of 2015. featuring pre-course work, workshops and action learning projects. We also launched the Group Human Resources (“GHR”) Additionally, we continued to collaborate with INSEAD, a leading Communications Framework, aimed at increasing the effectiveness graduate business school, as we sought to enhance our senior and efficiency of communications delivered on all people-related leadership development programme. In January and May 2015, two matters. The framework will focus on eight different areas of human cohorts of 40 participants each underwent the programme, which resources and aims to bring forth periodic and timely dissemination was held in Kuala Lumpur and Singapore. of information. It will also align the delivery methods and approach of all GHR communications to allow us to communicate in a more We aim to maintain these collaborations and continue the leadership uniform, effective and consistent manner. assessments with DDI in 2016, as well as complete Individual Development Plans for all identified successors and talents. As part of our initiatives to strengthen our employer brand and increase talent retention, we introduced “The RHB Culture” handbook, the first from our Delivering High Performance Book Series. The handbook covers the fundamentals of human resources, encompassing the Talent Management Cycle, our PRIDE core values and our RHB Employee Value Proposition, known as the RHB CLIP-R Statement. The RHB CLIP-R statement is rooted in the five pillars of RHB Cares, RHB Leads, RHB Inspires, RHB Progresses and RHB Rewards. The RHB Culture handbook was distributed to all our employees in the various countries we operate in, and was also translated into Bahasa Malaysia to ensure we engaged all groups of our employees. 71

he RHB ploee alue ropoition ur plede a an eploer

RHB npire We strive towards a high performance culture that empowers you to discover your true potential

RHB ead RHB roree Our visionary leaders are passionate and sponsor We offer accelerated growth and progression, a culture of inclusiveness, aligning all employees with focus on continuous learning experience towards common goals coupled with regional mobility for a holistic experience via our comprehensive talent management practices

RHB Care RHB Reard We are a responsible employer who actively We reward competitively and timely through a robust responds to and recognises the needs of our pay-for-performance policy that is benchmarked stakeholders; and diligently practise transparent against the industry communication

RA A AC RAC At RHB, we take PRIDE in our people and our teams. Great relationships built on trust, a ‘leading it right’ environment, challenging assignments and a culture of excellence are the pillars to the dynamic workplace we call home. 72 RHB Capital Berhad Annual Report 2015 driving an innovative culture (continued)

INSPIRING OUR TALENT

The Group invested RM31.88 million on talent development began formulating the Group’s Industry and Technical Competencies, programmes throughout the year, with 91% of employees attending with the Industry Competencies built on seven domains and the development programmes either in leadership, technical or Technical Competencies based on 18 domains. This is a large-scale functional training. Each of our employees also completed an project and is scheduled for completion in 2017. average of 13.69 hours of training. A new interactive service delivery methodology, Service Excellence, As part of our Leadership Talk Series, we collaborated with prolific the RHB Way, was introduced during the year to equip employees and innovative leaders such as Dominic Alldis from Music & with tips and techniques to enhance capabilities in providing Management to share his insights on Business Leadership. Other excellent service to our customers. The RHB Way has been adopted prominent figures in the series included Tan Sri Tony Fernandes, throughout the Group’s customer touch points. Group CEO of Air Asia and Dato’ Sri Abdul Wahid Omar, Minister in the Prime Minister’s Department, who also shared their personal As we approach the completion of IGNITE 2017, in 2016 GHR will experiences and insights on leadership. focus on revising its Learning & Development Architecture and launching a new RHB Leadership & Management Learning Series. It We also implemented the revised Core & Leadership Competency also seeks to establish the RHB Executive Leadership Development Dictionary to help provide our employees understand the knowledge, City Campus and launch the Performance Management Learning skills and behaviours required for a role to be carried out efficiently. Series. Additionally, GHR aims to establish career paths based on The Core & Leadership Competencies form the building blocks for the development of a technical and functional competencies all talent and succession initiatives throughout the Group. We also curriculum.

RHB Talk Series 2015

Topic Speaker Date

Industry Talk: Market Outlook on Key Sectors RHB Research Institute 10 February 2015 – Plantation, Oil & Gas, Property, Construction & 10 March 2015 Business Leadership Dominic Alldis, jazz musician, conductor and founder of 24 March 2015 Music & Management Ltd Leadership & Employee Engagement Jamil Qureishi 23 April 2015 What The CEO Really Wants From You R. Gopalakrishnan 21 June 2015 Leading Yourself First and Outcomes & Ownership Mark Fritz, Associate Professor & International Speaker 4 August 2015 Creating Innovative Strategies Dr Gordon Hewitt, Professor of Administration, Ross 2 September 2015 School of Business, University of Michigan What is Required of Leaders During Times of Dato’ Sri Abdul Wahid Omar, Minister in the Prime 4 September 2015 Uncertainty & Change Minister’s Department Transformation Strategy Tan Sri Tony Fernandes, AirAsia Group CEO 1 December 2015 73

In recognition of our efforts in talent management, we were RECRUITMENT & SELECTION presented with the following awards in 2015: During the year, the Group trained 37 HR personnel to undergo • HR Asia’s Best Employers To Work for in Asia 2015 (Malaysian Competency-Based Interview (“CBI”) certification, enabling the Chapter) Group to adopt CBI practices for our recruitment process. This was • Asia Corporate Excellence & Sustainability Awards 2015 – Top supplemented with e-learning coursework. Companies to Work for 2015 We will continue to focus on enhancing our recruitment and • Graduan Malaysia’s Most Preferred Employers Named By Talents selection framework, implementing the CBI approach to our talent • Best Employer Brand Award by Employer Branding Institute selection process and establishing a One-Stop Recruitment Centre for seamless integration and on-boarding. We will also introduce a • Malaysia’s 100 Leading Employers by GTI Media. structured on-boarding and early engagement programme.

We also held our inaugural RHB GMD Awards to recognise budding In 2015, we also introduced the RHB Flexi-Hours Arrangement in an talent and those who go the extra mile in the workplace. The RHB effort to improve productivity. Additionally, we will continue to GMD Awards recognise and reward those who have made significant enhance our organisation structure and conduct job evaluation, contributions in the area of social responsibility, customer while re-establishing job families and realigning positions and job experience and business excellence. The award will be held on a descriptions. Added focus will be placed on institution alising a job quarterly basis, with the first held in the fourth quarter of 2015. management system to ensure a more systematic and uniform approach. As an extension of our employees’ total rewards system, we introduced an employee application, known as PerkSense, offering Following the Group Cost Savings Initiative announced in 2014, we employees access to multiple discounts and freebies from top-notch recruited less staff in 2015, with total recruitment amounting to merchants. 3,492 employees comprising permanent, contract and temporary staff. In line with our reframed strategy under IGNITE 2017 to focus on performance over size, we will also be more selective in our A HEALTHY MIND FOR A HEALTHY BODY recruitment as we source for the best talents to support the achievement of our long-term goals. In emphasising the importance of maintaining a healthy lifestyle among our employees, we established the Healthiest Sector Recognition award in November 2015 following the launch of our “Jom Sihat” campaign in April. These initiatives have paved the way for the introduction of other activities such as the Wellness Power Start, RHB Staircase Day, Fun Ride with GMD and the OSH & Wellness Day. 74 RHB Capital Berhad Annual Report 2015 PERFORMANCE REVIEW

The following analysis of financial performance should be read in Financial Assets and Investments Portfolio conjunction with the audited financial statements of the Group for The Group’s financial assets and investments portfolio comprises the financial year ended 31 December 2015. financial investments available-for-sale (“AFS”), financial assets at fair value through profit or loss (“FVTPL”) and financial investments held-to-maturity (“HTM”). ANALYSIS OF THE1% STATEMENTS OF FINANCIAL POSITION The Group’s financial assets and investments portfolio increased by Total Assets 2% 9% 9.4% to RM47.0 billion due to higher purchases of private and The Group’s total3% assets stood at RM230.7 billion as at 31 December Islamic debt securities both in and outside Malaysia. 2015, an increase of 5.2% over the previous financial year. The 25% increase was mainly due to growth in net loans, advances and 4% As at 31 December 2015, financial investments AFS accounted for financing of RM8.9 billion and financial assets and investments 53% of the Group’s financial assets and investments portfolio, portfolio of RM4.0 billion, partially offset by decrease in cash and followed by HTM which accounted for 44% and FVTPL 3%. short term funds of 6%RM4.3 billion. Loans, advances and financing remain as the largest component of the total assets at 64.8% Loans, Advances and Financing (2014: 64.1%). The Group’s gross loans and financing grew by 6.2% to RM151.4 billion. Gross loans growth picked up in the second half 7% of 2015 compared to a growth of only 1.5% in the first half of Cash & Short Term Funds and Deposits & Placements with Banks 2015. The growth was broad based, predominantly from purchase and Other Financial Institutions of residential and non-residential properties, working capital and The Group’s total cash & short term funds and deposits & construction. placements with banks and8% other financial institutions decreased25% by 23.1% to RM14.3 billion as at 31 December 2015. Domestic loans grew by 4.7% and domestic loans market share 10% stood at 9.4% as at 31 December 2015.

Loans, Advances and Financing – by Propose 2015 Loans, Advances and Financing – by Propose 2014

1% 1% 2% 9% 11% Purchase of residential property 2% 3% 22% 25% Working capital 3% 4% Purchase of securities 4% 6% Purchase of non-residential property 5%

7% Purchase of transport vehicles Personal use 9% Construction 25% 8% 25% Purchase of property, plant and 7% 10% equipment other than land and building 11% Merger and acquisition Credit card Other purpose

Purchase of residential property Purchase of residential property Working capital Working capital Purchase of securities Purchase of securities Purchase of non-residential Purchase of non-residential property property Purchase of transport vehicles Purchase of transport vehicles Personal use Personal use Construction Construction Purchase of property, plant and Purchase of property, plant and equipment other than land and building equipment other than land and building Merger and acquisition Merger and acquisition Credit card Credit card Other purpose Other purpose 75

Gross Impaired Loans (RM’million) Gross Impaired Loans Ratio (%) 2,892 2.03% 2,841 1.88%

14’ 15’ 14’ 15’ 5%

Asset Quality Shareholders’ funds increased by 22.8% to RM23.1 billion with the Asset quality continued to improve19% with gross impaired loans ratio completion of rights issue of RM2.3 billion and the profit recorded decreasing to 1.88% from 2.03% in December 2014. for the year. Net assets per share stood at RM7.51 as at 31 December 2015. Total Liabilities and Equity Deposits from Customers Total liabilities increased by RM7.1 billion or 3.6% to RM207.6 billion as at 31 December 2015, mainly due to the increase in obligations As the Group continues to rebalance its liquidity and funding mix, on securities sold under repurchase agreements of RM4.4 billion, customer deposits grew by a marginal 0.6% during the year to trading derivatives of RM3.0 million and customer deposits of RM158.2 billion. Current and savings account (“CASA”) balances RM1.0 billion. registered a strong growth of 11.0%, resulting in the CASA composition improving to 24.0% as at 31 December 2015 from 21.7% in December 2014.

76% Deposits From Customers – by Type 2015 Deposits From Customers – by Type 2014

5% 5%

19% 17%

Fixed/investment deposits Demand deposits 76% Savings deposits 78%

Fixed/investment deposits Fixed/investment deposits Demand deposits Demand deposits Savings deposits Savings deposits 3% 7%

76 RHB Capital Berhad Annual Report 2015

performance29% Review (continued)

Deposits From Customers – by Customers 2015 61% Deposits From Customers – by Customers 2014

3% 4% 7% 7%

29% 27%

Business enterprises Individuals 61% Government and statutory bodies 62% Others

Business enterprises Business enterprises Individuals Individuals Government and statutory bodies Government and statutory bodies Deposits and Placements of BanksOthers and Other Financial Institutions Subordinated Obligations Others Deposits and placements of banks and other financial institutions Subordinated obligations decreased slightly by RM0.2 billion or decreased by RM0.7 billion or 3.3% to RM20.6 billion in December 3.3%, mainly due to redemption of subordinated notes due for step- 2015, mainly due to the decrease in deposit with other financial up in coupon rates, partially offset by new issuances during the year. institutions but partially mitigated by deposits with licensed Islamic banks. Capital Adequacy The capital ratios of key subsidiaries remained healthy. Borrowings and Senior Debt Securities Borrowings and senior debt securities increased by RM0.2 billion, CET 1 Tier 1 Total mainly from foreign exchange loss arising from depreciation of Capital Ratio Capital Ratio Capital Ratio Ringgit Malaysia, partially offset be repayment made during the year. RHB Bank Berhad 11.598% 11.990% 15.353% RHB Islamic Bank 11.041% 11.041% 14.608% Berhad RHB Investment Bank 22.917% 22.917% 22.917% Berhad 77

ANALYSIS OF THE INCOME STATEMENTS

The Group reported a pre-tax profit of RM2,106.7 million and net profit of RM1,511.4 million respectively for the financial year ended 31 December 2015. Excluding34% a one-off Career Transition Scheme (“CTS”) expenses of RM308.8 million, the Group’s normalised pre-tax profit was at RM2,415.5 million, lower by 11.7% as compared to previous year.

The Group’s performance was affected by lower investment banking and securities market related fee income, lower trading income, higher loan impairment charges, and absence of large write-back and income from disposal of investments during the year.

Income Mix 2015 Income Mix 2014 66%

34% 37%

66% 63%

Net Interest/Fund Based Income Other Operating/Non-Fund Based Income

Net Interest/Fund Based Income Net Interest/Fund Based Income Other Operating/Non-Fund Based Income Other Operating/Non-Fund Based Income

Net Interest/Fund Based Income Other Operating/Non-Fund Based Income Gross fund based income increased by 9.7% on the back of 6.2% Non-fund based income was lower by 8.2% at RM2,107.9 million. increase in gross loans and financing. Funding and interest expense Capital and financial market volatility resulted in lower investment however, was higher by 14.5% mainly due to higher customer banking and securities market related fee income, as well as lower deposit and higher funding expense on sukuk and sub-debts trading and investment income. This was partially offset by increase totaling RM1.5 billion and USD300 million senior unsecured notes in wealth management fee income. Asset Under Management under issued during the second half of 2014. As a result, net fund based the Group’s wealth management business increased by RM3.5 billion income grew by 3.7% to RM4,083.3 million with net interest margin or 7.2% to RM52.0 billion, affirming our position as the 3rd largest for the year lower at 2.14% as compared to 2.30% in 2014. fund manager in the country. 17%

78 RHB Capital Berhad Annual Report 2015 performance Review (continued) 41% 17%

Fee Income Mix 2015 Fee Income Mix 2014

17% 25% 26%

41% 39% 17%

11% Service charges, commission, guarantee and commitment fees Net brokerage 25% 24% Fund management and unit trust fee Corporate advisory, underwriting, arrangement fee and other fee income

Service charges, commission, Service charges, commission, guarantee and commitment fees guarantee and commitment fees Net brokerage Net brokerage Fund management and unit trust fee Fund management and unit trust fee Corporate advisory, underwriting, Corporate advisory, underwriting, arrangement fee and other fee income arrangement fee and other fee income

Other Operating Expenses Impairment Losses on Other Assets Excluding the one off CTS expenses, other operating expenses rose Impairment losses written back on other assets were lower at marginally by 2.1%, reflecting our effective cost management across RM48.8 million due to non-recurrence of a one-off recovery in the Group. The Group has completed the CTS in Malaysia with a 2014. total of 1,812 applications accepted and payout amounting to RM308.8 million.

Allowance for Impairment on Loans, Financing and Other Losses Allowance for impairment on loans and financing for the year increased to RM340.3 million or 65.0%. The increase was primarily due to higher individual allowance and absence of one-off major recoveries in 2014. However, this was partially mitigated by lower collective allowances arising from the refinement of Retail collective assessment impairment methodology performed in previous year. 79 ACTUAL VS TARGET FOR 2015

Top Level Indicators Target 2015 Actual 2015

ROE >11.5% 7.3% (Exclude CTS: 8.4%)

Loans Growth 10% 6.2%

CASA Growth >10% 11.0%

Gross Impaired Loans Ratio <1.8% 1.9%

Cost to Income Ratio <51% 56.3%

Overseas Revenue Contribution >13% 14.4%

Note: CTS: Career Transition Scheme Expenses 80 RHB Capital Berhad Annual Report 2015 CAPITAL MANAGEMENT

OVERVIEW CAPITAL MONITORING AND PLANNING

The Group’s capital management approach focuses on maintaining Effective capital management is fundamental in maintaining the a healthy capital position to support its business growth whilst business sustainability. The Group manages its capital position optimising returns to our shareholders. The capital structure and proactively in order to meet the regulatory requirements, framework is designed to meet not only the regulatory requirements expectations from various stakeholders and support its strategic but also to satisfy the expectations from the various stakeholders, business objectives. such as shareholders, investors, customers as well as the rating agencies. As such, the Group Capital Management Framework The Group achieves these objectives through the annual Internal (“CMF”) is in place to provide an overview of integrated capital Capital Adequacy Assessment Process (“ICAAP”) whereby we management capability that transcends risk, finance and capital actively monitor and manage the capital position over a three-year management, bringing greater value to the business. The key horizon, involving the following key activities: principles of the Group CMF are listed as follows: (i) Setting capital targets under both normal and stressed (i) Principle 1: Capital Management Governance conditions for all banking subsidiaries, both group and entity level, taking into account anticipated future regulatory changes Governance is in place to oversee capital management and stakeholder expectations; activities and clearly defines roles & responsibilities within the organisation. (ii) Forecasting capital demand for material risks based on the Group’s risk appetite; (ii) Principle 2: Capital Management Activities – Capital Strategy (iii) Determine the requirements for capital issuance and the The capital strategy is aligned with the overall business maturity profiles of capital securities. strategy, risk profile and regulatory requirements. The Board Risk Committee (“BRC”) and Group Capital and Risk (iii) Principle 3: Capital Management Activities – Capital Planning Committee (“GCRC”) are responsible for overseeing the capital The Group formulates comprehensive and forward looking planning and assessment process within the Group and ensuring capital plan to ensure sustainability and support business that the Group and its subsidiaries maintain an appropriate level growth. quality of capital that is in line with its overall risk profile and business strategy. (iv) Principle 4: Capital Management Activities – Capital Allocation/ Structuring/Optimisation Robust capital management activities allow the Group to CAPITAL INITIATIVES DURING THE YEAR structure capital allocation efficiently across its business and The key capital initiatives undertaken during the financial year entities to maximise return and ensuring optimum utilisation include: of capital. (i) Rights issue of RM2.34 billion completed by RHB Capital (v) Principle 5: Capital Analytics Berhad on 21 December 2015, which shall be utilised to This provides insights to formulate the bank’s capital further strengthen RHB Bank’s capital position and to finance management strategy and help determine capital supply and the working capital requirements of RHB Bank and its demand requirements. subsidiaries upon completion of the Group’s internal reorganisation exercise. (vi) Principle 6: Capital Reporting & Monitoring (ii) Basel II Tier 2 Subordinated Obligations for RHB Bank amounting This is essential to ensure complete, timely and accurate to RM700 million was called in April 2015 and replaced with production of capital information for management decisions. Basel III-Compliant Tier 2 Subordinated Obligations of RM500 million issued out of the existing RM5.0 billion multi- currency medium term note (“MCMTN”) programme. 81

(iii) Basel II Tier 2 Subordinated Obligations for RHB Investment CAPITAL ADEQUACY RATIOS Bank amounting to RM125 million and RM75 million was called in April 2015 and May 2015 respectively, and replaced Under BNM’s Capital Adequacy Framework (Capital Components), with Basel III-Compliant Tier 2 Subordinated Obligations of which came into effect on 13 October 2015, all financial institutions RM200 million issued out of the existing RM1.0 billion MCMTN are required to maintain the regulatory minimum Common Equity programme. Tier 1 Capital (CET1), Tier 1 Capital (Tier1) and Total Capital Ratio of 4.5%, 6.0% and 8.0% respectively. The regulatory minimum capital requirements will also include the introduction of Capital Conservation Buffer, which will be phased-in at 0.625% each year starting from 1 January 2016 (total of 2.5% by 2019).

The table below shows the relevant capital ratios of the key regulated banking entities of the Group is well above the minimum regulatory requirements:

RHB Minimum RHB Bank RHB Islamic Investment RHB Regulatory As at 31 December 2015 (Group) RHB Bank Bank (Group) Investment Ratio

Before proposed dividends: CET1 Ratio 12.029% 12.126% 11.041% 30.483% 22.917% 4.500%

Tier1 Ratio 12.367% 12.518% 11.041% 30.498% 22.917% 6.000%

Total Capital Ratio 16.538% 15.881% 14.608% 40.485% 22.917% 8.000%

After proposed dividends: CET1 Ratio 11.574% 11.598% 11.041% 30.483% 22.917% 4.500%

Tier1 Ratio 11.912% 11.990% 11.041% 30.498% 22.917% 6.000%

Total Capital Ratio 16.083% 15.353% 14.608% 40.485% 22.917% 8.000% 82 RHB Capital Berhad Annual Report 2015 RHB SHARE INFORMATION

COMPANY NAME: FINANCIAL YEAR END: RHB Capital Berhad 31 December

STOCK NAME: SHARE REGISTRAR: RHBCAP Symphony Share Registrars Sdn Bhd Level 6, Symphony House, Pusat Dagangan Dana 1, STOCK CODE: Jalan PJU 1A/46, 47301 Petaling Jaya, Selangor Darul Ehsan 1066 (BURSA MALAYSIA) PRIMARY CONTACT PERSON FOR INVESTOR RELATIONS: Yap Choi Foong TICKER CODE: Group Chief Financial Officer RHB MK RHBC KL Tel: 603-9280 2489 (BLOOMBERG) (REUTERS) Email: [email protected]

Share Related Key Highlights

FY2015 FY2014

Total Shareholders’ Returns (%) –22.30 –2.40 Market Capitalisation as at 31 December (RM’billion) 17.43 19.60 Closing Price as at 31 December (RM) 5.67 7.62 Highest Closing Price (RM) 8.30 9.50 Average Closing Price (RM) 7.08 8.40 Lowest Closing Price (RM) 5.55 7.06

Source: Bloomberg

Share Price (1 January 2015 – 31 December 2015) R B C RHB CA

8.5

8.0

7.5

7.0

6.5

6.0

5.5

5.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 15 15 15 15 15 15 15 15 15 15 15 15 83 BALANCE SHEET MANAGEMENT

The Group, under the governance of ALCO, has continued to Along with the enhanced FTP Regime, is the setting-up of clearer enhance and refine its FTP Framework to better reflect the changing line of responsibilities of Funding Center, parked under Corporate business environment. Treasury – optimising funding resources across all entities in the Group, to continue driving lower cost of funds and maximising FTP serves as a vital tool for allocating net interest income to returns on shareholders’ funds. various products and business units in the Group and thus, an integral part of the Group’s strategy in overall balance sheet management, in particular the profitability measurement and liquidity management.

Corporate reaurer roup AC

C RAC

RA roitailit rodut anaeent riin

iuidit Balane heet anaeent anaeent

FTP Framework & Guideline

SYSTEM & TECHNOLOGY INFRASTRUCTURE 84 RHB Capital Berhad Annual Report 2015 INVESTOR RELATIONS

OUR INVESTOR RELATIONS UNIT CONTINUED TO ACTIVELY ENGAGE WITH OUR INVESTORS DURING THE YEAR, AS WE REMAIN COMMITTED TO FOSTERING TRANSPARENCY IN THE GROUP’S OPERATIONS TO HELP INVESTORS MAKE INFORMED DECISIONS. THIS WAS ESPECIALLY VITAL IN LIGHT OF THE PREVAILING ECONOMIC LANDSCAPE AND INTERNAL DEVELOPMENTS WITHIN THE GROUP WHICH OCCURED IN 2015.

The year began with the Board of Director’s decision in January On matters beyond Malaysian shores, the Group had to contend 2015 to abort discussions on a proposed merger between the with issues relating to the global economic slowdown and the sharp Group, CIMB Group Holdings Berhad and Malaysia Building Society decrease in the price of commodities, particularly crude oil. This Berhad. This decision was taken in view of economic circumstances has impacted the Group’s operations, as announced in our weaker at the time, which had turned uncertain. quarterly financial results in 2015. With as much clarity and transparency as possible, we continued to reassure investors and A major development that required significant investor engagement the investment community at large with updates on the state of our included the exercise to raise up to RM2.5 billion via a renounceable operations in all business functions and countries. rights issue through new RHB Capital shares and the announcement of the Career Transition Scheme (“CTS”) later in the year, which In another development, the then Group Managing Director, Kellee involved the streamlining of the Group’s workforce under a voluntary Kam resigned in May 2015 from the Group. He was succeeded by separation scheme. As the announcement of the CTS and the Dato’ Khairussaleh Ramli as the Group’s new Managing Director. Group’s reorganisation exercise gained the attention of the public in the final quarter of the year, the Investor Relations unit worked The Group is a strong advocate of stakeholder engagement and to assure the investment community that the Group had implemented seeks to provide investors with prompt disbursement of information a smooth transition for all involved, with operations remaining and data points, to allow them to make the best investment largely business-as-usual. decision possible. As a practice, institutional investors are provided with opportunities to question and discuss wide-ranging operational and macroeconomic matters with members of senior management. For 2015, investor relations activities were led by Dato’ Khairussaleh Ramli, Group Managing Director and Ms Yap Choi Foong, Group Chief Financial Officer.

They were assisted by the Investor Relations team and selected members of senior management across the Group where necessary. 85

ANALYST BRIEFINGS

The Group conducted four live briefings for analysts in 2015 for its quarterly financial results announcements, two via tele-conferencing and another two face-to-face.

We ensure that the financial results, analyst presentations and press releases were sent in a timely manner to all interested parties and made available immediately on the Group’s Investor Relations website.

Results Announcement:

Date Event Type of Meeting

27 February 2015 RHB Capital 4Q14 Results Face-to-face briefing 29 May 2015 RHB Capital 1Q15 Results Tele-conferencing 28 August 2015 RHB Capital 2Q15 Results Face-to-face briefing 30 November 2015 RHB Capital 3Q15 Results Tele-conferencing

No. of Meetings/Events and No. of Participants

No. of Meetings/Events No. of Participant

One-On-One Meetings/Tele-Conferences 70 190 Analyst Briefing 4 160 Conference/Roadshow 8 104 Total 82 454

CONFERENCES AND ROADSHOWS

Date Event Location (Country)

23 March 2015 Credit Suisse 18th Annual Investment Conference 2015 Hong Kong 31 March 2015 RHB Fixed Income – MTN Roadshow Kuala Lumpur, Malaysia 23 April 2015 Invest Malaysia 2015 Kuala Lumpur, Malaysia 23 June 2015 Macquarie: ASEAN Banks Invasion Tour 2015 Kuala Lumpur, Malaysia 07 July 2015 DBS Pulse of Asia Singapore 11 September 2015 RHB Group Restructuring Roadshow Kuala Lumpur, Malaysia 27 October 2015 Invest Malaysia Hong Kong 2015 Hong Kong 04 November 2015 Non Deal Roadshow Singapore 86 RHB Capital Berhad Annual Report 2015 investor relations (continued)

AGM/EGM

RHB Capital Berhad held its 20th Annual General Meeting (AGM) on 30th April 2015 where the former Group Managing Director presented the 2014 financial performance and outlined the Group’s priorities for the year. Senior management and the Board of Directors took note of the many opinions and feedback from shareholders. They also addressed queries on both the financial performance and operational strategies of the Group.

RESEARCH COVERAGE

RHB Group remains a core coverage for the investment community on Bursa Malaysia with 20 analysts and research houses keeping the stock under coverage as at end December 2015. Coupled with the corporate developments during the year, the RHB Banking Group remained at the forefront of investors eyeballs throughout the year.

No. Research House No. Research House

1 Affin Hwang Investment Bank 11 KAF-Seagroatt & Campbell Securities 2 AmResearch 12 Kenanga Investment Bank 3 CIMB Investment Bank 13 Macquarie Capital Securities 4 Citi Investment Research 14 Maybank Investment Bank 5 CLSA Securities 15 MIDF Amanah Investment Bank 6 Credit Suisse Securities 16 Morgan Stanley Research 7 DBS Vickers Securities 17 Nomura Research 8 Hong Leong Investment Bank 18 TA Securities 9 HSBC Research 19 UBS Securities 10 JP Morgan Securities 20 UOB Kay Hian 87

CREDIT RATING

The Investor Relations team played a heightened role in engaging Credit Rating companies to ensure that the Group’s messaging and financial performance analysis are disseminated equally across all external stakeholders. We continued to engage with key rating agencies, namely: RAM Ratings, Standard and Poor’s (S&P) and Moody’s Investors Services.

RHB Bank Berhad Rating Agency Rating Classification Ratings

Long Term Financial Institution AA2 RAM Rating Services Berhad Short Term Financial Institution P1 Outlook Stable Long Term Counterparty BBB+ Short Term Counterparty A-2 Standard & Poor’s Rating Services ASEAN – Scale Long Term axA+ ASEAN – Scale Short Term axA-1 Outlook Stable Long Term Bank Deposits A3 Short Term Bank Deposits P-2 Moody’s Investors Service Bank Financial Strength D+ Outlook Stable

RHB Investment Bank Berhad Rating Agency Rating Classification Ratings

RHB Islamic Bank Berhad Rating Agency Rating Classification Ratings

Long Term Financial Institution AA2 RAM Rating Services Berhad Short Term Financial Institution P1 Outlook Stable 88 RHB Capital Berhad Annual Report 2015 FINANCIAL CALENDAR

27 February 2015 13 March 2015 27 March 2015 Announcement of the audited Announcement of the interim Book closure for determining the financial results of RHB Capital for dividend for the financial year ended entitlement of the interim dividend the financial year ended 31 December 31 December 2014 for the financial year ended 2014 31 December 2014

8 April 2015 13 April 2015 24 April 2015 Notice of the 20th Annual General Announcement of Group Corporate Date of payment of the single-tier Meeting and issuance of annual Restructuring Plan, including interim dividend of 6 sen per share report for the financial year ended renounceable rights issue, internal for the financial year ended 31 December 2014 reorganisation, distribution and 31 December 2014, of which the capital repayment, and transfer of Dividend Reinvestment Plan was listing status to RHB Bank Berhad applied to the interim dividend.

30 April 2015 29 May 2015 5 August 2015 20th Annual General Meeting Announcement of the unaudited Notice of Extraordinary General financial results of RHB Capital for Meeting and issuance of circular to the first quarter of the financial year shareholders ended 31 December 2015

27 August 2015 28 August 2015 9 September 2015 Extraordinary General Meeting Announcement of the unaudited Announcement of the renounceable financial results of RHB Capital for rights issue of 517,696,286 new the second quarter of the financial ordinary shares of RM1.00 each in RHB year ended 31 December 2015 Capital (“RHB Capital Shares”) (“Rights Shares”) at an issue price of RM4.82 per Rights Share, on the basis of one (1) Rights Share for every five (5) existing RHB Capital Shares (“Rights Issue”) 89

23 September 2015 23 November 2015 30 November 2015 Amended announcement of the Book closure for determining the Announcement of the unaudited renounceable Rights Issue entitlement of the Rights Issue financial results of RHB Capital for the third quarter of the financial year ended 31 December 2015

21 December 2015 26 February 2016 30 March 2016 Completion of Rights Issue Announcement of the audited Announcement of the interim financial results of RHB Capital for dividend for the financial year ended the financial year ended 31 December 31 December 2015 2015

7 April 2016 13 April 2016 Notice of 21st Annual General Book closure for determining the Meeting and issuance of annual entitlement of the interim dividend report for the financial year ended for the financial year ended 31 December 2015 31 December 2015

29 April 2016 12 May 2016 Date of payment of the single-tier 21st Annual General Meeting interim cash dividend of 12 sen per share for the financial year ended 31 December 2015 BUSINESS OVERVIEW GROUP RETAIL BANKING 92

GROUP BUSINESS & TRANSACTION BANKING 100

GROUP CORPORATE & INVESTMENT BANKING 104

GROUP SHARIAH BUSINESS 112

GROUP TREASURY AND GLOBAL MARKETS 114

GROUP INSURANCE 116

INTERNATIONAL BUSINESS 118 92 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

GROUP RETAIL BANKING

GROUP RETAIL BANKING DELIVERED STRONG LOANS GROWTH OF 10.7%* IN 2015, SURPASSING INDUSTRY GROWTH OF 8.5%. THIS WAS ACHIEVED AGAINST A CHALLENGING ENVIRONMENT DURING THE YEAR, WHICH SAW SLOWING CONSUMER SPENDING AND PRESSURE ON MARGINS DUE TO LOW LOAN PRICING AND THE RISING COST OF FUNDS.

Overall revenue growth for Group Retail Banking remained flat in 2015 due to our active portfolio management to maintain profitability. In the year under review, Group Retail Banking recorded a 5% reduction in costs from a year earlier and an improvement in asset quality, with gross impaired loan (“GIL”) ratio decreasing to 1.6% from 1.9% in the previous year.

U Chen Hock For 2016, Group Retail Banking aims to continue to promote Wealth Management Group Retail Banking products and services to the Affluent segment by enhancing our overall value proposition with a full suite of investment and protection products and a robust advisory model. This will require us to improve our communication infrastructure and upgrade our portfolio management systems.

We also intend to strengthen our Mass Affluent proposition to attract this segment by addressing their lifestyle needs. Group Retail Banking will also continue to focus on improving overall customer experience and developing innovative digital propositions to further retain and attract customers.

Note: * Excludes Commercial Property Loan and ASB Financing 93

From an operational perspective, we will continue to LOANS GROWTH optimise cost through process automation and operating model improvement. Maintaining our asset quality will be a key focus in view of the current economic slowdown. 10.7% WEALTH MANAGEMENT

The Wealth Management segment through the expertise of GROSS IMPAIRED LOAN RATIO RHB Asset Management (“RHBAM”), launched seven new unit trust funds in 2015. To capture the market in all segments, especially Premier Banking customers, six of these funds were RHBAM IUTA (“Institutional Unit Trust 1.6% Advisers”) products.

The RHB-OSK Focus Income Bond Fund-Series 5 and the RHB Pre-IPO & Special Situation Fund 3 were the two best- selling funds in 2015. As a result, overall unit trust sales AFFLUENT SEGMENT & PREMIER BANKING recorded a 37% growth in 2015. In line with the RHB Banking Group’s aspirations to be a next generation Under the new Premier Banking Value Proposition Roadmap, customer-centric bank, in 2015 we established renewed focus on the Wealth Management will be expanding its product range in Affluent segment by targeting high net worth individuals. We aim to boost 2016. This will include new investment products such as the number of Affluent and Premier Banking customers, a vital sub- Equity-linked Structured Investments and Retail Bonds as a segment within the Affluent segment. means to accommodate customers’ differing risk appetite and investment portfolio strategies. While the Affluent clientele currently constitutes less than 10% of the Group’s total Retail Banking customers, this segment contributed 61% to Group Retail Banking deposits and 16% to the Group’s Retail Banking financing balances in 2015. This was achieved with greater penetration of Treasury products coupled with new funds launched in 2015 for Premier Banking customers. Both unit trust and Treasury product sales registered double-digit growth of 20% and 57%, respectively, under Premier Banking.

Moving forward, we believe that our Premier Banking brand will revitalise “OVERALL, UNIT TRUST our push into the Affluent Segment, allowing us to tap into opportunities from the Group’s customer base of SME owners and Corporate C-suites, as SALES RECORDED A 37% well as through external customer acquisition. GROWTH IN 2015.” We will also be launching a range of products and campaigns in 2016 specifically targeting Affluent customers, to promote and cross-sell Premier Banking to new-to-Affluent customers.

In addition, we will enhance our sales force, streamline processes and leverage on cutting-edge technology to create a fast and seamless banking experience for our customers. We are also working towards upgrading the look and feel of our Premier Centres so as to provide our Premier customers with a truly premium banking experience. 94 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

PRODUCTS AND SERVICES

Mortgage Loans RHB Banking Group’s residential mortgages portfolio grew by 19% while commercial property mortgages under the consumer segment rose by 10% in 2015. Although the growth in this segment has moderated compared to our 2014 performance, we continued to outperform industry growth rates and have gained market share, recording RM7.9 billion in mortgage sales against the backdrop of consolidation and declining property transaction volumes due to a mismatch in demand and supply of affordable homes and the impact of rising living costs on the mortgage industry.

We also remained disciplined in new booking activities, focusing on a quality and customer segment approach. In addition to strategies from the previous year, we are highly motivated in further strengthening our presence in key market centres. This will be done by partnering with key developers and realtors and by delivering our products via mobile sales teams for the added convenience and flexibility of our customers.

We will also focus on a segment-targeted approach under the reframed IGNITE 2017 and offer improved Islamic mortgage products to extend our market share in this segment. We are confident that this strategy mix will allow the Group to remain well-placed to capitalise on opportunities and address challenges which may arise in 2016.

Auto Financing Following the rationalisation of our Conventional and Islamic Auto Finance Centres in 2014, the Group continued to restructure its Auto Financing segment in an effort to achieve sustainable financial performance. The restructuring exercise was aimed at achieving resource optimisation.

As such, we aspire to book better quality loans through robust credit management and dynamic pricing. Concurrently, we will continue to improve our dealer and distributor network management. We hope to achieve this through greater collaboration on new vehicle launches and promotions by leveraging on our extensive distribution network and by further reducing the turn-around time for loan approvals.

RM7.9 BILLION IN MORTGAGE SALES 95 96 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

The acquisition of salary accounts also improves our opportunities to cross-sell other retail product offerings and increase customer wallet share. Additionally, we continue to invest in the Corporate Employee Privilege Programme platform to drive the efficiency and productivity of this channel.

In addition, several campaigns were rolled out in 2015 to drive acquisition and engagement with our targeted customer segments. Campaigns such as Prosperity Year FD Promotion, 12-Month Step-Up FD Promotion, Amazing FD Deals For You, Save with Rewards FD Promotion as well as CASA campaigns such as Save To Win and iterations of our Pay, Swipe & Save campaigns were launched to sustain growth and remain competitive among other players.

These initiatives strengthened our overall performance in 2015, enabling us to record a Total Deposit market share of 7.40%. Meanwhile, RHB Current Accounts and Savings Account growth outpaced industry growth of 0.3%.

Amanah Saham Bumiputera Financing The moderating economic conditions in 2015 contributed to a THESE INITIATIVES challenging year for our Amanah Saham Bumiputera (“ASB”) Financing portfolio, with an increase in units’ redemption and the STRENGTHENED OUR introduction of a restriction on new sales resulting in a marginal contraction of the portfolio. OVERALL PERFORMANCE IN

Nevertheless, we succeeded in minimising the revenue gap by 2015, ENABLING US increasing our efforts to sell Amanah Saham Nasional Bhd’s variable pricing unit trusts to increase our non-fund income. To further fortify TO RECORD A TOTAL our position, RHB Banking Group will now pursue a segmented approach, in line with the reframed IGNITE 2017 strategy. DEPOSIT MARKET SHARE OF 7.40%. MEANWHILE, RHB Consumer Deposits The Group continued to focus on growing our retail deposits, in line CURRENT ACCOUNT AND with Basel III liquidity requirements, for a stable and larger retail deposit base. While this has resulted in stiff competition for retail SAVINGS ACCOUNT GROWTH deposits, the Group achieved inroads in growing our share of the industry’s CASA portfolio, driven by the acquisition of payroll OUTPACED INDUSTRY accounts. This has benefited from the collaboration between Group Retail Banking, Group Business Banking and Group Transaction GROWTH OF 0.3%. Banking, which has started to mature and help provide significant gains in payroll acquisition. 97

Our personal financing portfolio continues to grow from strength to strength, with loans growth of 15% year-on-year. In pursuing loans growth, we have nonetheless remained focused on maintaining asset quality through deduction-at-source for personal financing products. Coupled with incremental sales contribution from Easy, our efforts have shown that customers are attracted to fast and simplified banking services. The contribution from other channels including branches, telesales and outsource agencies has also continued to bring in additional new-to-bank customers while retaining existing customers via anti-attrition programmes.

Going forward, we intend to double productivity as well as the size of the Direct Sales team to expand the Credit and Debit Card base Bancassurance aggressively over the next three years. We have also implemented RHB Banking Group’s successful partnership with Tokio Marine Life several initiatives to increase brand awareness and card usage via Malaysia (“TM Life”) continued to thrive in 2015. In January, we continuous mass usage campaigns. Among the campaigns rolled out renewed the partnership for a further 10 years. Together with TM in 2015 were the RHB RM1 million Cash Back campaign, Overseas/ Life, we strive to place RHB among the top four Bancassurance Online Cash Back campaign, and the RHB Premium Cards Golf Series, players in Malaysia. which has been conducted for three consecutive years.

Our advisory life insurance products grew 7% year-on-year in 2015, reflecting the segment’s strong performance in the year under DISTRIBUTION CHANNELS AND PLATFORMS review. We also entered into an exclusive 10-year distribution BancaTakaful tie-up with Syarikat Takaful Malaysia Bhd (“STMB”). Branch Sales and Service Transformation Continued efforts have been made to improve cross-selling of the Customer Experience and Channel Management general insurance products from the Bancassurance channel, which in turn, translated into a 24% growth in 2015 from a year earlier. CONNECT Initiatives As part of our efforts to boost sales and service performance of RHB Moving forward, we aim to maintain double-digit growth in the Banking Group’s branches and Commercial Business Banking Centres coming years by emphasising on improving customer penetration (“CBBCs”), we introduced CONNECT in our reframed IGNITE 2017 through the cross-selling of protection-related products. strategy. This programme is aimed at supporting our ambitions to achieve stronger financial performance by doubling our retail and Cards & Unsecured Business SME CASA by 2017. We also seek to provide an unmatched customer Activity in our Cards Business was driven by our Debit Card segment, experience by reinforcing the CONNECT objectives through the RHB which grew at a rapid pace of 18% year-on-year. The success of the Way of serving customers and by grooming the professional and segment was attributed to our adoption of a segmental strategy interpersonal skills of our employees. This is defined by our targets approach with an enhanced value proposition catering to specific to improve frontline sales productivity by between 30% and 40% needs and benefits of a particular defined segment. These segments alongside improvements in customer service and experience, as well included Affluent – Travel Rewards, Mass Affluent – Cash Back as boosting employee morale and engagement. Rewards, and Mass – Daily Expenses Rewards. 98 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

Customer Experience In our bid to become a more customer-centric banking group, we have implemented various efforts targeted at process improvements and deposits-onboarding initiatives. Among key process enhancements instituted during the year was the reduction in the amount of time taken to open a CASA account from 20 minutes to 10 minutes.

All employees are continuously updated on our ongoing Service Excellence The RHB Way training programme. This ensures that our frontline staff will continuously display the desired service behaviour while upholding the Group’s promise to our customers.

“EASY ACHIEVED Easy by RHB During the year, Easy achieved double-digit growth of 11.4% with its DOUBLE-DIGIT core product, Personal Financing, proving itself as a competitive GROWTH OF 11.4% offering within the market. Innovation continues to play a pivotal role in Easy’s product WITH ITS CORE offerings. During the year, we introduced more options to our customers such as Easy Online Financing and strategic partnerships PRODUCT, PERSONAL with other online financial portals such as RinggitPlus and iMoney to enhance their convenience in accessing our products and making FINANCING, PROVING informed financial decisions.

ITSELF AS A True to our commitment to meet customers’ financial needs, we are now offering Instant Credit Cards whereby a customer’s application COMPETITIVE is processed on the spot. In a bid to expand our customer reach, we have also started offering personal financing to pensioners, a market OFFERING WITHIN that has hitherto been overlooked.

THE MARKET.” In an effort to better serve our Mass customers, we kick-started a Group-wide initiative with the ultimate goal of optimising our Easy network with our full service branches. This is aimed at driving down the costs to serve our Mass segment without compromising the excellent service via our renowned 10-minute paperless banking experience. 99

eChannel We have also launched RHB Lifestyle Privileges, a mobile application Our RHBNow Internet and Mobile Banking channel has experienced which allows customers to view and download available offers. For strong growth with the number of registered users and transaction example, an RHB customer can purchase discounted coupons for volumes growing at a steady pace. services or products through RHBNow Internet Banking or view the latest RHB Credit Card promotions. In recognition of the success of In the year under review, the number of Internet Banking users rose the app, it was awarded the Best Card Loyalty Programme by Cards 25.4%, while Mobile Banking users increased by 35.9%. Additionally, & Electronic Payments International (“CEPI”) in 2015. transaction volume grew by 28.5% and spending value increased by 3.8% in 2015. Through a collaboration with RHB Insurance, RHBNow Internet Banking users can now purchase new insurance policies or renew We also continued to develop the number of billers and merchant existing ones with ease. Furthermore, RHBNow users are now able to bases through the JomPay service collaborations with partners such apply for credit cards through the portal. as TableAPP and Telekom. These promotions and campaigns have helped in boosting transaction growth and in extending attractive Moving forward, RHBNow will continue to provide more innovative benefits and convenience to our customers. enhancements and convenient solutions for its customers. In 2016, we are looking to launch a new Internet and Mobile Banking portal Subsequently, new capabilities were introduced in RHBNow Internet with more features and enhanced customer-friendly functions. and Mobile Banking. MyClear JomPay was introduced to allow customers to pay bills online and on their mobile devices. In line Network with our efforts to go green, RHBNow also introduced eStatement As we continued to enhance our network of outlets and extend our services for customers to download their account statements through reach, we initiated a network optimisation plan to actively manage Internet Banking. These efforts culminated in RHBNow receiving our network performance. Our objective for 2015 was to fully Frost & Sullivan’s Excellence in Customer Experience award under leverage on the Group’s strengths through our various brick-and- the Online Experience category in 2015. mortar branches.

In the year ahead, we intend to further optimise the network by reconciling Easy, our bank branches and our investment bank branches. We will also be repositioning our distribution network by increasing our presence in the main market centres in a bid to be closer to our target customer segments. Concurrently, we aim to MOBILE BANKING USERS INCREASED TO enhance our full-service branches with our renewed 10-minute banking service capability with a view to increase productivity as 305,000 well as performance management. users OR 35.9% 100 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

GROUP BUSINESS & TRANSACTION BANKING

THE GROUP BUSINESS BANKING DIVISION CONTINUED TO THRIVE IN 2015 WITH AN 11.3% GROWTH IN TOTAL LOANS OUTSTANDING.

The Group Business Banking division continued to thrive in 2015 with an 11.3% growth in Total Loans Outstanding, notwithstanding the slowdown in the global economy, declining commodity prices and currency depreciation.

This was driven by a 20% increase in the SME segment as a result of our strategic move under the IGNITE – New Business Banking Operating Model. This initiative, launched in 2014, marked a move towards a segment-led business model with a focus on small- and medium-sized businesses to drive growth.

Our branch network also allowed us to yield exponential growth through higher productivity, with SME sales from our branches growing 50% year-on-year in 2015. At present, the network contributes approximately 24% of total SME sales. Our continuous focus on these SME segments has seen our overall market share improve to 8.7% in 2015 from 7.2% previously.

Datin Amy Ooi Group Business & Transaction Banking

MARKET SHARE 8.7% FY2014 : 7.2% 101

In view of the prevailing economic conditions, the division expanded its active management of delinquent accounts and developed an early alert mechanism of potentially high-risk accounts. We also introduced a predictive asset quality model based on the Behavioural Scoring Framework to detect any early deterioration in asset quality. IN RECOGNITION OF OUR These measures helped us improve our asset quality in 2015. This was reflected by a decline in our Gross Impaired Loans Ratio to 2.6% in CONTINUOUS EFFORTS TO 2015 from 2.9% in the preceding year, while the Pre-Impaired Loans Ratio improved to 0.84% in the same period from 0.98% previously. MAINTAIN STRONG TIES

The division also recorded a growth in deposits by 5.3% in 2015, driven WITH THE SME COMMUNITY, by a 10% increase in CASA, largely contributed by SMEs. IN 2015 WE WERE ONCE This followed the success of our IGNITE Branch Sales and Service AGAIN AWARDED THE Transformation initiative (“CONNECT”) complemented by the strength of our deposit product propositions for SMEs, which allowed us to “SAHABAT NEGARA AWARD” serve the SME community more effectively and achieve a 37% year-on- year increase in new Current Account opening. BY THE SME ASSOCIATION OF

Other activities undertaken in 2015 included the launch of our RHB MALAYSIA. SME e-Retail Solution for small and medium retailers as part of our holistic approach to provide SMEs with convenient and simplified access to banking services through an integrated financial ecosystem. For 2016, Group Business Banking will continue to focus on the The solution provides SME retailers with a fast, easy and seamless SME segment for growth. To strengthen our ability to serve the SME experience to run their businesses with an all-in-one, hassle-free community more effectively, we plan to enhance our resource solution that features RHB’s Business Current Account, RHB Reflex allocation efficiency and productivity through the ongoing Branch Online Cash Management, next-generation Digital Point-Of-Sale system, Sales and Service Transformation initiative. We will also continue Business Credit Card, Credit and Debit Cards. to leverage the strength of our Transaction Banking business to capture the end-to-end value chain through an integrated ecosystem to improve segment profitability.

Aside from this, we will continue to improve our service quality to provide best-in-class services, with a target to be best-in-class in terms of SME loan turn-around time.

Group Transaction Banking (“GTB”) comprises four key transaction banking areas namely Trade Business, Cash Management, Business Innovative Solutions and Financial Institutions.

GTB offers comprehensive suites of transaction banking solutions for both conventional and Islamic trade finance and services, cash management solutions including facilitating interbank business and cross-border settlement and serves Government-Linked Companies, corporates and SMEs with fully integrated and innovative process solutions. 102 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

The Group Transaction Banking division’s Business Innovative and As a result of these activities, the division recorded an 8% year-on- Solutions unit provides innovative, safe and flexible e-solutions to year growth in Trade Assets and an unprecedented growth in our the Government, GLCs, corporate and SME clients to improve cash management customer base. In the year under review, our cash efficiency and reduce cost. The unit recorded a landmark year in management business grew 76% compared to the preceding year on 2015, having been appointed by the Royal Malaysian Customs the back of a surge in customer subscribers for our online cash Department to administer collection of the GST. As the principal management system, REFLEX, which attracted more than 19,000 new banker for the GST, this collaboration with the Customs Department subscribers. In line with the Government’s drive to increase electronic allowed for the successful nationwide enforcement of the new tax payments amongst the business community, we also introduced the through the various channels of payment offered to tax payers. REFLEX-Lite package to provide SME and sole proprietor customers with a simplified, single-step, fast verification process to perform Additionally, its smart collaboration with the Road Transport e-transactions. Department on the e-Daftar initiative has seen overwhelming acceptance from industry players. During the year, e-Daftar transaction volumes increased by one-and-a-half times to 434,242, compared to 171,637 in 2014. IN THE YEAR UNDER Another key partnership signed during the year was with the Transport Ministry and Port Klang Authority to launch the Klang Net REVIEW, OUR CASH platform. Under this collaboration, the Group will act as the main settlement bank to facilitate payments from all freight forwarders to MANAGEMENT BUSINESS the Port Klang Authority. GREW 76% These partnerships with the Customs Department, RTD and Port Klang Authority have strengthened the Group’s capability to support our customers’ supply chains. Additionally, the establishment of these collaborative efforts was followed by the launch of the RHB Financial Supply Chain (“FSC”) platform. This platform enables Our REFLEX Cash Management programme continues to gain customers to conduct their businesses with ease by connecting their recognition in the industry and has won several top awards from the entire supply chain, including distribution, suppliers and a range of Asiamoney Cash Management Poll as voted by Small Sized services from invoicing to settlement. Corporations for six consecutive years.

The RHB FSC programme also allows both Conventional and Islamic Moving into 2016, Group Transaction Banking will continue to Banking customers to access innovative financing solutions for each enhance our capabilities to provide more efficient transaction stage of the supply chain via online access. The financing programmes banking services to our customers in line with technological are designed to allow suppliers with weaker credit ratings to advancements. Focus will also be given to leverage our customers’ leverage their counterparties with stronger credit ratings in the ecosystem to provide seamless payment, collection and supply chain supply chain. financing solutions.

The introduction of the RHB FSC has spurred the creation of an e-community among key customers, be it a Principal Buyers or Sellers, thus providing greater transparency and improving operational efficiency between our customers and their counterparties. In 2015, the Kuala Lumpur Islamic Finance Forum nominated the RHB FSC as the “Most Outstanding Islamic Corporate Banking Product”. 103 104 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

GROUP CORPORATE & INVESTMENT BANKING

GROUP CIB DELIVERED A SATISFACTORY PERFORMANCE IN 2015 AGAINST THE BACKDROP OF A CHALLENGING OPERATING ENVIRONMENT WITH RISING OPERATING COSTS, A SHARP DROP IN OIL PRICES AND THE CONTINUED SLIDE IN THE RINGGIT.

Group CIB’s pre-tax profit was lowered by 56.4% to RM550.9 million compared to its 2014 performance. This was mainly attributed to lower investment bank and securities market related fee income both in Malaysia and Singapore, higher impairment allowances for loans and financing, several major recoveries in 2014 and the absence of write-back on other assets amounting to RM112.4 million recorded in 2014. Gross loans and financing was marginally higher by 0.8% for the year at RM48.3 million, while deposits increased by 19.5% to RM45.6 billion with fixed deposits and current deposits growing by 19.8% and 18.4%, respectively. Mike Chan Cheong Yuen Group Corporate & Investment Banking The RHBIB Group (ex-Corporate Banking) achieved a profit before tax of RM115.7 million in 2015, despite slower investment banking activities due to the economic landscape. Profit was mainly contributed by the Malaysian entities. Our regional subsidiaries in Hong Kong, Indonesia and Thailand performed better than they did in 2014 but the performance of our subsidiaries in Singapore was, however, impacted by the subdued market conditions there. 105

INVESTMENT BANKING

Key business pillars under CIB’s investment banking space are Client “RHBIB WON THE BEST M&A Coverage, Capital Markets, Securities Broking and Asset Management.

HOUSE IN MALAYSIA” FROM Client Covarage/Capital Markets THE ASSET AS WELL AS THE During the year under review, RHBIB remained a key player in both the local and regional capital markets. Domestically, despite a tough “BEST RINGGIT SUKUK HOUSE operating environment, RHBIB advised five out of 11 Initial Public Offerings (“IPOs”) launched last year, which included listings of IN MALAYSIA” FROM ALPHA large caps such as Malakoff Corporation Berhad, Sunway Construction Group Berhad, Red Sena Berhad (the first food & beverage Special SOUTHEAST ASIA IN 2015. Purpose Acquisition Company (“SPAC”)), and Al-Salam REIT, the only real estate investment trust launched in 2015. Regionally, our overseas subsidiaries completed three IPOs in Thailand, two in Indonesia and one in Hong Kong with major roles in each.

During the year, the RHB Banking Group was granted the required We were also the most active Mergers & Acquisitions (“M&A”) approvals from the relevant regulators in Malaysia and Cambodia for adviser in Malaysia last year with a total of 21 deals announced. the divestment of RHB OSK Indochina Securities Limited by its parent Major deals completed included advising Kulim (Malaysia) Berhad on company, RHB Indochina Bank Limited (a wholly-owned subsidiary of the disposal of its equity in New Britain Palm Oil Ltd, OSK Holdings RHB Bank), to RHBIB. The divestment was subsequently completed in Berhad on their acquisition of OSK Property Holdings Berhad as well December 2015 and RHB OSK Indochina Securities Limited became a as PJ Development Holdings Sdn Bhd and MMC Port Holdings Sdn wholly-owned subsidiary of RHBIB. Bhd on their acquisition of NCB Holdings Berhad. In Singapore, we completed three key M&A deals last year, namely the farm-out of a 35% participating interest in the Lemang Production Sharing Contract CORPORATE BANKING to KKR-backed Mandala Energy Ltd, Southern Capital Group’s takeover of UE E&C Ltd and Dymon Asia’s acquisition of a significant minority Against the backdrop of challenging market conditions, the Group stake in Wah Loon Engineering Pte. Ltd. We will leverage on the RHB Corporate Banking division managed to secure a modest loans group’s regional platform to help clients meet their M&A aspirations. growth, predominantly contributed by Islamic-related loans, in line with our strategy of re-profiling our portfolio mix. The division also In the debt capital markets, RHBIB led several major transactions intensified deposit-seeking during the year, which saw our loan-to- involved in the issuances of both Ringgit bonds and international deposit ratio re-balance to a more efficient level. Overall, we also Sukuk. Some of the key deals include MMC Corporation Berhad’s strengthened our asset quality through the adoption of stringent risk RM1.5 billion Islamic Medium Term Note (“MTN”) Programme, OSK management with a tighter monitoring mechanism. Holdings Berhad’s RM990.0 million MTN Programme and West Coast Expressway Sdn Bhd’s RM1.0 billion Guaranteed Sukuk Murabahah Going forward, we will strive to provide innovative structuring Programme and RM1.0 billion Syndicated Kafalah Facility. solutions to meet our corporate clients’ diverse financing needs and to remain responsive amid fluidity in the corporate lending landscape. Following our dominance in the capital markets, our deals, teams Moreover, we will remain focused on deepening our client and analysts continued to be recognised and win accolades across relationships through an enhanced client coverage model which the region. RHBIB ended 2015 topping the Malaysia M&A league places priority on growing loan portfolio profitability by deepening table (by deal count) and was Top 3 on the Equity Capital Markets our wallet share. Our key efforts include championing in-house and Top 4 on the Debt Capital Markets league tables. Out of more collaborations vis-à-vis cross-selling activities and leveraging our than 60 awards accorded to RHBIB Group in 2015, RHBIB won the regional presence to support corporate clients in their cross-border esteemed “Best M&A House in ASEAN” from Alpha Southeast Asia funding requirements. and “Best M&A House in Malaysia” from The Asset as well as the “Best Ringgit Sukuk House in Malaysia” from Alpha Southeast Asia in 2015. 106 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued) 107

Securities Broking In the Equities Broking segment (comprising both retail and institutional broking), we were ranked Top 3 (by volume) and remained the most profitable broking house in Malaysia in 2015. RHBIB continues to grow its securities broking market share in the region, particularly in Singapore, Indonesia, Thailand and Hong Kong. We also continue to leverage on the RHB Bank network to grow the retail broking business via branch broking as well as expand the complementary share margin financing business.

RHBIB’s institutional broking market share has also seen an upward trend following regional account growth throughout ASEAN and Hong Kong. In the recent Asiamoney Broker’s Poll, RHBIB’s subsidiary in Singapore was voted the No. 1 “Most Improved Brokerage over the last 12 months” and across the region, the RHBIB Group was voted Top 3 in the “Best Local Brokerage” category in Malaysia, Singapore, Indonesia, Thailand and Hong Kong.

The market continues to value the research views and recommendations provided by our analysts. In the Asiamoney Broker’s Poll, RHBIB Group’s analysts were accorded numerous Top 3 rankings in various categories across the region. RHBIB’s Singapore subsidiary was voted the No. 3 in “Best Overall Research” by Asiamoney last year. Thomas Lam, Chief G3 Economist with our Singapore subsidiary was ranked the 4th Most Accurate Economist Worldwide in Forecasting the US Economy in 2015 by Bloomberg.

RHBIB continues to focus on the complete rollout of its digital trading platform in Malaysia and across the regional markets as part of our digitisation initiative to meet customer expectations. Branded as “RHB TradeSmart”, it replaces legacy trading systems RHBInvest and OSK188. During the year, RHBIB also launched the RHB TradeSmart Desktop App and RHB TradeSmart Mobile App that replaced the 188OMS and OSK188 Mobile App, respectively. RHB TradeSmart enables customers to trade in multiple markets, asset classes and currencies on a single platform. 108 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

Asset Management The Asset Management pillar comprises both Asset Management and THE LAUNCH OF OUR FUNDS the Trustee business for the Group. In FY2015, we saw the asset DURING THE YEAR CUSHIONED management business registering improved overall ROE from 11% to 18% due to the launch of innovative products, a shift in focus into THE DROP IN NET ASSET higher margin products, expansion of our distribution channels across markets and increasing synergies from working more closely VALUE DUE TO THE with RHB Group. VOLATILITY EXPERIENCED IN 2015 was a busy year for us as we launched a total of 23 funds THE MARKETS AS WELL AS across the region, two of which won us the Most Innovative Product award from Asia Asset Management. This marks the second REDEMPTIONS BY CORPORATE consecutive year we received the esteemed award for Malaysia. CLIENTS (TO MEET THEIR The launch of our funds during the year cushioned the drop in net WORKING CAPITAL NEEDS), asset value due to the volatility experienced in the markets as well as redemptions by corporate clients (to meet their working capital TO CLOSE THE YEAR AT needs), to close the year at RM52 billion. We also emerged as RM52 BILLION. Malaysia’s most awarded fund house in 2015 after winning 15 awards at The Edge-Lipper Malaysia Fund Awards, bringing the total number of awards won by the enlarged Group Asset Management to 24 for FY2015. In 2016, we won another 15 awards at The Edge- WE ALSO EMERGED AS MALAYSIA’S Thomson Reuters Lipper Fund Awards. MOST AWARDED FUND HOUSE IN 2015 Our fund managers continued to work hard to deliver performance to AFTER WINNING 15 AWARDS AT THE our investors and we closed FY2015 with 68% of conventional funds EDGE-LIPPER MALAYSIA FUND AWARDS, in the top quartile and 86% of our Islamic funds in the top quartile. BRINGING THE TOTAL NUMBER OF In line with the Group’s ambition to grow contributions from regional offices, FY2015 saw AUM contribution from regional offices grow AWARDS WON BY THE ENLARGED from 12% in FY2014 to 16% in FY2015. Revenue contribution from GROUP ASSET MANAGEMENT regional offices also grew from 15% in FY2014 to 21% in FY2015. TO 24 FOR FY2015. 109

In the Trustee segment, we continued to defend Overall, we are cautiously optimistic in terms of the business outlook for the Asset our No. 1 market share in the Public Debt Securities Management pillar in FY2016 as continued headwinds in the global markets impact market, closing FY2015 with a 41% market share. investor sentiment. This is expected to make fundraising challenging. However, as we In the retail segment, we saw healthy growth in pride ourselves to be an innovative fund house, we will continue to launch products wills (conventional and wasiat) and private trust that are relevant in the current climate to help investors weather the volatility and accounts. meet their investment objectives of wealth preservation, wealth accumulation and wealth protection. 2016 will see greater focus on driving the Group’s profitability through the agency business and We will also be forging new strategic partnerships to enable us to tap into new retail business as well as through third party markets and bring new offerings to our clients. The new year will see us launching distribution channels. The foundation established many products which will be the first-of-its-kind in the markets we operate in as well in FY2015 to extract greater synergies from as deepening our relationships with the partners and clients that we are already working more closely with RHB Group (across the working with. conventional bank, private bank, premier bank, Islamic bank, investment bank as well as insurance Our regional ambition will continue to be realised in 2016 as we aim to grow the in Malaysia as well as the region) will see us revenue contribution from overseas business to 18% and PBT contribution to 20% from extracting higher value through the realisation of our overseas offices. a strong cross-referral culture.

This is further enabled by greater digitisation, automation and process efficiencies via investments FY2015 saw AUM in systems. The pillar will continue to manage cost contribution from regional via a productivity management programme. offices grow from

(2015) (2014) 16% 12% Revenue contribution from regional offices also grew from 15% in FY2014 to 21% in FY2015

Trustee Segment we continued to defend our No. 1 market share in the no.1Public Debt Securities market, closing FY2015 with a 41% Market Share 110 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

INVESTMENT BANKING Thailand Singapore RHB Group’s securities arm in Thailand, RHB Securities (Thailand) PCL, ended 2015 with a PBT of THB44.5 million. Revenue rose to RHB Securities Singapore Pte. Ltd. (“RHB Securities Singapore”), THB774.17 million from THB734.93 million in 2014. formerly known as DMG & Partners Securities Pte. Ltd., remained busy in 2015 and continued to participate in landmark deals in In total, we were involved in 12 IPOs this year, of which three were Singapore. This was despite a subdued year for Singapore’s capital as Financial Advisor and Lead Underwriter and nine as Syndicated markets in line with global market conditions, with minimal IPO Underwriters. These achievements have helped strengthen the RHB activity and the softening of the ST Index particularly towards the brand in the Thai capital markets. The three IPOs that we led were end of the year. A similar trend was also observed in the debt for Siamraj PLC’s listing on the Market for Alternative Investment capital markets. (“MAI”). It was listed on 11 November 2015 and raised THB525 million. Our second IPO as sole Financial Advisor and sole Lead During the year, RHB Securities Singapore was appointed Joint Underwriter was for Thanapiriya PCL which was listed on 18 November Bookrunner in the Housing & Development Board’s (“HDB”) inaugural 2015, raising THB1.40 billion on the MAI. Our largest deal for the AAA-rated (Moody’s) S$1.2 billion bond issuance in 2015, which was year consisted of Amata VN PCL’s THB1.25 billion listing on the main also HDB’s sole offering for the year. This, together with RHB exchange of the Stock Exchange of Thailand in December 2015, for Securities Singapore’s ability to win other mandates such as Starhill which we were appointed Joint Financial Advisor and Joint Global REIT and Nam Cheong Limited, is testimony to the RHB Bookrunner, as well as Lead Underwriter. Group’s commitment to growing our presence in Singapore. As a result, RHB has improved on its league table rankings, placing 2nd The year under review also saw the opening of our second branch in for ECM (from 10th), and moving up to 7th for SG Dollar Bonds (from Hadyai at Juti Anusorn in February and the opening of our 8th) and 6th in the M&A League Tables (from 13th). Chachoengsao branch in July. We also established our Debt Capital Market department in July, followed by the expansion of our office RHB Securities Singapore continued efforts to build on its strong at Sathorn Square Tower later in the year. franchise and was further recognised by the market with the unit again voted the No. 1 Most Improved Brokerage Over The Last 12 Moving into 2016, we will focus on growing our retail and institutional Months, No. 2 Most Independent Research Brokerage, No. 3 Best equities business to enhance productivity. We also aim to boost our Local Brokerage, Roadshows and Company Visits, Overall Country revenue growth from the Derivatives and Structured Products Research and Overall Sales Services in the Asiamoney Brokers Poll segment by launching two new products in the year and by expanding 2015. Our analysts also continued to make headlines and received our Fixed Income business. Meanwhile, we will establish regional numerous awards for their outstanding coverage and research calls, capabilities to deliver corporate finance, M&A, and DCM deals in the including being voted No. 1 in the small caps, consumer, energy, ASEAN region. To increase our asset under management (“AUM”), we software, semi-conductor and technology space in the Brokers Poll. intend to increase growth in our mutual fund sales.

To cap the year, we received the 29th Singapore 1000 & Singapore In line with the Group’s reframed strategy, we seek to increase SME 1000 – Profit Growth Excellence – Finance Award. We also revenue in high-margin and profitable segments to improve profit continued our Community Outreach Programme with activities such contribution from international operations. We have also identified a as knowledge-sharing talks/seminars and the RHB-The Straits Times need to enhance productivity and manage costs in our largest National Spelling Championship which we co-organised. segment, Equities, to improve profitability.

Our activities during the year saw us voted Third Best Research Brokerage in Thailand in the Asiamoney Brokers Poll 2015. We were also awarded second place in the Thailand Futures Exchange award for Proprietary Trading. 111

Hong Kong To date, stock market liquidity in Vietnam remains thin with just RHBIB’s Hong Kong operations, via its key subsidiaries RHB Securities slightly over USD100 million in daily trading volume. Additionally, Hong Kong Limited (“RHB Securities”) and RHB Capital Hong Kong the banking system and financial market are still undergoing Limited (“RHB Capital Hong Kong”), recorded a commendable consolidation as the re-pricing of assets continues. Meanwhile, the performance in 2015, contributing a pre-tax profit of RM14.3 million Central Bank has tightened the source of funds from commercial to RHBIB last year. banks into the stock market, impacting liquidity in 2015. While there is room for foreign investors as ownership regulations were recently During the course of the year, RHB Securities and RHB Capital Hong lifted, the issuance of detailed guidelines and related laws remain Kong completed more than 26 equity capital market deals despite pending. volatile market conditions. These included the IPO of Clear Lift Holdings Ltd, which raised HKD120 million, and a block trade Moving into 2016, we expect the country’s GDP to grow at 6.8% transaction for EVA Precision Industrial Holdings Ltd which raised after it posted GDP of 6.68% in 2015 and CPI of below 1%. HKD389 million. Furthermore, various changes in the country’s banking system such as the shortening of payments from T+3 to T+2, direct debit and new Indonesia accounting systems will present new opportunities for us. In 2015, despite the worsening global economic conditions and the weak Indonesian Rupiah, total IDX market turnover fell by 20% LOOKING AHEAD compared to the previous year. RHBIB’s Indonesian operations, via subsidiaries PT RHB Securities Indonesia (“RHB Indonesia”) and PT In line with the general economic outlook, we expect 2016 to remain RHB Asset Management Indonesia, recorded a PBT of RM10.75 million, challenging for the capital markets in Malaysia. Some of the achieving healthy growth compared to its regional ASEAN investment challenges we foresee this year include global economic headwinds, banking peers. In total, RHB Indonesia completed six bond issuances, weak investor confidence, compressed margins and stricter regulatory two IPOs, one rights issue and a placement deal in the year under and compliance requirements. However, we are confident of riding review. Additionally, RHB Indonesia was responsible for underwriting out the storm as we progressively build a robust pipeline of deals. a total of more than IDR6.5 trillion in bonds for clients such as OCBC Bank, Indomobil Finance, Astra Sedaya Finance and Modernland. The We also anticipate that our regional markets will perform well and unit also completed some IDR2 trillion in equity capital market deals contribute positively to the RHBIB Group this year. Against the during the year. backdrop of a slower growth environment, we remain committed to rationalising costs where possible and continue to reinvent ourselves Cambodia by developing new products and focusing on improving the bottom In December 2015, RHB OSK Indochina Securities Limited (“RHB OSK line. Indochina Securities”) became a wholly-owned subsidiary of RHBIB. This followed the divestment of RHB OSK Indochina Securities by This year, we will continue to grow the AUM and distribution RHB Indochina Bank Limited, a wholly-owned subsidiary of RHB channels of our Asset Management business. We will scale up our Bank, to RHBIB, after obtaining approvals from the relevant regulators agency force in addition to continuously building our third party in Malaysia and Cambodia for the divestment. distribution channels.

Vietnam We are also bullish on M&A activities as economic volatility presents RHBIB’s Vietnam Securities Corporation (“VSEC”) recorded a PBT of opportunities for companies with an eye towards growth and an RM0.82 million for the year under review, and was ranked second appetite for acquisitions, especially in the oil & gas and real estate among the six securities companies with Malaysian stakeholders in sectors. In 2015, Southeast Asian countries saw approximately terms of ROE. Four out of the six Malaysian stakeholders are banks. RM200 billion worth of M&A deals completed and we expect this During the year, VSEC focused on M&A activities and played an volume to be surpassed this year. RHBIB will use its regional active role in the search for foreign strategic investors for the platform to help clients meet their M&A aspirations and all their privatisation of major state-owned enterprises. investment banking needs. 112 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

GROUP SHARIAH BUSINESS

RHB ISLAMIC BANK EMERGED STRONGER IN 2015 WITH A 14.9% GROWTH IN PROFIT BEFORE TAX TO RM348.7 MILLION FROM RM303.6 MILLION IN THE PREVIOUS YEAR.

This markedly higher performance was due to greater funding income of RM396.8 million, a larger non-funding income of RM7.7 million and lower overhead expenses. Overall, RHB Islamic Bank recorded an encouraging business and financial performance notwithstanding challenges in the market and macroeconomic environment.

Backed by strong support from the RHB Banking Group, our total outstanding assets grew to RM44.1 billion by the year-end, a 22.0% increase compared to the RM36.1 billion achieved in 2014. Additionally, RHB Islamic Bank lowered its Gross Impaired Financing ratio to 1.17% from 1.30% in the previous year. Meanwhile, financing and advances grew by 22.0% in 2015 to RM31.1 billion from RM25.5 billion previously.

Haji Ibrahim Hassan Group Shariah Business PROFIT BEFORE TAX

14.9% GROWTH TO RM348.7 MILLION 113

OUR TOTAL OUTSTANDING ASSETS GREW TO RM44.1 BILLION BY THE YEAR-END, A 22.0% INCREASE COMPARED TO THE RM36.1 BILLION ACHIEVED IN 2014.

Throughout 2015, the Bank also implemented a strategy to raise its profile by sponsoring international forums and participating as speakers in open and closed conferences such as in Roundtables, Halal SME Corp, the International Islamic Finance & Banking Law Conference, RHB Asian Sharia Investment Conference and 2nd Annual Corporate Sukuk Conference.

For 2015, Islamic Retail Banking contributed to 50.2% of the outstanding RHB Islamic Bank also acted as a Diamond Partner for the 12th Kuala financing assets, increasing by 14.2% compared to the previous year. Lumpur Islamic Finance Forum (“KLIFF”), where we were awarded This was backed by a 33.7% jump in unsecured business and a growth Most Outstanding Islamic Corporate Banking and Most Outstanding of 21.8% and 1.0% in mortgage financing and auto financing, Islamic Corporate Banking Product: Financial Supply Chain. respectively. By the year-end, total financing assets for Islamic Retail Banking stood at RM15.6 billion against RM13.7 billion in 2014.

Concurrently, Islamic Corporate Banking accounted for 44.8% of the outstanding financing assets last year. This segment achieved a 29.1% growth, in tandem with our aggressive efforts to secure more quality and established customers.

Our Islamic Business Banking financing assets contributed the remainder of the Islamic Banking financing asset portfolio and grew by 52.3%. An ambitious and bold business strategy resulted in the middle market recording an impressive 84.1% rise in this segment.

Human capital development is critical in attracting and managing the talent pool in any organisation. With the aim of being the employer of choice, RHB Islamic Bank continued to demonstrate its commitment to employee development by continuing the Structured Learning Programme, its Certificate in Islamic Law (“CIL”) and INCIEF’s Certified Islamic Financial Professional (“CIFP”) programmes. These efforts are targeted at certifying our employees, enhancing their Shariah expertise and elevating their performance. 114 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

GROUP TREASURY AND GLOBAL MARKETS

GROUP TREASURY AND GLOBAL MARKETS RECORDED A 17% INCREASE IN FOREIGN EXCHANGE (“FX”) SALES REVENUE IN 2015 FROM HIGHER MARKET VOLATILITY DESPITE A 9% YEAR-ON-YEAR DECLINE IN MALAYSIA CUSTOMER FX VOLUME. FX VOLATILITY ALSO DROVE FX TRADING REVENUE 113% HIGHER ON THE BACK OF BETTER TRADING PERFORMANCE DESPITE LOWER TRADING VOLUME, WHILE DERIVATIVE SALES PROFITS INCREASED 32% AS CUSTOMER DERIVATIVE VOLUMES ROSE 12%.

We also recorded 37% growth in investment-linked deposits and structured investment volume and 35% growth in customer structured/long-term forwards volume. Our Fixed Income primary market share increased by 6.00%. We were also ranked 1st and 2nd respectively in the Bank Negara Malaysia League Table 2015 for Sukuk and Conventional bond secondary market sales, registering revenue increase of 20% in 2015 compared to 2014.

We proactively mitigated widening credit spreads and expectations of higher interest Mohd Rashid Mohamad rates by concentrating our bond investment portfolios in liquid and high-rating band Group Treasury & Global Markets securities with durations kept below five years.

We effectively managed our funding mix and net open positions in various currencies to optimise funding costs and closely monitored the net interest margin as we prepared for the December 2015 rate hike by the US Federal Reserve, which drove USD funding costs higher.

Following the centralisation of our Group Funding Centre under Group Funding & Liquidity Management of Group Treasury in 2015, we have achieved better management of liabilities and compliance cost. This has been reflected in our performance in 2015, where the cost of liabilities was reduced via improved compliance management and leveraging the Group and its regional branches’ multi-currency funding books. 115

During the year, our Islamic Treasury business launched its first Interest rate uncertainty and the magnitude of its impact on Mark- structured investment product, the Islamic Dual Currency Investment. to-Market (“MTM”) investments remains a key challenge. We continue This is the first product to be introduced under the Islamic Financial to manage the duration of investments within approved risk limits Services Act 2013 (“IFSA”) and Investment Account Policy, which and proactively rebalance the portfolio mix and duration to reap outlined the distinction between deposits and investment accounts. opportunities for capital gains. The Islamic Treasury business also ensured compliance with the Investment Account Policy by moving its Treasury deposits into We will continue our efforts to meet our target of growing the Commodity Murabahah (“CM”)-based products and is currently in the Treasury business to contribute to 30% of Group PBT by 2017. This process of introducing short-term investment products that comply will be supported by strengthening key infrastructure and capabilities with the Policy. CM trading for all products structured under the CM within regional treasuries which is expected to contribute between concept has been centralised within the Commodity Trading Unit 20% to 25% of Group Treasury revenue and 20% of Group Treasury under Group Treasury, which was mandated to undertake all CM PBT by 2017. We will also increase non-interest income contribution transactions requirements of the Group to increase efficiency and to optimise capital utilisation and capital charge. decrease costs.

Going forward, we aim to continue diversifying our funding requirements and to increase stable funding sources to manage an 1) The Asset Asian Currency Bond Benchmark Review 2015: Highly expected increase in interest rates. To further safeguard the rising Commended Individual in Sales (Malaysia Ringgit Bond): Soh Chin operational costs from the weaker Ringgit, we will manage our cost Yong (RHB); to income ratio and hedge our FX exposures to lower FX volatility. 2) The Asset Triple A Asset Asian Awards 2015: Most Innovative Deal: While industry FX customer volume may decline further due to Aquasar Capital 1.5 billion Ringgit Sukuk Murabaha: RHB Investment Bank, Shariah Adviser/Sole Principal Adviser/Lead Arranger/Lead higher FX rate volatility, wider bid-ask spread and intensifying Manager; competition, we expect higher demand for derivative products as 3) Asian Banking & Finance Wholesale Banking Awards 15: Malaysia customers and banks hedge their FX exposures. Domestic Foreign Exchange Bank of the Year (RHB Banking Group); 4) The Asset Asian Currency Bond Benchmark Review 2015: Top Bank in We remain committed to serving our customers’ investment and the Secondary Market Corporate Bonds Malaysia: RHB (Ranked 1st); hedging requirements by offering suitable and cost-efficient FX, 5) Alpha Southeast Asia Deal Awards Best Islamic Finance Deal of the Year 2015 in Southeast Asia: RHB Investment Bank, sole principal derivative, depository and fixed income products in accordance with adviser: sole lead arranger & sole lead manager for MMC Corporation’s their risk appetites. inaugural RM1.2 billion (US$278 million) Sukuk. 116 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

GROUP INSURANCE

IN 2015, RHB INSURANCE RECORDED A 3.1% GROWTH IN PROFIT BEFORE TAX TO RM93.2 MILLION COMPARED 23% TO RM90.4 MILLION IN 2014, DRIVEN BY A 13% INCREASE IN GROSS WRITTEN PREMIUMS WHICH SURPASSED THE INDUSTRY GROWTH RATE OF 2.3%.35%

Motor Insurance maintained its position as the business’ largest contributor, delivering 35% of gross premiums, while Fire Insurance contributed to 26% of gross premiums. Personal Accident (“PA”) and Medical collectively contributed to 16% during the year, while the remaining insurance segments accounted for 23% of total gross premiums. 16%

23% 26%

35% Kong Shu Yin Gross Written Group Insurance Premiums RM659 million 16%

Motor Insurance Fire Insurance 26% Personal Accident & Medical Others

Motor Insurance Fire Insurance Personal Accident & Medical Others 117

Our insurance business has sustained a compounded annual growth The year also saw backroom support and operational efficiency rate (“CAGR”) of 14.5% in gross written premiums over the past five undertake process improvements and automation with the years. In 2015, the business registered an average net return on implementation of an automated and integrated end-to-end Enterprise equity (“ROE”) of 18.9%, compared to 21.6% in 2014, due to a Document Management System. This allowed us to modernise and growth in shareholders’ equity. streamline the policy issuance and document imaging processes, and improve policies issuance turn-around time, boosting The business continued to capitalise on opportunities from its five productivity, reducing the printing cost and other wastages. distribution channels throughout the year. Bancassurance (Retail) Preparations are also underway within RHB Insurance to gear us up and Institutional Channel recorded the highest percentage growth at for the anticipated industry detariffication. 20% and 31%, respectively, as RHB Insurance focused on maximising synergies and further penetrating RHB Bank’s customer base while To tap into the growing market for online insurance, we launched continuing to build the agency force. our very own online insurance offering through RHBNow Internet Banking. This platform has enabled us to offer insurance products to While growing its top line, our Insurance arm also focused on registered users, with an initial offering of six personalised products enhancing profitability through risk selection and product for renewal as well as new business applications. management as well as by utilising an actuarial pricing model. Profitability was also strengthened by enhancing claims, underwriting, RHB Insurance continues to raise brand awareness via the installation risk management and various cost saving initiatives. of more agent signboards and billboards nationwide as well as by introducing innovative insurance products to attract new customers. Underwriting profits registered a 19.4% improvement as compared In 2015, we introduced two Bancassurance products, namely ATM to 2014, with the net claims ratio at 47.7% (including Malaysian Shield Insurance which provides compensation for the loss of cash Motor Insurance Pool losses), better than the industry’s ratio of withdrawn from ATMs and loss of or damage to personal effects due 56.5%. to snatch theft or attempted snatch theft, as well as Home Content Insurance. 118 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

INTERNATIONAL BUSINESS

AS AN ASEAN BANK WITH A GROWING REGIONAL PRESENCE SPANNING 10 COUNTRIES, WE ARE WELL POSITIONED TO BENEFIT FROM THE TREMENDOUS OPPORTUNITIES UNDERLYING THE ASEAN GROWTH STORY. WE HAVE REFRESHED OUR ASPIRATIONS LAST AUGUST TO FOCUS ON PROFIT INSTEAD OF REVENUE FROM OUR REGIONAL PORTFOLIO. OUR GOAL IS TO ACHIEVE A DIVERSIFIED REVENUE MIX BY GEOGRAPHY, WHEREBY THE INTERNATIONAL OPERATIONS WILL CONSTITUTE 20% OF THE GROUP’S PROFITABILITY BY 2020.

On that theme, we will employ a two-pronged strategy to drive higher contribution from our overseas portfolio, whereby we will maximise and boost our existing international franchises, driving aggressive growth through Singapore and Cambodia, while continuing Christopher Loh to explore expansion opportunities in key ASEAN markets that offer cross-border Group Strategy & International Business opportunities.

With Singapore being the largest overseas profit contributor in 2015, it is one of our key revenue levers under the reframed strategy. We believe Singapore has a lot of potential which can be further harnessed, therefore 2016 will see a lot of effort around enhancing integration and collaboration between the commercial bank and securities company to provide our customers with a full suite of banking services, with a focus on large corporates and commercial sectors, SMEs and the affluent segment. 119

Excluding Singapore, our international portfolio comprising Our treasury income remained another key growth pillar for RHB Cambodia, Thailand, Lao PDR and Brunei delivered a strong Bank Singapore, with total income from the business rising 30% performance in 2015, doubling PBT to RM34.4 million. Our loans year-on-year. We are also intensifying our treasury capabilities in an expanded significantly to RM2.61 billion, as did our deposits which effort to become a regional treasury hub for the Group. rose to RM2.0 billion with a noticeable push on our savings accounts. Given the steady growth and potential of our international portfolio, In view of the current operating environment, the commercial we will continue to maximise and grow our existing franchises, with banking unit will remain conservative, prudent and focused on Cambodia and Lao PDR expected to be the main growth drivers. On its priorities going forward. Beyond the near-term headwinds, we another front, the Group will explore strategic partnerships and remain confident of the Bank’s ability to deliver growth. expansion into other ASEAN countries.

CAMBODIA SINGAPORE Cambodia continued its momentum in delivering impressive year-on- Commercial Banking Business year growth and was the main contributor to Group International RHB Bank Singapore recorded a 38% increase in full-year operating Business performance. RHB has a significant presence in the profit before allowances, supported by higher net interest commercial banking business sector with 10 branches nationwide income. This was mainly due to an increase in the basis points of and plans to widen its footprint further in Cambodia. It also offers a the net interest margin, which was lifted by higher loan yields. full-fledged securities business under RHB Investment Bank.

As a result of slow growth and global headwinds faced by the Commercial Banking Business Singapore economy, especially in the second half of the year, the RHB Indochina Bank Ltd (“RHBIBL”) is on a high growth trajectory Bank adopted a conservative stance, focusing on growing our high- to become one of the top 10 banks in Cambodia by 2020, having quality portfolio and diversifying our customer base. On the retail posted impressive growth in 2015, with ROE of 10.19% and pre-tax banking front, we grew our premier banking customer base by 47%, profit growing by 56% from USD5.1 million* in 2014 to USD8.0 million while total wealth management-related income surged 490% in in 2015. This was contributed by a 59% year-on-year expansion in 2015. We have also succeeded in achieving continuous growth in our the loans portfolio from USD216 million in 2014 to USD344 million business banking deposits for the past two years, registering 40% in 2015, while customer deposits and assets increased 51% to year-on-year growth in 2015. USD216 million and 62% to USD563 million, respectively. The asset quality of our Cambodian operations remains healthy with the gross During the year, the Bank’s non-retail portfolio was focused on impaired loan ratio at 0.87%. The year also saw significant investments, with activities centred on the establishment of our improvements in our operational efficiency, resulting in our cost- transaction banking capabilities by tapping into Singapore’s potential income ratio dropping from 49% to 39% in 2015. as an Asian financial hub. We also assisted our clients in expanding their business into Malaysia, leveraging our regional presence to perform cross-border referrals.

Note: * After adjusting USD1.9 million one-off specific loan provision reversal made in 2014 120 RHB Capital Berhad Annual Report 2015 BUSINESS OverVIEW (continued)

Moving forward, we expect sound economic growth in Cambodia as LAO PDR the country is expected to achieve approximately 7% GDP growth, year-on-year. Our focus for 2016 will be to enlarge the business from Commercial Banking Business key growth sectors such as property, tourism, agriculture, housing RHB Lao has had a stellar performance in 2015, turning profitable and wholesale & retail trade, while simultaneously pushing for within eight months after commencing operations on 6 June 2014. higher fee-based income through various initiatives. In addition, We exceeded our target for 2015 by 77% and generated pre-tax there are concrete plans underway to expand our network and profit of USD92,000 in 2015 with only one branch in operation. This customer touch points in 2016, with two new branches expected to was contributed by a healthy year-on-year growth of our loans open during the year, alongside five additional offsite ATMs. portfolio of 138% to USD24 million in 2015. Considering that the mobile penetration rate in Cambodia as at 2015 is 154%, making this channel an attractive proposition, we will also While we have had a strong start in Lao PDR, the 2016 outlook for be extending our digital banking services to reach under-served Lao appears to be challenging with the Central Bank implementing a segments. cap on interest margin at 4% from August 2015 onwards. Notwithstanding these challenges, our long-term outlook for Lao PDR However, the presence of 36 banks in the country creates intense remains positive. We believe that Lao PDR is rich in growth competition for deposits. Deposit growth may be sluggish due to opportunities, and we are committed to grow our foothold in the Cambodians’ low capacity and propensity to save as a result of low country to achieve scale in order to tap into these opportunities. income, while limited borrower credit information hinders efforts to grow our loan portfolio more aggressively. In the coming year, we will be expanding our network in Lao PDR with the opening of a second branch in the capital, Vientiane. This Banks also face strict regulatory requirements in terms of high will be crucial to enable RHB Lao PDR to broaden our reach to Capital Guarantees, Statutory Reserve Requirements, Liquidity Ratios customers, nudging us one step closer to achieving our aspirations and Solvency Ratios. There will be no compromise in corporate of becoming one of the top 5 foreign banks in Lao PDR that provides governance as the Bank upholds the Group’s highest standards of a full range of banking products and services by 2017. corporate governance and we remain committed to comply with the stricter regulatory requirements.

We will be extending our digital banking 2new branches services to reach under-served segments expected to open during the year considering the mobile penetration rate in Cambodia as at 2015 is additional offsite 5ATMs 154% 121

THAILAND BRUNEI

The Group has established itself in the commercial banking sector as Commercial Banking Business well as the securities business. Due to its balance sheet size and presence of only one branch, RHB has yet to establish a significant presence in Brunei. With a small Commercial Banking Business population size of 400,00, it translates into limited opportunities 2015 has been a year in which RHB Thailand focused its efforts on for Retail, Corporate and SME offerings. A series of amendments in achieving higher profitability, resulting in strong year-on-year relation to ceiling interest rates as well as the introduction of a new growth in pre-tax profit of 137% to THB18 million in 2015. This Total Debt Service Ratio requirement by local regulators, coupled achievement was largely due to the Bank’s intense focus on improving with stringent local land laws, have also impacted the local banking profitability through achieving an optimal loan portfolio mix and business scene. Nonetheless, RHB Brunei registered pre-tax profit of lowering funding and operating costs. We managed to achieve an BND321,000 in 2015, despite the lacklustre business environment improvement in total revenue of 6.2% from THB218 million to and the sharp drop in the price of oil, the main contributor to THB232 million in 2015 through the rebalancing of our loan portfolio, Brunei’s GDP. RHB Brunei also managed to report decent loans while our aggressive cost optimisation initiatives managed to growth of 11% year-on-year to BND48.4 million in 2015. successfully result in cost savings of THB54 million per annum. In view of the continued challenging market environment ahead, our The year also saw the commencement of the international client focus for 2016 will primarily be on sustaining and strengthening our coverage model in September 2015, which is designed to leverage presence in Brunei. The year ahead will see us exploring cross- the RHB Banking Group network to provide a more holistic and border businesses in countries where the Group has a presence, seamless customer experience for our corporate clients with cross- targeting trade flows between Bruneian and Malaysian companies to border businesses. This is expected to help the Bank source for broaden our revenue pool, as well as focusing on deepening our further business opportunities in the future. wallet share with existing customers via delivering superior customer experience. Moving forward, operational excellence will continue to be a major focus for 2016 as we strive to reduce our cost-to-income ratio further through continuous cost-savings initiatives. On the income front, we are eager to explore further revenue growth by targeting the wholesale and commercial segments, capitalising on the strategic RHB Thailand posted strong year-on-year locations of our branches to capture the targeted customer segments. growth in pre-tax profit of Furthermore, we expect the international client coverage model to bear fruit this year in the form of increased collaboration between RHB Thailand and the RHB Banking Group, which will play an important role in boosting revenue growth.

Ensuring long-term sustainability is also of utmost priority to us. 137% Therefore significant effort will be placed on improving cost of funds through the recalibration of our deposit portfolio. As we progress, our employees remain a valuable asset and RHB will continue to train, upskill and equip our employees with the skillsets that are necessary to achieve long-term sustainability. 122 RHB Capital Berhad Annual Report 2015

ECONOMIC REVIEW

LIM CHEE SING Group Chief Economist

2015 TURNED OUT TO BE BETTER THAN EXPECTED DESPITE SIGNIFICANT CHALLENGES

2015 turned out to be a better-than-expected year for Malaysia despite facing significant challenges throughout the year. Economic growth decelerated from 5.6% year-on-year (“y-o-y”) in the first quarter (“1Q”) to 4.5% in the fourth quarter (“4Q”) on account of a slowdown in domestic demand and a weaker export performance, particularly in the first half of the year (see Chart 1) on the back of tepid global demand and weak oil prices. The sharp fall in oil prices compelled the Government to announce a revised 2015 Budget in January 2015, which proposed reducing and delaying certain operating expenditure items. The fear of the current account falling into deficit was, however, overblown as Malaysia continued to record a current account surplus, albeit a smaller one, for 2015. This was because major commodity exports such as crude oil, liquefied natural gas (“LNG”) and palm oil continued recording sustained or higher volume of shipments during the year to partly mitigate the slump in commodity prices as well as lower non-commodities trade deficit. Meanwhile, inflation was well-contained despite the implementation of the Goods and Services Tax (“GST”) in April (see Chart 2). This was mainly due to declining fuel prices as a mitigating factor. However, the persistent outflow of capital and sharp currency depreciation (see Chart 3) posed challenges to monetary management, resulting in Bank Negara Malaysia (“BNM”) putting rates on hold for the whole of 2015. 123

Chart 1: Slower Economic Growth in 2015, Dragged by Weak Exports in the 1H

25 20 15 10 5 0 –5 –10 –15 oeti eand –20 port –25 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Department of Statistics

Chart 2: Headline Inflation Better Than Expected in Spite of GST Implementation

12 otal C 10 Core C ood Beerae 8 6 4 2 0 –2 –4 –6 05 06 07 08 09 10 11 12 13 14 15 16

Source: Department of Statistics 124 RHB Capital Berhad Annual Report 2015 economic review (continued)

Chart 3: Ringgit Depreciated Sharply vis-à-vis the US Dollar

R 3.40

3.60

3.80

4.00

4.20

4.40

4.60 Jul-15 Jan-15 Jun-15 Jan-16 Jan-16 Oct-15 Oct-15 Apr-15 Feb-15 Feb-15 Dec-15 Feb-16 Feb-16 Sep-15 Aug-15 Aug-15 Mar-15 Nov-15 Mar-16 Mar-16 May-15

Source: Bloomberg

The banking system’s loans growth was on a moderating trend in 2015, easing to the slowest pace in almost six years at 7.9% year-on-year in December (see Chart 4). Both corporate and household lending as at December recorded a slower growth. The former was largely on account of rising cost of doing business, moderating domestic demand growth and the near-completion of large infrastructure projects, while the latter was constrained by more stringent guidelines on responsible lending by the Central Bank and a higher real property gains tax that affected lending for personal consumption and mortgages, respectively. Meanwhile, the growth in the broader monetary aggregate, M3, edged down to a 2.7% year-on-year in December, the slowest in 13 years. In terms of asset quality, the net impaired loan ratio of the banking system was relatively stable at 1.2% of total loans during the March-December period.

Chart 4: Loans Growth Moderated, While Impaired Loans Ratio Remained Stable

o total loan 15 net ipaired loan ratio RH 8 14 otal loan roth H 7 13 6 12 11 5 10 4 9 3 8 2 7 6 1 5 0 05 06 07 08 09 10 11 12 13 14 15

Source: Bank Negara Malaysia 125

OUTLOOK FOR 2016

Rising Global Challenges in a Relatively Matured Growth Cycle Domestic Demand the Anchor of Growth but Facing Downside After seven years of policy stimulus, the major world economies are Risk still struggling to take off. And indeed, new challenges have Under such circumstances, domestic demand will likely be the emerged of late that could pose downside risks to sustainable anchor of growth for the country’s economy in 2016. The major growth. At this relatively matured stage of the growth cycle, it is indicators, however, are pointing to slowing growth in domestic susceptible to policy missteps in the major world economies and demand. While there is a certain degree of resiliency in investment, unexpected events. The recent turmoil in China’s equity market, both private and public, underpinned by the ongoing implementation heavy-handed Government intervention and the Chinese Government of sizeable long-gestation infrastructure related projects, private move to devalue the yuan, for instance, sent signals to global investment growth will likely be capped by the falling oil & gas investors that all is not well in the world’s second largest economy. investments and the downturn in the property cycle. Meanwhile, While the Chinese Government has a strong political will, backed by public investment and consumption will also be affected by fiscal financial resources, to manage a soft landing, it is in a two-speed constraints as Government revenue is under threat from falling oil economy where the impact of its recessionary industrial sector will revenue. likely continue to reverberate and affect the rest of the global economy and in particular, the commodity-dependent economies. Indeed, under the Government’s recalibrated budget for 2016 that Meanwhile, the rapid collapse in oil prices could turn out to be a has just been unveiled, there will be a reduction of MYR9 billion in “black swan” event that could perpetuate the downtrend in global operating and development expenditures to make up for the demand and cause confidence to spiral downward. Already, major shortfall in revenue due to the sharp fall in oil prices. This will be world economies are dragged by slumping purchasing-manager done by a combination of prioritising development expenditure and indexes in the manufacturing industry, falling corporate profitability, optimising operating expenditure, while at the same time introducing rising inventories and receding capital investment. While the US some revenue-boosting measures to persevere with the progressive managed to embark on interest rate normalisation in its 15-16 reduction in fiscal deficit. While being proactive, this will still likely December 2015’s Federal Open Market Committee (“FOMC”) impact confidence and affect economic growth to some extent. meeting, the divergence of policies between the US and the rest of the world could lead to sustained strength of the US dollar, Meanwhile, consumer spending growth has also slowed significantly dampening its exports and manufacturing growth further. This, from 8.8% year-on-year in the first quarter of 2015 (“1Q 2015”) to coupled with the setback in its shale energy industry on the back a low of 4.1% in the third quarter (“3Q”) following the of a collapse in oil prices, could create a significant dampener on implementation of the GST. Although consumer spending recovered its economic growth in the period ahead. In this connection, raising slightly to 4.9% in the 4Q, it will struggle to gain momentum given interest rates amid declining corporate earnings and margins is not the rising cost of living, high household debt servicing, softening without risks to investment and its economic growth. employment market and falling confidence on account of a slowing economy, the sharp depreciation of the Ringgit and rising This challenging outlook for the external environment will mean inflationary expectations. Overall, the economic growth is envisaged that exports for Malaysia will likely struggle to sustain growth in to slow more significantly to 3.9% in 2016, from +5.0% in 2015 the period ahead. While the country’s exports, in Ringgit terms, (see Tables 1 & 2). have recovered to positive year-on-year growth since June 2015 on account of a low base effect and currency translation gains, these impacts will likely fizzle out by mid-2016. In US dollar terms, the country’s exports continued to mire in contraction and have fallen by 14.6% in 2015, signifying weak external demand. 126 RHB Capital Berhad Annual Report 2015 economic review (continued)

Table 1: GDP by Expenditure Components (at constant 2010 prices)

2014 2015 2016F % y-o-y

Consumption Private sector 7.0 6.0 4.5 Public sector 4.4 4.3 1.8 Gross Fixed Capital Formation 4.8 3.7 1.6 Private sector 11.0 6.4 4.6 Public sector –4.7 –1.0 –4.1 Aggregate Domestic Demand 5.9 5.1 3.3 Exports of Goods & Services 5.1 0.7 2.5 Imports of Goods & Services 4.2 1.3 1.6 Real Gross Domestic Product 6.0 5.0 3.9

Source: Department of Statistics, RHBRI F: RHBRI’s forecasts

Table 2: GDP by Industrial Origin (at constant 2010 prices)

2014 2015 2016F % y-o-y

Agriculture, forestry & fishing 2.1 1.0 –0.2 Mining & quarrying 3.3 4.7 3.4 Manufacturing 6.2 4.9 4.3 Construction 11.8 8.2 4.9 Services 6.5 5.1 4.5 Real Gross Domestic Product 6.0 5.0 3.9

Source: Department of Statistics, RHBRI F: RHBRI’s forecasts 127

Narrowing Current Account Surplus in the Balance of Payments The current account surplus in the balance of payments is also projected to narrow further to MYR30.9 billion or 2.5% of Gross Domestic Product (“GDP”) in 2016, from MYR34.0 billion or 2.9% of GDP in 2015 (see Table 3), given falling commodity trade surplus on account of the persistent commodity price slump and in particular, the collapse in oil & gas prices. This, however, could be cushioned by a slower increase in imports on account of a more moderate increase in domestic demand as well as lower deficits in the services and income accounts.

Table 3: Balance of Payments

2014 2015 2016F MYR’billion

Current Account 47.3 34.0 30.9 (% of GDP) 4.4 2.9 2.5 Goods 113.4 108.9 103.3 Services –11.2 –20.5 –19.5 Income –37.3 –32.2 –31.4 Current transfers –17.6 –22.2 –21.5 Capital account 0.3 –1.2 0.0 Financial account –81.6 –53.3 –9.0 Errors & omissions –2.5 24.1 –3.0 Overall balance –36.5 3.7 18.9 Outstanding reserves* 405.5 409.1 428.0 (US$)* 115.9 95.3 107.0

* As at end-period Source: Department of Statistics, RHBRI F: RHBRI’s forecasts

Downside Risk to Economic Growth Outweighs Concern of Higher Inflation Headline inflation is expected to remain manageable at the 2.0% – 2.5% level in 2016, compared to 2.1% as in 2015, as higher imported inflation from currency depreciation, higher toll charges as well the normalisation of the base effect will likely be mitigated by the reduction in retail fuel prices, particularly in the first half of this year. Given the muted inflationary pressure, it will unlikely be a major policy concern given the general lack of demand pressure from a slowing economy. Indeed, the downside risk to economic growth far outweighs any potential concern about higher inflation. While there is room for the Central Bank to cut its overnight policy rate (“OPR”) to promote economic growth, the Central Bank’s view is that cutting interest rates from the current level will unlikely generate much marginal growth for the economy, but could lead to disintermediation of savings, perpetuate excessive risk taking by borrowers and risk building up financial imbalances that could be equally damaging to the economy. It has recently stressed that the country will not over-rely on monetary policy to drive economic growth in the period ahead and will look into promoting growth via a combination of monetary, fiscal and other policies to promote sustainable economic growth. On balance, the OPR will likely remain unchanged at 3.25% during the year unless economic growth slows down much quicker/sharper than envisaged. Instead, the Central Bank has resorted to cutting the statutory reserve requirement (“SRR”) of banks to ensure sufficient liquidity in the financial system. In our view, there is room for the Central Bank to cut it further should the need arise.

TOGETHER WE PROGRESS BEING YOUR TRUSTED PARTNER 130 RHB Capital Berhad Annual Report 2015 UPHOLD HIGH STANDARDS OF GOVERNANCE “A WELL BALANCED, INCLUSIVE APPROACH, ACCORDING TO CERTAIN STANDARDS AND IDEALS, IS ESSENTIAL FOR THE PROPER GOVERNANCE OF ANY ORGANISATION.”

Awards

ASEAN Corporate Governance MSWG-ASEAN Corporate Governance Award Transparency Index 2015

Top 50 ASEAN Publicly Listed Companies Merit Award for Corporate Governance Disclosure

132 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE

INTRODUCTION “THE SUCCESS OR FAILURE OF ANY ORGANISATION IS OFTEN ATTRIBUTED TO THE QUALITY OF ITS CORPORATE GOVERNANCE. IN HEAVILY REGULATED SECTORS LIKE BANKING AND INSURANCE, THE COLLAPSE OF FINANCIAL INSTITUTIONS ESPECIALLY MAJOR GLOBAL PLAYERS INVARIABLY INVITES GREATER PUBLIC SCRUTINY AND THE TIGHTENING OF RULES AND REGULATIONS… WHILE IT IS IMPORTANT THAT THE RELEVANT CORPORATE GOVERNANCE STANDARDS ARE FURTHER STRENGTHENED, THIS MUST BE REINFORCED BY AN HONEST REFLECTION ON GAPS THAT EXIST IN PRACTICE AND A STRONG RESPONSE BY THOSE AT THE VERY TOP OF THE ORGANISATION TO ELEVATE AN INSTITUTION’S GOVERNANCE PRACTICES AND ARRANGEMENTS. IT IS IN OUR COLLECTIVE INTERESTS TO ENSURE THAT CORPORATE GOVERNANCE PRACTICES IN THE FINANCIAL SECTOR REMAIN SOUND OVER TIME. REGULATION ALONE WILL NOT ACHIEVE THIS. AS KEY PUBLIC INTEREST ENTITIES, FINANCIAL INSTITUTIONS ARE EXPECTED TO LEAD BY EXAMPLE AND REMAIN AT THE FOREFRONT IN REGARD TO CORPORATE GOVERNANCE PRACTICES.” Datuk Nor Shamsiah Mohd Yunus, Deputy Governor, Bank Negara Malaysia Opening Speech, Launch of the FIDE Forum’s Directors’ Remuneration Report 2015, Lanai Kijang, Kuala Lumpur 7 December 2015

COMMITMENT TO GOVERNANCE Excellence in corporate governance is an important element in promoting the Company’s financial services among the ASEAN and RHB Capital Berhad (“RHB Capital” or “The Company”) is fully Greater China economic communities. RHB Capital’s current committed to protect the interests of all its stakeholders by transition from the “A New Dawn” era to the next chapter of applying good corporate governance, including greater transparency sustainable operation is rapidly progressing, thus echoing its and sustainable disclosure. commitment to its “Together We Progress” tagline hand in hand with its stakeholders, as the Company operates and manages its This momentous journey has been enthusiastically accepted from business in an orderly fashion. the top down by RHB Banking Group’s (“Group”) internal stakeholders, namely the Board of Directors, Senior Management and the rest of its employees. In reward of this effort, in 2015 the Company was externally recognised by a reputable and independent third party, the Minority Shareholder Watchdog Group (MSWG) and ranked in the top 6 among 870 Malaysian Public Listed Companies (“PLCs”) in terms of quality disclosures and scope of corporate governance practises assessed as per the MSWG-Association of Southeast Asian Nations (ASEAN) Corporate Governance Transparency Index 2015 – The Malaysian Chapter.

Using a scorecard methodology based on the Organisation for Economic Co-operation and Development’s (“OECD”) Principles of Corporate Governance, MSWG accorded the Company the “Top 10 Corporate Governance Disclosure Merit Recognition Award” on 10 December 2015. RHB Capital was also acknowledged in Manila, Philippines on 14 November 2015, as one of the “Top 50 ASEAN PLCs” among publicly listed companies in Southeast Asia, assessed on good governance and transparency practices, and peer reviewed within ASEAN countries using a similar methodology. 133

CONFORMANCE CULTURE

RHB Capital recognises that good corporate governance is key to ensuring long-term sustainability for the Group. As such, the Company fully subscribes and adopts the broad principles set out in the following requirements and guidelines:

Securities Commission’s Bursa Securities’ Malaysian Code on Main Market Listing Corporate Governance Requirements 2012

AAA CA AC 15 RR

Organisation for Bank Negara Malaysia’s Economic Co-operation Corporate Governance & Development’s Principles Guidelines of Corporate Governance

In leading the organisation and ensuring that all the Group’s This process is embedded top-down, where the Company’s shared strategic objectives and business scorecards are met, the Board is values encourage its Directors and employees in having P.R.I.D.E. bound by its Charter, the Terms of Reference (“TOR”) for its in upholding the spirit and the letter of legal and regulatory various Board Committees, and also by the Group Code of Ethics requirements. All employees are guided by and committed to the and Business Conduct for Directors. following core shared values of the Group:

For Senior Management, key performance indicators (“KPIs”) and • Professional the TOR for various management committees reiterate the strategic We are committed to maintain a high level of proficiency, objectives and risk appetite that the Board has set to achieve competency and reliability in all that we do. common organisational goals and value creation. • Respect Complementing this are the Group Manual of Authority, Power of We are courteous, humble and we show empathy to everyone Attorney, Delegated Lending and Financing Authority (Discretionary through our actions and interactions. Powers), Group Code of Ethics and Conduct for Employees, and Group Whistle Blower Policy, all of which were approved by the • Integrity Board to ensure that good governance practices and fiduciary duties are implemented by the Senior Management and other key We are honest, ethical and we uphold a high standard of personnel. governance.

This compliance culture encourages the Group’s Directors, Senior • Dynamic Management and the rest of its employees to embrace professional We are proactive, responsive and forward thinking. business ethics and practise self-compliance with internal and external requirements. • Excellence We will continuously achieve high standards of performance and service deliverables. 134 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

GOVERNANCE MODEL HARHR Approve the Appointment

Accountable to

BAR RCR Recommends RA AR Appoints the Appointment

Delegates Reports to

BAR C

BAR BAR BAR AC R BAR R A BAR R CR CH AA A BAR A RRA C C C C C C C

Compliance, Internal Audit Risk Management

R R CR C Accountable to AA Group Compliance, Group Internal Audit, Group Risk & Credit Management

GOVERNANCE MODEL GOVERNANCE MODEL & FRAMEWORK

The Governance Model outlines a clear organisational structure levels of oversight functioning across the Group’s business and with robust internal control and risk management mechanisms functional activities. These include, among others, direct which promote high standards of governance and of integrity, supervision, Senior Management, independent parties comprising transparency and well-defined accountabilities and responsibilities risk management, compliance and internal audit, Group Managing of the shareholders, Board and Board Committees, Senior Director (“GMD”), Managing Directors (“MDs”), Board Committees Management, external and internal auditors and other Independent and the Board. Control Functions. As the framework is based on conformance with regulatory As the Board further commits to working under a solid governance requirements of the Guidelines on Corporate Governance for structure with greater transparency, a framework on governance Licensed Institutions and for Licensed Islamic Banks issued by has been established. It is within this ambit that the Board Bank Negara Malaysia (“BNM”), this solid foundation is thus approved the Group Governance Framework as the basis of effective important to create value in the Group whether in the short, governance and oversight to support RHB Banking Group’s overall medium or long-term. strategies. The Board continuously explores enhancements to the Group’s A clear and transparent governance structure for various central governance processes to ensure it remains robust even as it and sub-committees set by the Board members and the Senior continues to expand. The Governance Model and framework is Management has institutionalised the Company as a risk-focused currently being used as guidance and reference to build a strong organisation with proper control functions and good corporate governance structure and conformance culture within the Company governance practices. Under this framework, there are various and other RHB entities in the Banking Group. 135

GOVERNANCE FRAMEWORK

BAR 1. Oversight by BOD

BAR 2. Oversight by individuals not involved in day-to-day management C 4. Independent risk management, roup • Both tratei perational in nature; Meets monthly or as required compliance to steer the direction of the Banking Group and audit AA Buine untional • perational in nature; Meets monthly or as required to execute the entity functions C ther strategy and manage the business, risk, audit and compliance • atial in nature; Meets weekly or as required to drive a specific outcome

R C RC R 3. Direct line supervision of various business areas R C R B

* Based on BNM Guidelines on Corporate Governance for licensed institutions

Business Governance The Board acknowledges that conformance to internal and external In terms of monitoring financial and business performance, the requirements must be balanced with the Company’s financial and main Board will discuss and make final decisions on strategic business performance to give an overall picture of the Company’s matters recommended by its respective Board Committees. An sustainability in the long-run. The Annual Business Scorecard which overview and analysis of the Group’s financial performance are sets out quantitative and qualitative key performance indicators for available on pages 6 to 11 of this Annual Report and also on the the key Senior Management is reviewed periodically by the Board corporate website www.rhbgroup.com. against the Group Balanced Scorecard and the Group Risk Appetite. All final achievements by the MD/Chief Executive Officer (“CEO”), The progress made by the Board Committees is also scrutinised by Senior Management and employees will be reflected on at financial the main Board. Each Committee’s performance and progress will year-end in terms of performance rewards and in line with the be deliberated on and the Board will decide on matters of strategic retention policy. importance to the Group or respective entity. 136 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

RESPONSIBILITY AND ACCOUNTABILITY

aintain oerall reponiilit for oversight of the Group and its entities, and for decisions taken by Board Committees Strategic Matters BAR RHB In each meeting, Joint and Individual Boards to deliberate and decide on matters RHB CAA BAR RHB BA BAR of strategic importance to the Group/each Entity, including: 1. Business & operating strategies RHB RHB AC HR BAR 2. New or changes to existing Business BA BAR BA BAR RHB Plans 3. New investments/divestments 4. Mergers & acquisitions Delegation of Authority 5. Expansion/entry into new markets/ BAR C geographies/regions 6. Corporate restructuring/reorganisation BAR A R BAR BAR 7. Setup of new subsidiaries RRA 8. Joint Ventures A C A C C 9. Partnership or strategic alliance 10. Acquisition/disposal of significant AC R BAR BAR CR BAR R assets C C AA CH C C 11. IGNITE 2017 (Quarterly Updates during Joint Board) Assists Boards in discharging duties of oversight across the Group through the eeriin o authorit deleated by the Boards, as spelled out in its terms of reference

THE BOARD OF DIRECTORS RB ARoles ACCAB and Responsibilities of the Board Board Charter The Board is charged with leading and governing the Company in an effective, efficient and responsible manner. The Directors, The Board Charter, which sets out the key corporate governance collectively and individually, are aware of their responsibilities to principles adopted by the various Boards of the Group, was shareholders/stakeholders and the manner in which the affairs of developed for each of the Group’s major entities. It clearly defines the Company are managed. They discharge their roles and duties the roles and responsibilities of the Boards, Chairperson, Senior with integrity, honesty and professionalism within the ambit of the Independent Director and the GMD/MD/CEO in the areas of strategy law to serve the interest of the Company’s shareholders and setting, management of company, succession planning, risk stakeholders, and ensure the Company adheres to the highest management, integrity of internal control and communication plan. standards of corporate governance.

Within these boundaries, the respective Boards discuss, set and agree The Board assumes an active role and takes full responsibility for with Management on the Annual Balanced Scorecard, KPIs and the risk key strategy setting, business plans, financial objectives and major appetite that are to be duly executed and achieved by Management. The capital and operating budgets. While the Board scrutinises the performance and progress of Management is then reviewed by the frameworks and policies proposed by the Management, the Board respective Boards at specified intervals. A copy of the Company’s Board also monitors the Management’s performance in implementing the Charter is available on the corporate website (www.rhbgroup.com). 137

adopted strategies as well as provides direction and advice to In addition, the Group Chief Governance Officer and/or Group ensure the achievement of the objectives. Compliance Officer, during financial year ended 2015 on a quarterly basis, provides the Board with a report on the (a) Governing the Company’s and the Group’s business conduct Company’s and the Group’s compliance with its statutory and operations obligations as well as rules and regulations governing the The Board governs the business conduct, performance and Company’s and the Group’s business and operations, actions operations of the Company and the Group. To ensure high taken to address shortcomings as well as self-regulating performance, the Board reviews the Group’s business strategies initiatives taken by the Group, especially initiatives that are and approves the Group Balanced Scorecard. Management’s critical to the Group’s business and operations under local performance is monitored against the Balanced Scorecard on and foreign jurisdictions. Areas for improvement, non- a regular basis. Interventions and regular reviews may be held compliance and action plans are highlighted and recommended to ensure that the execution of plans is aligned with the set to the Board for information and approval where required. objectives and goals. The Board also reviews management reports. Special meetings The Board also governs the Company’s and the Group’s risk are held between scheduled meetings when any direction or management, internal controls and human resource (“HR”) decision is required expeditiously from the Board. management through the delegation of certain decision- making and/or oversight responsibilities to various Board As part of the Group’s initiative to continuously improve Committees, namely the Group Board Audit Committee, Board employee engagement and employee value propositions, an Risk Committee and Board Nominating & Remuneration employee engagement survey, namely the “Internal Customer Committee. At the highest executive level, the Group MD Effectiveness Survey”, was conducted in November 2015 to assumes the overall responsibilities of executing the Group’s assess the level of employee engagement and quality of strategies and plans in line with the Board’s direction, service rendered by the respective Strategic Business Groups oversees the listed entity’s operations and drives the Group’s and Strategic Functional Groups within the Group. Themed businesses and performance towards achieving the Group’s “Voice Out Now - Igniting Engagement 2015”, the Group vision and goals. sought to acquire valuable information from the employees in order to craft sustainable improvements in primary aspects of In carrying out his tasks, the Group MD is supported by the operations. Group Management Committee (“GMC”) which comprises the Group MD as the Chairman, the CEOs/MDs of the relevant key (b) Risk Management operating subsidiaries and key Senior Management of the The Board is responsible for identifying the principal risks and Group. implementation of appropriate systems to manage and control these risks. In ensuring effective risk assessment and control, The Board is updated on the Company’s and the Group’s the Board Risk Committee (“BRC”) has been entrusted with performance during monthly Board meetings. The reports providing oversight and governance of risks for the Group. include a comprehensive summary of the Company’s and the The BRC comprises five Independent Non-Executive Directors Group’s business drivers and financial performance of each (“INEDs”) and one Non-Independent Non-Executive Director reporting period vis a vis the Company’s approved Balanced (“NINED”) representing the Group’s respective entities. Scorecard and industry benchmarks, risk management report, Matters deliberated at BRC meetings are presented to the compliance report and transformation updates. The Board is Board on a monthly basis. also kept abreast of the key strategic initiatives, significant operational issues and latest developments in the financial The Board is satisfied that the BRC has effectively and services industry. efficiently discharged its functions to support the Board in ensuring, among others, that the Company and the Group are adequately capitalised to support risks undertaken and to meet regulatory requirements. 138 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

A Group Risk Management Report (including the entities’ and conditions of their service contracts. In addition, the BNRC the Group’s risk metrics and tolerance dashboard) is also reviewed the current organisation structure in enhancing presented to the Board on a monthly basis. greater alignment and accountability to deliver business value and outcomes. The Company and the Group maintain and review its internal control procedures to ensure, as far as possible, the protection The BNRC also continuously monitors succession planning of its assets and liabilities as well as its shareholders’ updates presented by Group HR to ensure the smooth investments. The Board considers that the Group’s risk transition of key personnel into critical positions, and management framework and system of internal control, which ensures that the development plans for identified successors are in place throughout the financial year, up to and as of the are put in place based on their readiness to assume the date of this report, are operating adequately and effectively. positions. Other major issues deliberated on by the BNRC are An overview of the Company and the Group’s systems of risk salary and grading structure, retention plans and incentive management is contained in the Risk Management Statement schemes for key Senior Management as well as employee set out on pages 182 to 189 of this Annual Report. value propositions.

(c) Talent Development and Succession Planning (d) Effective Communication Talent development and succession planning are key priorities The Board recognises the importance of developing a healthy to the Board in ensuring a high-performing workforce which relationship with the investment community. To create contributes to the Company’s and the Group’s sustainability shareholder value and improve communication with investors, and competitiveness. The Board has entrusted the Board the Investor Relations team implemented a comprehensive Nominating & Remuneration Committee (“BNRC”) with the engagement programme in 2015 consisting of proactive and responsibility of providing high-level oversight and direction regular sessions with research analysts and institutional on human resource matters, and with recommending investors for timely and fair dissemination of information on remuneration and human resource strategies such as employee the Group’s vision and strategies, overall operations, and value propositions, retention strategies, performance business and financial performance. management and succession planning. The key spokespersons and representatives for Investor The BNRC also approves changes to Group HR policies in line Relations of the Group are the GMD and the Group Chief with the HR strategy and direction set by the Board. Financial Officer. Additionally, the BNRC supports the Board and that of the subsidiaries in reviewing and assessing the appointment of (e) Internal Control Directors, Board Committee members, Shariah Committee and The Board is responsible for ensuring the adequacy and key Senior Management officers. It also advises on the optimal integrity of the Company’s and Group’s internal control size and mix of skills for the Group’s Boards. system. With the support of the Group Board Audit Committee and Group Internal Audit, the Board ensures that there is a In line with IGNITE 2017, the Group has made a concerted process for reviewing the adequacy and effectiveness of the effort to enhance and realign its HR and talent management Company’s and the Group’s internal control system. Details to attract and retain regional talent and build a high- pertaining to the Company’s and the Group’s internal control performing regional workforce. During the year, this saw the system and review of its adequacy and effectiveness are set BNRC considering the renewal of service contracts and new out in the Statement on Risk Management and Internal Control appointments for key management positions based on their in this Annual Report. profiles, professional achievements and personal assessments. This included successfully identifying and attracting suitable candidates for all senior positions. The BNRC also considered their remuneration package(s) in finalising the terms and 139

Board Composition and Balance Their presence ensures an effective check and balance on the The Board of RHB Capital is currently represented by seven functioning of the Board. Independent directors of the Company are Members, comprising a Non-Independent Non-Executive Chairman, not involved in the day-to-day management of the Company, nor do two NINEDs, three INEDs and the Group MD (“GMD”), as follows: they participate in any of its business dealings. This ensures they remain free of any conflict of interest and can undertake their roles and responsibilities as INEDs effectively. BOARD COMPOSITION Boardroom Diversity Policy Recognising the increasing importance of boardroom diversity in pursuing business and governance performance, the Group • 1 NINE Chairman established a boardroom diversity policy in 2013. The policy is also – YBhg Dato’ Mohamed Khadar Merican in line with the Securities Commission’s goal for women directors to make up 30% of boards. Diversity, which includes but is not • 1 Senior INED limited to gender, age, ethnicity and cultural background, is – YBhg Datuk Haji Faisal Siraj therefore a key consideration in assessing and reviewing the • 2 INEDs Board’s composition as it strives to achieve the targeted level of – YBhg Tan Sri Dato’ Teo Chiang Liang women’s participation. – YBhg Datuk Seri Saw Choo Boon In view that organisations are best served by having a constantly • 2 NINEDs evolving board of directors with staggered terms and a healthy – YBhg Tan Sri Azlan Zainol combination of fresh perspectives and experience, age limits at 70 – Mr Mohamed Ali Ismaeil Ali AlFahim and 73 are set for the Group’s Non-Executive Directors (“NED”), • 1 GMD/CEO with the exception of major shareholders’ representatives. At the – YBhg Dato’ Khairussaleh Ramli first checkpoint, Directors who are over the age limit of 70 shall retire at the next AGM but are eligible for appointment or re- appointment on the Boards of RHB Banking Group, subject to The above structure and composition of the Board comply with the Main shareholders’ approval. At the second checkpoint, Directors who Market Listing Requirements (“MMLR”) of Bursa Malaysia Securities exceed the age limit of 73 cannot continue their service tenure Berhad (“Bursa Securities”) and BNM’s Guidelines on Corporate further and shall retire at the next AGM of the company concerned. Governance for Licensed Institutions and for Licensed Islamic Banks Only one NED in the Company, namely YBhg Datuk Haji Faisal Siraj, (“BNM’s CG Guidelines”). YBhg Datuk Haji Faisal Siraj has been reached the age of 70 during the current financial year and appointed as the Senior INED (“SINED”), to whom concerns pertaining according to the Internal Guidelines on Tenure of Appointment/Re- to the Group may be conveyed by shareholders and the public. Appointment of Non-Executive Directors for RHB Banking Group, YBhg Datuk Haji Faisal shall be eligible for re-appointment on the During the financial year ended 2015, the composition of Board of the Company subject to the shareholders’ approval during Independent Directors was initially 50% of the Board of Directors the AGM, upon the endorsement and recommendation of the BNRC. prior to the redesignation of the Company’s Chairman, YBhg Dato’ Mohamed Khadar Merican, from INED to NINED status upon Assessment of Independence conclusion of the 20th Annual General Meeting (“AGM”) held on 30 The independence of the Directors is reviewed annually and April 2015 and the resignation of YBhg Dato’ Nik Mohamed Din benchmarked against best practices and regulatory provisions. Datuk Nik Yusoff (NINED) from the Company on 12 August 2015. Independent Directors are required to attest to their compliance Current Independent Directors of the Company nevertheless account with the criteria and definition of “Independent Director” as for 42.9% of the Board, exceeding Bursa Securities’ and BNM’s stipulated under Clause 2.26 and Clause 2.27 of BNM’s CG requirement that one-third (33.3%) of Board members must be Guidelines for Licensed Institutions and Licensed Islamic Banks, independent and fulfil the criteria of independence as defined in respectively. the MMLR and BNM’s CG Guidelines. 140 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

All Independent Directors are independent from the Company’s should not exceed a consecutive or cumulative term of nine years. substantial shareholders, are not substantial shareholders No INEDs have served the Company for more than nine years in a themselves or directly associated with any substantial shareholders. similar capacity. Based on individual Director’s self-disclosure, the Board is generally satisfied with the level of independence demonstrated by all the Notwithstanding the above, YBhg Dato’ Mohamed Khadar, as a NED, INEDs and their ability to act in the best interest of the Company. shall retire at the next AGM of the Company upon completion of his consecutive or cumulative term of 12 years, pursuant to the At every Board Meeting, all Directors are required to disclose their Internal Guidelines. interest or any possible conflicts on any matter put forth in the meeting. When required, the interested Director shall excuse Roles of the Chairman and Group Managing Director himself/herself and abstain from deliberation and voting to allow The distinct and separate roles and responsibilities of the Chairman unbiased and free discussion and decision making. In the event a and GMD ensure balance of power and authority such that no one corporate proposal requires shareholder approval, interested individual has unfettered powers of decision making. Directors will abstain from voting in respect of their shareholdings in the Company and will further ensure that persons connected to The Non-Independent Non-Executive Chairman, YBhg Dato’ them similarly abstain from voting on the resolution. Mohamed Khadar, manages the affairs of the Board with a view of ensuring that it functions effectively and meets its obligations and Tenure of Independent Directors responsibilities. He also leads the Board in executing its In an effort to preserve the independence of INEDs, the Group has responsibilities to shareholders and ensures that Members, put in place its Internal Guidelines on Tenure of Appointment/Re- individually and as a group, have the opportunity to air differences, Appointment of Non-Executive Directors for RHB Banking Group explore ideas and generate the collective views and wisdom (“Internal Guidelines”). The Board believes the tenure of INEDs necessary in the Board’s decision-making. should balance experience and learning with the need for renewal and fresh perspectives. Additionally, the Chairman must ensure that general meetings are conducted efficiently and in accordance with the requirements of YBhg Dato’ Mohamed Khadar Merican (“YBhg Dato’ Mohamed the Companies Act 1965, and that shareholders have adequate Khadar”) was first appointed as an INED in the Group and Company opportunity to air their views and obtain answers to their queries. in December 2003 and January 2008 respectively. Subsequently he was appointed as the INE Chairman of the Company on 12 May The GMD/Group CEO, YBhg Dato’ Khairussaleh Ramli (“YBhg Dato’ 2009. The Board acknowledges that YBhg Dato’ Mohamed Khadar Khairussaleh”), who has extensive financial experience and has detailed knowledge of the business and possesses the industry knowledge, was appointed effective 5 May 2015 to assume the exposure and competency to effectively advise and oversee the overall responsibilities of executing the Group’s strategies in line management of the Company. Under his stewardship, the Company with the Board’s direction, overseeing the listed entity’s operations was recognised as one of the “Top 50 ASEAN Publicly Listed and driving the Group’s businesses and performance towards Companies” at the inaugural ASEAN Corporate Governance Awards achieving the Group’s vision and goals. 2015 held in Manila, Philippines and received the “Top 10 Corporate Governance Disclosure Merit Recognition Award” at the MSWG- YBhg Dato’ Khairussaleh leads the Group’s Senior Management in ASEAN Corporate Governance Transparency Index, Findings and the execution of the Group’s strategic initiatives. He replaced the Recognition 2015 Awards Ceremony held in Kuala Lumpur, Malaysia. previous GMD/Group CEO, Mr Kellee Kam, on 5 May 2015, when the latter retired after having successfully served RHB Banking Group On 30 April 2015, YBhg Dato’ Mohamed Khadar was re-designated in the same capacity since 9 January 2012. YBhg Dato’ Khairussaleh as NINE Chairman of the Company upon conclusion of the 20th is also the MD/CEO of RHB Bank Berhad, a post he assumed AGM. His re-designation was in compliance with the Internal effective 13 December 2013. Guidelines and recommendations of the Malaysian Code on Corporate Governance 2012 that the service tenure of an INED 141

Nomination Framework These assessments are reviewed on an annual basis. The Fit and New Director nominees are assessed by the BNRC in accordance Proper Policy outlines the following criteria in assessing the with RHB Banking Group’s Policy and Guidelines on Fit and Proper suitability of the candidate: for Key Responsible Persons (“Fit and Proper Policy”). • Probity, personal integrity and reputation, where the candidate The assessment takes into account the nominees’ background, must have personal qualities such as honesty, integrity, skills, knowledge and experience, and is part of a transparent diligence, independence of mind, fairness and ethical behaviour. nomination process before a recommendation is made for the Board’s approval. • Competence and capability, where the candidate must have the skills, experience, ability and commitment to carry out the role. These assessments are carried out against a benchmark of documented competencies which have been prepared for each role, • Financial integrity, where the candidate must have financial the completion of declarations by each individual, the obtaining of soundness and be able to manage his/her debts or financial evidence of material qualification and the carrying out of checks on affairs prudently. matters such as criminal record, bankruptcy and regulatory disqualification.

NOMINATION FRAMEWORK

CA C R CC RAC RCA CAA CAA BRA A A H A RR H BAR R H H RR HRH AA B BRC A CAA ARA AB

The Chairman of the BNRC conducts an interaction session withA the RARDirectors’ Appointment and Assessment proposed candidates and assesses the candidates based on their (a) Appointment of Directors relevant skills and experience, independence (where relevant) and The Group sources for new candidates for Board appointments objectivity, track record of success, sound judgement and broad from the industry talent pool and the Group’s Independent perspective. The Board’s expectations on the time commitment and Directors’ network, as overseen by the BNRC. contribution from the Directors will also be clearly communicated to the proposed candidates. The BNRC follows a Board-approved nomination framework, which ensures that individuals appointed to relevant senior positions and the Boards within the Group possess the appropriate fitness and propriety to discharge their prudential responsibilities on and during the course of their appointment. 142 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

As part of its review of the suitability of candidates and The following are the performance indicators on which the criteria for the appointment process, the BNRC also evaluates Board’s effectiveness is evaluated: the skill sets required, size, structure and composition of the Board. This is to ensure the Board is well-balanced and is Part A: Board Evaluation supportive of good governance and efficient management, 1. Board responsibilities while complying with regulatory requirements and remaining responsive to shifts in the business environment and the 2. Board composition entity’s business needs. 3. Board administration and process

For the re-appointment of existing Directors, the BNRC refers 4. Board conduct to the results of the individual assessments conducted via the 5. Board interaction and communication with Management Board Effectiveness Evaluation exercise in addition to their and stakeholders formal/informal interactions with the Directors. The BNRC also assesses the Directors based on how well they performed their 6. Overall Board performance roles and contributed to the Board and Board Committees, 7. Chairman’s evaluation their independence of view in respect of decision making (whichever is applicable), adequacy of training and time 8. Managing Director’s evaluation commitment. Once approved by the Board, the application for the appointment/re-appointment of Directors is submitted to Part B: Board Committees’ Evaluation BNM for its consideration. 1. Structure and processes (b) Board Effectiveness Evaluation 2. Accountability and responsibilities The Group has undertaken the Board Effectiveness Evaluation (“BEE”) exercise on the Boards and Board Committees to Part C: Directors’ Self- and Peer Evaluation assess their effectiveness and that of individual Directors. 1. Board dynamics and participation Implemented in 2006, the BEE is designed to detect strengths and weaknesses to improve the Board’s overall effectiveness 2. Integrity and objectivity and forms part of the BNRC’s evaluation for the re-appointment 3. Technical competencies of Directors. 4. Recognition The BEE is made up of self- and peer assessment conducted 5. Independent Directors’ evaluation through a customised questionnaire. Messrs PricewaterhouseCoopers Consulting Services Sdn Bhd Part D: Committee Members’ Self- and Peer Evaluation (“PwCCS”) was engaged to collate and tabulate the results of the evaluation, ensuring integrity and independence of the 1. Participation levels and contribution appraisal process. The BEE also includes in-depth interviews 2. Technical competencies between PwCCS and Directors and Senior Management to evaluate areas which may not be covered by the written Each Director and Board Committee member was required to assessment. The detailed BEE results are then discussed with perform an online self- and peer assessment for the year in the Chairmen of the BNRC and Boards. review. Upon completion, individual results, together with a peer average rating on each area of assessment, were provided to each Director and Board Committee member for their information and further improvement. The latest BEE results were presented to the BNRC in July 2015 and to the Board in August 2015 to identify and address areas for improvement. 143

MEETINGS AND SUPPLY OF INFORMATION TO THE BOARD

Board meetings are convened monthly and additionally when required to deliberate on any arising issues. At each Board meeting, the Board is, among others, informed of decisions and salient issues by the respective Board Committees’ Chairmen/representative. Minutes of the respective Board Committees’ meetings are also tabled for the Board’s information.

For the financial year ended 31 December 2015, the Board is satisfied with the time commitment given by the Directors towards fulfilling their roles and responsibilities as Directors of RHB Capital. All Directors have complied with the required minimum Board meetings attendance of 75% under BNM’s revised guidelines and as adopted by the Company.

The Board convened 14 meetings for the financial year ended 31 December 2015. The attendance of each Director in office at the end of the financial year at the aforesaid Board meetings is set out below:

No. of Meetings Total Percentage of Name of Director Attended Attendance (%)

YBhg Dato’ Mohamed Khadar MericanV 14/14 100 YBhg Tan Sri Azlan Zainol 14/14 100 YBhg Datuk Haji Faisal Siraj 14/14 100 YBhg Datuk Seri Saw Choo Boon 14/14 100 YBhg Tan Sri Dato’ Teo Chiang Liang 12/14 86 YBhg Dato’ Nik Mohamed Din Datuk Nik Yusoff# 6/8 75 Mr Mohamed Ali Ismaeil Ali AlFahim 12/14 86 Mr Kellee Kam Chee Khiong* 5/5 100 YBhg Dato’ Khairussaleh Ramli^ 9/9 100

Notes: V Re-designated as Non-Independent Non-Executive Chairman with effect from 30 April 2015. # Resigned with effect from 12 August 2015. * Retired as GMD with effect from 30 April 2015. ^ Newly appointed with effect from 5 May 2015.

An annual meeting schedule for Board and Board Committee This latest convenience allows any Board meeting paper to be meetings and the AGM is circulated to the Directors for the circulated to the Board members instantly. Currently, Board papers convenience before the beginning of every year. Since 2014, are circulated between 5 and 7 days before each meeting. Directors/Board Committee members have also been enabled to use their iPads to gain secure access to a meeting management solution In an effort to promote transparency in discharging their duties, system via an online portal. Directors are required to notify the Board on changes of their other directorships and shareholdings in RHB Capital as and when such This has significantly enhanced mobility, movement of documents, changes arise. This information is used to monitor the number of cost and time savings, as well as improved convenience and directorships held by the Directors of RHB Capital, including those security while creating a positive impact on the environment. on other public listed companies, and to notify the Companies Directors who are unable to attend Board/Board Committee Commission of Malaysia accordingly. meetings are also encouraged to participate via telephone and video-conferencing using the LYNC application system. 144 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

The information on the Company’s Directors’ directorships in other Board Committees and the Senior Management, updating the Board public companies is available on pages 30 to 33 of this Annual on the follow-up or implementation of decisions/recommendations. Report. In order to play an effective advisory role to the Board, the Notices on the closed period for trading in RHB Capital securities Company Secretaries are kept abreast with the latest regulatory based on the targeted date of announcement of the Group’s changes, industry developments and best practices in corporate quarterly results are also circulated in advance to Directors and governance through continuous training and regular interactions principal officers who are deemed privy to any price sensitive with regulators and industry peers. information and knowledge, whenever the closed period is applicable. REMUNERATION STRATEGIES Information and Advice The Board is mindful that fair remuneration is critical to attract, The Board, as a group and individually as Directors, is supported retain and motivate Directors with the relevant experience and by the Company Secretaries who provide advice and assistance to expertise required to lead the Company and the Group. Remuneration the Board in discharging their duties. The Board members are also strategies are set by the BNRC (as outlined in its terms of reference). encouraged to interact directly with the Management, seek its clarification and advice as well as request for information on In an effort to ensure that remuneration levels are commensurate matters pertaining to the Company’s and the Group’s operations or with responsibilities, risks and time commitment of the Boards/ business concerns. Should the need arise, the Directors are also Board Committees, the Group’s common reference, which allowed to seek independent professional advice at the Company’s incorporates the Non-Executive Directors’ Remuneration Framework, expense, pursuant to the Group’s Standard Procedures for Directors sets out the general principles for the remuneration of NEDs. The to Have Access to Independent Advice. remuneration also takes into consideration industry practices and is reviewed at least once every two years. Dedicated Company Secretaries The Board acknowledges and is satisfied with the performance and The remuneration package of the NEDs of the Group comprises the support rendered by the Company Secretaries. In addition to acting following: as the custodians of the Company’s and the Group’s statutory records, the Company Secretaries serve and advise the Board on (a) Directors’ fees matters relating to the affairs of the Board and good corporate The NEDs are entitled to annual Directors’ fees. The annual governance practices, ensure that Board meetings are appropriately Directors’ fees are subject to shareholders’ approval at the convened and maintain an accurate and proper record of the AGM of the Company. proceedings and minutes of the meetings.

The shareholders of the Company had, at the 19th AGM held In promoting good corporate governance practices, the Company on 8 May 2014, approved the new structure of Directors’ Secretaries assist the Board and Senior Management in meeting fees—on the basis of RM180,000 per annum for Non-Executive regulatory requirements and best practices specifically pertaining Chairman and of RM150,000.00 per annum for every NED. to Board governance. This includes making proposals on transparency and mandatory/voluntary disclosure on governance (b) Board Committee allowances issues which are relevant and materially important to the stakeholders. NEDs who sit on Board Committees are entitled to receive Board Committee allowances which shall be paid on an annual The role of the Company Secretaries also includes assisting the basis at the end of each financial year. Chairman and Directors in conducting meetings and discharging their governance obligations and responsibilities as Directors of (c) Meeting attendance allowance the Company. Additionally, the Company Secretaries facilitate the NEDs are also entitled to meeting attendance allowances when communication of key decisions and policies between the Board, they attend any Board/Board Committee meetings. 145

(d) Benefits-in-kind Benefits are accorded to the Chairmen of the Group, consisting, among others, of the provision of a company car, driver and petrol allowance.

The details on the aggregate remuneration of the Directors of the Company (comprising remuneration received and/or receivable from the Company and its subsidiaries during the FYE 2015) are as follows:

Salary, Board Meeting Bonus Directors’ Committees Attendance and Other Benefits- Fees# Allowance Allowance Remuneration in-kind Total Name of Company’s Director (RM’000) (RM’000) (RM’000) (RM’000) (RM’000) (RM’000)

Group MD/CEO (1/1/15 – 4/5/15)^ Mr Kellee Kam Chee Khiong – – – 2,960 10 2,970

Group MD/CEO (5/5/15 – 31/12/15) YBhg Dato’ Khairussaleh Ramli – – – 5,548 36 5,584

Total (Group MD/CEO) – – – 8,508 46 8,554

NEDs YBhg Dato’ Mohamed Khadar Merican 507 76 133 119 18 853 YBhg Tan Sri Azlan Zainol 424 22 57 – 31 534 YBhg Datuk Haji Faisal Siraj 470 90 136 21 – 717 YBhg Datuk Seri Saw Choo Boon 322 110 121 40 – 593 YBhg Tan Sri Dato’ Teo Chiang Liang 220 46 55 – – 321 YBhg Dato’ Nik Mohamed Din Datuk Nik Yusoff* 202 – 10 – – 212 Mr Mohamed Ali Ismaeil Ali AlFahim 420 – 56 – – 476

Total (NEDs) 2,565 344 568 180 49 3,706

Notes: # Subject to shareholders’ approval. ^ Tenure as Group CEO. * Resigned with effect from 12 August 2015. 146 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

Total allowances for Board Committee allowance and Meeting attendance allowance are subject to the number of Board Committee sittings and the number of meetings attended by each Company NED, as illustrated in the table below:

No. of Meetings Attended

Board BNRC1 BRC2 GBAC3 BAC4 BCC5 BTC6 IRMC7 Name of Company’s Director Meeting Meeting Meeting Meeting Meeting Meeting Meeting Meeting

YBhg Dato’ Mohamed Khadar Merican 14/14 34/37 (NINED) (chairman) (chairman) YBhg Tan Sri Azlan Zainol 14/14 7/8 (NINED) YBhg Datuk Haji Faisal Siraj 14/14 13/13 6/6 18/18 13/13 (SINED) (chairman) YBhg Datuk Seri Saw Choo Boon 14/14 13/13 17/17 6/6 18/18 (INED) (chairman) YBhg Tan Sri Dato’ Teo Chiang Liang 12/14 11/13 6/6 (INED) YBhg Dato’ Nik Mohamed Din 6/8 Datuk Nik Yusoff# (NINED) Mr Mohamed Ali Ismaeil Ali AlFahim 12/14 (NINED) Mr Kellee Kam Chee Khiong* 5/5 0/3 (ED/GCEO/GMD) YBhg Dato’ Khairussaleh Ramli^ 9/9 5/5 (ED/GCEO/GMD)

Notes: # Resigned with effect from 12 August 2015. * Retired as GMD with effect from 30 April 2015. ^ Newly appointed with effect from 5 May 2015. 1-7 Abbreviations used denote various main Board Committees and subsidiary level Board Committees.

In addition to the above, the Directors are covered by Directors Committee, includes among others, salary, bonus and benefits-in- and Officers (“D&O”) Liability Insurance in respect of any liabilities kind, and is derived from the Group. In line with the Group’s arising from acts committed in their capacity as D&O of RHB retention policy and incentive for long-term performance measures, Banking Group. However, the insurance policy does not indemnify the GMD remuneration package includes deferred bonus. a Director or principal officer if he or she is proven to have acted negligently, fraudulently or dishonestly, or in breach of his or her Key Senior Management are remunerated based on a remuneration duty of trust. The Directors are required to contribute jointly framework consisting of a competitive integrated pay and benefit towards the premium of the said policy. structure, which rewards corporate and individual performance in line with contributions to the organisation. Key Senior Management The GMD does not receive a Director’s fee or any meeting attendance Officers are made up of the Heads of respective Strategic Business allowance for any of the Board and Board Committee meetings that Sectors and Strategic Functional Sectors across the Group who he attends. His remuneration, which is approved by the Board upon report directly to the GMD and sit in the Group Management recommendation by the Board Nominating & Remuneration Committee. 147

Their aggregated total remuneration package, amounting to organisational excellence. The organisation of internal training RM15.9 million for FYE 2015, includes basic salary, allowances, programmes and Directors’ attendance of external programmes are benefits-in-kind and bonuses. The Board however believes that facilitated by the Company Secretaries, who also maintain a detailed disclosure of the remuneration package of each Key Senior complete record of the training received and attended by the Management Officer would be disadvantageous to the Group’s Directors. business interests, as poaching of executives has become the norm due to the limited pool of executive talents and expertise within Learning Process for New Director the local financial services industry. There were no new NEDs on the Board of the Company for FYE 2015. Newly appointed Company NED are required to attend an induction programme organised by the Management of the Group DIRECTORS’ ORIENTATION, CONTINUING EDUCATION AND to provide the NED with in-depth information of the industry and TRAINING familiarise them with the Group’s business operations. As part of this programme, the NED is briefed by relevant Management Continuing education and training of Board Directors are integral personnel on the functions and areas of responsibility of their to their responsibilities, to ensure they remain updated with the respective divisions. In addition to allowing the NED to understand latest developments in the areas related to their duties. Costs for the Group’s operations and organisational structure, this exercise Directors’ training are covered by a budget allocated each year by also helps the NED to establish effective channels of communication RHB Capital, with the training needs of each Director assessed and interaction with Management. annually by the Board as part of the BEE exercise. The training and development of Directors is detailed in the Group’s Standard New NED is also provided with a comprehensive Director’s induction Procedures on Directors’ In-house Orientation and Continuing kit to assist him/her in building a detailed understanding of the Education Programme for the RHB Banking Group. Group’s operations, its longer-term direction and statutory obligations. Pursuant to the MMLR requirement of Bursa Securities, In an effort to ensure the Company’s and Group’s NEDs discharge the NED must also complete the Mandatory Accreditation Programme their duties in line with industry best practices, they are encouraged within four months from the date of his/her appointment and to participate in local and/or overseas training programmes receive a certificate from a Bursa Securities-approved programme organised by credible training organisations under the Board’s High organiser. Performance Programme. This programme is intended to equip the Directors with the necessary knowledge and tools to effectively The new GMD, Dato’ Khairussaleh, being a newly appointed Director discharge their duties and responsibilities as well as provide the in 2015, attended the Mandatory Accreditation Programme in Directors with global business perspectives and skills that engender March 2005.

During the year, the Directors of RHB Capital attended the following training programmes, conferences and seminars:

Name of Director(s) Training Programmes Attended Training Scope & Description

• YBhg Dato’ Mohamed Khadar 1. Goods and Services Tax Training • Understanding Goods and Services Tax in Malaysia Merican (5 February 2015) • Opportunity and challenges in tax strategy 2. The Briefing on Charter Contracts • Charter and Legal Requirements (25 February 2015) • Main Ingredient of Charter Contracts 3. Boardroom Programme • Understanding the Changing Retail Environment – Retail Management • Common Issues & Best Practices in Retail (16-19 March 2015) Management 148 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

Name of Director(s) Training Programmes Attended Training Scope & Description

• YBhg Dato’ Mohamed Khadar 4. Governance, Director Duties and Listing • Main Market Listing Requirements Merican (continued) Requirements Updates for Directors of • Development of the capital market in Malaysia Public Listed Companies [PLCs] • Common and current issues with regulatory (9 September 2015) authorities, private sector bodies and professional institutions • Professionalism, corporate governance, value creation, quality assurance and competitiveness of PLCs 5. Briefings on Overseas Tax and Malaysian • Overseas Tax Financial Reporting Standard 9 • FATCA – “Financial Instruments” • MFRS 9 For RHB Banking Group Directors (1 October 2015) • YBhg Tan Sri Azlan Zainol 1. Goods and Services Tax Training • Understanding Goods and Services Tax in Malaysia (5 February 2015) • Opportunity and challenges in tax strategy 2. Briefings on Overseas Tax and Malaysian • Overseas Tax Financial Reporting Standard 9 • FATCA – “Financial Instruments” • MFRS 9 For RHB Banking Group Directors (1 October 2015) • YBhg Datuk Haji Faisal Siraj 1. Goods and Services Tax Training • Understanding Goods and Services Tax in Malaysia (5 February 2015) • Opportunity and challenges in tax strategy 2. Briefing by Finance Department on • Latest updates on Financial Standards Financial Statements • FRS 139 (16 March 2015) 3. FIDE Forum: Invitation to Industry • Encourage development of world class directors Consultation Session • Attract and retain highly qualified directors (6 May 2015) • Promote boardroom diversity • Improve board performance 4. FIDE Forum’s Special Invite to “Board’s • Innovative Products Strategic Leadership: Innovation & • High Risk, High Return Product Growth in Uncertain Times” • Compliance Cost (21 May 2015) 5. Briefings on Overseas Tax and Malaysian • Overseas Tax Financial Reporting Standard 9 • FATCA – “Financial Instruments” • MFRS 9 For RHB Banking Group Directors (1 October 2015) 149

Name of Director(s) Training Programmes Attended Training Scope & Description

• Tan Sri Dato’ Teo Chiang Liang 1. Goods and Services Tax Training • Understanding Goods and Services Tax in Malaysia (5 February 2015) • Opportunity and challenges in tax strategy 2. FIDE Forum 3rd Board Leadership • Reclassification of assets & liabilities Series: – “Impact of the New Accounting • Revenue recognition Standard on Banks & What Directors • Latest Accounting standard – adoption of IFRS 9 Should Be Aware of” (5 June 2015) 3. CG Breakfast Series with Directors: “The • Fiduciary Duty Board’s Response in Light of Rising • Shareholders’ Needs Shareholder Engagements” • Good Corporate Governance Practices (4 August 2015) 4. 4th Distinguished Board Leadership • Sustainable Growth Series – “Board Leading Change: • Redefined Strategy Organisational Transformation Strategy • Transformation as Key Sustainable Growth in Challenging Times” (18 August 2015) • YBhg Datuk Seri Saw Choo 1. Briefing by Finance Department on • Latest updates on Financial Standards Boon Financial Statements • FRS 139 (16 March 2015) 2. Invitation from Bursa Malaysia Berhad • Audit Committee – Risk Management & Internal Control: • Relationship with Internal Audit Workshops for Audit Committee • Good Risk Management & Internal Control Members (8 June 2015) 3. CG Breakfast Series with Directors: • Fiduciary Duty “The Board’s Response in Light of • Shareholders’ Needs Rising Shareholder Engagements” • Good Corporate Governance Practices (4 August 2015) 4. Directors CG Series: “Building Effective • Financial Reporting Requirements Finance Function – From Reporting to • Opportunity and challenges in green investment Analytical to Strategic Input” strategy (10 August 2015) • Building effective finance functions • Big data analysis 5. “Cooking the Books – The Malaysian • Ingredient for fraud Recipe on Financial Fraud” • Type of financial fraud (10 September 2015) • Red flags on fraud 6. “Ethics Red Flags For Board of Directors” • Ethics & Governance (3 November 2015) • Conflicts of Interest 150 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

Name of Director(s) Training Programmes Attended Training Scope & Description

• YBhg Datuk Seri Saw Choo 7. Capital Market Director Programme: • Good Corporate Governance Boon (continued) – Module 1 (7 September 2015) • Business Challenges & Regulatory Expectations – Module 2A (6 October 2015) • Risk Oversight & Compliance – Module 3 (8 October 2015) • Capital Market in Malaysia – Module 4 (2 October 2015) • Mohamed Ali Ismaeil Ali 1. Capital Market Director Programme • Good Corporate Governance AlFahim – Module 1 (10 August 2015) • Business Challenges & Regulatory Expectations – Module 2A (11 August 2015) • Risk Oversight & Compliance – Module 2B (12 August 2015) • Capital Market in Malaysia – Module 3 (13 August 2015) – Module 4 (14 August 2015) 2. FIDE Core Programme – Module A • Board Leadership (29 September – 2 October 2015) • Fiduciary Responsibilities • Oversight Role in Risk Management • YBhg Dato’ Khairussaleh Ramli 1. Goods and Services Tax Training • Understanding Goods and Services Tax in Malaysia (5 February 2015) • Opportunity and challenges in tax strategy 2. Briefings on Overseas Tax and • Overseas Tax Malaysian Financial Reporting Standard 9 • FATCA – “Financial Instruments” • MFRS 9 For RHB Banking Group Directors (1 October 2015) 3. FIDE CORE Programme Module B (Bank) • Optimal Board mix (5 – 7 October 2015) • Responsibilities of the audit committee • Key issues in Financial Reporting

BOARD COMMITTEES that have been deliberated on and considered at the meetings of the Board Committees. This practice also applies to other entities Board Committees assist the Board in discharging its roles and within the Group. responsibilities through the delegation of specific authority to the relevant Board Committees. This delegation of authority is expressly Board Nominating & Remuneration Committee stipulated in the Terms of Reference (“TOR”) of the respective The key objectives of the Board Nominating & Remuneration Board Committees. The TOR are also reviewed periodically to Committee (“BNRC”) are, as follows: ensure effective and efficient decision making in the Group. Additionally, the Board Committees act as oversight committees, • Review and assess the appointment/re-appointments of Directors, evaluating and recommending matters under their purview for the Board Committee members, Shariah Committee and key Senior Board to consider and approve. Management officers for recommendation to the Boards. • Advise the Boards on optimal size and mix of skills of Boards. The Board receives updates from the respective Chairmen/ representatives of the Group Board Audit Committee, Board Audit • Provide oversight and direction on HR matters and operations, Committee, Board Risk Committee and Board Nominating & and recommend to the Boards for approval of remuneration and Remuneration Committee on matters that require specific mention human resource strategies. 151

The BNRC comprises five NEDs, of whom three are INEDs and two The BRC’s other duties and functions, among others, include the are NINEDs, representing the respective entities within the Group. following: The BNRC is chaired by YBhg Datuk Haji Faisal Siraj, the SINED of • To provide oversight to ensure that the Group’s risk management RHB Capital. framework, processes, organisation and systems are functioning commensurate with its nature, scale, complexity of activities and Detailed disclosures on BNRC’s governance structure, terms of risk appetite. reference, roles & responsibilities, Boardroom Diversity Policy and other activities are available on pages 170 to 176 of this Annual • To deliberate and assess the nature and materiality of risk Report. exposures, potential risks and impact on capital and the Group’s sustainability. Board Risk Committee • To review and approve proposed changes to Delegated Lending In ensuring that a robust system of risk management and internal (Financing) Authorities/Discretionary Powers/Powers of Attorney, control are in place to ensure good corporate governance and limits for business and operations. safeguard shareholders’ investments as well as the Company’s and the Group’s assets, the Board Risk Committee (“BRC”) provides • To review and approve changes to policies and frameworks oversight and governance of risks for the Group. (excluding HR-related policies and framework), risk methodologies/ models and other significant risk management matters, in line The BRC is also tasked with overseeing the Senior Management’s with the approved risk strategy. risk management activities, ensuring that the risk management • To review and approve new/existing products with material process in each of the Group’s entities is in place and functions in variations in product features. accordance with a risk-return performance management framework. Furthermore, the BRC supports and leads the Senior Management in driving the Risk Culture and Risk Ownership in the Group.

The BRC comprises six NEDs, of whom five are INEDs and one is a NINED, representing the respective entities within the Group. The BRC met 17 times during the financial year 2015. The composition of the BRC and the attendance of the members at meetings held in 2015 are as follows:

Name of Directors Attendance at Meetings

Tuan Haji Khairuddin Ahmad (INED/Chairman) 16/17 (94%) Mr Patrick Chin Yoke Chung (INED) 15/17 (88%) Tuan Haji Md Ja’far Abdul Carrim (NINED) 17/17 (100%) YBhg Datuk Seri Saw Choo Boon (INED) 17/17 (100%) Mr Choong Tuck Oon (INED)* 6/9 (67%) Mr Chin Yoong Kheong (INED)# 8/8 (100%) YBhg Dato’ Sri Haji Syed Zainal Abidin Syed Mohamed Tahir (INED)^ 1/1 (100%)

Notes: * Resigned with effect from 1 June 2015. # Newly appointed with effect from 1 June 2015. ^ Newly appointed with effect from 1 December 2015. 152 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

Pursuant to the Group’s current governance framework, RHB continuously reinforces the independence of the external auditors Islamic Bank Berhad (“RHB Islamic Bank”) has adopted the BRC and provides a line of communication between the Board and the while maintaining a dedicated Risk Management Committee to external auditors. provide oversight on risk matters which specifically relates to Islamic banking activities. The BAC also emphasises the internal audit function by increasing the objectivity and independence of the internal auditors and Group Board Audit Committee provides a forum for discussion that is, among others, independent The Group Board Audit Committee (“GBAC”) reviews the Company’s of the Management. Additionally, the BAC reviews the quality of and the Group’s unaudited quarterly results and the audited the audits conducted by internal and external auditors as well as financial statements FYE 31 December 2015, prior to recommending the Group’s financial condition and performance. This enhances the the same for the Board’s approval and issuance to stakeholders. perceptions held by stakeholders (including shareholders, regulators, creditors and employees) of the credibility and During the reviews, the Group Chief Financial Officer provides objectivity of financial reports. assurance to the GBAC that: Board Credit Committee • Adequate processes and controls are in place for an effective The Board Credit Committee (“BCC”) comprises six NEDs, of whom and efficient preparation of the financial statements; four are INEDs and two are NINEDs representing the respective • Appropriate accounting policies have been adopted and applied banking entities within the Group. The BCC supports the relevant consistently; and Boards in affirming, vetoing or including additional conditions on all types of credit applications (including under stock/futures • The relevant financial statements give a true and fair view of the broking) and all types of underwriting applications for amounts Company and the Group’s financial performance for the year and above the defined thresholds of the Group Credit Committee and/ complied with the applicable accounting standards and or the Group Investment & Underwriting Committee. It also regulatory requirements. endorses and recommends write-offs as well as approves all policy loans/financing and loans/financing which are required by BNM to The GBAC also meets twice a year with the external auditors, in the be approved by the respective Boards. absence of the Management and the executive Board members, to discuss any key issues/areas that require attention of the GBAC Board Technology Committee and the Board. The Board Technology Committee (“BTC”) comprises three INEDs. The composition of the GBAC and the attendance of the members The BTC guides the Boards on the Group’s overall technology together with the TOR and activities of the GBAC during the strategies and policies. The BTC reviews and advises the Boards on financial year are set out in the GBAC Report in this Annual Report. strategic and major technology investments and projects above approving authority at Group Management Committee (“GMC”) Subsidiary Level Board Committees level. In addition to the above, the following centralised Board Committees Shariah Committee (which reside at the subsidiary level, i.e. RHB Bank Berhad) assist the Boards and Management in governing the business activities The Shariah Committee is housed at RHB Islamic Bank and and operations of RHB Capital’s major operating subsidiaries: comprises qualified local and foreign Shariah scholars.

Board Audit Committee The main duties and responsibilities of the Shariah Committee are as follows: The Board Audit Committee (“BAC”) comprises four INEDs who represent the Group’s major operating subsidiaries. The BAC • To act as an independent advisory body to the Board of provides independent oversight of RHB Banking Group’s financial Directors and Management of the Islamic Bank in ensuring that reporting and internal control system, ensuring checks and balances its Islamic business and operations are in compliance with for entities within the Group, excluding RHB Capital. The BAC Shariah principles at all times. 153

• To ensure effective working arrangements are established Quarterly Results between the Shariah Committee and the Shariah Advisory Council The announcement of quarterly financial results is made via Bursa LINK (“SAC”) of BNM as well as that of the Securities Commission on the scheduled date, following which a press release is issued. It is (“SC”). also the Group’s practice to organise live analyst briefings for half-year • To ensure the establishment of appropriate procedures leading to and full-year results, while conference calls are organised for the first prompt compliance with the Shariah principles for the Islamic and third quarters. These analyst briefings and conference calls are led Bank. by the GMD, together with the Group Chief Financial Officer. Members of the Senior Management team are also in attendance, reflecting the Islamic Risk Management Committee (residing at RHB Islamic commitment to providing a high degree of clarity to the investment Bank) community. The presentation materials for the briefings and conference calls are simultaneously made available publicly on RHB’s website upon The Islamic Risk Management Committee (“IRMC”) comprises three the uploading of results to Bursa Securities. NEDs of RHB Islamic Bank. The IRMC provides risk oversight and guidance to ensure that the management of risk exposures in RHB The briefings and conference calls enable dialogue between Islamic Bank is aligned to the principles of Islamic Banking as research analysts and fund managers and the Group’s Senior guided by the relevant regulatory authority, as well as to ensure Management. The sessions also aim to provide a balanced and that core risk policies are consistent with the Group’s. The IRMC holistic view of the Group’s performance and updates on the also oversees the execution of risk policies and related decisions Group’s business initiatives and strategies. by RHB Islamic Bank’s Board, and provides oversight for major risk categories which are unique to Islamic finance. These include Corporate Website displaced commercial risk, withdrawal risk, rate of return risk, fiduciary risk and Shariah non-compliance risk. In February 2015, the Company launched its revamped corporate website (www.rhbgroup.com) to meet the evolving expectations of customers and other stakeholders while reinforcing the Group’s INVESTOR RELATIONS AND STAKEHOLDER COMMUNICATIONS brand and image. The corporate section on the Company’s website, which provides all relevant information on RHB Capital (including Corporate Disclosure information on dividends, capital & debt instruments, credit rating, The Company and the Group, guided by the Bursa Securities’ all announcements released on Bursa Securities’ website and to the Corporate Disclosure Guide, MMLR and Financial Services Act 2013, media, annual reports, corporate structure as well as the corporate place strong emphasis on clear, comprehensive, timely and governance statement of RHB Capital), is publicly accessible. equitable dissemination of information to the public on its business Notice and minutes of general meetings, Board Charter, Code of activities, milestones achieved, latest developments and financial Ethics & Business Conduct for Directors, Employee Value performance. These activities are also guided by a media Proposition, Procurement Integrity and Supplier Selection Process communication plan adopted in 2013, which defined the roles and are also available on the website. responsibilities of the Chairman and Senior Management together with levels of authority in handling disclosure of material corporate, General Meetings business and financial information to the public via media channels. The AGM and Extraordinary General Meetings (“EGM”) act as the primary avenue for direct two-way interaction between the The Directors and employees are also required to execute shareholders, Board and Management of the Group. The meetings confidentiality undertakings in compliance with the secrecy also ensure the Group remains transparent and accountable for its requirement of the Financial Services Act 2013 or other regulatory actions, as shareholders’ approval is required on all material issues requirements in respect of information which they may acquire including, but not limited to: through the business of the Company and subsidiaries. • Re-election and re-appointment of Directors; • Appointment of auditors; • Dividend payments; and 154 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

• Material mergers, acquisitions and divestments exercises (only In accordance with RHB Capital’s Articles of Association, a member at EGMs). of the Company entitled to attend and vote at the general meeting is entitled to appoint up to two proxies to attend and vote in his/ At the 20th AGM held on 30 April 2015, the former GMD reviewed her place. A proxy may not be a member of the Company and the RHB Banking Group’s performance for the financial year 2014 and provisions of Section 149(1)(b) of the Companies Act, 1965 shall outlined the Group’s key focus areas and targets for the financial not apply to the Company. Where a member of the Company is an year 2015. Shareholders were then invited by the Chairman to seek authorised nominee as defined under the Securities Industry clarification on or query the Group’s accounts and other items for (Central Depositories) Act 1991, it may appoint at least one proxy adoption at the meeting, before putting a resolution to vote. in respect of each securities account which is credited with ordinary Shareholders’ queries were addressed by the Chairman and the shares of the Company. Board of Directors. The attendance of shareholders at the Company’s general meetings The Company’s external auditors were also present at the AGM, remains encouraging, and to facilitate further engagement with enabling shareholders to raise queries on the conduct of the audit shareholders at general meetings, as well as ensure accurate and and the preparation and content of the auditors’ reports. efficient outcomes of the voting system, the Board will consider Additionally, the former GMD shared the Company’s responses to adopting electronic voting. questions submitted by the Minority Shareholder Watchdog Group prior to the AGM. Dividend Reinvestment and Payout Shareholders are provided with the opportunity to opt for a Since 2013, the Company’s minutes of general meetings have been Dividend Reinvestment Plan (“DRP”) to receive the dividend published and are available on the corporate website. The declared in the form of cash or to reinvest the electable portion of disclosures also include related circulars and notices of the AGM the dividend (“Electable Portion”) in the form of new ordinary and EGM. shares of RM1.00 each in RHB Capital (“RHB Capital Shares”).

Shareholders’ Participation at General Meetings The DRP is part of the Company’s efforts to enhance and maximise The processes of the current general meetings have been designed shareholder value by offering shareholders flexibility in strategising to encourage shareholders’ participation. Shareholders are duly and fulfilling their investment objectives, as well as in meeting notified at least 21 days in advance and in cases where circulars their financial needs. are involved, clarity is assured through the presence of professional advisors at the meetings. Through the DRP, shareholders are offered the opportunity to possess additional RHB Capital Shares at discounts of up to 10% of the prevailing adjusted ex-dividend market price.

FINANCIAL YEAR ENDED 2011 2012 2013 2014 2015

Dividend Per Share (sen) 25.41 22.09 16.30 6.00 12.00 Dividend Payout Ratio (%) 30.0 30.0 22.6 7.6 24.4 Total Net Dividend Declared (RM’million) 450.3 535.5 414.2 154.3 369.0 155

Interim Dividend for the Financial Year Ended 31 December Relationship with Internal and External Auditors 2014 Internal audit On 27 February 2015, RHB Capital announced a single-tier interim The Group Internal Audit (“GIA”), led by the Group Chief Internal dividend of 6 sen per RHB Capital Share in respect of the financial Auditor, reports the results of its audits directly to the GBAC and year ended 31 December 2014 amounting to RM154.35 million BAC. The GIA is guided by the Group Internal Audit Charter and (“Interim Dividend”). In this regard, the Board had also determined regularly reviews and reports on the adequacy and effectiveness of that the existing DRP, which was approved by the shareholders at the Group’s risk management, internal control and governance the Extraordinary General Meeting held on 6 April 2011, shall apply processes. It also undertakes an independent assessment of the to the Interim Dividend. Company’s and Group’s internal control systems to assure that deficiencies or issues are promptly resolved by the Management. The issue price and book closure date in relation to the DRP in This is based on the annual audit plan approved by the GBAC. conjunction with the Interim Dividend was announced by RHB Capital on 13 March 2015. The Interim Dividend was paid on 24 Any recommendations by the auditors are followed-up and reviewed April 2015. by the Management via the various Management Audit Committees established within the Group. External auditors also assist the Interim Dividend for the Financial Year Ended 31 December Group internal auditors in resolving any control issues as raised by 2015 them to ensure that all issues are duly acted on by the Management. The Directors have declared a single-tier interim cash dividend of Further details of the activities of the GIA function are set out in 12 sen per share amounting to RM368.96 million in respect of the the Statement on Risk Management & Internal Control of this financial year ended 31 December 2015. Annual Report.

Poll voting The Group’s current Internal Audit Charter is up-to-date and in line At the commencement of every AGM, the Chairman will highlight with the latest regulatory requirements as well as the International the shareholders’ right to demand for a poll voting on a resolution Standards for the Professional Practice of Internal Auditing. pursuant to the Company’s Articles of Association, as a matter of good corporate governance. Assessment of external auditors The GBAC undertakes an assessment of the suitability and However, there was no poll voting at the 20th AGM, as there were independence of the external auditors, Messrs no substantive resolutions put forth for shareholders’ approval. PricewaterhouseCoopers, based on qualifying criteria for the appointment of auditors and terms of audit engagements in At the EGM held on 27 August 2015, the Chairman had demanded accordance with BNM’s Guidelines – “External Auditor” – dated 29 for a poll being the Chairman of the Meeting in accordance with August 2014. In addition, the performance of the external auditors the Company’s Articles of Association in respect of all resolutions is assessed through a survey sent to Management requesting pertaining to the Group Corporate Restructuring Plan which were feedback and comments on their dealings with Messrs put forth for shareholders’ approval. PricewaterhouseCoopers throughout the financial reporting year.

The survey assesses quality of audit work, coordination during UPHOLDING INTEGRITY planning and execution of audit work, technical accounting and business knowledge, timeliness, relationship management and staff Compliance with Financial Reporting Standards continuity. Having satisfied itself with their performance and The Annual Audited Financial Statements, quarterly reports and fulfilment of criteria as set out in BNM’s Guidelines, the GBAC will corporate announcements on significant events affecting the Company recommend the re-appointment of the external auditors to the provide shareholders with a clear, balanced and meaningful Board, upon which the shareholders’ approval will be sought at the assessment of the Company’s and the Group’s financial performance, AGM. position and future prospects, in accordance with the MMLR. 156 RHB Capital Berhad Annual Report 2015 STATEMENT ON CORPORATE GOVERNANCE (continued)

RHB Banking Group has established the Group Policy on Non-Audit Fees Paid/Payable to External Auditors (“Policy”). The BAC and GBAC review the non-audit services rendered by the external auditors and the related fees prior to the approval of the services. A report on non- audit fees is also presented to the BAC and the GBAC on a quarterly basis. This is to ensure the independence of the external auditors and their compliance with the Policy and terms of all relevant professional and regulatory requirements when rendering their audit and non-audit services. The external auditors are also required to declare/confirm their independence for all non-audit engagements undertaken.

A detailed payout to the external auditors (Messrs PricewaterhouseCoopers and its related companies) for their audit and non-audit works is illustrated as follows:

RM (‘000) Out of Total Fees (%) No. Type of External Auditors’ Fees Group Company Group Company

1 Audit fees 6,230 206 87.6% 23.5% 2 Non-Audit fees 885 672 12.4% 76.5% Total Fees 7,115 878 100% 100%

Details of the above information on audit and non-audit fees are set out under Note 37 to the Financial Statements on page 106 in the accompanying Financial Statements 2015 Report.

Group Whistle Blower Policy The Group has also implemented a Group Code of Ethics and The Group Whistle Blower Policy, established in 2004 and revised Conduct (“Code”) for its employees to ensure a high standard of and updated in 2014, serves to strengthen its controls and ethical and professional conduct in performing their duties and governance, enabling employees to report suspected fraud, responsibilities. The said Code establishes the standards that corruption, dishonest practices or other similar circumstances. This govern the way employees deal with each other, our shareholders, policy encourages reporting of such matters in good faith, with the customers, suppliers, competitors and the community. Within this confidentiality of the person making such reports protected from framework, employees are expected to exercise good judgement reprisal in the best possible manner. and be accountable for their actions. Compliance with the Code is part of the terms and conditions of employment for every employee. For the current year under review, three complaints pursuant to the The Code is currently under revision to incorporate current best Group Whistle Blower Policy were received, investigated and practices and to be in line with the industry standard. pursued. All reports or complaints are filed with the Designated Recipient as specified in the Group Whistle Blower Policy. The Group Gifts & Hospitality Guidelines Group Whistle Blower Policy is available on the Group’s internal The Group had, in November 2014, established Group Gifts & portal for the reference of the Group’s staff. Hospitality Guidelines to promote integrity and transparency. The Guidelines complement the existing Group Code of Ethics and Code of Ethics Conduct for Employees and are benchmarked against best practices The Board is committed to inculcating a corporate culture which for giving and receiving gifts as well as transparency and openness engenders ethical conduct throughout the Company and the Group. about gifting. This is also part of the overall anti-bribery and The Board has thus adopted a Code of Ethics and Business Conduct corruption initiative currently pursued by the Group. for Directors (“Code of Ethics”) to enhance the standard of corporate governance, establish uniform ethical standards and promote Corporate Responsibility ethical conduct for Directors in line with governing laws, regulations The foundation of our Corporate Responsibility (“CR”) is premised and guidelines. The Code of Ethics includes principles relating to on the four quadrants of Community, Environment, Workplace and general standard of conduct, conflict of interest, insider trading, Marketplace. The Group’s established CR strategic framework has maintaining confidentiality, use of corporate assets, etc. supported and created value for the Group’s business, operations 157

and brand, as well as contributed positively to the Group’s Details of these transactions are set out under Note 48 to the shareholders, customers, employees and society at large. The Financial Statements on pages 115 to 118 in the accompanying framework was introduced with the intention of translating its Financial Statements 2015 Report. defined values into a governing policy that addresses the Group’s CR and sustainability reporting which incorporates the Economic, Sanctions and Penalties Environmental and Social, the Triple Bottom Line (TBL). For the financial year 2015, no public reprimands, sanctions and/ or material penalties were imposed on the Company and its The framework will ensure that TBL factors are integrated into the subsidiaries, Directors or Management by the relevant regulatory Group’s daily business practices to promote its sustainability. bodies. Sustainability is defined as conducting business responsibly and ethically by factoring in economic, environmental and social Material Contracts Involving Directors’ and Major Shareholders’ considerations in the decision-making process for long-term Interest business success that, in turn, will contribute to the socioeconomic RHB Capital and its subsidiaries did not have any material contracts development of the communities in which the Group operates. As involving Directors’ and major shareholders’ interests in the such, the Group embarks on activities that conserve the environment, 12-month financial period from 1 January 2015 to 31 December enrich the lives of communities, and promote a culture of respect 2015. The material contracts in this case do not include financing and care for its workforce and the public, all of which appropriately to parties connected to Directors which are conducted in accordance implement good governance. with the relevant BNM guidelines. The Board also acknowledges that a sustainable approach to investing is vital to the interests of long-term investors and COMPLIANCE STATEMENT positively impacts the value of investments. The Board further recognises that the Group’s ability to prosper hinges substantially In carrying out its fiduciary duties, the Board of Directors (“Board”) on its ability to make business decisions that uphold economic, of RHB Capital is pleased to disclose that the Company for the FYE social and environmental responsibilities by which the stakeholders 31 December 2015 has satisfied the following: and society can hold the Group accountable. In this way, the Company can combine its economic success with environmental • The Company’s financial statements have been prepared in protection and social investment. Therefore, TBL factors are of the compliance with the approved accounting standards and utmost importance in the Board’s decision making to maintain disclosure requirements set out in the Companies Act 1965 and responsible corporate citizenship. the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”).

Details of the Group’s sustainability activities, which further • All material aspects of the principles stipulated by Bank Negara highlight the Group’s CR, are found in the Sustainability Report Malaysia’s (Central Bank of Malaysia) Guidelines on Corporate 2015, which is also available on the Company’s corporate website. Governance for Licensed Institutions and Guidelines on Corporate Governance for Licensed Islamic Banks (“BNM CG Guidelines”) have been complied with. ADDITIONAL COMPLIANCE INFORMATION This Corporate Governance Statement and the disclosures in Related Party Transactions this report have been approved by the Board on 25 February The Group has put in place a Policy on Related Party Transaction 2016. Review Process since 2004 (revised and updated in 2011, 2012 and 2015, respectively), which guides the review and reporting of all related party transactions. Under this policy, all related party transactions are reviewed by GIA and Group Legal before any submission is made to the GBAC for deliberation. 158 RHB Capital Berhad Annual Report 2015 COMPLIANCE WITH THE MALAYSIAN CODE ON CORPORATE GOVERNANCE (MCCG) 2012

THE BOARD OF DIRECTORS OF RHB CAPITAL BERHAD (“RHB CAPITAL” OR “COMPANY”) IS PLEASED TO DISCLOSE THE COMPANY’S STATE OF COMPLIANCE WITH THE MCCG 2012:

PRINCIPLE 1: Establish Clear Roles and Responsibilities

Status of MCCG Recommendations Remarks Compliance

Recommendation 1.1 – The Board should establish clear Complied • The Board Charter of RHB Capital and Terms of Reference of functions reserved for the Board and those delegated to the Board Committees have been established. management. • The Corporate Scorecard for the CEO and the management team has been developed early of the year to measure their on-going performance against corporate objectives and goals set. • Schedule of Matters Reserved for the Board is incorporated in the Board Charter. Recommendation 1.2 – The Board should establish clear Complied • Roles and Responsibilities of the Board are incorporated in roles and responsibilities in discharging its fiduciary and the Board Charter. leadership functions. • The Board are primarily responsible for strategy setting, oversight function, succession planning, risk management, integrity of internal control and communication plan. • The Board and the respective Board Committee(s) also constantly review the adequacy and integrity of management information and internal control. In this respect, the Board is also assisted by various oversight functions as specified under the Group Governance Framework, namely direct supervision, Senior Management, independent parties comprising of risk management, compliance and internal audit and the Group Managing Director (GMD) who reported periodically to the Board and selected Board Committee(s). • Upon retirement of the former GMD on 30 April 2015, the then Deputy GMD, namely YBhg Dato’ Khairussaleh who is also the CEO of RHB Bank Berhad succeeded and assumed the GMD seat on 5 May 2015 as strategically planned. • All communication with the Company’s shareholders are guided by internal policy and guidelines. The Company is in the midst of improving its communication to the shareholders for all resolutions from the current minimum 21-day notice to 28-day notice. 159

Status of MCCG Recommendations Remarks Compliance

Recommendation 1.3 – The Board should formalise Complied • Professional ethical standards and corporate integrity have ethical standards through a Code of Conduct and ensure been incorporated in the Code of Ethics & Business Conduct its compliance. for Directors, which is also available in the Company’s website. • Group Code of Ethics and Conduct for Employees has also been established as the primary reference for all the Company’s employees. • Clear internal policy and guidelines have been established for escalation of breaches to the Code. Formal grievance channel and approved designated whistleblowing channel(s) could be resorted by any employees to channel any dissatisfactions on human resources issue and any violations of internal and regulatory requirements, respectively. Recommendation 1.4 – The Board should ensure that the Complied • The Company’s sustainability strategies are captured in the company’s strategies promote sustainability. Sustainability Report which provides a more insightful view into RHB Corporate Responsibility (CR) initiatives to deliver balanced growth in a responsible and sustainable manner. • RHB Strategic CR Framework has been established and reinforced to fine tune the key CR pillars with the economic, environmental and social aspects of business which underpin sustainability. The framework also guides the employees on the Company’s CR direction and investments. • Moving forward, the Company will lay emphasis on its sustainability-related disclosure in its annual reports for 2016 & henceforth as per the Listing Requirements and comply within the timeline prescribed in Bursa Malaysia’s Sustainability Reporting Guide 2015. Recommendation 1.5 – The Board should have procedures Complied • Standard Procedures for Directors to Have Access to to allow its members access to information and advice. Independent Professional Advice has been established to ensure consistency and proper & clear procedures to enable the Directors to have an enhanced perception of issues by allowing them to seek timely independent opinion/advice/ consultation from professionals in the relevant areas. • Apart from the above, the Board also have access to the Company Secretaries and the Management for advice, support services and further clarification on the Company’s operations and business concerns. 160 RHB Capital Berhad Annual Report 2015 compliance with the malaysian code on corporate governance (MCCG) 2012 (continued)

Status of MCCG Recommendations Remarks Compliance

Recommendation 1.6 – The Board should ensure it is Complied • The Board is supported by qualified and competent Company supported by a suitably qualified and competent Secretaries, namely: Company Secretary. (i) En. Azman Shah Md Yaman, a licensed company secretary (LS0006901) registered with the Companies Commission of Malaysia; and (ii) Ms. Ivy Chin So Ching, a chartered secretary (MAICSA No. 7028292) registered with the Malaysian Institute of Chartered Secretaries and Administrators. • As spelled out in the internal policy and guidelines, the Company Secretaries are responsible for providing company secretarial functions and efficient and reliable corporate advisory services, in accordance with the provisions of the Companies Act 1965. • In meeting with the above advisory role to the Board, the dedicated Company Secretaries also keep abreast with latest regulatory changes, evolving industry developments and best practices in corporate governance to discharge their roles and responsibilities effectively and efficiently. Recommendation 1.7 – The Board should formalise, Complied • The Company’s Board Charter has been formalised and is periodically review and make public its Board charter. subject to review every 2 years. • The Board Charter is publicly available in the Company’s website.

PRINCIPLE 2: Strengthen Composition

Status of MCCG Recommendations Remarks Compliance

Recommendation 2.1 – The Board should establish a Complied • Members of the Board Nominating & Remuneration Nominating Committee which should comprise exclusively Committee (BNRC) comprise only Non-Executive Directors of Non-Executive Directors, a majority of whom must be and the majority are Independent Directors (ID). independent. • Three (3) of the total five (5) members of the BNRC are Independent Directors. • The Terms of Reference (TOR) for the BNRC have been established, including selection process and assessment for the appointment and reappointment of directors and board committee members. Recommendation 2.2 – The Nominating Committee Complied • The Terms of Reference of the Board Nominating & should develop, maintain and review the criteria to be Remuneration Committee is in line with this recommendation. used in the recruitment process and annual assessment • The recruitment process and annual assessment of Directors of Directors. are guided by criteria specified in the internal Policy and Guidelines on Fit and Proper for Key Responsible Persons, Board Charter, Boardroom Diversity Policy and Code of Ethics & Business Conduct for Directors. 161

Status of MCCG Recommendations Remarks Compliance

Recommendation 2.3 – The Board should establish Complied • The Terms of Reference of the Board Nominating & formal and transparent remuneration policies and Remuneration Committee is in line with this recommendation. procedures to attract and retain Directors. • As talent is scarce in the financial services industry, directors’ remuneration are reviewed periodically in line with the Group Non-Executive Directors Remuneration Framework to ensure each individual director is being compensated with increasing complexity of their duties, responsibilities, expectation and commitment. • The directors’ fees for Non-Executive Chairman and Non- Executive Directors (NEDs) have just been revised and approved during the Company’s 19th Annual General Meeting held in 2014. The actual directors’ remuneration package for each Board member is being disclosed in the Company’s annual report.

PRINCIPLE 3: Reinforce Independence

Status of MCCG Recommendations Remarks Compliance

Recommendation 3.1 – The Board should undertake an Complied • The Board Nominating & Remuneration Committee undertakes assessment of its Independent Directors annually. assessment of all Directors’ annually via the Board Effectiveness Assessment exercise. • The independence of the Directors is reviewed annually and benchmarked against best practices and regulatory provisions. Recommendation 3.2 – The tenure of an Independent Complied • The service tenure of an Independent Director shall not Director should not exceed a cumulative term of nine exceed a consecutive or cumulative term of nine years, years. Upon completion of the nine years, an Independent nevertheless, it should balance experience and learning with Director may continue to serve on the Board subject to the need for renewal and fresh perspectives. the director’s re-designation as a Non-Independent • Hence the Board must justify and seek shareholders’ Director. approval in the event that a person who has served in that capacity for more than 9 years is retained as Independent Director upon recommendation of the Board Nominating & Remuneration Committee. Notwithstanding the above, an Independent Director shall retire at the next Annual General Meeting of the Company upon completion of his consecutive or cumulative term of 12 years. • In line with requirements of the internal Guidelines on Tenure of Appointment/Re-Appointment of Non-Executive Directors and Malaysian Code on Corporate Governance 2012, the current Chairman was re-designated as a Non- Independent Chairman upon conclusion of the 20th Annual General Meeting. 162 RHB Capital Berhad Annual Report 2015 compliance with the malaysian code on corporate governance (MCCG) 2012 (continued)

Status of MCCG Recommendations Remarks Compliance

Recommendation 3.3 – The Board must justify and seek Complied • No independent directors have served the Company more shareholders’ approval in the event it retains as an than 9 years in similar capacity. Independent Director, a person who has served in that capacity for more than nine years. Recommendation 3.4 – The positions of Chairman and Complied • The positions of Chairman and Group Managing Director CEO should be held by different individuals, and the (CEO) are held by different individuals who are not related Chairman must be a Non-Executive member of the Board. to each other. • The Chairman is a Non-Independent Non-Executive member of the Board. Recommendation 3.5 – The Board must comprise a Not • The Chairman is a Non-Independent Non-Executive member majority of Independent Directors where the Chairman of Complied of the Board. the Board is not an Independent Director. • The Independent Directors make up 42.9% of the total Board composition, exceeding Bursa Securities’ and Bank Negara Malaysia’s requirement of one third (33.3%). • Pursuant to the Group Corporate Restructuring Plan, RHB Capital will commence its members’ voluntary winding-up upon completion of the proposed distribution and capital repayment, subject to shareholders’ approval at an extraordinary general meeting to be convened later. RHB Capital will also transfer its listing status to RHB Bank Berhad. • The Board of RHB Bank Berhad will ensure that the revised Board composition thereof complies with Recommendation 3.5.

PRINCIPLE 4: Foster Commitment

Status of MCCG Recommendations Remarks Compliance

Recommendation 4.1 – The Board should set out Complied • The Board members complied with the minimum regulatory expectations on time commitment for its members and requirements of 75% Board meetings attendance as required protocols for accepting new directorships. by Bank Negara Malaysia (BNM). • The number and directors’ attendance of Board and Board Committees’ meetings are being disclosed in the Company’s Annual Report. • In line with BNM’s regulatory requirements, the Group Managing Director (CEO) does not hold more than 5 directorships at one time. • All directors of the Company do not hold more than 5 directorships in the listed issuers, in line with Main Market Listing Requirements. 163

Status of MCCG Recommendations Remarks Compliance

Recommendation 4.2 – The Board should ensure its Complied • The Company Secretary facilitates the Directors’ participation members have access to appropriate continuing education in various training programs and ensures the Directors programs. undergo mandatory and ongoing training. • Individual directors’ training record is disclosed in the annual report. The scope of training includes corporate governance, financial accounting/reporting, taxation, strategy, leadership, risk management, legal and mandatory accredited courses.

PRINCIPLE 5: Uphold Integrity in Financial Reporting

Status of MCCG Recommendations Remarks Compliance

Recommendation 5.1 – The Audit Committee should Complied • Directors’ Responsibility Statement in relation to established ensure financial statements comply with applicable financial reporting standards is tabled to the Group Board financial reporting standards. Audit Committee during presentation of the Company’s Annual Audited Financial Statements. • All the three members of the Group Board Audit Committee (GBAC), including the Chairman are Independent and Non- Executive Directors. The terms of reference, functions, composition, qualification and meetings attendance for GBAC are disclosed in the Company’s Annual Report. Recommendation 5.2 – The Audit Committee should have Complied • Procedures to assess the suitability, independence and policies and procedures to assess the suitability and performance of external auditors have been established, independence of external auditors. mainly in accordance with Bank Negara Malaysia Guidelines on External Auditor and based on feedback and comments gathered from survey amongst the management. • In addition to written assurance on independence of External Auditor obtained during the year, internal Policy on Non- Audit Fees Paid/Payable to External Auditors has also been established to ensure suitability and independence of the external auditors. • The tenure for External Auditor is 1 year, subject to reappointment by the shareholders at the general meeting for another year if the retiree offer to continue its service. 164 RHB Capital Berhad Annual Report 2015 compliance with the malaysian code on corporate governance (MCCG) 2012 (continued)

PRINCIPLE 6: Recognise and Manage Risks

Status of MCCG Recommendations Remarks Compliance

Recommendation 6.1 – The Board should establish a Complied • The Board has established Group Governance Framework sound framework to manage risks. and Group Risk Management Framework which govern the management of risks in the Group. Recommendation 6.2 – The Board should establish an Complied • The Group Internal Audit reports directly to the Group Board internal audit function which reports directly to the Audit Committee and Board Audit Committee. Audit Committee.

PRINCIPLE 7: Ensure Timely and High Quality Disclosure

Status of MCCG Recommendations Remarks Compliance

Recommendation 7.1 – The Board should ensure the Complied • Group Governance Framework, Electronic Messaging User Company has appropriate corporate disclosure policies Policy, Group IT Security Policy & Standards, Group and procedures. Corporate Communications Operations Manual and Policy on Related Party Transactions have been established to address the Company’s disclosure policies and procedures. Recommendation 7.2 – The Board should encourage the Complied • Corporate information is disseminated via the Company’s Company to leverage on information technology for website, announcements made via Bursa LINK and social effective dissemination of information. media such as Group’s Official Facebook, Corporate Instagram, My1Portal (intranet) and Group Managing Director’s Official Blog. • Dissemination of Meeting Papers to the Board and Board Committees are made via Ipad for greater flexibility and efficiency.

PRINCIPLE 8: Strengthen Relationship between Company and Shareholders

Status of MCCG Recommendations Remarks Compliance

Recommendation 8.1 – The Board should take reasonable Complied • Resolutions are served longer than the required minimum steps to encourage shareholder participation at general notice period for shareholders’ meetings, and engage meetings. stakeholders prior to each meeting. Recommendation 8.2 – The Board should encourage poll Complied • Poll voting is available upon request by the shareholders. voting. Such option is being reminded by the Chairman upon commencement of every general meeting. Recommendation 8.3 – The Board should promote Complied • Communication and engagement with shareholders are made effective communication and proactive engagements through various platforms and media, including investors’ with shareholders. conferences, special briefing (e.g. merger & acquisition), direct one-on-one meetings and tele-conferences. 165 STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROL

INTRODUCTION THIS STATEMENT IS MADE PURSUANT TO PARAGRAPH 15.26(b) OF BURSA MALAYSIA SECURITIES BERHAD’S MAIN MARKET LISTING REQUIREMENTS WHICH REQUIRES THE BOARD OF DIRECTORS (“BOARD”) OF A LISTED ISSUER TO INCLUDE IN ITS ANNUAL REPORT A STATEMENT ABOUT THE STATE OF INTERNAL CONTROL OF THE LISTED ISSUER AS A GROUP. IN ADDITION, THE REVISED MALAYSIAN CODE ON CORPORATE GOVERNANCE STATES THAT THE BOARD SHOULD ESTABLISH A SOUND RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM.

The Board is pleased to provide the following statement that has been prepared in accordance with the guidelines as set out in the “Statement on Risk Management & Internal Control: Guidelines for Directors of Listed Issuers”.

BOARD’S RESPONSIBILITY RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM

The Board acknowledges its overall responsibility for establishing A sound risk management and internal control system is the Group’s risk management framework and internal control fundamental to good corporate governance. The key elements of system. The Group has put in place a risk management framework the Group’s risk management framework and internal control and internal control system that are designed to manage risks system encompass the following: according to the risk appetite approved by the Board rather than total elimination of risks to achieve the Group’s goals and Risk Management Framework objectives. The system can therefore only provide reasonable and The Group’s risk management framework governs the management not absolute assurance against material financial misstatement, of risks faced by the Group by providing a holistic overview of the loss or fraud. risk and control environment of the Group and setting out the strategic progression of risk management towards becoming a The Board’s responsibility includes reviewing the adequacy and value creation enterprise. effectiveness of the risk management and internal control system in safeguarding shareholders’ investments and the Group’s assets. The Group’s risk management framework approved by the Board The Board is assisted by the Board Risk Committee and Board includes an on-going process for identifying, evaluating, managing Audit Committees in assessing the adequacy and effectiveness of and reporting of significant risks faced by the Group that may the Group’s risk management and internal control system. affect the achievement of the Group’s business objectives and strategies. The main inherent risks in the business and operations The Board is further assisted by the Management who is responsible include credit risk, market risk, interest rate risk in the banking for implementing the Group’s policies and processes for identifying, book, liquidity risk, operational risk, reputational risk and Shariah evaluating, monitoring and reporting of risks and internal control, non-compliance risk. taking timely corrective actions as required, and providing assurance to the Board that the processes have been carried out. 166 RHB Capital Berhad Annual Report 2015 Statement on Risk Management & Internal Control (continued)

The risk management process within the Group seeks to identify, within the Group as part of the risk management process. These measure, monitor and manage these risks so that the risk exposures business and functional units are required to identify and document are adequately dealt with while the expected returns sufficiently the controls and processes for managing the risks arising from compensate the risks taken. This process is regularly reviewed by their business activities, as well as to assess the effectiveness the Board through its Board Risk Committee (“BRC”) which provides thereof to ensure that the risks identified are adequately managed oversight over the risk management activities for the Group to and mitigated. On completion of the RCSA exercise, all business ensure that the Group’s risk management process is in place and and functional units within the Group are required to submit their functional, and appropriate measures are taken to mitigate any respective results to Group Operational Risk Management for identified weaknesses in the control environment. review prior to tabling the RCSA results to the GCRC for deliberation and further action when necessary. The BRC assists the Board to review the Group’s overall risk management philosophy, frameworks, policies and models. In An Internal Capital Adequacy Assessment Process (“ICAAP”) discharging its overall duties and responsibilities, the BRC is framework has also been implemented to ensure that all material supported by the Group Capital and Risk Committee (“GCRC”) and risks are identified, measured and reported, and that adequate Group Risk & Credit Management function which monitor and capital levels consistent with the risk profiles including capital evaluate the effectiveness of the Group’s risk management system buffers are maintained to support the Group’s current and projected on an ongoing basis. demand for capital under existing and stressed conditions.

The GCRC, comprising Senior Management of the Group and is Amongst the other committees set up in the Group to manage chaired by the Group Managing Director, is responsible for the specific areas of risk are the Group Asset and Liability Committee, supervision of the management of enterprise risk and capital Group Credit Committee, Islamic Risk Management Committee, matters. Board Credit Committee and Board Technology Committee.

Group Risk & Credit Management function provides independent Control Environment and Control Activities oversight on business activities and implements the Group Risk Organisation Structure Management Framework in order to protect and safeguard the The Group has a clear organisational structure with well-defined Group’s assets, and to prevent and mitigate financial and accountabilities and responsibilities, and lines of reporting. The reputational losses to the Group. Its responsibilities include organisational structure provides the basic framework to help the implementation of the Group’s risk policy and framework, daily Group’s operations proceed smoothly and functionally as well as risk measurement and monitoring, provision of timely risk analysis depicting the span of control in ensuring proper supervision, to Management, ensuring compliance to regulatory risk reporting coordination and a sense of accountability among the employees. requirements, overseeing group-wide credit evaluation and assessment as well as implementing a comprehensive enterprise- Board Committees wide risk governance framework and a robust risk management infrastructure. The Board has delegated certain responsibilities to the Board Committees established in the Group, namely the Board Nominating In line with regulatory requirements and industry best practices, & Remuneration Committee, Board Risk Committee, Group Board the Group subscribes to the principle that risk management is a Audit Committee, Board Credit Committee, Board Technology core responsibility of the respective businesses and operating Committee, Board Audit Committee and Islamic Risk Management units. This has been articulated and documented in the risk Committee. management framework of the Group. These committees have oversight authority to examine and/or To support and promote accountability and ownership of risk consider all matters within their scope of responsibility as defined management, a Risk and Control Self-Assessment (“RCSA”) in their respective formalised terms of references and to report to framework has been implemented in business and functional units the Board with their recommendations. 167

Group Management Committee Authority Limits The Group Management Committee (“GMC”) comprises the Group The Board has approved the Group Manual of Authority (“MOA”) Managing Director as the Chairman, the Chief Executive Officers/ which defines the approving authority with its approving limits Managing Directors of the relevant key operating subsidiaries and delegated to the various levels of Management in the Group to the key Senior Management of the Group. The GMC provides a ensure accountability and responsibility. The Group MOA is forum for the Group’s Senior Management to discuss and deliberate reviewed periodically and updated in line with changes in the strategic matters that impact the Group’s vision, strategic direction, organisation structure, business environment or operational needs. business synergies and brand value as well as to chart its strategic roadmap. The GMC meets regularly and the minutes of meetings Budgeting Process are tabled to the Board of the Company. A detailed budgeting process is established requiring all key operating companies in the Group to prepare budgets and business Internal Policies and Procedures plans annually for approval by the respective Boards. The Group’s Policies, procedures and processes governing the Group’s budget and business plans as well as strategic initiatives, taking businesses and operations are documented and are made available into account the risk appetite, were deliberated at the Board where to employees across the Group through the Group’s intranet portal. the group budget was presented. These policies, procedures and processes are reviewed and updated by the business and functional units through a structured process A reporting system on actual performance against the approved of review to cater to changes in laws and regulations as well as budgets is in place and the reasons for significant variances as changes to the business and operational environment. Furthermore, well as action plans by Management are reported to the respective reviews of the policies, procedures and processes are also carried Boards. out to ensure that appropriate controls are in place to manage risks inherent to the business and operations. Business Continuity Management The Group recognises and is fully committed to the need to Information Technology (IT) Security provide continuous critical services to its customers, ensure the The objectives of the Group’s IT security encompass the protection safety of its employees, protect its assets/data and safeguard the of programs, data, information stored and facilities of the interest of its key stakeholders that collectively ensure the viability computerised data processing system from unauthorised access of the organisation. The Group’s Business Continuity Management and use, loss or destruction as well as reliability and continuous (“BCM”) Programme is based on good business continuity practices availability of the computerised data processing systems. and guidelines which are in line with the Bank Negara Malaysia and internationally recognised standards. IT security protects information from a wide range of threats as well as safeguards the confidentiality, integrity and availability of The Board has an oversight function on the Group’s BCM readiness information. IT security in the Group is achieved through the through the BRC and GCRC. The Group Business Continuity Steering implementation of a suitable set of controls which includes policies, Committee is the management committee established to oversee standards, procedures, guidelines, organisational structures and the Group’s business continuity framework, policies, budget and software control functions. plans, and reports to GCRC.

It is the policy of the Group that while information assets of various The Group has on-going and actively managed BCM programmes, forms and computer equipment should be provided to enable which include effective crisis management to deal with real crisis. employees of the Group and relevant third parties to satisfactorily The BCP Programmes are subject to regular testing/exercising to complete their duties, these assets should be subjected to adequate ensure their efficacy, reliability and functionality. Simulation controls to protect them from accidental or intentional loss, exercise and drills are conducted to familiarise and equip staff unauthorised access, unauthorised modification, unauthorised with the skills and techniques required to identify, assess, respond manipulation or unauthorised disclosure. Controls implemented and cope with a serious situation. should be appropriate to the value of the asset and its risk exposure. 168 RHB Capital Berhad Annual Report 2015 Statement on Risk Management & Internal Control (continued)

Human Capital Management Group Whistle Blower Policy The Group acknowledges that one of the key constituents of any There is an established process for reporting anyone found to be internal control system is its people and that our system of risk abusing or circumventing processes and controls of the Group. All management and internal control is dependent on the responsibility, staff are accorded the opportunity to report via the whistle-blowing integrity and judgement that people apply to their work. Hence, mechanism with the assurance that the report will be dealt with the Group has in place policies and procedures that govern confidentially and that the reporter’s identity will be protected. recruitment, appointment, performance management, compensation and reward as well as policies and procedures that govern Incident Management Reporting discipline, termination and dismissal. To complement the Group’s system of internal control, a comprehensive incident management reporting system has been For sustainable growth, the Group also places emphasis on human implemented to ensure proper escalation and management of capital development, talent management and succession planning. incidents. The incident management reporting system also ensures To enhance staff competencies, structured and technical training as that all incidences with material risk and losses are escalated well as management and leadership skills are provided to staff promptly to Senior Management and the Board with necessary steps based on their identified needs during the annual performance taken to mitigate any potential risks that may arise. This enables assessment. For talent management, initiatives such as Leadership decision makers to undertake informed decision making and be kept Development Programme, Individual Development Plan and up to date on situations as well as manage risks effectively. mentoring are implemented to develop identified talents in the Group to facilitate the supply for future leadership demands. Monitoring Group Compliance Group Code of Ethics and Conduct Compliance is the collective responsibility of the Board, Senior The Group Code of Ethics and Conduct (“the Code”) sets out the Management and every employee of the Group. Hence, it is standards of good and ethical banking practices, as well as aims expected that each individual promotes self-regulation and is to maintain confidence in the security and integrity of the Group’s accountable for his/her own activities as well as maintains ethical business practices. It is a requirement that all employees of the principles and behaviour in everything that he/she does. Group understand and observe the Code. New recruits are briefed on the Code and are required to sign the Employee Declaration of To manage compliance risk, the compliance lifecycle involves Compliance Form upon joining the Group. identifying the scope of compliance obligations, determining the compliance risk, conducting gap analysis to determine the state of The Group has also established the Gifts and Hospitality Guidelines compliance and proposing recommendations to address the which set the standards of conduct that are associated with ethical compliance gaps and emplacing monitoring process to ensure business practice and are designed to help the Group and its compliance including periodically conducting compliance testing employees understand respective parties’ obligations in upholding on key compliance risk areas. corporate integrity.

To enable business and operating units to comply with various Information and Communication laws and regulations, Group Compliance also conducts off-site Performance Review surveillance and reviews on a regular basis. Weaknesses noted are Regular and comprehensive information is provided by Management conveyed to the respective business and operating units so that to monitor its performance against the strategic business plan immediate corrective actions can be taken. approved by the Board. This information covers all key financial and operational indicators as well as key strategic initiatives Group Compliance provides monthly Compliance Assurance Report to undertaken by the Group during the year. the respective Boards based on their compliance and gap reviews. In addition, the Board is apprised on a quarterly basis on the extent of the The Board and the Group Management Committee receive and review Group’s compliance with regulatory requirements and the actions taken the Group’s monthly financial performance against set targets and to address any shortcomings. measures that are being put in place to meet such targets. 169

To mitigate non-compliance risk, briefings as well as various The Group BAC and BAC hold scheduled meetings to deliberate on awareness and learning initiatives were conducted throughout the the findings and recommendations for improvement highlighted by year to heighten awareness of compliance and to embed a both the internal and external auditors as well as the regulatory compliance culture within the Group. authorities on the state of the Group’s internal control system. The minutes of the meetings of the Group BAC/BAC are then tabled to Shariah Compliance the respective Boards with the highlights of these meetings being In line with the Guidelines on Shariah Governance Framework for presented by the Chairman or representative of Group BAC/BAC. Islamic Financial Institutions issued by Bank Negara Malaysia, the Management is responsible for observing and implementing the Further details of the activities undertaken by the Group BAC of the respective Shariah rulings and decisions. Company are set out in the Group Board Audit Committee Report.

The Shariah Framework has also been put in place which encompasses the concept of Shariah, Islamic financial business, CONCLUSION governance and reporting structures, roles and responsibilities, The Board has received assurance from the Group Managing Shariah compliance strategy and Shariah approval procedures. Director and Group Chief Financial Officer as well as the Group Chief Risk Officer that the Group’s risk management and internal In mitigating Shariah non-compliance risk, various briefings aimed at control system is operating adequately and effectively, in all creating awareness as well as learning programmes were conducted material aspects, based on the risk management and internal throughout the year to ensure compliance with Shariah principles. control system of the Group. The Board also receives monthly updates on key risk management and internal control matters Internal Audit through its Board Risk Committee and Group Board Audit Committee The Group has an in-house internal audit function which reports to as well as compliance assurance from the Group Compliance the Group Board Audit Committee (“Group BAC”) of the Company function. and the BAC of the RHB Banking Group (which undertakes the functions of the Audit Committee of the major operating entities Based on the assurance received from Management and updates within the Group, such as RHB Bank Berhad, RHB Investment Bank from its Board Committees, the Board is of the view that the Berhad, RHB Islamic Bank Berhad and RHB Insurance Berhad). Group’s risk management and internal control system is operating adequately and effectively for the financial year under review and Group Internal Audit (“GIA”) performs regular reviews of the Group’s up to the date of approval of this statement. operations and systems of internal control and evaluates the adequacy and effectiveness of the controls, risk management and governance processes implemented by Management. GIA adopts a risk-based REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS approach in determining the auditable units and frequency of audits. Annual audit plans are reviewed and approved by the respective BACs. As required by paragraph 15.23 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, the external Management Audit Committees (“MAC”) are established at the key auditors have reviewed this Statement on Risk Management & operating subsidiaries within the Group to ensure timely Internal Control. Their limited assurance review was performed in rectification of any audit findings and control lapses highlighted by accordance with Recommended Practice Guide (“RPG”) 5 (Revised the internal and external auditors, and regulators. These MACs 2015) issued by the Malaysian Institute of Accountants. comprising senior level representatives from different business/ functional groups are chaired by the Group Chief Financial Officer/ RPG 5 (Revised 2015) does not require the external auditors to Managing Director of the entity concerned. The minutes of meetings form an opinion on the adequacy and effectiveness of the risk of the MACs together with the relevant audit reports are management and internal control systems of the Group. subsequently tabled to the BAC for information, deliberation and direction for further action where required. 170 RHB Capital Berhad Annual Report 2015 BOARD NOMINATING & REMUNERATION COMMITTEE REPORT

MEMBERSHIP IN ACKNOWLEDGING THE IMPORTANCE OF EFFECTIVE TALENT MANAGEMENT, PARTICULARLY AT THE BOARD AND GROUP MANAGEMENT LEADERSHIP LEVELS, THE BOARD NOMINATING & REMUNERATION COMMITTEE (“BNRC”) WAS ESTABLISHED WITH THE OBJECTIVE OF PROVIDING HIGH-LEVEL OVERSIGHT AND DIRECTION ON HUMAN RESOURCE MATTERS AND REMUNERATION STRATEGIES AS WELL AS ON NOMINATION OF CANDIDATES FOR BOARDS, BOARD COMMITTEES, THE GROUP SHARIAH COMMITTEE AND KEY SENIOR MANAGEMENT POSITIONS. THE BNRC SERVES THE RESPECTIVE BOARDS OF MAJOR OPERATING ENTITIES WITHIN THE GROUP.

The former Group Nominating Committee and Group Remuneration & the Group. The BNRC is chaired by YBhg Datuk Haji Faisal Siraj, the Human Resource Committee were consolidated in 2012 for the Senior INED of RHB Capital Berhad (“RHB Capital” or “the purposes of expediency and resource optimisation, as the same Company”), in line with the recommendation of the Malaysian Code members were entrusted with the functions of both committees. The on Corporate Governance 2012. During the year, the composition of BNRC members are fully aware of their dual duties and responsibilities, the BNRC was refreshed to ensure an optimal mix of skills and which are comprehensively defined in the BNRC’s terms of reference. healthy balance of fresh perspectives and experience.

The BNRC comprises five Non-Executive Directors (“NED”), of whom Based on the Board Effectiveness Evaluation (“BEE”), the Board is three are Independent Non-Executive Directors (“INED”) and two satisfied with the performance of the BNRC, which continues to are Non-Independent Non-Executive Directors (“NINED”). Each contribute valuable advice and make sound recommendations to member represents the respective major operating entities within the Board.

MEETINGS AND ATTENDANCE

The BNRC convened 13 meetings during the financial year 2015. The BNRC also issued three circular resolutions in respect of matters that required the BNRC’s immediate decisions.

Details of the members’ attendance are as follows:

BNRC members Attendance at meetings

Datuk Haji Faisal Siraj (Chairman/Senior INED) 13/13 (100%) Tan Sri Azlan Zainol (NINED)* 7/8 (88%) Datuk Seri Saw Choo Boon (INED) 13/13 (100%) Tan Sri Dato’ Teo Chiang Liang (INED) 11/13 (85%) Tuan Haji Md Ja’far Abdul Carrim (NINED) 12/13 (92%) Choong Tuck Oon (INED) ^ 6/7 (86%)

Notes: * Appointed with effect from 13 April 2015 ^ Resigned with effect from 1 June 2015 171

TERMS OF REFERENCE (“TOR”) (h) Ensure Directors, Board Committee members and the GSC receive appropriate induction and continuous training The BNRC is governed by its TOR. In 2014, the TOR were reviewed programmes to close skill gaps and to keep abreast with and revised to strengthen their governance and reflect relevant latest developments. changes in regulations and internal human resource policies. (i) Assess annually the independence of Independent Directors The BNRC is vested with such power and authority, specific or as well as determine that the Directors and officers of the general, as may from time to time be decided upon by the Group meet the identified independence criteria and are not respective Boards. The BNRC is authorised to act within its TOR, to disqualified under relevant regulations. obtain resources which it requires, including but not limited to, obtaining expert advice, both internal and external, and to have (j) Review and recommend for the Boards’ approvals, any full and unrestricted access to information to enable the BNRC to significant change in the organisation structure of the Group fulfil its objectives. or/and the major operating subsidiaries.

The duties and responsibilities of the BNRC with regards to its The duties and responsibilities of the BNRC with regards its nomination roles are summarised as follows: remuneration roles are summarised as follows:

(a) Establish a documented procedure for the appointment of (a) Ensure the establishment of formal and transparent procedures Directors, Board Committee members, the Group Shariah for developing remuneration and Human Resource (“HR”) Committee (“GSC”) and key Senior Management officers. policies, strategies and frameworks for Directors, the GSC, key Senior Management officers and staff. (b) Establish and recommend for the Boards’ approvals, minimum requirements for Directors, the GSC and key Senior (b) Recommend remuneration strategies, policies and frameworks Management officers. and specific remuneration packages for Directors, Board Committee members, the GSC and key Senior Management (c) Establish and recommend for the Boards’ approvals, the officers, which should be (where relevant): optimal size and mix of skills required to ensure efficient operation of the Boards/Board Committees/GSC. (i) Market-competitive and in support of the Group’s culture, vision, objectives and strategy

(d) Review on a periodic basis, the policy on boardroom and (ii) Reflective of the responsibilities and commitment gender diversity. required

(e) Assess and recommend for the Boards’ approvals, new and (iii) Sufficient to attract and retain quality people but yet not re-appointed nominees for directorship, Board Committee excessive membership, the GSC and key Senior Management officers. (iv) Performance-driven with sufficient emphasis on long- term development of the Group to avoid excessive short- (f) Establish and recommend for the Boards’ approvals, a term risk-taking. mechanism for the formal assessment of the performance of the Boards as a whole, Board Committees, the GSC, each The frameworks should cover all aspects of remuneration Director and key Senior Management officer. including Directors’ fees, salaries, allowances, bonuses, option and benefits-in-kind. (g) Review performance assessment results and recommend to the Boards, the removal of any Director, GSC member or key (c) Ensure HR strategies, policies and frameworks are in place for Senior Management officer found to be ineffective, errant and all the building blocks of a quality HR management system negligent in the discharge of their responsibilities. (e.g. succession planning, talent and leadership development, training, etc.) to support the Group in achieving its objectives. 172 RHB Capital Berhad Annual Report 2015 Board Nominating & Remuneration committee report (continued)

(d) Review and assess the effectiveness of the HR Division in ethnicity, gender and age of the individual candidates as well as supporting the Group, including oversight of the scope and the appropriate size, structure and composition of the Boards as a quality of Group HR projects/programmes. whole. This ensures the Board composition is not only in compliance with regulatory requirements, but also well balanced and supportive (e) Approve changes to Group HR policies, in line with the HR of good governance, as well as responsive to changing business strategy and direction set by the Board. environments and needs.

(f) Review and recommend for the Boards’ approvals, any The Company previously had one female Director, namely YBhg significant change in the organisation structure of the Group Datuk Wira Jalilah Baba, who served as INED from 1 May 2012 to or/and the major operating subsidiaries. 30 January 2014. At the Group level, YBhg Datin Sri Khamarzan Ahmed has served RHB Bank (L) Ltd’s Board as a female Director from 15 March 2005 to date. During the year, the BNRC and Boards BOARDROOM DIVERSITY have endeavoured to identify and source for potential Board candidates, including female Directors, from the industry talent RHB Capital acknowledges the benefits arising from boardroom pool, available databases on female directors and the Group diversity, including having a broader pool of high-quality Directors Directors’ existing networks. The BNRC and Boards have also on the Boards, access to different perspectives and ideas and reviewed Board succession plans to ensure the appropriate focus benefiting from all available talent. The Company is committed is given to diversity. In addition to pursuing the recommendation towards board diversity, including but not limited to, gender, age, of the Securities Commission for women directors to make up 30% ethnicity and cultural background. The Company established a of boards, the BNRC and Boards actively search for qualified and boardroom diversity policy in 2013 and this policy is continuously competent candidates (both local and overseas) with broad followed by the Boards. The Group values and makes good use of international business exposure in line with the Group’s regional the unique contributions that a person can make due to their business expansion plan. In January 2016, the BNRC and Boards diverse background, skills and experience. recommended, approved and endorsed an appointment proposal for an Independent Non-Executive female Director on the Board of The BNRC and Boards believe that the existing appointment RHB Bank Berhad, a major operating subsidiary of RHB Capital. process for a new Board member is adequate as it takes into The relevant application is now pending approval of Bank Negara consideration the required skill sets, experience, competency, Malaysia (“BNM”).

The table below depicts the age, qualification/experience as well as tenure of the existing Directors of RHB Capital as at the date of this report:

Date of Tenure in the No. Name of Director Age Qualification/Experience Appointment Company (Years)

1. Dato’ Mohamed Khadar Merican (Chairman) 59 Accounting/Audit, 01.08.2008 7 General Management 2. Tan Sri Azlan Zainol 65 Finance/Banking, Accounting/Audit 27.07.2005 10 3. Datuk Haji Faisal Siraj 70 Accounting/Audit 24.05.2007 8 4. Datuk Seri Saw Choo Boon 69 Oil & Gas 20.05.2010 5 5. Tan Sri Dato’ Teo Chiang Liang 65 Property Development, Education 20.05.2010 5 6. Mohamed Ali Ismaeil Ali AlFahim 39 Corporate Finance 09.05.2014 1 7. Dato’ Khairussaleh Ramli 48 Banking/Finance, Capital Market 05.05.2015 9 months 173

DIRECTORS’ APPOINTMENT considering his competency, experience and knowledge in the financial services and capital market industry. YBhg Dato’ The Group’s nomination framework ensures that individuals Khairussaleh joined the Group as Deputy Group MD of RHB Banking appointed to relevant senior positions and the Boards within the Group and MD/CEO of RHB Bank Berhad in December 2013. The Group have the appropriate fitness and propriety to discharge their Board of RHB Capital accepted the BNRC’s recommendation and prudential responsibilities on and during the course of their approved the said appointment. Upon BNM’s approval, YBhg Dato’ appointment. The BNRC is guided by the said framework as Khairussaleh was duly appointed on 5 May 2015 following the approved by the Boards. retirement of the former Group MD, Mr Kellee Kam Chee Khiong, upon conclusion of the 20th Annual General Meeting (“AGM”) of New Director nominees are assessed by the BNRC in accordance the Company held on 30 April 2015. YBhg Dato’ Khairussaleh also with RHB Banking Group’s Policy and Guidelines on Fit and Proper continues to hold the position of MD/CEO of RHB Bank Berhad. for Key Responsible Persons (“Fit and Proper Policy”). These assessments are carried out against a benchmark of documented In addition, the BNRC also recommended the appointment of two competencies which have been prepared for each role, the new INEDs on the Boards of major operating subsidiaries of the declarations by each individual, the record of material academic/ Group as their qualifications and extensive range of experience in professional qualification and the carrying out of checks on matters varied disciplines are expected to bring fresh perspectives to the such as criminal record, bankruptcy and regulatory disqualification. Boards. The respective Boards accepted the BNRC’s recommendation The Fit and Proper Policy outlines the following criteria in assessing and approved such appointment. the suitability of the candidate:

(a) Probity, personal integrity and reputation, where the candidate must have personal qualities such as honesty, integrity, DIRECTORS’ RETIREMENT, RE-APPOINTMENT AND diligence, independence of mind, fairness and ethical RE-ELECTION behaviour. Pursuant to BNM’s Guidelines on Corporate Governance for (b) Competence and capability, where the candidate must have Licensed Institutions, RHB Capital is required to apply to BNM for the skills, experience, ability and commitment to carry out the the re-appointment of its Directors at least three months prior to role. the expiry of their terms of appointment, should the Company wish to further extend their appointments. Prior to such application, the (c) Financial integrity, where the candidate must have financial Directors recommended for re-appointment are subject to soundness and be able to manage his/her debts or financial assessment by the BNRC and the latter is required to give consent affairs prudently. on their re-appointment prior to the Board Meeting. In assessing the candidates, the BNRC takes into consideration their attributes, The Chairman of the BNRC conducts an interaction session with the competencies, contributions in terms of discussions on business/ proposed candidates and assesses them based on their relevant financial performance, strategy matters, business planning, etc., skills and experience, independence (where relevant) and independence of views in respect of decision making, roles played objectivity, track record of success, sound judgement and other and contributions to the Board and Board Committees and adequacy broad perspectives. The Boards’ expectations on the time of training, as well as the BEE results. In addition, the NEDs (save commitment and contribution from the Directors will also be for the NINED who is a Board representative of the major clearly communicated to the proposed candidates. The BNRC will shareholders) are also subject to the internal review of re- evaluate the candidates’ ability to discharge their duties and appointment once every two years pursuant to the Guidelines on responsibilities prior to recommending their appointment as Tenure of Appointment/Re-appointment of NEDs for RHB Banking Directors to the relevant Board(s) for approval. Group (“Internal Guidelines”).

During the year, the BNRC recommended the nomination of YBhg The INEDs’ independence assessment is done annually and Dato’ Khairussaleh Ramli (“YBhg Dato’ Khairussaleh”) as the new benchmarked against best practices and regulatory provisions. The Group Managing Director (“MD”)/Group Chief Executive Officer relevant declaration is tabled to the BNRC for consideration. (“CEO”) of RHB Banking Group and MD/CEO of the Company after 174 RHB Capital Berhad Annual Report 2015 Board Nominating & Remuneration committee report (continued)

The Group has also undertaken the BEE exercise on the Boards and products and operations and has provided suggestions and Board Committees since 2006, to assess their effectiveness and recommendations to the Management in improving operational and that of individual Directors. The BEE is designed to identify control efficiencies. He has pointed out weaknesses/areas for the strengths and weaknesses to improve the Board’s overall attention of the Management in the business performance of RHB effectiveness and forms part of the BNRC’s and Board’s evaluation Capital. He has also exercised independence of judgement and for the re-appointment of Directors. A summarised report on the opinion on the Management’s proposals as well as on issues BEE results of the Boards and Board Committees is presented to concerning RHB Capital and the Group as a whole. Upon the BNRC and the Boards to identify and address areas for recommendation by the BNRC, the Board approved YBhg Tan Sri improvement. Dato’ Teo Chiang Liang’s re-appointment as INED of RHB Capital. BNM subsequently, in May 2015, approved the same for the tenure of three years. Pursuant to Article 80 of the Company’s Articles of ASSESSMENT OF INDIVIDUAL DIRECTORS FOR Association, YBhg Tan Sri Dato’ Teo Chiang Liang retires by RE-ELECTION AND/OR RE-APPOINTMENT rotation and has indicated his intention of not seeking re-election due to his other business commitments. He shall accordingly retire YBhg Datuk Seri Saw Choo Boon was recommended and approved at the forthcoming AGM. by the BNRC and Board for re-appointment as INED of RHB Capital. BNM subsequently approved the same for a tenure of three years. YBhg Datuk Haji Faisal Siraj, the Senior INED of the Company, has Based on his vast experience at the highest levels in the oil and been strongly committed to RHB Capital Group as evidenced by his gas industry, particularly in the international business arena, YBhg full attendance at RHB Capital Board and the relevant Board Datuk Seri Saw Choo Boon has provided important and relevant Committee meetings during the year. He has continuously input in pushing the Group forward, especially in the very deliberated on issues from the Group’s perspective and shared his competitive business environment, not only locally but also views and experiences on various issues in relation to current internationally. He is well versed in dealings with regulators, market trends and globalisation as well as on areas for improvement Government agencies and associations and has regularly raised and growth of the Group’s business and operations in enhancing with them matters that affected the Group’s efforts in advancing its the performance of RHB Banking Group. Being the Chairman of the aspirations. He has also exercised independent judgement and BNRC, he has proven his leadership skills with his capability in challenged the Management’s recommendations, if need be, to monitoring and administering the conduct and affairs of the BNRC. ensure the interest of RHB Capital was protected and issues were He has ensured the deliberations were conducted smoothly by resolved in a timely and effective manner. As the Chairman of the guiding and managing the timeline of the meetings as well as by Group Board Audit Committee, he has raised his concerns over giving sufficient time to each Board Committee member to voice internal control issues and provided recommendations on how the their views on the issues and raise their concerns on the matters Management should exert itself to address operational risks. He at hand in seeking consensus and unity in decision making. He has has also actively participated in the deliberation and discussions been able to effectively delineate his role in providing oversight as on strategies and initiatives within the realm of audit. an Independent Director while continuously enhancing his knowledge of the operations and issues of the Company. His Pursuant to Article 80 of the Company’s Articles of Association, independent judgement has not been compromised by, among YBhg Datuk Seri Saw Choo Boon retires by rotation at the others, familiarity or close relationships with Management or other forthcoming 21st AGM of the Company and being eligible, offers Board Members over the years. himself for re-election. His re-election is further recommended by the BNRC and Board. In accordance with Section 129 of the Companies Act, 1965 and Internal Guidelines, YBhg Datuk Haji Faisal Siraj, who has attained YBhg Tan Sri Dato’ Teo Chiang Liang possesses vast experience in the age of 70 years in September 2015, shall retire at the the management of companies in the property development and forthcoming AGM. Nevertheless, he may by a resolution passed by education sectors. With this experience, he has continuously a majority of not less than three-fourths of the shareholders and/ imparted his knowledge and contributed to discussions on various or proxies at the forthcoming AGM, be re-appointed as a Director issues, including audit, insurance, financial performance, strategy, of RHB Capital to hold office until the next AGM in 2017, upon 175

recommendation by the BNRC and Board. Henceforth, his re- In accordance with Article 84 of the Company’s Articles of appointment shall be decided at every AGM until he attains the Association, Directors appointed to fill casual vacancies shall hold age of 73. Pursuant to the Internal Guidelines, a NED over 73 years office until the following AGM and shall be eligible for re-election. of age will not be eligible for appointment or re-appointment on Pursuant thereto, YBhg Dato’ Khairussaleh retires at the forthcoming the Board(s) of RHB Banking Group and shall retire at the next AGM and being eligible, offers himself for re-election upon the AGM of the company concerned, save for the NINED who is a Board Board’s recommendation. representative of the major shareholders. After considering his continued commitment, support and guidance as well as his leadership and management skills, the BNRC and Board of RHB DIRECTORS’ REMUNERATION Capital recommends the re-appointment of YBhg Datuk Haji Faisal Siraj as a Director of the Company. The BNRC and Boards are mindful that fair remuneration is critical to attract, retain and motivate Directors with the relevant YBhg Dato’ Mohamed Khadar Merican (“YBhg Dato’ Mohamed experience and expertise required to lead the Company and the Khadar”), the Chairman of RHB Capital, was first appointed as an Group. The Group has adopted general principles for the INED in the Group in December 2003 and was re-designated as a remuneration of NEDs to ensure that remuneration levels are NINED in April 2015. Therefore, he has served the Group for more commensurate with the responsibilities, risks and time commitments than 12 years. Being the Chairman of RHB Capital and a Director of Boards/Board Committees. The level of remuneration reflects the of its major operating subsidiaries, namely RHB Bank Berhad and level of responsibility undertaken by the particular NED concerned RHB Investment Bank Berhad, YBhg Dato’ Mohamed Khadar has within the Company and the Group. It also takes into consideration always considered issues from the Group’s perspective and has practices within the industry and is reviewed at least once every constantly reminded the Management of leveraging on the Group’s two years. infrastructure. He has continuously shared with the Management his thoughts on weaknesses/areas for improvement of the Group’s The current structure of Directors’ fees of RHB Capital was approved business and operations in enhancing the Group’s performance in by the shareholders at the 19th AGM held on 8 May 2014 on the striving towards achieving the Group’s vision. In 2013, YBhg Dato’ basis of RM180,000 per annum for Non-Executive Chairman and of Mohamed Khadar, in his capacity as the Chairman of RHB Capital, RM150,000.00 per annum for every NED. In addition, NEDs are was named as the “Chairman of The Year” by the Minority entitled to receive Board Committee allowances which shall be Shareholders Watchdog Group at the Malaysian-Asean Corporate paid annually based on their Board Committee memberships as Governance Index Awards 2013. Pursuant to the Internal Guidelines, well as meeting attendance allowances when they attend any a NED (save for the NINED who is a Board representative of the Board/Board Committee meeting. Benefits are accorded to the major shareholders) shall retire at the next AGM of the company Chairmen of the Group, consisting of, among others, the provision concerned upon completion of his consecutive or cumulative term of a company car, driver and petrol allowance. of 12 years. Accordingly, YBhg Dato’ Mohamed Khadar shall retire at the forthcoming AGM of RHB Capital. The aggregate remuneration of the Group Managing Directors and NEDs of RHB Capital received and/or receivable from the Group for the financial year ended 31 December 2015 is as follows:-

Other Benefits- Fees Salaries Total remuneration in-kind RM’000 RM’000 RM’000 RM’000 RM’000

Former Group Managing Director – 512 2,448 10 2,970 Current Group Managing Director – 1,436 4,112 36 5,584 NEDs 2,565 – 1,091 50 3,706 Total 2,565 1,948 7,651 96 12,260 176 RHB Capital Berhad Annual Report 2015 Board Nominating & Remuneration committee report (continued)

Details of the number of NEDs of RHB Capital whose aggregate (f) Candidates for appointment as subscribers and members of remuneration (received and/or receivable from the Group) falls the Board of Trustees of RHB Foundation into each successive band of RM200,000 are as follows: (g) Nomination of Directors for joint venture company Remuneration Bands No. of NEDs (h) Appointment of key Senior Management officers

Below RM200,000 – (i) Balanced scorecard for the financial years 2015 and 2016 RM200,001 – RM400,000 2 (j) Deliberation on the Human Resource Capabilities Assessment and key priorities for 2015 RM400,001 – RM600,000 3 (k) Renewal of contract of MD RM600,001 – RM800,000 1 RM801,001 – RM1,000,000 1 (l) Updates on succession planning (m) Review of annual leave entitlements for staff (n) Annual assessment of independence status of the INEDs SUMMARY OF THE BNRC’S ACTIVITIES IN THE FINANCIAL YEAR 2015 (o) Revision of Internal Guidelines

During the financial year ended 2015, the BNRC considered and (p) Revised organisation structure made recommendations to the Boards (wherever applicable) on the (q) Deliberation on BEE results and areas for improvement following matters: (r) Career Transition Scheme (a) Appointment and re-appointment of GSC members (s) Renewal of the Directors & Officers’ Liability Insurance (b) Change of Board and Board Committee compositions of RHB Capital and its subsidiaries (t) Expansion of NEDs’ Remuneration Framework

(c) Re-appointment of INEDs and NINEDs of RHB Capital and its (u) Remuneration proposal for Group MD/Group CEO and MD major operating subsidiaries (v) Sales incentive plan framework (d) Appointment of Directors of subsidiaries (w) Performance rewards and salary increments for staff (e) Appointment of nominee Director representing RHB Bank (x) Review of Human Resource Approving Matrix. Berhad on the Boards of Malaysian Electronic Payment System Sdn Bhd and MEPS Currency Management Sdn Bhd 177 GROUP BOARD AUDIT COMMITTEE REPORT

COMPOSITION AND ATTENDANCE

During the financial year ended 31 December 2015 (“year”), a total of six (6) Group Board Audit Committee (“Group BAC”) meetings were held. The Group BAC comprises the following members and the details of attendance of each member at the Group BAC meetings held during the year are as follows:

Composition of Group BAC Attendance at Meetings

1. Datuk Seri Saw Choo Boon (Chairman/Independent Non-Executive Director) 6/6 (100%) 2. Datuk Haji Faisal Siraj (Member/Senior Independent Non-Executive Director) 6/6 (100%) 3. Tan Sri Dato’ Teo Chiang Liang (Member/Independent Non-Executive Director) 6/6 (100%)

SUMMARY OF GROUP BAC’S TERMS OF REFERENCE Composition 1. The Group BAC shall be appointed by the Board from amongst The Group BAC’s objectives, authority, duties and responsibilities, its number and shall comprise not less than three (3) members reporting, composition, frequency of meetings and secretariat are who are non-executive directors, the majority of whom are defined in its terms of reference. A summary of the Group BAC’s independent directors. terms of reference is outlined below: 2. The Chairman of the Group BAC shall be an independent non- Authority executive director appointed by the Board. The Group BAC is authorised by the Board to: 3. No alternate director shall be appointed as a member of the 1. Investigate any matter within its terms of reference. Group BAC. 2. Have direct communication channels with the external and 4. All members of the Group BAC shall be financially literate and internal auditors. at least one member shall be a member of an accounting association or body. 3. Obtain independent professional or other advice at the Company’s expense. Duties and Responsibilities 4. Provide a written confirmation to Bank Negara Malaysia The key duties and responsibilities of the Group BAC are (“BNM”) that the Company as a financial holding company summarised as follows: complies with BNM’s requirements on financial reporting. 1. To review the adequacy of the scope, functions, competency 5. Promptly report to Bursa Malaysia Securities Berhad (“Bursa and resources of the internal audit function, Internal Audit Securities”) matters which have not been satisfactorily Charter and that it has the necessary authority to carry out resolved resulting in a breach of the Listing Requirements of its work. Bursa Securities. 2. To review the internal audit plan and processes, the results of the internal audit programme or investigation undertaken and whether or not appropriate action is taken by Management on the recommendations of the internal auditors. 178 RHB Capital Berhad Annual Report 2015 GROUP BOARD AUDIT COMMITTEE REPORT (continued)

3. To review with the external auditors, the nature and scope of 3. At least twice a year, the Group BAC shall meet with the their audit plan, their evaluation of the system of internal external auditors without the presence of the Management or controls and their management letter and discuss any matter any executive board members, and upon the request of the that the external auditors may wish to raise in the absence of external auditors, the Chairman of the Group BAC shall Management, where necessary. convene a meeting to consider any matter which the external auditors believe should be brought to the attention of the 4. To recommend to the Board on the appointment and the Board or shareholders. annual reappointment of the external auditors and their audit fees, after taking into consideration the independence and objectivity of the external auditors and the cost effectiveness SUMMARY OF GROUP BAC’S ACTIVITIES of their audit as well as the removal of auditors.

5. To review the quarterly results and year-end financial The Group BAC’s activities are concentrated on RHB Capital Berhad statements of the Company and the Group, before and its direct subsidiaries. The main activities undertaken by the recommending to the Board for approval, focusing particularly Group BAC during the year are summarised as follows: on changes in or implementation of new accounting policies and practices, significant and unusual events and compliance Financial Reporting with applicable approved accounting standards and other 1. Reviewed the quarterly unaudited financial results and the legal and regulatory requirements. annual audited financial statements of the Company and the Group as well as the appropriate announcements to Bursa 6. To review any related party transaction and conflict of Securities before recommending them for approval by the interest situation that may arise within the Company or the Board. The review process encompassed the following: Group, including any transaction, procedure or course of conduct that raises questions of management integrity. a. Reviewed on any changes in accounting policy or treatment and adoption of new accounting standards, 7. To review the minutes of meetings of other audit committees and its impact to the financial statements. within the Group to the extent permitted by the relevant regulatory authorities and be satisfied that all matters arising b. Reviewed the highlights on the performance of various therefrom are being appropriately addressed by these other business sectors contributing to the financial performance audit committees. of the Group and the main factors impacting the Group’s operating expenses and costs. 8. To review inspection and examination reports issued by any regulatory authority and to ensure prompt and appropriate c. Reviewed the financial statements for any material actions are taken in respect of any findings. changes between the current and preceding or corresponding quarter/year as well as any items that Meetings may appear uncorrelated. 1. Meetings shall be held at least four (4) times a year with a minimum quorum of two (2) members and the majority of Internal Audit members present shall be independent non-executive 2. Reviewed and approved the annual audit plan in January 2015 directors. to ensure adequacy of scope and coverage of the identified high risk auditable areas. 2. The head of internal audit shall be in attendance at meetings of the Group BAC. The Group BAC may invite the external 3. Reviewed the audit activities for the year covering the auditors, the Managing Director/Chief Executive Officer, the planned audit assignments, ad-hoc audit projects, review of Chief Operating Officer, the Chief Financial Officer, any other policy, process and procedures, and IT project participation. directors or members of the Management and employees of 4. Reviewed the staffing requirements of Group Internal Audit the Group to be in attendance during meetings to assist in its including the skill-sets and core competencies of the internal deliberations. auditors. 179

5. Reviewed and deliberated on the internal audit reports, audit 10. Met twice with the external auditors without the presence of recommendations and Management’s responses to these Management to discuss issues of concern to the auditors recommendations as well as the timely actions taken by arising from their annual statutory audit. Management to improve the system of internal controls and 11. Reviewed on a quarterly basis, the non-audit services rendered its processes on the areas highlighted. by the external auditors and the related fees taking into 6. Reviewed the effectiveness of the internal audit function and consideration the fees threshold established under the Group assessed the performance of Group Internal Audit. policy to ensure that the external auditors’ independence and objectivity are not compromised. 7. Reviewed the minutes of meetings of the Board Audit Committee of RHB Banking Group to the extent permitted by 12. Evaluated the performance of the external auditors based on the relevant regulatory authorities to satisfy itself that all the results of assessment of their work by the relevant staff matters arising therefrom had been appropriately addressed in the Group covering the categories of people, meeting by the Board Audit Committee. objectives, responsiveness, knowledge of business, adding value and communications before making recommendations in External Audit relation to their appointment to the Board for consideration. 8. Reviewed the audit plan of the external auditors, the audit strategy, risk assessment and areas of audit emphasis for the Related Party Transactions year. 13. Reviewed the reports of related party transactions on a quarterly basis covering the nature and amount of the 9. Reviewed with the external auditors, the results of their transactions including any conflict of interest situation in annual audit and the Audit Committee Report together with ensuring proper reporting and disclosures in accordance with the Management’s response to their findings and the regulatory requirements. recommendations.

TRAINING

During the year, the Group BAC members have attended the following training programmes, conferences and seminars to enhance their knowledge in order to efficiently discharge their duties as directors of the Company:

Name of Director(s) Training Programmes Attended Training Scope & Description

• Datuk Seri Saw Choo Boon 1. Briefing By Finance Department On • Latest updates on Financial Standards Financial Statements (16 March 2015) • FRS 139 2. Invitation from Bursa Malaysia Berhad • Audit Committee – Risk Management & Internal Control: • Relationship with Internal Audit Workshops For Audit Committee • Good Risk Management & Internal Control Members (8 June 2015) 3. CG Breakfast Series With Directors: • Fiduciary Duty “The Board’s Response In Light Of • Shareholders’ Needs Rising Shareholder Engagements” • Good Corporate Governance Practices (4 August 2015) 180 RHB Capital Berhad Annual Report 2015 GROUP BOARD AUDIT COMMITTEE REPORT (continued)

Name of Director(s) Training Programmes Attended Training Scope & Description

• Datuk Seri Saw Choo Boon 4. Directors CG Series: “Building Effective • Financial Reporting Requirements (continued) Finance Function – From Reporting to • Opportunity and challenges in green investment Analytic to Strategic Input” (10 August strategy 2015) 5. Cooking the Books – The Malaysian • Ingredients for fraud Recipe on Financial Fraud (10 September • Types of financial fraud 2015) • Red flags on fraud 6. Capital Market Director’s Training • Capital Market in Malaysia Programme (CMDP): • Good Corporate Governance Module 1 – 7 September 2015 Module 2A – 6 October 2015 Module 3 – 8 October 2015 Module 4 – 2 October 2015 7. Ethics Red Flags For Board of Directors • Ethics & Governance (3 November 2015) • Conflicts of Interest

• Datuk Haji Faisal Siraj 1. GST Training (5 February 2015) • Understanding Goods and Services Tax in Malaysia • Opportunity and challenges in tax strategy 2. Briefing By Finance Department On • Latest updates on Financial Standards Financial Statements (16 March 2015) • FRS 139 3. FIDE Forum: Invitation to Industry • Encourage development of world class directors Consultation Session (Directors’ • Attract and retain highly qualified directors Remuneration Study) (6 May 2015) • Promote board diversity, and • Improve board performance 4. FIDE Forum’s Special Invite to “Board’s • Innovative Products Strategic Leadership: Innovation & • High Risk, High Return Product Growth in Uncertain Times” • Compliance Cost (21 May 2015) 5. Briefings on Overseas Tax and Malaysian • Overseas Tax Financial Reporting Standard 9 – • FATCA ‘Financial Instruments’ For RHB Banking • MFRS 9 Group Directors (1 October 2015) • Tan Sri Dato’ Teo Chiang Liang 1. GST Training (5 February 2015) • Understanding Goods and Services Tax in Malaysia • Opportunity and challenges in tax strategy 2. FIDE Forum 3rd Board Leadership • Reclassification of assets & liabilities Series: Impact On The New Accounting • Revenue recognition Standard On Banks – What Directors • Latest Accounting standard Should Be Aware (5 June 2015) 181

Name of Director(s) Training Programmes Attended Training Scope & Description

• Tan Sri Dato’ Teo Chiang Liang 3. CG Breakfast Series With Directors: • Fiduciary Duty (continued) “The Board’s Response In Light Of • Shareholders’ Needs Rising Shareholder Engagements” • Good Corporate Governance Practices (4 August 2015) 4. 4th Distinguished Board Leadership • Sustainable Growth Series – “Board Leading Change: • Redefined Strategy Organisational Transformation Strategy • Transformation as Key Sustainable Growth In Challenging Times” (18 August 2015)

INTERNAL AUDIT FUNCTION

The Group has an in-house group internal audit function (“Group Group Internal Audit also works closely with the external auditors Internal Audit”) which is guided by the Group Internal Audit to resolve any control issues raised by them to ensure that all Charter and the International Standards for the Professional reported issues are duly acted upon by Management via the Practice of Internal Auditing of the Institute of Internal Auditors. respective Management Audit Committees of RHB Banking Group. Group Internal Audit reports to the Group BAC of the Company and the BAC of RHB Banking Group, and its main function is to provide In addition to the planned audits, Group Internal Audit also the Board with independent assurance that the Group’s risk performs investigations and special reviews as well as participate management, internal control and governance processes are in system development activities to provide recommendations operating adequately and effectively. upfront on relevant system-built controls.

The annual audit plans of the Company and RHB Banking Group To ensure effectiveness of the internal audit function, the Group are approved by the Group BAC and BAC respectively for each Chief Internal Auditor (“Group CIA”) has developed and maintained financial year. Group Internal Audit continues to adopt a risk- a quality assurance and improvement programme that covers all based approach towards the planning and conduct of audits in aspects of the internal audit activities. The quality assurance ensuring that the audit resources are prioritised in line with the programme assesses the effectiveness of processes within the Group’s key risks and areas of focus which are identified based on internal audit function and identifies opportunities for improvement Group Internal Audit’s risk assessment methodology. through both internal and external assessments.

Upon completion of the audits, all audit reports on the results of The internal assessment is performed according to the approved work undertaken together with the recommended action plans and Quality Assurance Review (“QAR”) plan by an independent QAR their implementation status are then presented to the respective team within Group Internal Audit and reports directly to the Group Management Audit Committees and the Board Audit Committees. CIA while the external quality assessment is conducted by a Group Internal Audit closely monitors the implementation progress qualified independent reviewer once every five years. The results of its audit recommendations in order to obtain assurance that all of both internal and external assessment are tabled to the Board major risk and control concerns have been duly addressed by Audit Committees for deliberation and information. Management. The cost incurred for the Group Internal Audit function was RM22.8 million for the financial year. 182 RHB Capital Berhad Annual Report 2015 RISK MANAGEMENT STATEMENT

INTRODUCTION

THE RISK MANAGEMENT PROCESS WITHIN THE GROUP SEEKS TO IDENTIFY, MEASURE, MONITOR AND CONTROL RISK SO THAT RISK EXPOSURES ARE ADEQUATELY MANAGED AND THE EXPECTED RETURNS ADEQUATELY COMPENSATE THE RISKS.

EFFECTIVE RISK MANAGEMENT IS FUNDAMENTAL TO DRIVE SUSTAINABLE GROWTH AND SHAREHOLDERS’ VALUE, WHILE MAINTAINING COMPETITIVE ADVANTAGE, AND IS THUS A CENTRAL PART OF THE PROACTIVE RISK MANAGEMENT OF THE GROUP’S OPERATING ENVIRONMENT.

The Group Risk Management Framework governs the management PRINCIPLE 1: of risks in the Group, as follows: Risk governance from the Boards of Directors of the various • It provides a holistic overview of the risk and control operating entities within the Group environment of the Group, with risk management aimed towards The ultimate responsibility of the Board in the Group is to ensure loss minimisation and protection against losses which may that an effective risk management process is in place which is occur through, principally, the failure of effective checks and uniformly understood across the Group. The Group has a structured controls in the organisation. framework to support the Board’s oversight responsibilities. • It sets out the strategic progression of risk management Risk Governance and Organisation towards becoming a value creation enterprise. This is realised through building up capabilities and infrastructure in risk The Board, through the Board Risk Committee (BRC), Group Capital management sophistication, and enhanced risk quantification and Risk Committee (GCRC) and the Group Risk & Credit to optimise risk-adjusted returns. Management function, establishes the risk appetite and risk principles for the Group and relevant entities. The BRC is the principal Board Committee that provides oversight over risk OVERARCHING RISK MANAGEMENT PRINCIPLES management activities for the Group to ensure that the Group’s risk management process is in place and functional. The BRC The Risk Management Framework contains five fundamental assists the Board to review the Group’s overall risk management principles that drive the philosophy of risk management in the philosophy, frameworks, policies and models. An Islamic Risk Group. They are: Management Committee (IRMC) was established to assist the Board of RHB Islamic Bank Berhad (RHB Islamic Bank) on risk • Risk governance from the Boards of Directors (Board) of the issues relevant and unique to RHB Islamic Bank. various operating entities within the Group;

• Clear understanding of risk management ownership; The responsibility for the supervision of the day-to-day management of enterprise risk and capital matters is delegated to the Group • Institutionalisation of a risk-focused organisation; Capital and Risk Committee comprising Senior Management of the • Alignment of risk management to business strategies; and Group and which reports to the BRC/IRMC and the Group Management Committee. • Optimisation of risk-adjusted returns. 183

There are other committees set up to manage specific areas of risks in the Group. An overview of this governance framework at Group level is as below:

4. Independent risk BOARD 1. Oversight by Board management, BOARD compliance 2. Oversight by individuals not involved in day-to-day management and audit functions COMMITTEES Strategic GROUP • in nature; Meets periodically or as required to steer the direction of the group. MANAGEMENT ENTITY • Operational in nature; Meets monthly or as required to execute the entity COMMITTEES strategy and manage the business. • Tactical in nature; Meets weekly or as required to drive a specific outcome.

STEERING COMMITTEES – DIRECT LINE SUPERVISION 3. Direct line supervision of various business areas WORKING LEVEL – EXECUTION ROLES (SBUs, SFUs)

PRINCIPLE 2: Central Risk Management Function Clear understanding of risk management ownership Group Risk & Credit Management is independent of the business Proactive risk ownership is important for effective management of function to ensure that the necessary balance in risk/return risk. This promotes a risk awareness culture throughout the Group. decisions is not compromised by short term pressures to generate The Strategic Business Units (SBUs) and Strategic Functional Units revenues. The said function in the Group reports to the Group (SFUs) of the respective operating entities in the Group are Chief Risk Officer. The roles and responsibilities of the Group Chief collectively responsible for identifying, managing and reporting Risk Officer include: risk. The business units manage certain defined risks supported by • Facilitating the setting of the strategic direction and overall the services provided by the functional units, including the risk policy on management and control of risks of the Group; management function. • Ensuring industry best practices in risk management are adopted across the Group, including the setting of risk PRINCIPLE 3: management parameters and risk models; Institutionalisation of a risk-focused organisation • Developing a proactive, balanced and risk attuned culture In addition to risk ownership, a risk-focused culture is promoted within the Group; throughout the Group through the strengthening of the central risk management function as well as the continuous reinforcement of a • Advising Senior Management, GCRC, BRC/IRMC and Boards on risk and control environment within the Group. risk issues and their possible impact on the Group in the achievement of its objectives and strategies; and

• Administering the delegation of discretionary powers to management personnel within the Group. 184 RHB Capital Berhad Annual Report 2015 Risk Management Statement (continued)

Group Risk & Credit Management consisting of Group Risk PRINCIPLE 4: Management, Group Credit Management and Group Risk Operations Alignment of risk management to business strategies provides independent oversight on business activities and The Group’s Risk Management Framework serves to align the implements the Group Risk Management Framework in order to Group’s business strategy to risk strategy, and vice versa. This is protect and safeguard the Group’s assets, and to prevent and articulated through the risk appetite setting and the Group’s mitigate financial and reputational losses to the Group. Key areas annual business and financial budgetary plan, which is facilitated for which Group Risk Management is responsible for include the by the integration of risk measures in capital management. Group’s risk policy and framework, day-to-day risk measurement and monitoring, providing timely risk analysis to management, and Risk appetite is set by the Board and reported through various ensuring compliance to regulatory risk reporting requirements. metrics that enable the Group to manage capital constraints and shareholders’ expectations. The risk appetite is a key component Group Credit Management oversees the Group-wide credit of the management of risks and describes the types and level of evaluation and assessment, approval and credit monitoring risk that the Group are prepared to accept in delivering its strategy. functions by providing credit risk assessment assurance on credit proposals, highlighting key risks and potential problematic accounts, and improving credit process efficiency. PRINCIPLE 5: Optimisation of risk-adjusted returns Group Risk Operations is responsible for strategising and One of the objectives of capital management is to reflect a risk- implementing a comprehensive enterprise-wide risk governance adjusted return assumed by the businesses throughout the Group. framework, and managing the development of robust risk By linking risk to capital, the risk-adjusted return measure management infrastructure and tools, aligned with the Group’s contributes to the creation of shareholders’ value by facilitating strategy for growth and keeping pace with the market requirements the allocation of capital to the businesses. and competitive business environment. Group Risk Operations drives the operationalisation of the Group’s risk transformation The medium to long term strategy and principle of risk management initiatives in establishing risk management as a valuable business of the Group is to intensify the integration of capital management partner. within the Group. The Group is progressively implementing a risk- adjusted return-based framework for allocation of capital to Risk and Control Environment business units and for performance measurement and management. The business and functional heads are accountable for risk management in their businesses and functions, and for overseas operations where they have governance responsibilities. The CREDIT RISK business and functional units have clear segregation of duties to ensure that business processes are functioning effectively. There is Credit risk is the risk of loss arising from customers’ or accountability delegated to the appropriate authority to enable counterparties’ failure to fulfil their financial and contractual them to execute their respective authorities in meeting the business obligations in accordance to the agreed terms. It stems primarily strategies without compromising the risk management process. from the Group’s lending/financing, trade finance and its fundings, investment and trading activities from both on- and off-balance The primary responsibility for managing risks, therefore, rests with sheet transactions. the business managers who are best equipped to ensure that risk management and control are continuously focused on the way Credit risk management is conducted in a holistic manner. Credit business is conducted. There is a continuous review of business underwriting standards are articulated in an approved Group credit activities and processes to identify significant risk areas and policy which is developed for the assurance of asset quality that is implement control procedures to operate within established in line with the Group’s risk appetite. Industry best practices are corporate policies and limits. instilled in the continual updating of the Group credit policy 185

including independent assessment of credit proposals, assignment Regular risk reporting is made to the GCRC, IRMC, BRC and the of rating and adoption of multi-tiered delegated lending authorities Board. These reports include various credit risk aspects such as spanning from individuals to credit approving committees. portfolio quality, credit migration, expected losses, and concentration risk exposures by business portfolio. Such reporting The Board Credit Committee’s main functions are affirming, allows Senior Management to identify adverse credit trends, take imposing more stringent conditions on or vetoing credits of the prompt corrective actions, and ensure appropriate risk-adjusted Group which are duly approved by the Group Credit Committee decision-making. The Group also conducts regular credit stress (GCC) and overseeing the management of impaired and high risk tests to assess the credit portfolio’s vulnerability to adverse credit accounts, as well as affirming, imposing additional conditions on risk events. or vetoing impaired financing from Credit Recovery for amounts above the defined thresholds of the GCC. In line with best practices, Group Internal Audit conducts independent post-approval reviews financing facilities applications are independently evaluated by on a sampling basis to ensure that the quality of credit appraisals Group Credit Management prior to submission to the relevant and approval standards is in accordance with the credit underwriting committees for approval. For financing applications submitted for standards and financing policies established by the Group’s joint approvals, there is proper check and control as the joint management, and relevant laws and regulations. approval is between business units and Group Credit Management.

Internal credit rating models are an integral part of the Group’s MARKET RISK credit risk management, decision-making process, and regulatory capital calculations. The credit grading models for corporate (or Market risk is the risk of loss arising from adverse movements in non-individual) obligors are used to risk rate the creditworthiness market indicators, such as interest/profit rates, credit spreads, of the corporate obligors/guarantors/debt issuers based on their equity prices, currency exchange rates and commodity prices. financial standing (such as gearing, expenses and profit) and qualitative aspects (such as management effectiveness and industry Market risk is segregated into trading market risk and non-trading environment). The credit scoring models are for large volume of market risk. Trading market risk arises from changes in interest/ exposures that are managed on a portfolio basis, which includes profit rates, foreign exchange rates, equity prices and credit programme lending/financing for small- and medium-sized spreads on the value of assets held for trading, while non-trading enterprises. These models are developed through statistical market risk arises from changes in interest/profit rates, foreign modelling and applied onto the portfolio accordingly. exchange rates and equity prices, of which the main non-trading market risk is interest/profit rate risk arising from re-pricing The analysis of any single large exposure and group of exposures mismatches of its assets and liabilities from its banking activities. is conducted regularly. The SBUs undertake regular account updates, monitoring and management of these exposures. Further, The Group Asset and Liability Committee (Group ALCO) performs a country and industry specific limits are also incorporated within critical role in the oversight of the management of market risk and the overall credit risk management framework for better assessment supports the IRMC and BRC in the overall market risk management. and management of credit concentration risk. Group ALCO meets regularly and is the forum where strategic and tactical decisions are made for the management of market risk; Credit reviews and rating are conducted on the credit exposures at this includes the development of the Group’s market risk strategy, least annually. Specific loans may be reviewed more frequently market risk management structure and the policies as well as under appropriate circumstances. Such circumstances may arise if, measurement techniques to be put in place. for instance, the Group believes that heightened risk exists in a particular industry, or the borrower has defaulted on obligations to The Group Market Risk Management Department within Group Risk suppliers or other financial institutions or is facing cash flow or Management is the working level that forms a centralised function other difficulties. to support Senior Management to operationalise the processes and methods, and ensure adequate risk control and oversight are in place. 186 RHB Capital Berhad Annual Report 2015 Risk Management Statement (continued)

The Group applies risk monitoring and assessment tools to measure risk to earnings is controlled using Management Action Triggers trading book positions and market risk factors. Statistical and non- (MATs) and identified escalation procedures. statistical risk assessment tools applied include Value-at-Risk, sensitivity analysis and stress testing. For effective control of Stress testing is also performed regularly to determine the operations, defined management action triggers and risk limits are adequacy of capital in meeting the impact of extreme interest/ established and actively monitored. Stress testing is rigorously benchmark rate movements on the balance sheet. Such tests are applied in ascertaining the susceptibility of and the extent to also performed to provide early warnings of potential extreme which the Group’s financials and earnings are affected by losses, facilitating proactive management of interest rate risk/rate prospective changes in market interest rates/profit rates, key risk of return risk in the banking book in an environment of rapid drivers or scenarios. financial market changes.

INTEREST RATE RISK IN THE BANKING BOOK/RATE OF LIQUIDITY RISK RETURN RISK IN THE BANKING BOOK Liquidity risk is defined as the risk of the Group being unable to Interest rate risk/rate of return risk in the banking book refers to maintain sufficient liquid assets to meet its financial commitments the risk to the Group’s earnings and economic value of equity due and obligations when they fall due and transact at a reasonable to the adverse movements in interest rate. The risk may arise from cost. Liquidity risk also arises from the inability to manage the mismatches in the timing of repricing of assets and liabilities unplanned decreases or changes in funding sources. from both on and off-balance sheet positions in the banking book, changes in slope and shape of the yield curve, basis risk and The Group ALCO supports the IRMC and BRC by performing the optionality risk. critical role in the management of liquidity risks and among others is responsible for establishing strategies that assist in controlling Earnings-at-Risk (EaR) and Economic Value of Equity (EVE) are and reducing any potential exposure to liquidity risk. Group ALCO used to assess interest rate risk/rate of return risk in the banking is supported by Group ALM at the working level. Group ALM book. They are computed based on the re-pricing gap profile of the monitors liquidity risk limits/MATs and reports to Group ALCO the banking book using BNM’s standard template. Assets and liabilities liquidity risk profile on a monthly basis. are bucketed based on their remaining tenure to maturity or next re-price dates. The measurement of EaR and EVE is conducted on The liquidity management process involves establishing liquidity a monthly basis. management policies and limits, regular monitoring against liquidity risk limits, regular stress testing, and establishing The Group ALCO supports IRMC and BRC in establishing policies, contingency funding plans. These processes are subject to regular strategies and limits for the management of balance sheet risk reviews to ensure that they remain relevant in the context of exposure. The Group Asset and Liability Management (Group ALM) prevailing market conditions. within Group Risk Management supports the Group ALCO in the monthly monitoring and reporting of the interest rate risk/rate of Triggers and limits are determined based on the Group’s risk return risk profile of the banking book. The primary objective in appetite and are measured by conventional risk quantification managing balance sheet risk is to manage the net interest/profit methodologies such as regulatory liquidity framework requirements. income and economic value of equity, as well as to ensure that The Group maintains adequate liquidity surplus to meet its interest rate risk/rate of return risk exposures are maintained requirements, and is well above the regulatory requirement. within defined risk tolerances. Liquidity preservation is also augmented by the Group’s practice of maintaining appropriate amounts of liquefiable assets as additional In order to achieve a balance between profitability from banking buffers against times of extreme market systemic risks and stress, activities and minimising risk to earnings and capital from changes as well as the Group’s implementation of policies and practices in in interest rate/benchmark rate, interest rate risk/rate of return relation to contingency funding plans and operations. 187

OPERATIONAL RISK • Education and – This is aligned with the principle and Awareness requirement that the front-line business Operational risk is the risk of loss resulting from inadequate or and support units of the Group are, by failed internal processes, people, systems and/or external events, nature of their direct involvement in which also includes IT, legal and Shariah non-compliance risk but interfacing with customers and in operating excludes strategic and reputational risk. the business, responsible for managing operational risk and acting as the first line One of the Group’s primary safeguards against operational risk is of defence. the existence of a sound internal control system, based on the • Monitoring and – This is where the principal head office risk principle of dual control checks and balances, segregation of Intervention control units actively manage operational duties, independent checks and verification processes, and a non compliances and incidents, as well as segmented system access control and authorisation process. These undertake recovery actions, including controls are documented through a set of policies and procedures business continuity measures in cases of at the respective business and operation level. Each business and incidences causing disruption to business support unit of the respective operating entities in the Group is activities. responsible for understanding the operational risks inherent in its products, activities, processes and systems. They are supported in this function by the central risk coordination units which include Risk mitigation tools and techniques are used to minimise risk to the operational risk management function, the compliance function an acceptable level and aim to decrease the likelihood of an and the internal audit function. undesirable event and the impact on the business, should it occur. The control tools and techniques include business continuity The Group Operational Risk Management Department within Group management, outsourcing and insurance/takaful management. Risk Management has the functional responsibility for the development of operational risk framework, policies and Regular operational risk reporting is made to the Senior methodologies, and for providing guidance and information to the Management, the GCRC, IRMC, BRC and the Board. These reports business units on operational risk areas. Its function also includes include various operational risk aspects such as reporting of generating a broader understanding and awareness of operational significant operational loss and Shariah non-compliance events. risk issues at all levels in the Group. It also ensures that operational Such reporting enables Senior Management to identify adverse risk from new products, processes and systems is adequately operational lapses, take prompt corrective actions, and ensure managed and mitigated. The respective business units are primarily appropriate risk mitigation decision-making and action plans. responsible for managing operational risk on a day-to-day basis. Some of the control tools used include Risk and Control Self- Assessment, Key Risk Indicators, and Incident and Loss REPUTATIONAL RISK Management. Reputational risk is the risk that negative publicity regarding the conduct of the Bank or any of the entities within the Group, and its The Group’s Operational Risk Management Framework comprises a business practices or associations, whether true or not, will adversely wide range of activities and elements, broadly classified as follows: affect its revenues, operations or customer base, or require costly • Analysis and – The Group has implemented a Basel II litigation or other defensive measures. It also undermines public Enhancement compliant operational risk management confidence in the Group, affecting the share price. system to support its workflow and analytical capabilities. Reputational risk in the Group is managed and controlled through codes of conduct, governance practices and risk management practices, policies, procedures and training. The Group has 188 RHB Capital Berhad Annual Report 2015 Risk Management Statement (continued)

developed and implemented a reputational risk management The Head of Shariah Division reports functionally to the SCR and framework. The key elements for management of reputational risk administratively to the Managing Director of RHB Islamic Bank. The include: key functions of the Shariah Division are undertaken by two sub- units, i.e. Shariah Advisory, Development and Secretariat; and • Prompt and effective communication with all stakeholders; Shariah Research and Training. On a functional basis, RHB Islamic • Strong and consistent enforcement of controls relating to Bank is supported by Shariah Division, Group Shariah Risk governance, business and legal compliance; Management, Shariah Compliance and Shariah Audit. • Continuous monitoring of threats to reputation; Any incidences of Shariah non-compliance are reported to the SCR, • Ensuring ethical practices throughout the Group; and the IRMC, the Board of Directors of RHB Islamic Bank and BNM. Remedial actions may include the immediate termination of the • Establishing crisis management plans and ensuring these are Shariah non-compliant products or services and de-recognition of continuously updated. Shariah non-compliant income.

SHARIAH NON-COMPLIANCE RISK CAPITAL MANAGEMENT AND BASEL Shariah non-compliance risk is the risk of loss arising from failure The Group’s capital management objective is to manage capital to comply with the Shariah rules and principles as determined by prudently to maintain a strong capital position to drive sustainable the Shariah Committee of RHB Islamic Bank (SCR) or any other business growth and seek strategic opportunities to enhance relevant body, such as Bank Negara Malaysia’s (BNM) Shariah shareholders’ value, and be in line with its risk appetite. It also Advisory Council. calls for the Group to ensure that adequate capital resources are available to support business growth and investment opportunities, A Shariah Framework has been developed with the objective of as well as to meet adverse situations, and to comply with regulatory governing the entire Shariah compliance process within Islamic capital requirements. banking operations, and to:

• Ensure that the planning, development, and implementation of The Group’s capital management objective is translated into the Islamic Bank’s products, services and conduct of business capital targets that are consistent with the need to support are in accordance with Shariah principles; business growth in line with strategic plans and risk appetite. Through the Internal Capital Adequacy Assessment Process (ICAAP), • Ensure that the Bank’s operations do not contravene any of the the Group assesses its forecast capital supply and demand which Shariah principles and authorities’ regulations related to the is determined by the following: Shariah; and • Material risk types where capital is deemed to be an appropriate • Act as a guide on the Bank’s expectations to all personnel risk mitigation method; engaged in the Bank’s activities; to ensure that all such functions are based on the Shariah principles, practices and • Capital targets; and prudence. • The use of forward three-year planning.

The SCR was established under BNM’s Shariah Governance In addition, capital stress tests are also conducted to evaluate the Framework. The main duties and responsibilities of SCR are to sensitivity of the key assumptions in the capital plan to the effects advise the Board of Directors on Shariah matters in relation to of plausible stress scenarios and to assess how the Group can Islamic Banking business and operations, to endorse Shariah continue to maintain adequate capital under such scenarios. compliance manuals, to endorse and validate relevant documents as well as to provide written Shariah opinion on new products and RHB Islamic Bank’s financial statements. 189

Each operating subsidiary in the Group manages its capital using Basel II Implementation a consistent capital management framework and process. The The Group places great importance on the International Convergence capital management framework guides the establishment of capital of Capital Measurement and Capital Standards: A Revised strategy for the Group and its entities, as well as highlights the Framework (commonly referred to as Basel II) as adopted by BNM internal analytics capabilities required and the functions that and views it as a group-wide initiative in meeting international support the capital management framework within the Group. best practices in this area. A dedicated Group Basel Steering Committee was set up to oversee all Basel related initiatives and Supported by monitoring and reporting capabilities, the Board and activities throughout the Group and to ensure that it is on track in Senior Management are kept informed and updated of the Group’s meeting the regulatory requirements outlined in the Capital capital utilisation and capital position which is generated by the Adequacy Framework and Capital Adequacy Framework for Islamic Group’s information system and processes. Banks issued by BNM.

For the purpose of complying with regulatory requirements under Basel II Pillar 1, the approaches adopted by the respective banking entities within the Group are as follows:

Entity Credit Risk Market Risk Operational Risk

RHB Bank Berhad Internal Ratings-Based Approach RHB Islamic Bank Berhad Standardised Approach Basic Indicator Approach Standardised Approach RHB Investment Bank Berhad

The Group’s ICAAP framework ensures that all material risks are identified, measured and reported, and that adequate capital levels consistent with the risk profiles, including capital buffers, are maintained to support the current and projected demand for capital, under existing and stressed conditions. For non-measurable risks, relevant framework and control mechanisms are implemented to mitigate and manage the same.

The Group’s relevant Pillar 3 disclosures are published in the Annual Report and available on the corporate website (www.rhbgroup.com).

Basel III Implementation The implementation of Basel III for capital components by BNM in Malaysia has commenced with effect from 1 January 2013. Under the new Basel III rules, banking institutions are required to strengthen the quality of their capital by maintaining higher minimum capital requirements and holding capital buffers, namely the capital conservation buffer and the countercyclical capital buffer. However, the requirements are subject to a series of transitional arrangements with a gradual phase-in commencing 2013.

The banking entities have implemented BNM’s liquidity standards on Liquidity Coverage Ratio (LCR) effective from 1 June 2015 after reporting the LCR under observation since June 2012. BNM has adopted the phase-in arrangement for Malaysian banking institutions to comply with the minimum requirement of 60% in 2015 with incremental of 10% each year thereafter until 100% from 1 January 2019 onwards. Banking institutions continue to report on Net Stable Funding Ratio (NSFR) under observation. The result produced during the observation period facilitates the banking entities’ strategy in managing the appropriate balance sheet structure for achieving optimal NSFR. 190 RHB Capital Berhad Annual Report 2015 SHARIAH COMMITTEE REPORT

INTRODUCTION DUTIES & RESPONSIBILITIES

The Shariah Committee is established under RHB Islamic Bank The main duties and responsibilities of the Shariah Committee are Berhad with the following main objectives: to:

1. To perform an oversight and independent advisory role to the 1. Advise the Board on Shariah matters in order to ensure that Board of Directors and/or the Management of RHB Banking the Islamic banking and financing business and operations are Group (“the Group”) on Shariah matters pertaining to the Shariah-compliant at all times Group’s Islamic banking and finance business and operations.

2. To ensure effective working arrangements are established 2. Endorse all frameworks, policies, manuals and procedures between the Shariah Committee and the Shariah Advisory prepared by the Group which have Shariah concerns and Council (“SAC”) of Bank Negara Malaysia (“BNM”), as well as ensure that the contents do not contain any elements which that of the Securities Commission (“SC”). are not in line with Shariah 3. To ensure the establishment of appropriate procedures in 3. Endorse and validate the following documentation to ensure leading to prompt compliance with Shariah principles. that the products comply with Shariah principles: i. the terms and conditions contained in proposal forms, SHARIAH COMMITTEE MEMBERS contracts, agreements or other legal documentation used in executing transactions; and The Shariah Committee comprises six qualified local Shariah scholars; one of whom is based in Kuwait. The range of knowledge, ii. the product manual, marketing advertisement, sales experience and approaches of this diverse group of Shariah scholars illustration and brochures used to describe a product is needed in order for the Group’s operations and products to be globally accepted. The majority of the members have the 4. Assess the work carried out by Shariah Compliance and prerequisite Shariah qualifications imposed by BNM. The remaining Shariah Audit in order to ensure compliance with Shariah members are professionals from various backgrounds who possess matters expertise in the Islamic banking and finance industry. 5. Provide advice to the Group’s legal counsel, auditor or The Shariah Committee members are: consultant on Shariah matters as and when required to ensure compliance with Shariah principles 1. Dr Ghazali bin Jaapar (Chairman) 6. Advise on matters to be referred to the SAC of BNM, particularly 2. Prof Dr Joni Tamkin bin Borhan (Member) matters which have not been resolved or endorsed by the SAC 3. Assoc Prof Dr Amir bin Shaharuddin (Member) of BNM

4. En Mohd Fadhly bin Md Yusoff (Member) 7. Provide written Shariah opinions particularly in the following 5. En Wan Abdul Rahim Kamil bin Wan Mohamed Ali (Member) circumstances: 6. Pn Shabnam binti Mohamad Mokhtar (Member) i. where the Group makes reference to the SAC of BNM for advice; or

Please refer to pages 36 to 38 for the profiles of the Shariah ii. where the Group submits applications to BNM or the SC Committee. for new product approval in accordance with guidelines on product approval issued by BNM and the SC 191

8. Articulate Shariah issues involved and ensure that all advice MEETINGS and/or opinion is supported by relevant Shariah jurisprudential literature from established sources. The Shariah Committee is A total of 11 meetings were held during the financial year ended 31 also expected to assist the SAC of BNM on any matters December 2015, which comprised nine regular meetings and two referred by the Group special meetings.

9. Ensure that the SAC of BNM’s decisions/opinions/advice are All members have satisfied the minimum attendance requirement properly implemented and adhered to by the Group under BNM’s Shariah Governance Framework which provides that a Shariah Committee member is required to attend at least 75% of 10. Prepare a report to certify the Annual Audited Account of RHB the Shariah Committee meetings held in each financial year. Details Islamic Bank for the financial period concerned of attendance of each member are as follows:

11. In respect of matters concerning the Islamic Capital Market Number of Meetings (for RHBIB and as mandated): Name of Shariah Committee Member Held Attended i. ensure that the instruments are managed and administered in accordance with Shariah principles; Dr Ghazali Jaapar 11 11 ii. provide expertise and guidance in all matters relating to Prof Dr Joni Tamkin Borhan 11 10 Shariah principles, including the instrument’s deed and Assoc Prof Dr Amir Shaharuddin 11 11 prospectus, its structure and investment process, and other operational and administrative matters; En Mohd Fadhly Md Yusoff 11 10 En Wan Abdul Rahim Kamil 11 9 iii. scrutinise the instrument’s compliance report as provided by the compliance officer, and investment transaction Pn Shabnam Mohamad Mokhtar 7 6 reports provided by, or duly approved by, the trustee to * Date Joined 01 May 2015 ensure that the investments are in line with Shariah principles; and

iv. prepare a report to be included in the interim and annual reports certifying that the instrument had been managed and administered in accordance with Shariah principles for the period concerned.

12. Advise on payment of Zakat to the appropriate authority. 192 RHB Capital Berhad Annual Report 2015 BUSINESS CONTINUITY MANAGEMENT

INTRODUCTION THE GROUP RECOGNISES AND IS FULLY COMMITTED TO, THE NEED TO PROVIDE CONTINUOUS CRITICAL SERVICES TO ITS CUSTOMERS, ENSURE THE SAFETY OF ITS EMPLOYEES, PROTECT ITS ASSETS/DATA AND SAFEGUARD THE INTEREST OF ITS KEY STAKEHOLDERS THAT COLLECTIVELY ENSURE THE VIABILITY OF THE ORGANISATION. THE GROUP’S BUSINESS CONTINUITY MANAGEMENT (BCM) PROGRAMME IS BASED ON GOOD BUSINESS CONTINUITY PRACTICES AND GUIDELINES WHICH ARE IN LINE WITH THE BANK NEGARA MALAYSIA AND INTERNATIONALLY RECOGNISED STANDARDS.

The Board of Directors has an oversight function on the Group’s Simulation exercise and drills are conducted to familiarise and BCM readiness through the Board Risk Committee (BRC) and Group equip staff with the skills and techniques required to identify, Capital and Risk Committee (GCRC). The Group Business Continuity assess, respond and cope with a serious situation, especially from Steering Committee (GBCSC) is the management committee the moment it first occurs, triggering the activation of recovery established to oversee the Group’s business continuity framework, procedures till returning to normalcy. Post incident review is policies, budget and plans, and reports to GCRC. carried out to identify the lessons learned, for onward sharing with staff, and to take corrective actions or enhancement on crisis The Group has established BCM framework and policies to provide management, in line with continuous improvement on BCM. governance and guiding principles for the development and implementation of a comprehensive BCM within the Group. To RHB will continue to strengthen its BCM programme across the mitigate the impact of unforeseen operational risk events, the Group to ensure business resiliency with provision of critical and Group has an on-going and actively managed BCM programmes, essential services while minimising any disruption in the event of which include crisis management planning, disaster recovery disaster. planning, human resource planning and business continuity planning for its major critical business operations and activities at BUSINESS CONTINUITY MANAGEMENT GOVERNANCE the Head Office, data centre and branches. The BCP programmes are subject to regular testing/exercising to ensure efficacy, reliability and functionality, and come under the responsibility of Board of Directors the Group Business Continuity Management (Group BCM).

As precautionary measures, the Group conducts periodic assessment Board Risk Committee on potential threats, identify significant threats and implement the best ways to avoid those threats. To ensure preparedness and effective crisis management as well as the competencies of our staff to deal with real crisis, incident response teams are established Group Capital & Risk Committee at Head Office and regional levels, with clear understanding of their roles and responsibilities, maintaining clear lines of reporting and communication in the event of crisis. Group Business Continuity Steering Committee

Business Continuity Forum 193 COMPLIANCE STATEMENT

OVERVIEW AS THE GROUP’S BUSINESS MODEL, REPUTATION AND FINANCIAL CONDITION ARE EXPOSED TO THE RISK OF IMPAIRMENT DUE TO COMPLIANCE RISK, WHICH ENCOMPASSES THE NON-ADHERENCE TO LAWS AND REGULATIONS, INTERNAL POLICIES AND EXPECTATIONS OF STAKEHOLDERS, THE GROUP UPHOLDS HIGH STANDARDS IN CARRYING ON ITS BUSINESS, AND AT ALL TIMES OBSERVES BOTH THE SPIRIT AND THE LETTER OF THE LAW AND REGULATIONS.

The Group’s strong compliance culture reflects the high standards of ethics and integrity espoused by the Board and Senior Management in leading by example to maintain the interests of our customers, shareholders, officers and of the Group itself. Compliance responsibility applies from the top down to all business lines and functions within the Group in ensuring the effective management of compliance risk.

In running and growing its business as a compliant financial services provider, the Group is committed to upholding good corporate governance principles, regulatory requirements and international best practices. These principles are outlined in the Group Compliance Framework (“Framework”) and Group Compliance Policy (“Policy”) which serve as important guides for the Group as it continuously evolves to meet the growing demands of implementing compliance best practices throughout the Group’s businesses. The Framework and Policy provide an overarching blueprint, from which the building blocks for the compliance functions are shaped and developed.

COMPLIANCE GOVERNANCE The Group Senior Management supports the Board and the BRC in managing the Group’s compliance risks by ensuring there is a At the apex of compliance governance are the respective Boards of compliance programme in place. The Group Senior Management the various entities of the Group, which oversee and provide also regularly reviews the programme’s adequacy and effectiveness strategic direction for compliance within the Group. The Boards in managing compliance risk. Additionally, the Group Senior take the lead in establishing the tone from the top and upholding Management has established a compliance function at Group level standards of conduct, organisational practices and corporate values which is independent and which has direct access to the BRC and that are consistent with the Group’s overall risk appetite. In Board. A Chief Compliance Officer oversees the Group’s overall support of the respective Boards, the Board Risk Committee (“BRC”) compliance management. is the Board Committee wherein the Group’s state of compliance with laws, regulations, internal policies and procedures are first The culture inculcated by the Framework expects the employees to reported. This enables the BRC to carry out effective oversight of understand their responsibilities in respect of compliance and feel the Group’s compliance activities and provide the direction for comfortable raising concerns without fear of retaliation. Leading by appropriate compliance risk management and mitigation actions example, the Board and Senior Management have created an prior to notation by the Boards on a monthly basis. environment which not only ensures that the Group and its employees comply with legal and regulatory requirements, but also encourages the ethical conduct that underlies such requirements. 194 RHB Capital Berhad Annual Report 2015 compliance statement (continued)

ENTITY’S BOARD

BOARD RISK COMMITTEE Group Chief Risk Officer

GROUP COMPLIANCE

Group RHB Bank Group Group Group IT Group AML Compliance Subsidiaries Investment Shariah Compliance & Practice Governance & & Regional Banking Business AML System Competencies Compliance Compliance Compliance

INTRODUCTION Group Compliance Governance and Competencies Responsible for establishing group-wide compliance governance The Group Compliance Function operates on a group-wide basis standards and structures across all entities of the group in Malaysia with an appointed Chief Compliance Officer (“CCO”) overseeing the and overseas, as well as for developing group compliance risk compliance risk management of the Group, which includes RHB management strategies and implementation plans and enhancing Bank Berhad and its subsidiaries (namely RHB Islamic Bank Berhad compliance competencies across the Group. and RHB Labuan Ltd), RHB Investment Bank Berhad and its subsidiaries (namely RHB Asset Management Sdn Bhd and RHB Group Investment Banking Compliance Research Institute Sdn Bhd) and RHB Insurance Berhad. The group- wide oversight spans all entities in Malaysia and overseas. The CCO Responsible for ensuring implementation of capital market is supported by six direct reports responsible for managing the compliance measures for investment banking business across the respective subject matter areas in Group Compliance. They are as Group. follows: Group Shariah Business Compliance Group AML Practice Responsible for ensuring implementation of Shariah compliance Responsible for setting up group-wide strategy, standards and standards for Islamic banking business across all entities in the measures to promote effective implementation of and compliance Group. with anti-money laundering (“AML”), terrorist financing and proceeds of unlawful activities laws and best practices. 195

Group IT Compliance and AML System COMPLIANCE RESPONSIBILITY Responsible for oversight of group-wide IT compliance with relevant Compliance is the collective responsibility of the respective Boards, laws, regulations and best practices as well as for overseeing the Senior Management and each and every employee of the Group. implementation of AML technology infrastructure across the Group. Therefore, everyone concerned is expected to promote self- regulation and be accountable for his or her own activities while RHB Bank Subsidiaries and Regional Compliance maintaining ethical principles and behaviour in everything that he Oversight of country/subsidiary, via the appointed country/ or she does. subsidiary compliance officer, complying with Group standards as well as relevant local laws, regulations and best practices. The compliance responsibility is generally divided into the following categories: COMPLIANCE RISK MANAGEMENT • Daily compliance management – This is the first line of defence and requires the front-line businesses and supporting units to The aim of compliance risk management is to preserve and enhance comply with internal policies, procedures, laws and regulations. the Group’s reputation vis-à-vis its competitive standing, reputation, • Compliance oversight – This is the second line of defence brand and shared values in line with its vision of becoming a whereby review and monitoring of specific compliance-related leading financial services group in the region. The team in Group activities undertaken by the front-line businesses and supporting Compliance embraces this vision by enabling and incorporating an units are carried out by the Group Compliance Function or other industry-leading compliance culture in the Group’s strategies, Control Functions at the Head Office such as Group Risk business models and practices so that the Group is recognised for Management, Group Finance, Group Legal, etc. its objectives of: • Independent assurance – This is the third line of defence which • being a compliant financial services group; involves independent parties such as internal auditors, external • conducting business with high ethical standards; auditors and regulators who are expected to continuously assess the effectiveness of the compliance function in the • enabling business growth with the infusion of best compliance Group. practices;

• ensuring zero tolerance for regulatory breaches; and The Group’s Division and Department Heads are continuously • minimising losses arising from non-compliances. engaged to ensure they inculcate compliance awareness and discharge their duties effectively to ensure their respective units To achieve the above objectives, the Group’s underlying mission is comply with regulatory and internal requirements. to effectively measure and manage its compliance risk in line with stakeholder expectations. The management of compliance risk across the Group lies with each entity’s Board and Group Compliance, with SHARIAH COMPLIANCE clear definition of roles and responsibilities for the three lines of defence. Compliance with Shariah principles is an integral feature of Islamic banking and finance. Particular emphasis has been placed on this Compliance initiatives are synchronous with global compliance upon the enforcement of the Islamic Financial Services Act 2013 developments, legal and regulatory requirements, as well as the (“IFSA”) in June 2013. Group’s policies. Therefore, the compliance management lifecycle involves identifying and determining the scope of compliance The Shariah Committee (“SC”) plays a vital role in ensuring that obligations, identifying and assessing the compliance risk, conducting the Group satisfies Shariah governance requirements as it moves to gap analysis to determine the state of compliance, recommending provide innovative Islamic products and services. Success in this initiatives to address the compliance gaps and implementing area inevitably promotes public confidence and enhances the monitoring processes to ensure compliance, including periodically Group’s reputation as a prominent player in the Islamic banking conducting compliance testing on key compliance risk areas. and finance industry. 196 RHB Capital Berhad Annual Report 2015 compliance statement (continued)

Internal control mechanisms for Shariah compliance have been put KEY INITIATIVES IN 2015 in place to ensure the Group is in compliance with Shariah rules and principles at all times. These particularly include Shariah The financial industry continues to be impacted by increasing Review exercises, Shariah Assurance Pre-approval Review, Shariah regulation, both locally and internationally, by various regulatory Risk Management and Shariah Audit functions across the entities of bodies which ensure strict enforcement. In Malaysia, these the Group. The results of these internal control mechanisms are regulations include the ones issued under the Financial Services deliberated on in the SC for their eventual endorsement. Shariah Act 2013 (“FSA”) and the Islamic Financial Services Act 2013 compliance is further ingrained with the adoption of the Shariah (“IFSA”). Compliance Checklist for every single retail product and the Shariah Control Self-Assessment (“SCSA”) Checklist used in the As the Group contends with more granular and frequent scrutiny branches. The support provided by all authorities and parties from regulators, it also has to cope with an acute shortage of within the Group has contributed to the achievement of the Shariah experienced compliance officers while the Group expands its compliance requirements and enabled the Group to mitigate Shariah business and regional presence. Faced with these challenges, the compliance risks. Group continuously adopts compliance strategies that provide value to our stakeholders. They include the following:

ANTI-MONEY LAUNDERING AND COUNTER FINANCING OF 1. Infusing Best Practices TERRORISM (“AML/CFT”) The Group’s policies are continuously reviewed to ensure that they are kept current and relevant and are reflective of global As one of the champions of the Government and Bank Negara best practices. While various frameworks and policies are in Malaysia’s initiatives to prevent the banking system from being place to handle the Group’s day-to-day operational needs, used for illicit and laundering activities, the Group has spearheaded some key compliance policies and guidelines that have been the following processes and infrastructure: put in place are highlighted below: • accountability of each level of employees for anti-money • Group Code of Ethics laundering detection and prevention; • Group Whistle-blower Policy • education and training in preventing and detecting money laundering; and • Gifts and Hospitality Guidelines • extensive procedures covering customer due diligence for • Group Compliance Framework & Policy opening of accounts, record keeping and recognition and • Group AML Policy reporting of suspicious transactions. • Group Chinese Wall and Insider Trading Policy

The AML/CFT measures continue to focus on ensuring the • Orderly and Fair Market Policy effectiveness of reporting by all business and supporting units to • Group Guidance on Cross-Border Business the Group Compliance Function. Our investment in a robust AML • Group Guidance on Implementation of FATCA system helps keep the Group abreast of rapid changes in the AML/ CFT domain and perceptive to future developments. In addition, • Group Guidance on Implementation of PDPA various learning initiatives are conducted to raise awareness • Group Guidance on Product Transparency and Disclosure among employees on the important role that they play in ensuring the Group does not become a conduit for money laundering and terrorism-financing. 197

2. Compliance Assurance • Further strengthening Shariah compliance processes to The Group’s state of compliance is provided for through Group ensure that the operations and sales of each product Compliance offsite surveillance programmes complemented offered is Shariah-compliant; with onsite reviews. To provide the required assurance, the • Continuous training in respect of the Anti-Money Boards and Senior Management are apprised of the Group’s Laundering Programme to ensure Group-wide awareness state of compliance through the submission of the Group on this subject matter; Compliance report on a periodical basis. The report • Review of banking and insurance pre-contract disclosures encompasses the Group’s compliance with statutory/regulatory and representations to comply with the provisions of the requirements, compliance measures and initiatives and FSA; and summaries of new or amended regulations issued by various regulators as well as outcomes of compliance reviews and • Ongoing alignment and refinement of policies, procedures surveillance. and practices.

In addition, 2015 also saw regulators requiring assurance and 4. Education and Awareness attestation by Group Compliance on various data and statistical Recognising that an understanding of guidelines and acts is a submissions. critical factor in enabling compliance, Group Compliance organises engagement sessions with relevant business or 3. Compliance Risk Mitigation functional units, advising them on the key requirements and All incidences of non-compliance must be reported in the implications of the guidelines or acts. These engagement Incident Reporting System. Compliance risk mitigation is a sessions provide business and functional units with a platform key process in the entire Incident Reporting Process to ensure to discuss and resolve implementation issues. Among the losses and incidences arising from non-compliances are notable engagement sessions conducted in 2015 were sessions managed proactively and minimised accordingly. This takes on the requirements of the Foreign Account Tax Compliance the form of ensuring that reported non-compliance incidences Act (“FATCA”) for legal entities; continuously emphasising the are duly reviewed on a daily basis to detect trends or “Treat Customers Fairly” or TCF principles in the various commonalities and where applicable, preventive or corrective operational processes of business and supporting units in actions are disseminated to employees via the issuance of tandem with the provisions under the FSA; and aligning AML Learn & Lead Bulletins. If the non-compliance incident is a practice across the Group. result of weaknesses in policies or procedures, Group Compliance will work with relevant business or supporting In order to prepare Group Compliance in facing challenges in units to improve or implement policies or processes to close regulatory non-compliance, its staff have enrolled to obtain noted gaps. various certifications from accredited bodies, including the Certification in Regulatory Compliance Programme rolled out Group Compliance plays an active role in integrating sound by the Asian Institute of Chartered Bankers. The investment in compliance risk management into the overall risk management continuously upgrading skills and knowledge will ensure strategy. Particular attention is paid to new business models Group Compliance staff are sufficiently able to provide or new processes that are introduced for the first time, to compliance assurance to the Board, Senior Management and either the Group or industry, to ensure that good internal stakeholders. controls and processes are inbuilt to avoid regulatory compliance failures. In this regard, the notable compliance The AML E-Learning training module was similarly reviewed initiatives undertaken in 2015 were as follows: and enhanced to ensure that it remained updated with the latest developments. • Continuously inculcating good sales practices and fair treatment of customers in products or service offerings; 198 RHB Capital Berhad Annual Report 2015 compliance statement (continued)

BUSINESS VALUE OF COMPLIANCE COMPLIANCE CHALLENGES

The compliance strategy as detailed above ultimately aims to Major enforcement actions continue to occur both globally and protect the RHB brand value by achieving compliance excellence. locally, either due to new breaches by financial institutions or spill As business models change, new technologies emerge and regulatory overs from previous years, resulting in record fines being imposed, requirements increase amid the intense focus on operational particularly in Malaysia. In addition, costs for the Group to comply efficiencies as well as regionalisation and the consolidation of the with the increasing regulatory requirements continuously escalate. banking industry. The Group has never been more exposed to such a myriad of risks, not to mention larger sets of rules and regulations. In 2016, we anticipate that developments in the business landscape such as digitalisation, mobility, reducing transaction cost, shadow Thus, being “compliance smart” becomes a critical determining banking, market disruptors and alternate financial channels will factor in our journey towards compliance excellence. In this regard, create challenges for the industry. These developments will the Boards and Senior Management within each respective entity challenge and change the way the Group conducts its business and have extended their full support and cooperation. They have done operations, and pose new and unfamiliar risk dimensions. As the this by establishing the tone from the top, which is quite simply, Group endeavours to familiarise itself with and manage these risks, to comply with all laws and regulations and employ ethical it must also navigate a proliferation of new or updated regulatory behaviour. All employees are aware that the Boards and Senior standards of governance, transparency and accountability. Management take an uncompromising stance if such trust is breached. In addition, Senior Management has taken a stance to Greater emphasis is now placed on integrity–driven behaviour, move compliance to the front-line by establishing compliance oversight responsibilities and professional business conduct that officers at each business and support unit. will protect financial consumers. Therefore, the compliance value proposition will become even more crucial as the Group tries to The effective penetration of a proper compliance culture into all optimise its revenue and profitability through these challenges. To business and supporting units has enhanced our public domain facilitate this, Group Compliance will prepare itself to move up the presence and facilitated early detection of compliance risk. This value chain by adopting best practice infrastructures and functions has resulted in quicker compliance risk mitigation actions, which in which will be in line with Bank Negara Malaysia’s standards on turn translate into a reduction of operational losses and a higher Compliance Management. level of operational efficiency. The Group recognises that the strengthening of a compliance culture is the foundation for good compliance practices. It is imperative that this becomes an intrinsic trait of the Group. This will not only preserve the Group’s integrity and reputation, but will also enhance our corporate image as a respectable organisation and ultimately, increase brand and shareholder value. 199 CORPORATE INTEGRITY

INTRODUCTION I URGE ALL OF YOU TO DISCHARGE YOUR DUTIES AS EXPECTED OF US AND REFRAIN FROM ANY TEMPTATION OF COMMITTING FRAUD, AS IT IS JUST NOT WORTH IT. WE WILL HAVE TO BE FIRM IN TAKING DISCIPLINARY ACTIONS AGAINST SUCH INCIDENTS, AND CERTAINLY WILL NOT TOLERATE FRAUD.”

– Entry by the Group Managing Director on his official internal blog dated 30 November 2015

RHB Banking Group (“Group”) firmly supports the anti-corruption efforts of the Government and the Malaysian Anti-Corruption Commission by strengthening its corporate governance and continuously inculcating good ethical business practices among its employees, clients, vendors and other business partners. This is part of the Group’s long-term roadmap to ensure its business conduct is free from acts of corruption and internal fraud, and at the same time, to act in the best interests of the Company, its shareholders and other stakeholders. The Group opposes acts of fraud and corruption as they destroy shareholder value, undermine investors’ confidence and are the antithesis of sustainable growth.

CORE VALUES

The Group is committed in its abhorrence to any business practice • Professional or activity that requires or encourages any of its employees, We are committed to maintain a high level of proficiency, representatives or agents to commit any financially competency and reliability in all that we do. fraudulent act or corrupt offence. This commitment is translated into its corporate values and • Respect embraced by the employees as common We are courteous, humble and we show empathy to everyone shared values. This process is through our actions and interactions. embedded top down whereby the Company’s core values • Integrity encourage its Directors, Senior We are honest, ethical and we uphold a high standard of Management and the rest of the employees governance. to have P.R.I.D.E. in upholding the spirit and the letter of legal and regulatory requirements, • Dynamic including preserving integrity and professional ethics. All We are proactive, responsive and forward thinking. employees are therefore guided by and committed to the following Group’s core shared values: • Excellence We will continuously achieve high standards of performance and service deliverables. 200 RHB Capital Berhad Annual Report 2015 corporate integrity (continued)

A set of P.R.I.D.E core values posters have been recently distributed and are placed on the ‘P.R.I.D.E Wall’ in every department. The posters, featuring talents who embody the P.R.I.D.E values, should serve as daily reminder for all of us to always ‘Think, Feel and Act’ with P.R.I.D.E.

INTERNAL CODE, POLICY & GUIDELINES GIFTS & HOSPITALITY

Recent initiatives include embarking on the revision of the Group The main objective of introducing guidance notes on gifts and hospitality is to Whistle Blower Policy, introduction of the Group Gifts & Hospitality discourage the Group and its employees from giving and accepting gifts to/ Guidelines and continuous enhancement of the Group’s Code of Ethics from external parties. Lavish gifts and hospitality are strictly not allowed and and Conduct for Employees (“Code”). The formulation of such strategic are among those categorised as prohibited items. Items which require prior internal documents is a reflection of the Board and Senior Management’s approval from designated Senior Management personnel are those which are enduring commitment to adopting adequate internal controls as part of not ordinary corporate gifts in nature, are not customary gifts given during its comprehensive anti-corruption and anti-fraud programme. These festive seasons, and gifts and hospitality (including business entertainment) internal documents serve to guide the employees and have been with values beyond permitted threshold limits. As part of its transparency and strategically devised as counter measures to combat and prohibit all accountability initiatives, any offer or acceptance of gifts and hospitality which forms of bribery and corruption in day-to-day operations. The Group’s requires prior approval, or if it involves lavish gifts, needs to be disclosed and Key Internal Control Policies and Procedures, which highlights some of records are centrally maintained for future reference. A copy of completed the key governance documents, is found on pages 253 to 255 of the forms with authorised signatures shall also be forwarded to the Governance, Annual Report. Group Legal & Secretariat for update in the main register. 201

Employees are expected to exercise good judgement when accepting gifts and hospitality from clients, including third parties. Some gifts and hospitality are permissible, subject to employees observing the Code and the Company’s internal policies and guidelines to avoid any conflict of interest.

Whenever there is a conflict of interest, ask yourself these four questions:

Q1: Q3: Did I solicit the gifts and If I accept, would I violate hospitality? any law or the Group’s policies, rules and Q2: regulations? Q4: Have I received gifts and Is the client trying to hospitality or offers from influence or reward me in this same source on a connection with a business regular basis? decision or transaction?

If your answer is a “YES” = do not accept the gifts and hospitality!

SPEAK UP

As the established standards of conduct are associated with good In RHB Banking Group, employees are encouraged to “Speak Up” ethical practice, the guidelines are designed to help employees and (technically known as “whistle blowing”) regarding any violations business partners understand their respective obligations in against internal and regulatory requirements. Whistle blowing is a upholding corporate integrity in the workplace. Inducement of gifts formal dedicated channel for an employee to escalate any can be in any form of gratification, e.g. loans, fees, rewards or wrongdoings committed by other employee(s) in the Group and other advantages (meals, donations, entertainment, courses, serves as a discreet platform to combat fraud and corruption. A vacations, etc.). In other words, where such an excessive offer or Group Whistle Blower Policy was introduced in 2007 and revised acceptance constitutes an intention to serve organisational interests in 2014, with the following objectives: or abuse entrusted power for personal gain, it becomes a criminal • To encourage and facilitate disclosures of improper conduct act of corruption which is punishable under the relevant laws. The practice of not accepting lavish gifts and hospitality signifies the • To protect persons making such disclosures from any detrimental importance of corporate integrity to the Company. This policy or retaliatory acts applies to all Group employees and is provided on the Company’s • To provide for the matter disclosed to be investigated and dealt intranet, My1Portal for their reference. with in accordance with the prescribed actions and to provide for the remedies connected therewith. 202 RHB Capital Berhad Annual Report 2015 corporate integrity (continued)

Whistle blowing or Speaking Up basically applies to the following In addition, the Group provides e-learning courseware to all its types of misconduct and violations: employees (accessible 24 hours) on “Gifts and Hospitality” as a • Any fraudulent, unlawful civil or criminal act timely commitment to ensure such an important message reaches everyone in the organisation. This use of advanced technology for • Any act of dishonesty, corruption, abuse of power or authority distant learning training programmes is made available to all for personal financial gain, or for any unauthorised or ulterior employees as an additional learning experience and also to cater purpose to those who cannot enrol in the normal classroom training on the • Any breach of the codes of ethics including the Group’s Code of subjects of ethics and integrity. Ethics and Conduct for Employees; violation of internal policies, procedures and guidance; or violation of laws, rules and Throughout the e-learning course, the employees are guided by five regulations governing the business and operations of the Group key principles, namely: • Any malpractice or misdeeds, or unethical and unlawful activity 1. Say NO to Corruption; with regards to privileged information, material non-public 2. UNDERSTAND internal Guidelines and the relevant Code, information, market manipulation, rogue trading, market Policy & Procedures; rigging, credit fraud, forgery, misappropriation of funds and/or assets, and any other unprofessional conduct that is a violation 3. CONSULT your supervisor or relevant personnel; of laws, rules, regulations and the codes of ethics 4. Proper RECORD KEEPING on any gifts and hospitality that are • Any creation of unethical, questionable or misleading financial lavish in nature or that require prior approval; and records, or dissemination of misleading and/or false financial 5. REPORT any unethical business conduct or violation of any records. internal and regulatory requirement via designated whistle blowing channels. In RHB Banking Group, the objectives of the Group Whistle Blower Policy, using appropriate approved formal channels to designated recipients, are as follows: AWARENESS & KNOWLEDGE SHARING SESSIONS • To encourage all employees to raise their concerns and report As part of the Group’s efforts in cascading down the importance of in good faith any corporate malpractice or wrongdoing, without upholding integrity and combating internal fraud and corruption, fear of retaliation or discrimination; various awareness sessions on the internal guidelines on gifts and • To enable the Management to be informed of any unlawful hospitality, including briefing sessions to new on-boarding conduct, unethical occurrences, corruption or questionable employees, are conducted. The objectives of these communication practices at an early stage; and sessions are to ensure that the right message is transmitted to all • To nurture a culture of accountability, integrity and transparency. employees across the organisation and for them to internalise the requirements on offering and accepting gifts and hospitality.

ETHICS & INTEGRITY RESOURCE PORTAL In 2015, Group Human Resources and Group Governance & Corporate Services from time to time also issue communications to The Group’s employees may refer to the vast resources available on employees through emails to reinforce the Company’s core values My1Portal. This Group intranet portal, which is accessible to and the importance of integrity in the workplace; to guide them on employees across various entities, holds local and international how to deal with banking secrecy and personal data, especially guidance notes and knowledge material regarding ethics and unlawful disclosure of customers’ confidential information; and to integrity. This material includes newspaper cuttings and comics remind them to adhere strictly to and comply with the requirements which capture snapshots and case studies of governance matters set down by the internal policies and guidelines. and corruption as well as videos, slides and written reports. 203

During the year, information on a criminal case involving a former EXTERNAL RECOGNITION employee, who was sentenced to five years’ jail and three strokes of the cane following his dishonest acts of misappropriating In its efforts to promote greater veracity, disclosure and customers’ money, was also shared with all employees through accountability, RHB Capital has been acknowledged for good email as a reminder to carry out their duties responsibly and with governance and transparency, following recognition from various the highest levels of integrity as custodians of public funds. respected external parties. The Company was accorded the “Top 10 Corporate Governance Disclosure Merit Recognition” Award at the Minority Shareholder Watchdog Group (“MSWG”)-ASEAN Corporate Governance Transparency Index, Findings and Recognition 2015 in POSITIVE OUTCOMES Kuala Lumpur, Malaysia and also the “Top 50 ASEAN Publicly Listed Companies 2015” achievement at the inaugural ASEAN As a result of the continuous emphasis on P.R.I.D.E. principles in Corporate Governance Awards held in Manila, the Philippines. Both the workplace to uphold corporate integrity, the Group received awards recognise good governance practices and quality disclosures positive feedback and appreciation from the public, especially for by Malaysian public listed companies, benchmarked against the the honesty and exemplary characteristics shown by the employees Organisation for Economic Co-operation & Development’s (“OECD”) to its customers and other stakeholders. One example of such principles of corporate governance. positive outcomes in the current year that enriched the organisation, customers, industry and community, is the following report:

Two of our Kawal guards, En Zulkifli Othman and Mr Narinderpal Singh made RHB proud with their honesty and dedication in upholding their duties as employees of RHB.

En Zulkifli safely returned a mobile phone belonging to a fellow colleague from the Islamic Treasury Division while Mr Narinderpal Singh chased after a customer who had already walked out of the bulding to return RM300 to her. She had earlier dropped the cash at the ATM. 204 RHB Capital Berhad Annual Report 2015 CODE OF ETHICS AND CONDUCT

INTRODUCTION RHB BANKING GROUP AS ONE OF THE CUSTODIANS OF PUBLIC FUNDS REITERATES THE IMPORTANCE OF INTEGRITY AND PROFESSIONAL CONDUCT AMONGST ITS EMPLOYEES, ESPECIALLY OPERATING WITHIN THE LANDSCAPE OF THE FINANCIAL SERVICES INDUSTRY. THE PRIMARY PRINCIPLES AND ETHICAL STANDARDS IDENTIFIED HAVE BEEN TRANSLATED INTO ITS GROUP CODE OF ETHICS & CONDUCT FOR EMPLOYEES (“CODE OF ETHICS”) WITH THE OBJECTIVE OF SERVING ITS STAKEHOLDERS WITH THE HIGHEST STANDARDS OF CONFIDENCE, RESPECT AND TRUST AS KEY CONSTITUENTS IN ITS BUSINESS OPERATIONS.

As the organisation grows and advances its operations across ASEAN and Greater China, it is central to continue promoting a positive and lasting impression in the minds of everyone with whom it interacts. Professionalism, integrity, confidentiality, conflicts of interest and fairness are ethical principles embedded in the backbone of its employees’ conduct and day-to-day business activities.

Professionalism Integrity Confidentiality Conflicts of Fairness Interest

CODE OF ETHICS AND CONDUCT DIAGRAM 205

The policies and guidelines enumerated herein are Code of Ethics & Business for Directors, Code of Conduct for Licensed Representatives, principled on promoting best ethical conduct vis- Code of Conduct for Dealer’s Representatives, Code of Ethics & Conduct for Share à-vis the following: Trading Officers, Code of Ethics & Guidelines for Business Conduct for Unit Trust Consultant(s) and Principles to Adopt for Users of Social Media Platforms; all crafted i. Avoid Conflicts of Interest, or potential to support the main Code in promoting top down compliance culture within the Group. Conflicts, between personal interests and the interests of the Group, its shareholders or The Company strongly believes that uncompromised integrity and high moral/social Clients; value will convey a strong corporate image to all its stakeholders in the pursuit to ii. Avoid misuse of position by Employees; strengthen its market presence. In this respect, RHB Banking Group does not condone any wrongdoings or fraudulent acts engaged by any of its employees. iii. Keep Material Non-Public and Price Sensitive Information confidential and secure; In other words, the Company promotes core shared values namely P.R.I.D.E iv. Avoid misuse of Material Non-Public and (Professional, Respect, Integrity, Dynamic and Excellence) amongst its employees as Price Sensitive Information relating to the way of life in performing their duties and responsibilities morally and respectfully. securities or other financial instruments; Each employee is highly expected to demonstrate these key beliefs in the workplace as esteemed RHB Banking Group’s employee. v. Ensure completeness and accuracy of the relevant records; Any reporting on violations of the various Codes should be escalated to appropriate vi. Properly caring for and protecting the Group’s channels, namely grievance channel or whistleblowing channel in accordance with the property and assets; and internal Group Code of Ethics and Group Whistle Blower Policy respectively. The former is a formal channel for employees to express disappointment over human resource- vii. Prompt reporting of any knowledge or related matters like unfair treatment and promotion and hence cascade the grievances information about unethical business conduct to their supervisors/designated human resource (HR) personnel. On the other hand, the and suspected commission of crimes. latter is a process to whistle blow and escalate through official channel over alleged unethical behaviour or fraudulent activities involving employee(s) to designated All employees of RHB Banking Group are required recipients within the organisation. to read, understand and embrace the requirements of the Code of Ethics. Ethics involve two aspects External party on the other hand can also report on any violations to the Code of ethics namely the ability to distinguish right from wrong or any misconducts/unethical behaviour by the Group’s employees to the following: and the commitment to do what is right. Dishonesty and defraud are examples of unethical conducts YBhg Datuk Haji Faisal Siraj that go against integrity and ethical principle. Senior Independent and Non-Executive Director

The Code of Ethics is a reference of the standards RHB Capital Berhad of professional conduct which spell out how an Level 9, Tower One employee should behave, based on moral duties RHB Centre and virtues arising from principles on right and Jalan Tun Razak wrong. As RHB Banking Group involves in multiple 50400 Kuala Lumpur banking and capital market disciplines, specific Malaysia Code of Conducts are also established to Email: [email protected] complement the main Code of Ethics — namely

TOGETHER WE PROGRESS NURTURING FUTURE GENERATIONS 208 RHB Capital Berhad Annual Report 2015 QUICK INFO

Mighty Minds Spelling Challenge 49,118 51,982 SIR (Malaysia) Total no. of participants from 2009-2015 Total no. of participants from 2008-2015 Students Education Enrichment Development Leadership Programme

5,654 NSC (Singapore) Total no. of participants from 2012-2015 1,350 Benefitted for secondary school students between 2012-2015

Reuniting Families – Child Safety Campaign Child Safety since 2007 Distributed: 360,000 Safety Tips Booklets 50,000 Child ID Kits

THIS YEAR’S SUSTAINABILITY REPORT (“SR”) SEEKS TO PROVIDE A MORE INSIGHTFUL VIEW INTO RHB’S CORPORATE RESPONSIBILITY INITIATIVES TO DELIVER BALANCED GROWTH IN A RESPONSIBLE AND SUSTAINABLE MANNER.

210 RHB Capital Berhad Annual Report 2015

SUSTAINABILITY REPORT OUR RESPONSIBILITY

As a leading multinational financial services group, the RHB Banking Group aims to deliver balanced growth to FOR THE our shareholders in a responsible manner by embedding responsible and sustainable practices throughout our activities.

Towards the end of 2015, the Group established the RHB FUTURE Foundation to oversee the continuation and expansion of our Sustainability activities. The Foundation will be steered by a Board of Trustees, comprising Tan Sri Dato’ Dr Yahya Awang, our Group Managing Director, Dato’ Khairussaleh Ramli and Norazzah Sulaiman, our Group Chief Marketing and Communications Officer.

The RHB Banking Group’s Sustainability initiatives are anchored on the four pillars of Community, Workplace, Marketplace and Environment which we believe are integral to a holistic, wholesome and sustainable way of doing business. 211

STRENGTHENING VALUE CREATION FOR OUR WORKFORCE OUR SHAREHOLDERS

KEY

R R

SAFEGUARDING A LEADING IN THE

P L I OUR ENVIRONMENT L COMMUNITIES WE SERVE 212 RHB Capital Berhad Annual Report 2015 SUSTAINABILITY REPORT (continued)

For full details of our Sustainability activities and initiatives, please refer to our Sustainability Report 2015. The following are some highlights of our Sustainability activities:

OUR COMMUNITY DEVELOPING SUSTAINABLE COMMUNITIES

A large part of our community activities are focused on empowering communities with the skills and knowledge to uplift their welfare, with a particular focus on the development and well-being of children, who represent the bedrock of our future.

Capacity Building In recognising that education is key to child development, the RHB Banking Group’s key objective is to equip children with skills, capabilities and the competencies needed to face the future with vigour and confidence. This is undertaken through programmes such as the Spell-It-Right Challenge, the Mighty Minds National Challenge, and the Students Educational Enrichment Development Leadership Programme.

These programmes challenge and encourage students to pursue knowledge beyond the schoolroom, while promoting character-building.

The Group introduced the Students Educational Enrichment Development Leadership Programme to nurture the nation’s future leaders. Under the programme aimed at teenagers, participants are engaged through mental and physical activities and are given the opportunity to meet RHB senior leaders and gain life journey insights. Since its establishment in 2012, the Programme has benefitted 1,350 secondary school students.

Initiatives for Capacity Building No. of participants till to date

Spell-It-Right Challenge (“SIR”) 51,982 students

National Spelling Championship (“NSC”) 5,654 students

Mighty Minds National Challenge 49,118 students

Students Educational Enrichment Development Leadership Programme 1,350 students

Little Kicks Big Difference Football Clinic 200 children 213

Keeping our Children Safe The safety of children remains crucial to our agenda of ensuring the well-being of our communities. We believe that prevention is vital in inculcating a secure environment for children. Hence, we have implemented a number of educational and awareness initiatives to ensure all stakeholders, especially children, remain well-informed on staying safe.

These include Child Safety initiatives undertaken with the Royal Malaysian Police, aimed at promoting crime awareness and empowering young children to protect themselves against potential dangers and to speak out on crimes committed against them. These initiatives are an expansion of our efforts to promote the safety of children through the distribution of Safety Booklets and Child I.D. Kits, introduced in 2007 and 2012, respectively.

Our other efforts to ensure the safety of children include our Child Safety Awareness Campaign conducted in partnership with Star Publication (Malaysia) Berhad, our Reach Out TV capsules on safety broadcast on ASTRO and our Missing Children Alerts initiated with the Ministry of Women, Family and Community Development.

Initiatives for Education in Safety

STAR readership

1.4 MILLION daily

Reaching Out with ASTRO 5.6 MILLION ASTRO channels viewers 214 RHB Capital Berhad Annual Report 2015 SUSTAINABILITY REPORT (continued)

Promoting Healthy Living Other efforts to engage with our stakeholders include the provision In our effort to promote a healthy lifestyle among our communities, of our Product Disclosure Sheets to detail our products’ benefits we have conducted the Little Kicks, Big Difference football clinic and any obligations that the customer might have to fulfil should introduced in Cambodia. Subsequently, in 2015 we introduced the they decide to subscribe to it. RHB Cambodia Junior Football Cup supported by the Football Federation of Cambodia and Nagaworld FC. Providing a Simple, Fast and Seamless Banking Experience Our Customer Service Charter ensures that we meet our customers’ Reaching Out to Communities in Need expectations and that they enjoy a simple, fast and seamless Following the floods that affected the East Coast of Malaysia in banking experience with us. We also pledge to protect our 2015, we participated in two missions to help with relief and clean- customers’ information from being misused through the Personal up work in Kota Bharu, Pasir Mas and Kuala Krai in Kelantan. We Data Protection Act 2010 (“PDPA”) which was enforced starting also raised RM127,620 under RHB Humanitarian Fund and gifted 2013. more than 12,000 students from over 70 schools with supplies needed for the new school year. Contributions in kind such as milk We have also introduced measures to simplify the banking process powder, baby diapers, bread, biscuits, canned food, bottled water, by reducing the turn-around time for account opening, while our blankets, towels and cooking oil were also collected and distributed Service Dialogue Programme encourages staff members to engage to those affected by the floods. with customers to obtain feedback on our services.

OUR MARKETPLACE OUR WORKPLACE

As one of the largest banking groups in Malaysia, RHB stands With a workforce of 16,117, talent development remains an integral committed to exercising responsible behaviour in our Marketplace. part of our operations, especially as we seek to become a leading Guided by our philosophy of integrity, transparency and regional financial services group and ensure a sustainable future. accountability, we endeavour to ensure that the sustainable growth In 2015, our efforts in managing our talent and putting in place an of our Marketplace is rooted in corporate governance and risk effective succession planning programme were recognised through management best practices throughout our organisation. the following awards:

In 2015, we continued to ensure adherence to our in-house policies • HR Asia’s Best Employers To Work for in Asia 2015 (Malaysian and procedures such as Group Code of Ethics, Group Whistle-blower Chapter) Policy, Group Anti-Money Laundering Policy, Group Chinese Wall • Asia Corporate Excellence & Sustainability Awards 2015 – Top and Insider Trading Policy and Declaration of Connected Party to Companies to Work for 2015 safeguard against unethical business practices that could impact • Graduan Malaysia’s Most Preferred Employers NAMED By Talents our business and operations. These proven internal control measures were designed to mitigate any abuse of power, position and • Best Employer Brand Award by Employer Branding Institute interest within the Group. • Malaysia’s 100 Leading Employer’s by GTI Media

Engaging with our Stakeholders Becoming an Employer of Choice By leveraging social media and digital platforms, we were able to In 2015, we launched “The RHB Culture” handbook, aimed at reach our customers in a faster and more efficient way. Through strengthening our employer brand and increasing talent retention this medium, we proactively sought to enhance fraud awareness and attraction. Distributed to all our employees, the handbook within our customer base as well as our organisation. Updates on covers the fundamentals of human resources, surrounding the new products and services, investment tips, fraud and cyber-crimes Talent Management Cycle, our PRIDE core values and our RHB were easily and quickly conveyed. Employee Value Proposition, known as the RHB CLIP-R Statement. 215

Nurturing Budding Talent We also introduced an employee perks application, PerkSense, During the year, we also implemented the Accelerated Development which offers employees access to multiple discounts and freebies Plan (“ADP”) for those employees identified as potential successors from top-notch merchants as part of our employees total rewards and high-potential talents. We also introduced new leadership system. development programmes in collaboration with the Australian Institute of Management Western Australia. Following our inaugural Centennial Run held in Kuala Lumpur and Penang in 2013, we introduced the RHB Half-Marathon in 2015. The As part of our efforts to recognise budding talent and those who go family-oriented run featured a 3km Family Fun Run and a Best beyond what is asked of them in the workplace, we also held the Costume category to create meaningful family bonding sessions for inaugural RHB GMD Awards in 2015. The award will be held on a those with young children. To date, some 8,500 people have quarterly basis, with the first held in the fourth quarter of 2015. participated in this event.

To further fortify our efforts of developing future leaders for the Group, we executed a new leadership development programme for OUR ENVIRONMENT a select group of employees in collaboration with the Australian Our environment remains among the Group’s foremost priorities Institute of Management West Australia (“AIMWA”) called the Core and we remain committed to its protection and preservation. Leadership Development Programme. Meanwhile, the RHB Accelerated Leadership Development Programme, in partnership TrEx at Broga Hill with the Creative Centre of Leadership (“CCL”), is an intensive learning programme spread over six months. This programme is Following our adoption of Broga Hill in 2014, through which we packed with pre-course work, workshops and action learning sponsored restorative works, we launched TrEx at Broga Hill in projects and was crafted for high potential talents. March 2015. This has contributed to an increase in visitors to the trail and improvements to the hiking site. Furthermore, in 2015 91% of our employees attended some form of development training concentrating on leadership, technical Subsequently, in October 2015 we organised the inaugural RHB expertise or functional development, to which we allocated a TrEx Broga Challenge on 31 October 2015 in conjunction with budget of more than RM40 million. We also revised our Core & Minggu Alam Sekitar Malaysia 2015, in collaboration with the Leadership Competency Dictionary and drafted a comprehensive Department of Environment, Ministry of Natural Resources and assessment system for Sales by appraising proficiency levels and Environment. cluster competencies. Supporting Earth Hour A Culture of Excellence As a loyal participant of the annual worldwide Earth Hour campaign, In an effort to improve our customer service and enhance the lights at our buildings such as our RHB Centre at Jalan Tun Razak, Group’s productivity, during the year we launched Group Kuala Lumpur are switched off on the appointed day and time. Our Management Committee Roadshows to all regions in Malaysia to staff are also encouraged to take part in the symbolic lights-out increase interaction and boost engagement with employees on the initiative in their own homes. ground. Promoting Sustainable Financing Healthy Body, Healthy Mind RHB is proud to institute a sustainable financing agenda in support In November 2015, we established the Healthiest Sector Recognition of environmentally-friendly activities. In line with this, we also award in November 2015 following the launch of our ‘Jom Sihat’ offer our support to companies which undertake green projects as campaign in April. These initiatives to promote a healthier and we seek to encourage sustainable practices. more balanced lifestyle amongst our employees led to other activities such as the RHB Staircase Day, Fun Ride with GMD and the OSH & Wellness Day. 216 RHB Capital Berhad Annual Report 2015 AWARDS AND RECOGNITION

2015 Frost & Sullivan Malaysia 9th ANNUAL Excellence Awards 2015 ALPHA SOUTHEAST ASIA – Best in Online Experience DEAL & – Best in Branch Experience SOLUTION – Best in Contact Center Experience AWARDS

• Best M&A House in ASEAN • Best Ringgit Sukuk House in Malaysia • Best Islamic Financing Deal of the Year in Southeast Asia • Best IPO for Retail Investors in Southeast Asia • Best Islamic REIT Deal of the Year in Southeast Asia 217

The Golden Globe Tigers Summit Awards – Malaysia Best Employer Brand Award Asia Corporate Excellence & Sustainability Awards 2015

HR Asia’s Best Companies to Work for in Asia 2015 – Malaysian Chapter

Islamic Business & Finance Awards 2015 – Best Investment Bank Asia 218 RHB Capital Berhad Annual Report 2015 AWARDS AND Recognition (continued)

RHB BANKING GROUP THE ASSET TRIPLE A ISLAMIC FINANCE AWARDS • Islamic Deal of the Year • The Golden Globe Tigers Summit Awards – Malaysia Best • Best Sukuk Employer Brand Award • ASEAN Corporate Governance Award – Top 50 ASEAN Publicly • Most Innovative Deal of the Year Listed Companies Aquasar Capital Sdn Bhd’s RM1.5 billion Sukuk Murabahah • Asia Corporate Excellence & Sustainability Awards 2015 – Top Companies to Work for in Asia THE ASSET TRIPLE A INFRASTRUCTURE AWARDS • MSWG-ASEAN Corporate Governance Transparency Index 2015 • Oil and Gas Deal of the Year – Merit Award for Corporate Governance Disclosure • Project Finance Deal of the Year • HR Asia’s Best Companies to Work for in Asia 2015 – Malaysian Chapter • Best Oil and Gas Deal, Malaysia • Graduan’s Malaysia’s Most Preferred Employers named by SapuraKencana TMC Sdn Bhd’s Senior Multi-Currency Term and Talents Revolving Facilities of up to RM17.6 billion • Universum’s Malaysia's Most Attractive Employers – Business/ Commerce students 2015 • Best Transport Deal, Malaysia • Malaysia’s 100 Leading Graduate Employer DanaInfra Nasional Berhad’s Islamic Syndicated and Revolving Credit Facilities of up to RM21.0 billion

RHB BANK BERHAD 9th ANNUAL ALPHA SOUTHEAST ASIA DEAL & SOLUTION AWARDS • Frost & Sullivan Malaysia Excellence Awards 2015 – Best in Online Experience • Best M&A House in ASEAN – Best in Branch Experience RHB Investment Bank – Best in Contact Center Experience • Best Ringgit Sukuk House in Malaysia • CEPI Award 2015 RHB Investment Bank – RHB Lifestyle Privileges App: Best Card Loyalty Programme • Best Islamic Finance Deal of the Year in Southeast Asia • ABF Wholesale Banking Awards 2015 MMC Corporation Berhad’s Inaugural RM1.2 billion Sukuk – Malaysia Domestic Foreign Exchange Bank of the Year Murabahah

• Best IPO for Retail Investors in Southeast Asia RHB INVESTMENT BANK BERHAD Sunway Construction Group Berhad’s RM1.55 billion IPO THE ASSET TRIPLE A SOUTH EAST ASIA AWARDS • Best Islamic REIT Deal of the Year in Southeast Asia • Best M&A House Award Al-Salam Real Estate Investment Trust’s RM252.4 million IPO RHB Investment Bank 9th ANNUAL ALPHA SOUTHEAST ASIA BEST FINANCIAL • Best M&A Deal Award INSTITUTIONS AWARDS Kulim (Malaysia) Berhad’s disposal of 49% equity interest in • Best (Small-) to Mid-Cap Corporate Finance House in Malaysia New Britain Palm Oil Ltd. RHB Investment Bank

• Best (Small-) to Mid-Cap Corporate Finance House in Singapore RHB Securities Singapore 219

CPI FINANCIAL – 10TH ISLAMIC BUSINESS & FINANCE AWARDS BURSA MALAYSIA ANNUAL BROKERS AWARDS • Best Investment Bank • Best Retail Equities Participating Organisation RHB Investment Bank – Champion

ISLAMIC FINANCE NEWS AWARDS DEALS OF THE YEAR • Best Trading Participant Financial Derivatives • Best Equity & IPO – Champion – Malakoff Corporation Berhad’s RM2.74 billion IPO • Best Online Equities Participating Organisation RAM AWARDS OF DISTINCTION – 1st Runner Up • Lead Manager Award (by number of issues) • Best Equities Participating Organisation – 3rd place – 2nd Runner Up • Lead Manager Award Islamic (by number of issues) • Best Derivatives Trading Participant – 2nd place – 2nd Runner Up RAM AWARDS OF DISTINCTION – MARKET PIONEER AWARDS ASIAMONEY BROKERS POLL • 1st Innovative State Government Financing • Malaysia – firm level – top 3 rankings – Aquasar Capital Sdn Bhd’s RM1.5 billion Sukuk Murabahah – #3 Best Local Brokerage – #3 Best Events • World’s 1st RMB-bond by a Mortgage Corporation – #3 Best Execution – Cagamas Global PLC’s USD2.5 billion Conventional Multi – #3 Best Roadshows Currency Medium Term Note Programme – #2 Best Small Cap Team – #2 Best Strategist Team MARC LEAD MANAGERS AWARDS – #2 Best Economist Team • Issue Value (Conventional & Islamic) – #2 Best Analyst (Real Estate) Team – 2nd Runner Up – #2 Best Analyst (Software, Internet & Services) Team – #2 Best Analyst (Technology Hardware & Equipment) Team THE EDGE MALAYSIA’S BEST DEALS OF THE YEAR – #3 Best Analyst (Diversified Financials) Team – #3 Best Analyst (Materials) Team • Best Mergers & Acquisitions Deal – #3 Best Analyst (Semiconductors & Semiconductor Equipment) Kulim (Malaysia) Berhad’s disposal of its 49% stake in New Team Britain Palm Oil Ltd – #3 Best Analyst (Transportation) Team

• Best Initial Public Offering Deal Sunway Construction Group Berhad’s RM1.55 billion IPO

• Best Corporate Restructuring Deal Malaysian Resources Corp Berhad’s disposal of Platinum Sentral to MRCB-Quill Real Estate Investment Trust for RM740 million 220 RHB Capital Berhad Annual Report 2015 AWARDS AND Recognition (continued)

• Malaysia – individuals – top 3 rankings • Singapore – individuals – top 3 rankings – Best Analyst Materials – Ang Sem Guan (ranked #1) – Best Analyst Consumer Discretionary – James Koh (ranked #1) – Best Analyst Real Estate – Loong Kok Wen (ranked #2) & Juliana Chai (ranked #3) – Best Analyst Software, Internet & Services – Kong Heng – Best Analyst Consumer Staples – James Koh (ranked #1) Siong (ranked #2) – Best Analyst Semiconductors & Semiconductor Equipment – Best Analyst Technology, Hardware & Equipment – Kong – Jarick Seet (ranked #1) Heng Siong (ranked #2) – Best Analyst Software, Internet & Services – Jarick Seet – Best Economist – Lim Chee Sing (ranked #2) (ranked #1) – Best Analyst Diversified Financials – David Chong (ranked #3) – Best Analyst Technology Hardware & Equipment – Jarick Seet – Best Analyst Semiconductors & Semiconductor Equipment (ranked #1) – Kong Heng Siong (ranked #3) – Best Analyst Small Cap Analyst – Jarick Seet (ranked #1) – Best Analyst Energy – Lee Yue Jer (ranked #3) • Singapore – firm level – top 3 rankings – Best Analyst Health & Care – Shekhar Jaiswal (ranked #3) – #1 Most Improved Brokerage – Best Analyst Materials – Shekhar Jaiswal (ranked #3) – #2 Most Independent Brokerage – Best Analyst Real Estate – Ong Kian Lin (ranked #3) – #3 Best Local Brokerage – #3 Best Roadshows • Indonesia – firm level – top 3 rankings – #3 Best Overall Research – #2 Best Local Brokerage – #3 Best Overall Sales – #2 Best Small Cap Team – #1 Best Small Cap Team – #2 Best Analyst (Technology Hardware & Equipment) Team – #1 Best Analyst (Consumer Staples) Team – #1 Best Analyst (Energy) Team • Indonesia – individuals – top 3 rankings – #1 Best Analyst (Semiconductors & Semiconductor – Best Analyst Technology Hardware & Equipment – Equipment) Team Lim Tee Yang (ranked #2) & Herman Tjahjadi (ranked #3) – #1 Best Analyst (Software, Internet & Services) Team – #1 Best Analyst (Technology Hardware & Equipment) Team • Thailand – firm level – top 3 rankings – #2 Best Analyst (Consumer Discretionary) Team – #3 Best Local Brokerage – #3 Best Analyst (Industrials) Team – #3 Best Analyst (Materials) Team • Hong Kong – firm level – top 3 rankings – #3 Best Analyst (Real Estate) Team – #3 Best Local Brokerage – #2 Best Small Cap Team

• Hong Kong – individuals – top 3 rankings – Best Small Cap Analyst – Ng Kong Yong (ranked #2) – Best Analyst Technology Hardware & Equipment – Ng Kong Yong (ranked #3) 221

RHB GROUP ASSET MANAGEMENT RHB ISLAMIC BANK

• THE EDGE-LIPPER FUND AWARDS 2015 • 12TH KUALA LUMPUR ISLAMIC FINANCE FORUM AWARD – Best Mixed Asset MYR Balanced – Malaysia, 3 years 2015 – Best Mixed Asset MYR Balanced – Malaysia, 5 years – Most Outstanding Islamic Corporate Banking – Best Mixed Asset MYR Balanced – Malaysia, 10 years – Most Outstanding Islamic Corporate Banking Product – Best Equity Malaysia Diversified, 3 years – Financial Supply Chain – Best Equity Malaysia Diversified, 5 years – Best Bond Malaysian Ringgit – Malaysia Islamic, 3 years – Best Bond Malaysian Ringgit – Malaysia Islamic, 5 years – Best Bond Malaysian Ringgit – Malaysia Islamic, 10 years – Best Mixed Asset MYR Conservative, 3 years – Best Mixed Asset MYR Conservative, 10 years – Best Mixed Asset MYR Flexible, 3 years – Best Equity Malaysia Diversified, 10 years

• INVESTOR – INFOVESTA’S BEST MUTUAL FUND AWARDS 2015 – Best Equity Fund for RHB OSK Alpha Sector Rotation – Best Money Market Fund for RHB OSK Rupiah Liquid Fund

• EPF PORTFOLIO MANAGERS ANNUAL AWARD 2015 – Best Domestic Fixed Income Portfolio Manager Year 2014 – Best 3-Year ROI Domestic Fixed Income Portfolio Manager Year 2014

• ASIA ASSET MANAGEMENT BEST OF THE BEST COUNTRY Award – Most Innovative Product

• FUNDSUPERMART – THE RECOMMENDED UNIT TRUST AWARDS 2015 – Best Asia ex-Japan fund – Best Sub Regional Equity – US fund – Best Asia Bond fund – Best Emerging Markets Bond fund

• APRDI – BLOOMBERG INDONESIA FUND AWARDS 2015 – Best Index Fund

• THE ASSET – ASIAN LOCAL CURRENCY BONDS – Top 5 Investment houses, Malaysia 2015 – Most Astute Investors, Malaysia 2015 222 RHB Capital Berhad Annual Report 2015 CORPORATE MILESTONES

KWONG YIK BANK BERHAD 1964 First sub-branch opened in Jalan Pasar. 1913 The Kwong Yik (Selangor) Banking Corporation, Limited incorporated and commenced business on 15 July 1913 at the Old 1965 The landmark 10-storey Headquarters at Jalan Bandar (now Jalan Market Square. Tun H.S. Lee) was opened by the Prime Minister then, Tunku Abdul Rahman on September 10. Opened branches in Jalan Ipoh 1915 and Jalan Bukit Bintang. Moved from Market Square to the corner of Jalan Bandar and Jalan Silang where it remained until 1938. 1920’s & 30’s Extended credit to local traders, mainly Chinese businessmen, miners and planters, in a financial environment largely dominated by foreign banks. Despite the economic depression of the 1930’s, Kwong Yik Bank played a significant role in the growing prosperity of Malaya and the demand for rubber and tin. 1967 First branch opened in Petaling Jaya. Both Kuala Lumpur and Petaling Jaya were rapidly expanding at this point and many of 1938 the landmark buildings were financed by Kwong Yik Bank. Moved to the Kwong Yik Bank Chambers. This remained its base until the 1960s. 1968 Malayan Banking buys 30% of Kwong Yik Bank’s issued capital. 1940’s Operations suspended with the Japanese Occupation and World 1970 War 2. The bank resumed business when the war ended. In 1941, Malayan Banking’s shareholding in the bank increased to 51.15%. deposits totalled RM5 million. Kwong Yik Bank’s deposits at this juncture totaled more than RM130 million. 1950’s Played an integral part in the rehabilitation of the country’s 1970 economy leading up to Independence. Links with overseas banks New linear logo unveiled. were established. 1970 1961 Began computerising its current and savings accounts. Moved to its temporary premises in Jalan Bandar while awaiting the completion of its new headquarters. By this time, customer deposits totaled RM34 million. 1963 Kwong Yik Bank celebrated its Golden Jubilee. 223 CORPORATE MILESTONES

April 1981 1999 Opened a branch in Ipoh, the first outside Federal Territory and Sime Bank merged with RHB Bank to become part of the RHB Selangor. Banking Group. Sime Bank was set up after UMBC (United Malayan Banking Corporation, established 1960) became part of 1985 the Sime Darby Group in 1996. Introduced ATM service called ‘Boss’ simultaneously at 12 of its branches in Kuala Lumpur, Petaling Jaya and Klang. 1987 2003 Joined forces with Malayan Banking to launch the country’s first Merger of RHB Bank with Bank Utama Berhad, which was first shared ATM service called the ABC network. established in 1976. 1989 Launched the Boss Corporate Card and its Sunday Banking service. 2007 The Employees Provident Fund (EPF) emerged as the single largest shareholder of RHB Capital. 30% equity in RHB Bank was 1990 purchased from Khazanah Nasional Berhad, making RHB Bank a Mastercard facility launched. 100% subsidiary of RHB Capital. 1993 2009 Kwong Yik Bank celebrated its 80th anniversary. It had 50 Inception of Easy by RHB, the first innovative community bank branches throughout the country at this juncture and 1,680 staff. in Asia that offers fast and simple banking experience through To mark the occasion, the bank produced its first TV commercial. cutting-edge technology. 1993 2012 Rashid Hussain Bhd purchased Malayan Banking’s share in RHB Capital acquired OSK Investment Bank, paving the way for Kwong Yik Bank. The bank then merged with DCB Bank (formerly the RHB Banking Group’s strong presence in ASEAN and Hong D&C Bank, established 1966), which has been under the RHB Kong. stable since 1993. This biggest bank merger in the country’s

history formed RHB Bank Berhad, then Malaysia’s third largest (A Member of RHB Banking Group) financial services group. 2013 1997 RHB Banking Group celebrates RHB Bank’s 100th Anniversary. Launch of RHB Online service for financial services via computer and telephone. 224 RHB Capital Berhad Annual Report 2015 SIGNIFICANT EVENTS 2015

MARCH

6 March 2015 25 March 2015 25 March 2015 RHB ISLAMIC BANK RHB ISLAMIC BANK RHB BANKING GROUP Signing Ceremony with Malaysian Signing Ceremony with Jabatan Kastam The Golden Globe Tigers Summit Award Technology Development Corporation Sdn DiRaja Malaysia for the appointment of RHB Ceremony Bhd (MTOC) on exclusive SME Financing Islamic as GST Agent Bank Kuala Lumpur Collaboration Agreement with MTDC Putrajaya, Wilayah Persekutuan Kuala Lumpur

MARCH APRIL

27 March 2015 31 March 2015 6 April 2015 RHB INVESTMENT BANK RHB INVESTMENT BANK RHB INVESTMENT BANK 12th RAM League Awards Investors Presentation: RM10 billion Top Malaysia Small Cap Companies Book Kuala Lumpur Multi-Currency Medium Term Note Launch 30 Jewels, 2015 Edition Programme Kuala Lumpur Kuala Lumpur 225

APRIL

8 April 2015 14 April 2015 20-22 April 2015 RHB ASSET MANAGEMENT RHB BANK RHB INVESTMENT BANK EPF Portfolio Managers Annual Awards Frost & Sullivan Malaysia Excellence Awards RHB Signature Conference (Corporate Day) Dinner 2015 2015 Thailand Kuala Lumpur Kuala Lumpur

APRIL

21 April 2015 19-26 April 2015 30 April 2015 RHB ASSET MANAGEMENT RHB BANK RHB CAPITAL Launch of Malaysia’s First Series of Single Minggu Saham Amanah Malaysia 2015 20th Annual General Meeting ETF-Based Funds Sibu, Sarawak Kuala Lumpur Kuala Lumpur 226 RHB Capital Berhad Annual Report 2015 significant events 2015 (continued)

MAY

20 May 2015 28 May 2015 28 May 2015 RHB BANK RHB ASSET MANAGEMENT RHB INVESMENT BANK Launch of RHB SME e-Retail Solution RHB Islamic Global Developed Markets Fund Private Banking Jewel Forum 2015 Kuala Lumpur – Launch & Press Conference Kuala Lumpur Kuala Lumpur

JUNE

8 June 2015 10 June 2015 13-14 June 2015 RHB BANKING GROUP RHB BANK RHB BANK The Asset Triple A Islamic Finance Awards RHB Islamic Global Developed Market Fund RHB Now Roadshow on RHB Lifestyle 2015 Talk Privileges App Kuala Lumpur Kuala Lumpur Venue: Putrajaya 227

JUNE AUGUST

15 June 2015 16 June 2015 27 August 2015 RHB ISLAMIC BANK RHB ASSET MANAGEMENT RHB CAPITAL Signing Ceremony of Collaboration Fundsupermart.com Recommended Unit Extraordinary General Meeting Agreement between TERAJU & RHB Islamic Trust Award & Press Conference 2015 Kuala Lumpur Bank on Teras Fund Petaling Jaya Kuala Lumpur

AUGUST SEPTEMBER

28 August 2015 3 September 2015 8 September 2015 RHB CAPITAL RHB ISLAMIC BANK RHB INVESTMENT BANK Press Conference & Analysts Briefing Zakat Presentation to Majlis Agama Islam Asian Sharia Investment Conference Half Year 2015 Financial Results Johor Kuala Lumpur RHB Centre, Kuala Lumpur 228 RHB Capital Berhad Annual Report 2015 significant events 2015 (continued)

SEPTEMBER

10 September 2015 15 September 2015 29 September 2015 RHB BANKING GROUP RHB ISLAMIC BANK RHB BANKING GROUP Cards & Electronics Payments International Zakat Presentation to Tabung Baitulmal RHB Startupbootcamp – A strategic (CEPI) Asia Awards 2015 Sarawak collaboration to nurture Fintech startups Singapore RHB Centre, Kuala Lumpur

OCTOBER

21 October 2015 27 October 2015 28 October 2015 RHB ISLAMIC BANK RHB ISLAMIC BANK RHB INVESTMENT BANK Zakat Presentation to Majlis Agama Islam Zakat Presentation to Jawatankuasa Zakat Launch of Prospectus, Kim Teck Cheong dan Adat Istiadat Melayu, Kelantan Negeri Kedah Consolidated Berhad Kuala Lumpur 229

NOVEMBER

3 November 2015 4 November 2015 6 November 2015 RHB BANK RHB BANK RHB BANK ePayment System Forum & Exhibition 2015 Zakat Presentation to Majlis Agama Islam & Chartered Banker Conferment Ceremony Sasana Kijang, Bank Negara Malaysia Adat Melayu Terengganu Bank Negara Malaysia Kuala Lumpur Kuala Lumpur

NOVEMBER

26 November 2015 27 November 2015 RHB BANKING GROUP RHB BANKING GROUP Official launch of an Innovative Zakat presentation to Jawatankuasa Zakat collaboration with TABLEAPP Negeri Melaka Kuala Lumpur 230 RHB Capital Berhad Annual Report 2015 significant events 2015 (continued)

DECEMBER

2 December 2015 7 December 2015 10 December 2015 RHB BANKING GROUP RHB BANK RHB BANK Startupbootcamp – KL FAST TRACK DAY Signing Ceremony of Syndicated Banking MSWG-ASEAN Corporate Governance RHB Centre, Kuala Lumpur Facilities for Seri Tanjung Pinang Phase 2 Transparency Index 2015 Awards Ceremony Kuala Lumpur Kuala Lumpur

RHB ISLAMIC BANK Zakat Presentation to Majlis Agama Islam Pahang 231 CALENDAR OF EVENTS 2015

5 FEBRUARY 2015 6 & 7 FEBRUARY 2015

RHB BANK RHB BANK Prize Giving Ceremony for “Swipe Your RHB Debit Visa Card to Bancassurance Awards Night 2015 Win!” Contest Kuala Lumpur Kuala Lumpur

2 MARCH 2015 3 MARCH 2015

RHB BANKING GROUP RHB BANKING GROUP Chinese New Year Open House 2015 Chinese New Year 2015 Staff-Get-Together Kuala Lumpur RHB Centre, Kuala Lumpur 232 RHB Capital Berhad Annual Report 2015 Calendar of events 2015 (continued)

5 MARCH 2015 7 & 8 MARCH 2015

RHB BANK RHB EASY Group Treasury & Global Markets Seminar (with Malaysia 5th Annual Sales Convention 2015 Association of Certified Treasurer) Putrajaya Kuala Lumpur

10 MARCH – 16 APRIL 2015 27-29 MARCH 2015

RHB BANK RHB BANK Group Treasury & Global Markets FX & Economic Outlook 2015 Group Retail Distribution Sales & Service Achievers Convention Briefing 2015 Selangor Selangor 233

30 MARCH 2015 4 APRIL 2015

RHB BANKING GROUP RHB BANKING GROUP’S CR INITIATIVE IGNITE 2017 1st Anniversary Celebrations Official launch of RHB-Broga Hill Trail Experience (TrEx) RHB Centre, Kuala Lumpur Broga, Selangor

14 APRIL 2015 16 APRIL 2015

RHB ASSET MANAGEMENT RHB INVESTMENT BANK Presentation on 2015 Market Outlook Opportunities & Challenges Sarawak Energy Berhad Investor Briefing Kuala Lumpur Kuala Lumpur 234 RHB Capital Berhad Annual Report 2015 Calendar of events 2015 (continued)

16 APRIL 2015 17 APRIL 2015

RHB ASSET MANAGEMENT RHB BANKING GROUP Presentation on RHB-OSK European select fund Launch of RHB Staircase Day Kuala Lumpur RHB Centre, Kuala Lumpur

27 APRIL 2015 5 MAY 2015

RHB BANK RHB EASY Prize Giving Ceremony “Spend & Win A Honda Jazz” Contest Offcial Launch of Easy-MBO Watch and Win Contest and All-Star Kuala Lumpur RHB Easy Priority Lane Selangor 235

18 MAY 2015 25-27 MAY 2015

RHB BANKING GROUP RHB BANKING GROUP Employee Value Proposition Launch RHB INSEAD Senior Leadership Programme RHB Centre, Kuala Lumpur Putrajaya

30 MAY 2015 1-3 JUNE 2015

RHB BANKING GROUP’S CR INITIATIVES RHB BANKING GROUP’S CR INITIATIVE Hiking at a new trail RHB Leadership Programme Gunung Angsi, Negeri Sembilan Pahang 236 RHB Capital Berhad Annual Report 2015 Calendar of events 2015 (continued)

2 JULY 2015 29 JULY 2015

RHB BANKING GROUP RHB BANKING GROUP Majlis Iftar with the underprivileged Hari Raya Open House 2015 RHB Centre, Kuala Lumpur Kuala Lumpur

31 JULY 2015 13-14 AUGUST 2015

RHB BANK RHB BANK Price Giving Ceremony “RHB Reflex Transact & Win” Contest RHB Premier Banking Introduction of RHB Islamic Global Kuala Lumpur Developed Markets Fund Petaling Jaya 237

14 AUGUST 2015 20 AUGUST 2015

RHB BANKING GROUP RHB BANKING GROUP Breakfast with GMD (in collaboration with Talentcorp) Bursa Bull Charge 2015 RHB Centre, Kuala Lumpur Kuala Lumpur

1 SEPTEMBER 2015 10 SEPTEMBER 2015

RHB BANKING GROUP RHB BANK RHB Group Senior Leadership Forum RHB Visa Infinite Golf Tournament RHB Centre, Kuala Lumpur Selangor 238 RHB Capital Berhad Annual Report 2015 Calendar of events 2015 (continued)

22 SEPTEMBER 2015 23 SEPTEMBER 2015

RHB ASSET MANAGEMENT RHB BANKING GROUP Investment Talk on an Alternative Investment Solution During Bringing Aidil Adha cheer to the patients at the Pediatric Ward, Volatile Market Conditions Hospital Selayang Kuala Lumpur Selangor

3 OCTOBER 2015 10 OCTOBER 2015

RHB BANKING GROUP’S CR INITIATIVE RHB BANKING GROUP’S CR INITIATIVE RHB-The Star Mighty Minds National Grand Finals RHB-New Straits Times Spell-It-Right National Grand Finals Kuala Lumpur Kuala Lumpur 239

12 OCTOBER 2015 13 OCTOBER 2015

RHB EASY RHB ASSET MANAGEMENT Prize Giving Ceremony “EASY-MBO Watch & Win” Contest Presentation on RHB Pre-IPO & Special Situation Fund Kuala Lumpur Petaling Jaya

29 OCTOBER 2015 31 OCTOBER 2015

RHB BANK RHB BANKING GROUP’S CR INITIATIVE RHB Premium Cards Golf Series 2015 – Grand Finale RHB TrEX Broga Challenge in conjunction with “Minggu Alam Selangor Sekitar” Malaysia 2015 Selangor 240 RHB Capital Berhad Annual Report 2015 Calendar of events 2015 (continued)

5 NOVEMBER 2015 6 NOVEMBER 2015

RHB INVESTMENT BANK RHB BANCASSURANCE Perfect 10: An Evening with Chef Anand Gaggan Banca Cup Celebration Nite Movie Screening: James Bond Kuala Lumpur Spectre 007 Kuala Lumpur

16 NOVEMBER 2015 22 NOVEMBER 2015

RHB BANKING GROUP RHB BANKING GROUP’S CR INITIATIVE RHB Occupational Safety & Health & Wellness Day 2015 RHB Spelling Masters 2015 RHB Centre, Kuala Lumpur Kuala Lumpur 241

27 NOVEMBER 2015 1 DECEMBER 2015 1-3 DECEMBER 2015

RHB BANK RHB BANKING GROUP RHB ISLAMIC BANK RHB Premiere Banking – Omega Spectre Leadership Talk by Tan Sri Tony Fernandes 12th Kuala Lumpur Islamic Finance Cocktail Dinner RHB Centre, Kuala Lumpur Forum 2015 awards Kuala Lumpur Kuala Lumpur

3-5 DECEMBER 2015 26 SEPTEMBER 2015 LAOS

RHB EASY RHB LAOS JUNIOR FOOTBALL CUP 2015 3rd Malaysia 2-Wheels Festival 2015 Launch Vientiane Kuala Lumpur 242 RHB Capital Berhad Annual Report 2015 MEDIA HIGHLIGHTS 2015

244 RHB Capital Berhad Annual Report 2015 ANALYSIS OF SHAREHOLDINGS as at 25 February 2016

Authorised Share Capital : RM5,000,000,000.00 divided into 5,000,000,000 ordinary shares of RM1.00 each Issued and Paid-Up Share Capital : RM3,074,674,722.00 comprising 3,074,674,722 ordinary shares of RM1.00 each Class of Shares : Ordinary shares of RM1.00 each Voting Rights : Each shareholder present in person or by proxy at any Shareholders’ Meeting shall be entitled to a show of hands of one vote and on a poll, each shareholder who is present in person or by proxy shall have one vote for each ordinary share held.

Number of Shareholders : 16,771

No. of % of No. of % of Category shareholders shareholders shares held shareholdings

Less than 100 1,098 6.55 28,486 0.00

100 – 1,000 3,659 21.82 2,607,958 0.08

1,001 – 10,000 9,518 56.75 32,185,854 1.05

10,001 – 100,000 2,057 12.26 56,460,572 1.84

100,001 – less than 5% of the issued shares 436 2.60 952,922,684 30.99

5% and above of the issued shares 3 0.02 2,030,469,168 66.04

Total 16,771 100.00 3,074,674,722 100.00

SUBSTANTIAL SHAREHOLDERS AS AT 25 FEBRUARY 2016

No. of Shares No. Name of Substantial Shareholders Direct % Indirect %

1. Employees Provident Fund Board (“EPF”)1 1,291,778,268 42.01 – – 2. Aabar Investments PJS 545,787,168 17.75 – – 3. International Petroleum Investment Company PJSC2 – – 545,787,168 17.75 4. OSK Holdings Berhad 311,429,200 10.13 – – 5. Tan Sri Ong Leong Huat @ Wong Joo Hwa3 – – 311,429,200 10.13 6. OSK Equity Holdings Sdn Bhd3 – – 311,429,200 10.13 7. Puan Sri Khor Chai Moi 23,000 * 311,429,2003 10.13

Notes: * Negligible percentage. 1 The interest of EPF is held through various fund managers. 2 Deemed interested pursuant to Section 6A(4)(c) of the Companies Act, 1965 through control of its subsidiary, Aabar Investments PJS. 3 Deemed interested pursuant to Section 6A of the Companies Act, 1965, by virtue of shares held through OSK Holdings Berhad. 245

DIRECTORS’ INTEREST IN SECURITIES OF THE COMPANY AND ITS RELATED CORPORATION AS AT 25 FEBRUARY 2016

Ordinary Shares of RM1.00 each The Company No. %

Dato’ Mohamed Khadar Merican 78,030 * – direct

Tan Sri Dato’ Teo Chiang Liang 6,600 * – indirect#

Notes: * Negligible percentage. # Deemed interested pursuant to Section 6A of the Companies Act, 1965 by virtue of his substantial shareholdings in Intereal Corporation Sdn Bhd. 246 RHB Capital Berhad Annual Report 2015 CLASSIFICATION OF SHAREHOLDERS as at 25 February 2016

No. of Shareholders No. of Shareholdings % of Total Shareholdings Category Malaysian Foreign Malaysian Foreign Malaysian Foreign

INDIVIDUAL Bumiputera 580 0 2,480,318 0 0.08 0.00 Chinese 11,924 0 65,469,037 0 2.13 0.00 Indian 439 0 1,532,777 0 0.05 0.00 Others 50 445 187,565 4,910,580 0.01 0.16

BODY CORPORATE Banks/Finance Companies 33 1 401,191,725 45,000 13.05 0.00 Investments Trusts/Foundation/ Charities 4 0 157,492 0 0.01 0.00 Other Types of Companies 276 24 221,490,528 6,136,146 7.20 0.20

GOVERNMENT AGENCIES/ INSTITUTION 2 0 3,682,171 0 0.12 0.00

NOMINEES 2,237 756 1,529,474,772 837,916,611 49.74 27.25

OTHERS 0 0 0 0 0.00 0.00

TOTAL 15,545 1,226 2,225,666,385 849,008,337 72.39 27.61 247 LIST OF THIRTY (30) LARGEST SHAREHOLDERS as at 25 February 2016

Shareholdings

No. Name No. of Shares %

1 CITIGROUP NOMINEES (TEMPATAN) SDN BHD 1,281,899,200 41.69 EMPLOYEES PROVIDENT FUND BOARD

2 RHB NOMINEES (ASING) SDN BHD 545,787,168 17.75 AABAR INVESTMENTS PJS

3 OSK HOLDINGS BERHAD 202,782,800 6.60

4 AMANAHRAYA TRUSTEES BERHAD 147,898,232 4.81 AMANAH SAHAM BUMIPUTERA

5 MAYBANK NOMINEES (TEMPATAN) SDN BHD 108,646,400 3.53 PLEDGED SECURITIES ACCOUNT FOR OSK HOLDINGS BERHAD (511981)

6 KUMPULAN WANG PERSARAAN (DIPERBADANKAN) 103,237,257 3.36

7 MAYBANK NOMINEES (ASING) SDN BHD 77,654,442 2.53 NOMURA SINGAPORE LIMITED FOR GUOLINE CAPITAL LIMITED (453830)

8 AMANAHRAYA TRUSTEES BERHAD 57,909,050 1.88 AMANAH SAHAM WAWASAN 2020

9 AMANAHRAYA TRUSTEES BERHAD 42,531,122 1.38 AMANAH SAHAM MALAYSIA

10 AMANAHRAYA TRUSTEES BERHAD 27,291,223 0.89 AS 1MALAYSIA

11 CITIGROUP NOMINEES (TEMPATAN) SDN BHD 16,927,118 0.55 EXEMPT AN FOR AIA BHD.

12 CIMB GROUP NOMINEES (TEMPATAN) SDN BHD 15,940,134 0.52 YAYASAN HASANAH (AUR-VCAM)

13 CARTABAN NOMINEES (TEMPATAN) SDN BHD 13,012,787 0.42 EXEMPT AN FOR EASTSPRING INVESTMENTS BERHAD

14 CARTABAN NOMINEES (ASING) SDN BHD 12,486,419 0.41 EXEMPT AN FOR STATE STREET BANK & TRUST COMPANY (WEST CLT OD67)

15 HSBC NOMINEES (ASING) SDN BHD 12,253,239 0.40 HSBC BK PLC FOR SAUDI ARABIAN MONETARY AGENCY

16 HSBC NOMINEES (ASING) SDN BHD 11,828,135 0.38 BBH AND CO BOSTON FOR VANGUARD EMERGING MARKETS STOCK INDEX FUND

17 HSBC NOMINEES (ASING) SDN BHD 11,210,200 0.36 EXEMPT AN FOR JPMORGAN CHASE BANK, NATIONAL ASSOCIATION (TAIWAN)

18 CITIGROUP NOMINEES (ASING) SDN BHD 10,460,940 0.34 EXEMPT AN FOR CITIBANK NEW YORK (NORGES BANK 12) 248 RHB Capital Berhad Annual Report 2015 LIST OF THIRTY (30) LARGEST SHAREHOLDERS (continued) as at 25 February 2016

Shareholdings

No. Name No. of Shares %

19 HSBC NOMINEES (ASING) SDN BHD 9,400,297 0.31 EXEMPT AN FOR JPMORGAN CHASE BANK, NATIONAL ASSOCIATION (U.S.A.)

20 CITIGROUP NOMINEES (TEMPATAN) SDN BHD 9,061,255 0.29 EMPLOYEES PROVIDENT FUND BOARD (NOMURA)

21 CARTABAN NOMINEES (ASING) SDN BHD 7,896,942 0.26 GIC PRIVATE LIMITED FOR GOVERNMENT OF SINGAPORE (C)

22 AMANAHRAYA TRUSTEES BERHAD 6,087,292 0.20 AMANAH SAHAM BUMIPUTERA 2

23 CITIGROUP NOMINEES (ASING) SDN BHD 5,825,652 0.19 CBNY FOR DIMENSIONAL EMERGING MARKETS VALUE FUND

24 MAYBANK NOMINEES (TEMPATAN) SDN BHD 5,266,638 0.17 MAYBANK TRUSTEES BERHAD FOR PUBLIC REGULAR SAVINGS FUND (N14011940100)

25 HSBC NOMINEES (ASING) SDN BHD 4,784,700 0.16 TNTC FOR LSV EMERGING MARKETS EQUITY FUND L.P.

26 CARTABAN NOMINEES (ASING) SDN BHD 4,485,195 0.15 RBC INVESTOR SERVICES BANK SUB A/C ROBECO ASIA-PACIFIC EQUITIES (EUR-RCGF)

27 CITIGROUP NOMINEES (ASING) SDN BHD 4,267,745 0.14 CBNY FOR EMERGING MARKET CORE EQUITY PORTFOLIO DFA INVESTMENT DIMENSIONS GROUP INC

28 CITIGROUP NOMINEES (ASING) SDN BHD 4,197,042 0.14 LEGAL & GENERAL ASSURANCE (PENSIONS MANAGEMENT) LIMITED (A/C 1125250001)

29 MALAYSIA NOMINEES (TEMPATAN) SENDIRIAN BERHAD 4,003,416 0.13 GREAT EASTERN LIFE ASSURANCE (MALAYSIA) BERHAD (LSF)

30 HSBC NOMINEES (ASING) SDN BHD 3,923,900 0.13 NTGS LDN FOR ANDRA AP-FONDEN SECOND SWEDISH NATIONAL PENSIONFUND – AP2 249 AUTHORISED AND ISSUED SHARE CAPITAL as at 25 February 2016

1) AUTHORISED SHARE CAPITAL

The authorised share capital of the Company is RM5,000,000,000.00 divided into 5,000,000,000 ordinary shares of RM1.00 each.

The changes in the authorised share capital are as follows:-

Par Value No. of Shares Cumulative Date (RM) Created (RM)

24/08/1994 1.00 1,000,000,000 1,000,000,000.00

19/12/1996 1.00 1,000,000,000 2,000,000,000.00

22/04/1999 1.00 500,000,000 2,500,000,000.00

19/05/2010 1.00 2,500,000,000 5,000,000,000.00

2) ISSUED AND PAID-UP SHARE CAPITAL

The issued and paid-up share capital is RM3,074,674,722.00 comprising 3,074,674,722 ordinary shares of RM1.00 each.

The changes on the issued and paid-up share capital are as follows:-

No. of Shares Cumulative Date Allotted Description (RM)

24/08/1994 2 Subscribers’ shares 2.00

12/12/1994 780,305,998 Issued pursuant to an exchange of every 2 issued and paid- 780,306,000.00 up ordinary shares of RM0.50 each in Development And Commercial Bank Berhad (now known as RHB Bank Berhad) for 1 new ordinary share of RM1.00 each in RHB Capital Berhad

03/01/1995 66,000 Cash 780,372,000.00

23/01/1995 10,000 Cash 780,382,000.00

13/02/1995 – 27/02/1995 34,000 Issued pursuant to Employees’ Share Option Scheme (“ESOS”) 780,416,000.00

27/02/1995 5,000 Cash 780,421,000.00

20/03/1995 – 30/03/1995 24,000 Issued pursuant to ESOS 780,445,000.00

03/04/1995 – 27/04/1995 46,250 Issued pursuant to ESOS and conversion of warrants into 780,491,250.00 shares

08/05/1995 – 29/05/1995 188,750 Issued pursuant to ESOS and conversion of warrants into 780,680,000.00 shares 250 RHB Capital Berhad Annual Report 2015 Authorised and issued share capital (continued) as at 25 February 2016

No. of Shares Cumulative Date Allotted Description (RM)

12/06/1995 – 29/06/1995 336,625 Issued pursuant to ESOS and conversion of warrants into 781,016,625.00 shares

29/06/1995 625 Cash 781,017,250.00

03/07/1995 – 31/07/1995 177,500 Issued pursuant to ESOS and conversion of warrants into 781,194,750.00 shares

03/08/1995 – 28/08/1995 152,125 Issued pursuant to ESOS and conversion of warrants into 781,346,875.00 shares

04/09/1995 – 25/09/1995 73,250 Issued pursuant to ESOS and conversion of warrants into 781,420,125.00 shares

02/10/1995 – 26/10/1995 121,500 Issued pursuant to ESOS and conversion of warrants into 781,541,625.00 shares

09/11/1995 – 27/11/1995 49,000 Issued pursuant to ESOS and conversion of warrants into 781,590,625.00 shares

04/12/1995 – 28/12/1995 97,562 Issued pursuant to ESOS and conversion of warrants into 781,688,187.00 shares

11/01/1996 – 29/01/1996 219,375 Issued pursuant to ESOS and conversion of warrants into 781,907,562.00 shares

05/02/1996 – 29/02/1996 194,250 Issued pursuant to ESOS and conversion of warrants into 782,101,812.00 shares

07/03/1996 – 28/03/1996 268,218 Issued pursuant to ESOS and conversion of warrants into 782,370,030.00 shares

01/04/1996 – 25/04/1996 243,125 Issued pursuant to ESOS and conversion of warrants into 782,613,155.00 shares

02/05/1996 – 30/05/1996 200,187 Issued pursuant to ESOS and conversion of warrants into 782,813,342.00 shares

03/06/1996 – 27/06/1996 126,000 Issued pursuant to ESOS and conversion of warrants into 782,939,342.00 shares

01/07/1996 – 25/07/1996 117,250 Issued pursuant to ESOS and conversion of warrants into 783,056,592.00 shares

01/08/1996 – 29/08/1996 72,625 Issued pursuant to ESOS and conversion of warrants into 783,129,217.00 shares

05/09/1996 – 30/09/1996 72,000 Issued pursuant to ESOS and conversion of warrants into 783,201,217.00 shares

03/10/1996 – 31/10/1996 136,000 Issued pursuant to ESOS and conversion of warrants into 783,337,217.00 shares 251

No. of Shares Cumulative Date Allotted Description (RM)

04/11/1996 – 28/11/1996 97,875 Issued pursuant to ESOS and conversion of warrants into 783,435,092.00 shares

02/12/1996 – 23/12/1996 144,000 Issued pursuant to ESOS and conversion of warrants into 783,579,092.00 shares

23/12/1996 25,777,778 Issued as consideration for the acquisition of 30% of the 809,356,870.00 issued and paid-up capital of DCB Sakura Merchant Bankers Berhad (now known as RHB Investment Bank Berhad)

26/12/1996 – 30/12/1996 12,000 Issued pursuant to ESOS and conversion of warrants into 809,368,870.00 shares

02/01/1997 – 30/01/1997 118,250 Issued pursuant to ESOS and conversion of warrants into 809,487,120.00 shares

03/02/1997 – 27/02/1997 367,750 Issued pursuant to ESOS and conversion of warrants into 809,854,870.00 shares

03/03/1997 – 31/03/1997 517,500 Issued pursuant to ESOS and conversion of warrants into 810,372,370.00 shares

03/04/1997 – 30/04/1997 408,750 Issued pursuant to ESOS and conversion of warrants into 810,781,120.00 shares

15/05/1997 – 29/05/1997 20,437 Issued pursuant to ESOS and conversion of warrants into 810,801,557.00 shares

05/06/1997 – 16/06/1997 23,000 Issued pursuant to ESOS and conversion of warrants into 810,824,557.00 shares

17/06/1997 740,828,585 Issued pursuant to the acquisition of assets agreement 1,551,653,142.00 between RHB Capital Berhad and Rashid Hussain Berhad

19/06/1997 – 23/06/1997 31,000 Issued pursuant to ESOS and conversion of warrants into 1,551,684,142.00 shares

30/06/1997 21,784,739 Issued pursuant to the acquisition of assets agreement 1,573,468,881.00 between RHB Capital Berhad and Rashid Hussain Berhad

03/07/1997 – 31/07/1997 38,000 Issued pursuant to ESOS and conversion of warrants into 1,573,506,881.00 shares

04/08/1997 – 07/08/1997 12,250 Issued pursuant to ESOS and conversion of warrants into 1,573,519,131.00 shares

26/08/1997 91,989,794 Issued pursuant to the shareholders’ approval in relation to the 1,665,508,925.00 general offer made by the Company and Rashid Hussain Berhad on behalf of RHB Bena Sdn Bhd to the holders of the other ordinary shares in Kwong Yik Bank Berhad (“KYBB”) not owed by the Company and RHB Bena Sdn Bhd (“General Offer”) 252 RHB Capital Berhad Annual Report 2015 Authorised and issued share capital (continued) as at 25 February 2016

No. of Shares Cumulative Date Allotted Description (RM)

13/10/1997 139,000 Issued pursuant to ESOS and conversion of warrants into 1,665,647,925.00 shares

10/12/1997 2,282,248 Pursuant to the shareholders’ approval in relation to the 1,667,930,173.00 compulsory acquisition of KYBB shares held by the minority shareholders of KYBB who have not accepted the General Offer

03/06/1999 99,285,714 Issued in exchange for the acquisition of Irredeemable Non- 1,767,215,887.00 Cumulative Convertible Preference Shares in RHB Bank Berhad

23/09/1999 26,252,183 Issued in exchange for the issue of Irredeemable Non- 1,793,468,070.00 Cumulative Convertible Preference Shares in RHB Bank Berhad

16/06/2000 30,000,000 Cash 1,823,468,070.00

24/12/2004 6,625 Cash 1,823,474,695.00

02/07/2007 330,000,000 Issued pursuant to the Sale of Shares Agreement entered 2,153,474,695.00 into between RHB Capital Berhad and Khazanah Nasional Berhad (“Khazanah”) for the acquisition by RHB Capital Berhad of 30% issued and paid-up share capital of RHB Bank Berhad from Khazanah

20/05/2011 38,441,644 Issued pursuant to Dividend Reinvestment Plan 2,191,916,339.00

15/11/2011 12,902,378 Issued pursuant to Dividend Reinvestment Plan 2,204,818,717.00

11/06/2012 30,944,571 Issued pursuant to Dividend Reinvestment Plan 2,235,763,288.00

08/11/2012 245,000,000 Issued pursuant to the conditional share purchase agreement 2,480,763,288.00 entered into between RHB Capital Berhad and OSK Holdings Berhad (“OSKH”) for the acquisition by RHB Capital Berhad of 100% equity interest in OSK Investment Bank Berhad (now known as OSKIB Sdn Bhd) from OSKH

27/11/2012 13,444,514 Issued pursuant to Dividend Reinvestment Plan 2,494,207,802.00

01/08/2013 37,166,089 Issued pursuant to Dividend Reinvestment Plan 2,531,373,891.00

13/11/2013 15,536,071 Issued pursuant to Dividend Reinvestment Plan 2,546,909,962.00

23/07/2014 25,546,821 Issued pursuant to Dividend Reinvestment Plan 2,572,456,783.00

24/04/2015 16,024,645 Issued pursuant to Dividend Reinvestment Plan 2,588,481,428.00

15/12/2015 486,193,294 Issued pursuant to renounceable rights issue on the basis of 3,074,674,722.00 1 new ordinary share for every 5 existing ordinary shares held 253 KEY INTERNAL CONTROL POLICIES AND PROCEDURES

RHB Capital Berhad is committed to ensuring responsible behaviour by the Company and its employees both in the workplace and marketplace. The Company takes full responsibility for the effect of its practices and internal policies/procedures/guidelines while continues to strengthen and embed robust corporate governance and risk management practices throughout its business operations.

All the internal control documents need to follow appropriate delineation process and approval matrix. These documents are kept in the centralised repository for employees’ reference, controlled by a dedicated functional unit namely Operations and Methods for quality assurance purpose. While these internal control documents/measures are implemented to mitigate conflicts of interest, abuses of position, regulatory breaches and consumer facades, such efforts also promote investors’ confidence, boost good brand image and stimulate sustainable growth.

Listed below are some of the key governance policies, procedures and guidelines:

No. Title Description

1. Group Code of Ethics & Business Conduct for RHB Banking Group (“Group”) places importance of top down compliance Directors culture within the organisation, hence this document is available and disclosed in the Company’s website. Directors’ adherence to ethical values highlighted in this document will demonstrate their commitment to responsible leadership and creation of an ethical culture which will strengthen the confidence level of the employees and the public at large.

2. Group Code of Ethics & Conduct for Employee This document aids identification of the areas and situations where public trust and confidence might be compromised or a law might be violated. The purpose of this Code is to articulate the high standards of conduct and behaviour that should be adopted as good ethical business practices.

3. Group Gifts & Hospitality Guidelines This document sets the standards of conduct of giving and accepting gifts and hospitality, including business entertainment. It is designed to help the Group and its employees understand respective parties’ obligations in upholding corporate integrity.

4. Group Whistle Blower Policy This policy document provides a proper mechanism and minimum standards to be adhered by employees of RHB Banking Group (“Group”) in dealing with disclosure on questionable actions or wrong doings in the Group. It is intended to guide all employees facing concerns over unlawful conducts, unethical occurrences or questionable practices which may adversely affect to a material extent the financial position or reputation of the Group. Furthermore, it helps nurture the culture of accountability, integrity and transparency among employees within the Group.

5. Group Compliance Management Framework & Policy The documents lay out the governing principles and roles of board, management and staff in managing compliance risk in the Group.

6. Group Anti-Money Laundering & Counter Financing of The policy is formulated towards building a stronger and robust AML/CFT Terrorism Policy (Group AML/CFT Policy) compliance within the Group. It informs and mandates all employees on their respective roles and responsibilities, focusing on the continuing efforts in countering money laundering and terrorist financing activities. 254 RHB Capital Berhad Annual Report 2015 Key Internal Control Policies and Procedures (continued)

No. Title Description

7. Group Chinese Wall and Insider Trading Policy The document establishes governance procedures to control the flow of confidential or material non-public and price sensitive information within the Group to avoid the risk of possible breach of the insider trading provisions under the Capital Market Services Act and to protect client confidentiality.

8. Orderly and Fair Market Policy The policy aims to facilitate the Group to comply with the applicable laws, guidelines and rules in relation to maintaining an orderly and fair market. It underlines relevant principles and guidance towards safeguarding the integrity of the market.

9. Group IT Security Policy & Standards The policy and standards enable a structured approach of governing confidentiality, integrity and availability of information as the Company’s important business assets. The holistic IT Security is achieved by implementing a suitable sets of controls to ensure that the specific security objectives (e.g. permitted disclosure, personal data protection) of the Group are met.

10. Group Asset & Liability Management Policy The policy document sets out a consistent approach in the management of the balance sheet mismatch with the goal for long-term growth and managing the risk exposures due to Interest Rate Risk/Rate of Return Risk (IRR/ROR) and structural foreign exchange risk in accordance with the risk appetite statements of the Group and the respective entity within the Group.

11. Group Guidelines on Personal Data Protection Act The document provides guidance on how to comply with PDPA’s and Bank 2010 (PDPA) Negara Malaysia’s requirements to safeguard individual’s personal data from being misused. Protection of personal data basically is to secure any personal data used and processed in commercial transactions which include any information such as name, address, account details and identity card number of the Group’s customers.

12. Group Policy on Related Party Transactions (RPT) The policy deals with the reporting and review process for RPTs under Bursa Malaysia’s Listing Requirements, Companies Act 1965 and Capital Markets and Services Act 2007, which should be conducted on an arm’s length basis. The guiding principles are to avoid conflicts of interest, promote transparency and accountability in its related party transactions.

13. Group Risk Management Framework The document sets out the strategic direction for the management of risks in the Group. It is also an aspiration statement with regards to the longer- term objective for the development of risk management capabilities and infrastructure. 255

No. Title Description

14. Group Shariah Risk Management Guidelines The document primarily intends to assist staff in undertaking business and support activities in line with Shariah principles for the respective Islamic Banking products and to ensure that the management of Shariah non- compliance risk principles in the Bank is clearly and systematically identified, measured, monitored, controlled and reported.

15. Group Credit Policy The policy document encapsulates broad policy statements governing lending/financing activities, ranging from the credit governance and functional responsibilities, to credit functions in the credit chain process. It enunciates the essence of the credit fundamentals to address the credit management, in particular from credit creation to credit recovery.

16. Group Treasury & Global Markets General Guidelines The document sets out best and prudent business practices and good corporate governance and against a background of clear Treasury business strategies and business plans currently applicable and in existence within RHB Banking Group.

17. Group Corporate Communications Operations Manual The document provides guidance and structure in disseminating corporate information to, and in dealing with, media representatives, employees and the public. While it intends to ensure compliance with legal and regulatory requirements on disclosure, it also raises awareness about, and focus management and employees on, disclosure requirements and practices.

18. Group Reputational Risk Management Policy The policy sets out the approach which the Group will adopt in managing reputational risks of the Group.

19. Group Manual of Authority The document defines clear responsibilities and approving matrix of authorised officers in the Group to approve its purchase or payment of capital and operating expenditure.

20. Group Policy on Product Development and Approval The policy applies to all product development initiatives within the Group and highlights fundamental principles to staff in approaching product development and approval across the Group, while ensuring sound risk management practices in managing and controlling product risk.

21. Group Brand Marketing Operations Manual The document sets to provide guidance and structure in disseminating corporate information to, and in dealing with, media representatives, employees and the public. The manual also aims to ensure compliance with legal and regulatory requirements for the Group’s activities in relation to advertisement and promotions.

22. Social Media Operations Manual This document describes the operations, roles & responsibilities and business rules in respect of the Social Media. The purpose of this manual is to meet internal and external requirements while delivering effective digital communication strategies for the Group. 256 RHB Capital Berhad Annual Report 2015 LIST OF TOP TEN (10) PROPERTIES as at 31 December 2015

Year of Net Book Year of Land Age of Expiry Value Acquisition Description of Area/ Building on 31.12.2015 or Location Owner Property (sq m.) Usage (Years) Tenure Lease (RM’000) Revaluation

MALAYSIA Kuala Lumpur 1. 424 Jalan Tun RHB 12 storey office Office 26 Freehold – 108,820 1989 Razak Hartanah building Space Sdn Bhd 10,270 2. 426 Jalan Tun RHB 16 storey office Office 20 Freehold – 104,721 1989 Razak Hartanah building Space Sdn Bhd

Penang 3. 44 Lebuh Pantai RHB Bank 1 unit of 896 Bank 56 Freehold – 3,724 1999 Georgetown Berhad 6½ storey Branch commercial building

Selangor 4. Lot No. 8 RHB Bank 6 storey office 55,713 Training 15 Leasehold 2090 73,923 1999 Jalan Institusi Berhad Block, 5 storey Centre Bandar Baru Bangi Training Block, 7 storey IT Block & 5 storey Car Park Block

Perak 5. No. 2, 4, 6 & 8 RHB Bank 4 storey office 890 Bank 18 Freehold – 5,033 1999 Jalan Tun Berhad building Branch Sambanthan Ipoh

SINGAPORE

6. 90 Cecil Street Banfora 2 commercial 796 Commercial 36 Leasehold 2980 149,092 1997 Pte Ltd buildings Building 7. 10, Jalan Besar RHB Bank Ground Floor of 543 Bank 37 Freehold – 26,454 1999 01-03 Sim Lim Berhad Office buildings Branch Tower 8. 14A/B, 16A/B & RHB Bank 3 units of 442 Bank 57 Freehold – 13,984 1999 18A/B Berhad 3 storey Branch East Coast Road shophouses 9. 1/1A /1B RHB Bank First Floor of 101 Bank 35 Freehold – 10,477 1999 Yio Chu Kang Road Berhad Office buildings Branch 10. No. 537/539 RHB Bank 3 storey 374 Bank 92 Freehold – 8,572 1999 Geylang Road Berhad shophouses Branch

Source of information for the Net Book Value as at 31 December 2015 by: Group Finance. 257 GROUP BRANCH NETWORK

COMMERCIAL BANKING MALAYSIA

KLANG VALLEY NORTH REGION Branches Ampang Point Kepong Segambut Regional Director: Bandar Baru Ampang Kg Baru Sg Buloh Selayang Bernadette Sun Fui Ling Bandar Baru Sg Buloh KLCC Setapak Level 8, Tower Three Bandar Sri Damansara Kota Damansara Taman Shamelin RHB Centre, Jalan Tun Razak Dataran Wangsa Melawati Kuala Lumpur Main Taman Tun Dr. Ismail 50400 Kuala Lumpur First Avenue Menara Shell RHB Islamic Cawangan Tel : 603 9280 6839 Jalan Bukit Bintang Menara Yayasan Tun Razak Jalan Raja Laut Jalan Ipoh Pandan Indah RHB Islamic Cawangan Jalan Pasar Plaza Damas Utama Jinjang Utara Plaza OSK Kenanga Wholesale City Rawang

KLANG VALLEY SOUTH REGION Branches Bandar Mahkota Cheras OUG Taman Megah Regional Director: Bandar Permaisuri Paradigm Taman Midah Ahmad Zaini bin Sofian Bangsar Shopping Centre PJ New Town Taman Sg Besi Level 7, Tower One Bangsar South Putrajaya Precint 8 Taman Suntex RHB Centre, Jalan Tun Razak Damansara Jaya Seri Kembangan Taman Taming Jaya 50400 Kuala Lumpur Damansara Utama Section 14 Tun HS Lee Tel : 603 9280 5688 IOI Resort City Sri Petaling RHB Islamic Cawangan Fax : 603 9280 5690 Kajang SS 2 Bandar Baru Bangi Mid Valley Taman Connaught RHB Islamic Cawangan Mines Shopping Fair Taman Indah Kelana Jaya

KLANG VALLEY WEST REGION Branches Alam Avenue Jenjarom Tanjung Karang Regional Director: Bandar Baru Klang Kota Kemuning Shah Alam Tanjung Sepat Suhana binti Sulaiman Bandar Bukit Tinggi Meru UEP Subang Jaya 2nd Floor, No. 48-50 Giant Shah Alam Persiaran Sultan Ibrahim RHB Islamic Cawangan Jalan SS 15/4D IOI Boulevard Klang Bayu Tinggi Klang 47500 Subang Jaya, Selangor Jalan Niaga Shah Alam Port Klang RHB Islamic Cawangan Tel : 603 5637 8288 Jalan Stesen Kelang Setia Alam Laman Seri Shah Alam Fax : 603 5631 6233 Jalan T. Ampuan Zabedah Sg Pelek Shah Alam Subang Jaya 258 RHB Capital Berhad Annual Report 2015 Group Branch Network (continued)

COMMERCIAL BANKING MALAYSIA

EAST COAST REGION Branches Bentung Kuala Dungun RHB Islamic Cawangan Regional Director: Jalan Air Putih, Kuantan Kuala Terengganu Kuala Terengganu Shaharuddin Ming Jalan Tok Hakim, Kota Kuantan RHB Islamic Cawangan East Coast Regional Director’s Office Bharu Mentakab Kubang Kerian, Kota Bharu Lot 2, 4 & 6 (Level 2) Jerantut Pasir Mas Jalan Putra Square 1, Putra Square Kemaman Raub 25200 Kuantan, Pahang Kerteh Triang Tel : 609 505 7000 Ketereh Fax : 609 505 7003

NORTHERN REGION Branches 2784 & 2785, Jalan Chain Jalan Tunku Ibrahim Alor Sungai Bakap Regional Director: Ferry Prai Setar Sungai Dua Alex Lim Eng Kang Ayer Itam Jelutong Taman Semarak Kulim Level 5, No. 44 Bayan Baru Jitra Taman Pekan Baru Sungai Lebuh Pantai Bukit Mertajam Kangar Petani 10300 Georgetown, Penang Burmah House Kuala Kedah RHB Islamic Cawangan Tel : 604 262 6168 Butterworth Lebuh Pantai Auto City-Prai Fax : 604 263 2112 Jalan Bakar Arang Sungai Mergong Alor Setar RHB Islamic Cawangan Petani Padang Serai Sungai Petani Jalan Raja Uda Pulau Langkawi

PERAK REGION Branches Air Tawar Kampar Sitiawan Regional Director: Bagan Serai Kuala Kurau Sungai Siput Ali bin Mohamed Gopeng Kuala Kangsar Sungkai 1st Floor, No. 2, 4, 6 & 8 Gunung Rapat Menglembu Taiping Jalan Tun Sambanthan Ipoh Garden Parit Buntar Tasek 30000 Ipoh, Perak Darul Ridzuan Jalan Tun Sambanthan Persiaran Greenhill Teluk Intan Tel : 605 254 1176 Ipoh Simpang Empat Hutan Fax : 605 243 2809 Jelapang Melintang 259

SOUTHERN REGION Branches Bandar Baru Uda Kota Tinggi Taman Mount Austin Regional Director: Jalan Bandar Pasir Gudang Kulai Taman Nusa Bestari Asoka Balan Sinnadurai Jalan Bendahara 12, Permas Jaya Taman Pelangi 1st Floor, No. 14 & 16 T. Ungku T. Aminah Plentong Taman Sentosa Jalan Padi Emas 6/1, Bandar Baru Jalan Dato’ Rauf Kluang Pontian Kechil Ulu Tiram Uda, Johor Bahru, 81200, Johor Jalan Dedap Taman Johor Senai RHB Islamic Cawangan Tel : 607 237 7825/232 7109 Jaya Simpang Renggam Taman Setia Tropika Fax : 607 235 0616 Johor Bahru City Square Taman Molek

SOUTHERN WEST REGION Branches 1 Lagenda Kuala Pilah Simpang Pertang Regional Director: Bahau Malim Taipan Senawang Amir bin Abdul Aziz Bandar Baru Nilai Melaka Raya Tangkak 1st Floor, 19, 21, 23 Batu Pahat Muar Yong Peng Jalan Merdeka Bekok Rantau RHB Islamic Cawangan Taman Melaka Raya, Melaka Bukit Baru Segamat Taman Flora, Batu Pahat Tel : 606 281 7880 Jalan Hang Tuah Melaka Seremban Fax : 606 281 7842 Jementah Seremban 2

SABAH REGION Branches 1 Borneo Tawau Regional Director: Inanam Wisma Khoo Sandakan Siaw Kok Chee Jalan Gaya Kota Kinabalu RHB Islamic Cawangan Kota Regional Office Sabah Jalan Tun Mustapha Labuan Kinabalu C-03-05/08, 3rd Floor Keningau Block C, Warisan Square Lahad Datu Jalan Tun Fuad Stephens Lintas Station 88000 Kota Kinabalu, Sabah Metro Town Tel : 6088 528 688 Prima Square Sandakan Fax : 6088 528 779

SARAWAK REGION Branches 31 Jalan Tuanku Osman Kanowit Siburan Regional Director: Sibu Kapit Simpang Tiga Kuching Hjh Johanna binti Abdullah Batu Kawah Lawas Sri Aman 1st Floor Boulevard Centre Miri Limbang Sungai Merah, Sibu Kuching Regional Office Dalat Lundu Tabuan Jaya Lot 363, Jalan Kulas Jalan Kulas Kuching Marudi UNISQUARE Kota Samarahan 93400 Kuching Jalan Masjid Bintulu Matang Jaya Wisma Mahmud Kuching Tel : 6082 274 812 Jalan Nakhoda Gampar Miri Mukah RHB Islamic Cawangan Fax : 6082 274 854 Jalan Padungan Kuching Sarikei Jalan Satok Kuching 260 RHB Capital Berhad Annual Report 2015 Group Branch Network (continued)

COMMERCIAL BANKING LAOS Branch INTERNATIONAL Khunta Country Head: Danny Ling Chii Hian Village SINGAPORE Branches (opening Vientiane 2016) Bukit Timah Unit No. 01, House No. 008 Country Head: Geylang Kaysone Phomvihane Road Jason Wong Jalan Besar Phonxay Village, Vientiane, Lao PDR Katong Tel : 856 2145 5118/5119 Cecil Branch Tai Seng Street Fax : 856 21455112 Ground Floor 90 Cecil Street Westgate Mall Singapore 069531 Tel : 65 6320 0602/0603 Fax : 65 6225 5296 BRUNEI

THAILAND Branches Country Head: Ishak Othman Ayutthaya Bandar Seri Bagawan Country Head: Sri Racha Wong Kee Poh Unit G 02, Ground Floor, Block D Yayasan Sultan Haji Hassanal Bolkiah Complex Bangkok Jalan Pretty, Bandar Seri Begawan 18th Floor M. Thai Tower BS 8711, Brunei Darussalam All Seasons Place Tel : 673 222 2515/2516 87 Wireless Road Pathumwan Fax : 673 223 7487/3687 Lumpini, Bangkok 10330 Thailand Tel : 662 126 8600 VIETNAM Fax : 662 126 8601/8602 Country Representative: Wilson Cheah Hui Pin

CAMBODIA Branches Ho Chi Minh City Battambang Room 1208, 12th Floor, Sunwah Tower Country Head: City Mall Olympic 115 Nguyen Hue, Dist 1 Lim Loong Seng Kampong Cham Ho Chi Minh City, Vietnam Kbal Thnal Tel : 848 3827 8498 Phnom Penh Pet Lok Song Fax : 848 3827 8499 No. 263 Preah Sihanouk Ang Duong Street (St. 110) Siem Reap MYANMAR Phnom Penh, Cambodia Stoeung Meanchey Tel : 855 23 992 833 Toul Kork Country Representative: Wilson Cheah Hui Pin Fax : 855 23 991 822 Boeung Kang Kang (opening 2016) RHB Bank Berhad Mao Tse Toung #411, 412, 415 Level 4, Strand Square (opening 2016) No.53, Strand Road, 6 Story Offices BLD Pabedan Township, Yangon The Republic of the Union of Myanmar 261

INVESTMENT BANKING MALAYSIA

CENTRAL REGION 1 Branches NORTHERN REGION 1 Branches Bentong Bayan Baru Principal Office Kepong Supervisory Office Parit Buntar Level 3A, Tower One Kuala Lumpur Main Penang Sungai Bakap RHB Centre, Jalan Tun Razak Pandan Indah No. 64 & 64-D 50400 Kuala Lumpur Seri Petaling Tingkat Bawah – Tingkat 3 Tel : 603 9280 2374 & Tingkat 5 – Tingkat 8 Fax : 603 9284 8053 Lebuh Bishop, 10200 Pulau Pinang Tel : 604 263 4222 Fax : 604 262 2299

CENTRAL REGION 2 Branches NORTHERN REGION 2 Branches Kajang Alor Setar Supervisory Office Klang Supervisory Office Bukit Mertajam SS2, Petaling Jaya Kota Damansara Butterworth Kangar 24, 24M, 24A, 26M, 28M, 28A, Rawang Aras Bawah, 1 & 2 Kulim 30, 30M & 30A, USJ Taipan 2677, Jalan Chain Ferry Sungai Petani Jalan SS2/63 Taman Inderawasih 47300 Petaling Jaya 13600 Prai Selangor Pulau Pinang Tel : 603 7873 6366 Tel : 604 390 0022 Fax : 603 7873 6566 Fax : 604 390 0023

EAST COAST REGION Branches NORTHERN REGION 3 Branches Kemaman Cameron Highlands Supervisory Office Kota Bharu Supervisory Office Kampar Kuantan Kuala Terengganu Ipoh Sitiawan B32 & B34, Lorong Tun Ismail 8 21-25, Jalan Seenivasagam Taiping Seri Dagangan II Greentown, 30450 Ipoh Teluk Intan 25000 Kuantan, Pahang Perak Tel : 609 517 3811 Tel : 605 241 5100 Fax : 609 517 3911 Fax : 605 255 3903 262 RHB Capital Berhad Annual Report 2015 Group Branch Network (continued)

INVESTMENT BANKING MALAYSIA

SOUTHERN REGION 1 Branches SOUTHERN REGION 4 Branches Kulai Port Dickson Supervisory Office Sutera Utama Supervisory Office Seremban Johor Bahru Taman Molek Melaka 2 Tingkat 6, Wisma Tiong-Hua 579, 580 dan 581 8, Jalan Keris, Taman Sri Tebrau Taman Melaka Raya 80050 Johor Bahru, Johor 75000 Melaka Tel : 607 278 8821 Tel : 606 282 5211 Fax : 607 278 8011 Fax : 606 284 4871

SOUTHERN REGION 2 Branches SABAH REGION Branch Kluang Sandakan Supervisory Office Muar Supervisory Office Batu Pahat Kota Kinabalu 53, 53-A & 53-B, Jalan Sultanah 2nd Floor, 81 & 83 Jalan Gaya 83000 Batu Pahat, Johor 88000 Kota Kinabalu, Sabah Tel : 607 438 0288 Tel : 6088 269 788 Fax : 607 438 0277 Fax : 6088 260 910

SOUTHERN REGION 3 Branches SARAWAK REGION Branches Labis Bintulu Supervisory Office Segamat Supervisory Office Miri Melaka 1 Tangkak Kuching Sibu No. 19, 21 & 23, Jalan Merdeka Yung Kong Abell Taman Melaka Jaya, 75000 Melaka Units No, 1-10, 2nd Floor Tel : 606 283 3622 Lot 365, Section 50 Fax : 606 281 9271 Jalan Abell 93100 Kuching, Sarawak Tel : 6082 422 252 Fax : 6082 240 955 263

INVESTMENT BANKING INTERNATIONAL

SINGAPORE THAILAND Branches Amarin Chief Executive Officer: Officer-in-Charge/Deputy Chief Executive Officer: Chachoengsao Robert Huray Yong Siong Sung Chiangmai Hadyai RHB Securities Singapore Pte. Ltd. RHB Securities (Thailand) PCL Juti Anusorn 10 Collyer Quay, #09-08 8th, 10th Floor Pakin Ocean Financial Centre Sathorn Square Office Tower Pinklao Singapore 049315 98 North Sathorn Road Silom Tel : 65 6533 1818 Silom, Bangrak, Bangkok 10500 Thailand Vibhavadi Rangsit Fax : 65 6532 6211 Tel : 662 862 9999 Fax : 662 862 9900

INDONESIA Branches Bandung Palembang Chief Executive Officer: Jayapura Pekanbaru Chan Kong Ming Kelapa Gading Solo Makassar Puri PT RHB Securities Indonesia Malang Surabaya Bukit Darmo Wisma Mulia, 20th Floor Mangga Dua Surabaya Kertajaya Jalan Jenderal Gatot Subroto No. 42 Medan Jakarta 12710, Indonesia Mega Pluit Tel : 6221 2783 0888 Fax : 6221 2783 0777

HONG KONG CHINA

Chief Executive Officer: Chief Executive Officer: William Wu Wai Leung William Wu Wai Leung

RHB Securities Hong Kong Limited RHB (China) Investment Advisory Co Ltd 12/F, World-Wide House Suite 4005, 40/F, CITIC Square 19 Des Voeux Road Central 1168 Nanjing West Road Hong Kong Shanghai 200041, China Tel : 852 2525 1118 Tel : 8621 6288 9611 Fax : 852 2810 0908 Fax : 8621 6288 9633 264 RHB Capital Berhad Annual Report 2015 Group Branch Network (continued)

ASSET MANAGEMENT MALAYSIA

RHB Asset Management Sdn Bhd Branches RHB Islamic International Asset Batu Pahat Kota Kinabalu 19th Floor, Plaza OSK Butterworth Kuantan Management Berhad Jalan Ampang Kuala Lumpur Kuching 19th Floor, Plaza OSK 50450 Kuala Lumpur Ipoh Melaka Jalan Ampang Malaysia Johor Bharu Miri 50450 Kuala Lumpur Tel : 603 2178 9555 Kota Bharu Penang Malaysia Email : [email protected] Tel : 603 2178 9555 Email : [email protected]

ASSET MANAGEMENT ASSET MANAGEMENT ASSET MANAGEMENT INDONESIA SINGAPORE HONG KONG

PT RHB Asset Management RHB Asset Management Pte Ltd RHB Asset Management Ltd

Wisma Mulia, 20th Floor 10 Collyer Quay, #09-08 12/F, World-Wide House Jalan Jenderal Gatot Subroto No. 42 Ocean Financial Centre 19 Des Voeux Road Central Jakarta 12710, Indonesia Singapore 049315 Hong Kong Tel : 6221 2783 0889 Tel : 65 6323 2508 Tel : 852 2103 9420 Email : [email protected] Email : [email protected] Email : [email protected]

TRUSTEES INSURANCE MALAYSIA MALAYSIA

RHB Trustees Berhad Malaysian Trustees Berhad Head Office

3rd Floor, Plaza OSK 3rd Floor, Plaza OSK Level 12, West Wing, The Icon Jalan Ampang Jalan Ampang No. 1, Jalan 1/68F 50450 Kuala Lumpur 50450 Kuala Lumpur Jalan Tun Razak Tel : 603 9207 7777 Tel : 603 2161 8822 55000 Kuala Lumpur Fax : 603 2175 3223 Fax : 603 2032 1222 Tel : 603 2180 3000 Fax : 603 9281 2729 265 NOTICE OF TWENTY FIRST ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Twenty First (21st) Annual General Meeting (“AGM”) of the Company will be held at Taming Sari Ballroom 1 & 2, The Royale Chulan Kuala Lumpur, 5 Jalan Conlay, 50450 Kuala Lumpur on Thursday, 12 May 2016 at 10.30 a.m. to transact the following businesses:

AGENDA

AS ORDINARY BUSINESS:

1. To receive the Audited Financial Statements of the Company for the financial year ended 31 December (Please refer to 2015 and the Directors’ and Auditors’ Reports thereon. Explanatory Note 1)

2. To re-elect YBhg Datuk Seri Saw Choo Boon, who is retiring under Article 80 of the Company’s Articles Ordinary Resolution 1 of Association and being eligible, offers himself for re-election.

YBhg Tan Sri Dato’ Teo Chiang Liang who retires pursuant to Article 80 of the Company’s Articles of Association, has expressed his intention of not seeking re-election. Hence, he will retain office until the conclusion of the 21st AGM.

3. To re-elect YBhg Dato’ Khairussaleh Ramli, who is retiring under Article 84 of the Company’s Articles of Ordinary Resolution 2 Association and being eligible, offers himself for re-election.

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

“THAT YBhg Datuk Haji Faisal Siraj, retiring pursuant to Section 129 of the Companies Act, 1965, be and Ordinary Resolution 3 is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting.”

5. To approve the payment of Directors’ fees totalling RM1,021,643.84 for the financial year ended Ordinary Resolution 4 31 December 2015.

6. To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company, to hold office until the Ordinary Resolution 5 conclusion of the next AGM of the Company, at a remuneration to be determined by the Directors.

7. To transact any other business of which due notice shall have been given in accordance with the Companies Act, 1965 and the Company’s Articles of Association.

By Order of the Board,

Azman Shah Md Yaman (LS 0006901) Ivy Chin So Ching (MAICSA No. 7028292) Company Secretaries

Kuala Lumpur 7 April 2016 266 RHB Capital Berhad Annual Report 2015 NOTICE OF TWENTY FIRST ANNUAL GENERAL MEETING (continued)

NOTES: Appointment of Proxy Explanatory Notes 1. In respect of deposited securities, only members whose names 1. Audited Financial Statements for the financial year ended 31 appear in the Record of Depositors on 5 May 2016 (General December 2015 Meeting Record of Depositors) shall be entitled to attend, speak Item 1 of the Agenda is meant for discussion only, as the and vote at this 21st AGM. provision of Section 169(1) of the Companies Act, 1965 does 2. A member of the Company entitled to attend and vote at the not require a formal approval of the shareholders for the general meeting is entitled to appoint up to two (2) proxies to Audited Financial Statements. Hence, this Agenda item is not attend and vote in his place. A proxy may but need not be a put forward for voting. member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 2. Retirement of Director 3. The Form of Proxy must be signed by the appointor or his YBhg Dato’ Mohamed Khadar Merican, the Chairman of the attorney duly authorised in writing or in the case of a Company, was first appointed as an Independent Non-Executive corporation, be executed under its common seal or under the Director in the Group in December 2003 and was re-designated hand of its attorney duly authorised in writing. as a Non-Independent Non-Executive Director (“NINED”) in April 4. If the Form of Proxy is returned without any indication as to 2015. Therefore he has served the Group for more than 12 how the proxy shall vote, the proxy will vote or abstain as he years. Pursuant to the Guidelines on Tenure of Appointment/ thinks fit. Re-Appointment of Non-Executive Directors for RHB Banking Group, a Non-Executive Director (save for the NINED who is a 5. Where a member appoints two (2) proxies, the appointment Board representative of the major shareholders) shall retire at shall be invalid unless he specifies the proportion of his the next AGM of the company concerned upon completion of his holdings to be represented by each proxy. Where a member of consecutive or cumulative term of 12 years. Accordingly, YBhg the Company is an authorised nominee as defined under the Dato’ Mohamed Khadar Merican will retire at the conclusion of Securities Industry (Central Depositories) Act 1991, it may the 21st AGM. appoint at least one (1) proxy in respect of each Securities Account which is credited with ordinary shares of the Company.

6. The Form of Proxy or other instruments of appointment must be deposited at the office of the Share Registrar of the Company, Symphony Share Registrars Sdn Bhd, at Level 6, Symphony House, Pusat Dagangan Dana 1, Jalan PJU 1A/46, 47301 Petaling Jaya, Selangor not later than 48 hours before the time fixed for holding the meeting or any adjournment thereof.

Statement Accompanying the Notice of 21st Annual General Meeting Additional information pursuant to Paragraph 8.27(2) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad is set out in Annexure A to RHB Capital Berhad’s Annual Report 2015. 267 STATEMENT ACCOMPANYING NOTICE OF 21ST ANNUAL GENERAL MEETING (Pursuant to Paragraph 8.27(2) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad)

(i) Further details of individuals who are standing for re-election as Director as per Agenda 2 of the Notice of 21st AGM:

Ordinary Resolution 1

Name of Director Datuk Seri Saw Choo Boon Independent Non-Executive Director

Nationality/Age Malaysian/69

Date of First Appointment 20 May 2010

Academic/Professional Qualifications Bachelor of Science (Chemistry) from the University of Malaya

Working Experience Held various positions in Shell from 1970 to 2009 and the last position was Chairman of Shell Malaysia. From 1 January 2010, Datuk Seri Saw was appointed the Senior Advisor of Shell Malaysia until his retirement on 30 June 2010.

Other Directorships in Public Companies RHB Banking Group 1) RHB Investment Bank Berhad

Other Public Companies 1) Digi.Com Berhad 2) Phoenix Petroleum (M) Berhad 3) Ranhill Holdings Berhad 4) Guinness Anchor Berhad (Chairman)

(ii) Further details of individual who is standing for re-election as Director as per Agenda 3 of the Notice of 21st AGM:

Ordinary Resolution 2

Name of Director Dato’ Khairussaleh Ramli Group Managing Director/Group Chief Executive Officer

Nationality/Age Malaysian/48

Date of First Appointment 5 May 2015

Academic/Professional Qualifications 1) Bachelor of Science in Business Administration from Washington University 2) Graduate of the Advanced Management Programme, Harvard Business School 3) Chartered Banker, Asian Institute of Chartered Bankers

Working Experience Has more than 20 years of experience in the financial services and capital markets industry, where he has held senior positions in well-established regional financial institutions.

Other Directorships in Public Companies RHB Banking Group 1) RHB Bank Berhad 268 RHB Capital Berhad Annual Report 2015 Statement Accompanying Notice of 21st Annual General Meeting (continued) (Pursuant to Paragraph 8.27(2) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad)

(iii) Further details of individual who is standing for re-appointment as Director as per Agenda 4 of the Notice of 21st AGM:

Ordinary Resolution 3

Name of Director Datuk Haji Faisal Siraj Senior Independent Non-Executive Director

Nationality/Age Malaysian/70

Date of First Appointment 24 May 2007

Academic/Professional Qualifications He was a Fellow of the Institute of Chartered Accountants in England & Wales, a Member of the Malaysian Institute of Accountants and a Member of the Malaysian Institute of Certified Public Accountants.

Working Experience 1) Senior Group Director, DRB-HICOM Berhad (1995 – 2005) 2) Group Executive Director, Malaysia Mining Corporation Berhad (1981 – 1994)

Other Directorships in Public Companies RHB Banking Group 1) RHB Islamic Bank Berhad 2) RHB Insurance Berhad 3) Malaysian Trustees Berhad 4) RHB Trustees Berhad

(iv) The Directors’ direct and indirect interests in the securities of the Company as at 25 February 2016:

Direct Interest Indirect Interest No. of issued % of issued No. of issued % of issued Name of Directors shares shares shares shares

Dato’ Mohamed Khadar Merican 78,030 * – –

Tan Sri Azlan Zainol – – – –

Datuk Haji Faisal Siraj – – – –

Datuk Seri Saw Choo Boon – – – –

Tan Sri Dato’ Teo Chiang Liang# – – 6,600 *

Mohamed Ali Ismaeil Ali AlFahim – – – –

Dato’ Khairussaleh Ramli – – – –

Notes: * Negligible percentage # Deemed interested pursuant to Section 6A of the Companies Act, 1965 by virtue of his substantial shareholding in Intereal Corporation Sdn Bhd. PROXY FORM

No. of Ordinary Shares held CDS Account No. (Company No. 312952-H) (Incorporated in Malaysia under the Companies Act, 1965)

I/We NRIC/Passport/Company No. (Name in block letters) of (Full address) being a member of RHB CAPITAL BERHAD hereby appoint:

Name & NRIC No. (Mandatory) of and/or* Name & NRIC No. (Mandatory) of or failing him/her, the CHAIRMAN OF THE MEETING, as my/our* proxy to vote for me/us* and on my/our* behalf at the Twenty First (21st) Annual General Meeting of the Company to be held at Taming Sari Ballroom 1 & 2, The Royale Chulan Kuala Lumpur, 5 Jalan Conlay, 50450 Kuala Lumpur, on Thursday, 12 May 2016 at 10.30 a.m. and at any adjournment thereof.

The proportion of my/our* holding to be represented by my/our* proxies are as follows:-

First Proxy (1) Second Proxy (2)

My/Our* proxy is to vote as indicated below:

Resolutions For Against

Ordinary To re-elect YBhg Datuk Seri Saw Choo Boon as Director. Resolution 1 Ordinary To re-elect YBhg Dato’ Khairussaleh Ramli as Director. Resolution 2 Ordinary To re-appoint YBhg Datuk Haji Faisal Siraj as Director. Resolution 3 Ordinary To approve the payment of Directors’ fees totalling RM1,021,643.84 for the financial year Resolution 4 ended 31 December 2015. Ordinary To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and to authorise the Resolution 5 Directors to fix their remuneration.

(Please indicate with an “X” in the spaces provided above as to how you wish to cast your vote. If no specific directions as to voting are given, the proxy shall vote or abstain from voting at his/her full discretion.)

Dated , 2016. Signature (If shareholder is a corporation, this part should be executed under seal) * Delete if not applicable Notes: 1. In respect of deposited securities, only members whose names appear in the Record of Depositors on 5 May 2016 (General Meeting Record of Depositors) shall be entitled to attend, speak and vote at this 21st AGM. 2. A member of the Company entitled to attend and vote at the general meeting is entitled to appoint up to two (2) proxies to attend and vote in his place. A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 3. The Form of Proxy must be signed by the appointor or his attorney duly authorised in writing or in the case of a corporation, be executed under its common seal or under the hand of its attorney duly authorised in writing. 4. If the Form of Proxy is returned without any indication as to how the proxy shall vote, the proxy will vote or abstain as he thinks fit. 5. Where a member appoints two (2) proxies, the appointment shall be invalid unless he specifies the proportion of his holdings to be represented by each proxy. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one (1) proxy in respect of each Securities Account which is credited with ordinary shares of the Company. 6. The Form of Proxy or other instruments of appointment must be deposited at the office of the Share Registrar of the Company, Symphony Share Registrars Sdn Bhd, at Level 6, Symphony House, Pusat Dagangan Dana 1, Jalan PJU 1A/46, 47301 Petaling Jaya, Selangor not later than 48 hours before the time fixed for holding the meeting or any adjournment thereof. 7. Shareholders’ and proxies’ registration will start at 8.30 a.m. and will end at a time as directed by the Chairman of the meeting. At the closure thereof no person will be allowed to register for the meeting nor enter the meeting venue and no wrist tag will be allocated.

PLEASE FOLD HERE

Postage Stamp

The Share Registrar of RHB CAPITAL BERHAD SYMPHONY SHARE REGISTRARS SDN BHD Level 6, Symphony House Pusat Dagangan Dana 1 Jalan PJU 1A/46 47301 Petaling Jaya Selangor

PLEASE FOLD HERE ANNUAL REPORT 2015

www.rhbgroup.com

RHB Capital Berhad (312952-H) Level 9, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur Tel : 603-9285 2233 Fax : 603-9281 9314 FINANCIAL REPORT 2015

www.rhbgroup.com

RHB Capital Berhad (312952-H) Level 9, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur Tel : 603-9285 2233 Fax : 603-9281 9314

INSIDE THIS REPORT

2 Responsibility Statement by the Board of Directors 3 Directors’ Report 8 Statements of Financial Position 10 Income Statements 11 Statements of Comprehensive Income 12 Statements of Changes in Equity 15 Statements of Cash Flows 20 Summary of Significant Accounting Policies and Critical Accounting Estimates and Assumptions 46 Notes to the Financial Statements 186 Statement by Directors 186 Statutory Declaration 187 Independent Auditors’ Report to the Members of RHB Capital Berhad 2 RHB Capital Berhad Annual Report 2015 RESPONSIBILITY STATEMENT BY THE BOARD OF DIRECTORS

In the course of preparing the annual financial statements of the Group and the Company, 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 provisions of the Companies Act, 1965.

It is the responsibility of the Directors to ensure that the financial reporting of the Group and the Company present a true and fair view of the state of affairs of the Group and the Company as at 31 December 2015 and of the financial results and cash flows of the Group and the Company for the financial year ended 31 December 2015.

The financial statements are prepared using a liquidation basis of accounting and the Directors have ensured that proper accounting records are kept, appropriate accounting policies are applied on a consistent basis and accounting estimates made are reasonable and fair so as to enable the preparation of the financial statements of the Group and the Company 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 the Company 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 in page 186 of the financial statements. 3 DIRECTORS’ REPORT

The Directors submit herewith their report together with the audited financial statements of the Group and the Company for the financial year ended 31 December 2015.

PRINCIPAL ACTIVITIES

The principal activity of the Company is investment holding. The Group is involved in commercial banking, Islamic banking, investment banking, stock broking, leasing, offshore banking, offshore trust services, general insurance, unit trust management, asset management and nominee and custodian services.

There have been no significant changes in these principal activities during the financial year.

FINANCIAL RESULTS

Group Company

RM’000 RM’000

Profit before taxation 2,106,744 451,449 Taxation (582,711) (654)

Net profit for the financial year 1,524,033 450,795

DIVIDENDS

The dividends paid by the Company since 31 December 2014 was as follows:

RM’000

In respect of the financial year ended 31 December 2014: – Single-tier interim dividend of 6.0% paid on 24 April 2015 154,347

The shareholders of the Company have been granted an option by the Board of Directors to elect to reinvest the entire portion of the abovementioned interim dividend into new ordinary shares of RM1.00 each in the Company in accordance with the approved Dividend Reinvestment Plan (‘DRP’) of the Company. The reinvestment rate for the abovementioned dividend was 73.01%.

The Directors have declared a single-tier interim cash dividend of 12.0% per share amounting to RM368,961,000 in respect of the financial year ended 31 December 2015. The interim dividend was approved by the Board of Directors on 28 January 2016.

The financial statements for the current financial year do not reflect this single-tier declared interim dividend. This dividend payment will be accounted for in the shareholders’ equity as an appropriation of retained profits in the financial year ending 31 December 2016.

The Directors do not propose any final dividend in respect of the financial year ended 31 December 2015. 4 RHB Capital Berhad Annual Report 2015 DIRECTORS’ REPORT (continued)

RESERVES AND PROVISIONS

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

ISSUE OF SHARES

During the financial year, the Company increased its issued and paid up share capital from:

(a) RM2,572,456,783 to RM2,588,481,428 via the issuance of 16,024,645 new ordinary shares of RM1.00 each arising from the DRP pursuant to the single-tier interim dividend of 6.0% in respect of the financial year ended 31 December 2014 on 24 April 2015; and

(b) RM2,588,481,428 to RM3,074,674,722 via the renounceable rights issue of 486,193,294 new ordinary shares of RM1.00 each at an issue price of RM4.82 per right share on 18 December 2015, on the basis of one (1) right share for every five (5) existing shares held.

The new ordinary shares issued during the financial year rank pari passu in all respects with the existing shares of the Company.

BAD AND DOUBTFUL DEBTS AND FINANCING

Before the financial statements of the Group and the Company were made out, the Directors took reasonable steps to ascertain that proper actions have been taken in relation to the writing off of bad debts and financing and the making of allowance for non-performing debts and financing, and satisfied themselves that all known bad debts and financing have been written off and that adequate allowance had been made for non-performing 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 or the amount of allowance for non-performing debts and financing in the financial statements of the Group and the Company inadequate to any substantial extent.

CURRENT ASSETS

Before the financial statements of the Group and the Company were made out, the Directors took reasonable steps to ensure 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 Company, had been written down to an amount which they might be expected 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 Company misleading.

VALUATION METHOD

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 of the Group and the Company misleading or inappropriate. 5 DIRECTORS’ REPORT (continued)

CONTINGENT AND OTHER LIABILITIES

At the date of this report, there does not exist:

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

(b) any contingent liability of the Group and the Company which has arisen since the end of the financial year other than in the ordinary course of business.

No contingent or other liability of the Group and the Company 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 and the Company to meet their obligations 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 Company which would render any amount stated in the financial statements misleading or inappropriate.

ITEMS OF AN UNUSUAL NATURE

The results of the operations of the Group and the Company for 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 Company for the financial year in which this report is made.

DISCONTINUED OPERATIONS

On 13 April 2015, the Company announced that it proposed to undertake the Proposed Internal Reorganisation, Proposed Distribution and Capital Repayment and Proposed Transfer of Listing Status of the Company, details of which are as disclosed in Note 54(b) to the financial statements. RHB Capital is currently in the midst of procuring all relevant approvals required for the Proposals from the relevant parties/ regulatory authorities.

The Proposals will entail the transfer by the Company of its entire equity interests in, or certain assets and liabilities of its subsidiaries to RHB Bank Berhad, and subsequently the delisting and winding up of the Company. Consequentially, the results of the Group and the Company have been disclosed as discontinued operations in the financial statements and all assets and liabilities are therefore classified as held for sale as at year end in accordance with the requirements of MFRS 5: Non-current Assets Held for Sale and Discontinued Operations. 6 RHB Capital Berhad Annual Report 2015 DIRECTORS’ REPORT (continued)

SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR

Significant events during the financial year are disclosed in Note 54 to the financial statements.

DIRECTORS

The Directors of the Company in office since the date of the last report and at the date of this report are:

Dato’ Mohamed Khadar Merican Tan Sri Azlan Zainol Datuk Haji Faisal Siraj Tan Sri Dato’ Teo Chiang Liang Datuk Seri Saw Choo Boon Mohamed Ali Ismaeil Ali AlFahim Dato’ Khairussaleh Ramli (Appointed on 5 May 2015) Dato’ Nik Mohamed Din Datuk Nik Yusoff (Resigned on 12 August 2015) Kellee Kam Chee Khiong (Retired on 30 April 2015)

Pursuant to Article 80 of the Company’s Articles of Association, Datuk Seri Saw Choo Boon retires at the forthcoming Annual General Meeting of the Company and being eligible, offers himself for re-election.

Tan Sri Dato’ Teo Chiang Liang who retires pursuant to Article 80 of the Company’s Articles and Association, has indicated his intention of not seeking re-election. He will accordingly retire at the forthcoming Annual General Meeting.

Pursuant to Article 84 of the Company’s Articles of Association, Dato’ Khairussaleh Ramli retires at the forthcoming Annual General Meeting of the Company and being eligible, offers himself for re-election.

Pursuant to Section 129 of the Companies Act, 1965, Datuk Haji Faisal Siraj retires at the forthcoming Annual General Meeting of the Company and offers himself for re-appointment as Director of the Company to hold office until the next Annual General Meeting.

Pursuant to the Guidelines on Tenure of Appointment/Re-appointment of Non-Executive Directors for RHB Banking Group, Dato’ Mohamed Khadar Merican retires at the forthcoming Annual General Meeting of the Company in view that he has attained the maximum Non-Executive Director’s tenure stipulated therein. 7 DIRECTORS’ REPORT (continued)

DIRECTORS’ INTERESTS

According to the register of Directors’ shareholdings, the Directors in office at the end of the financial year holding securities of the Company and its related corporations are as follows:

Number of ordinary shares of RM1.00 each

As at Rights As at 1.1.2015 Issue^ DRP Sold 31.12.2015

The Company Dato’ Mohamed Khadar Merican: – Direct 65,312 12,202 516 – 78,030 Tan Sri Dato’ Teo Chiang Liang: – Indirect* 5,432 1,122 46 – 6,600

Note: * Deemed interest pursuant to Section 6A of the Companies Act, 1965 by virtue of his substantial shareholding in Intereal Corporation Sdn Bhd. ^ Arising from acceptance of provisional allotment of rights issue pursuant to the renounceable rights share on the basis of one (1) right share for every five (5) existing shares held.

Other than the above, none of the other Directors holding office at the end of the financial year had any interest in the securities of the Company or its related corporations during the financial year.

DIRECTORS’ BENEFITS

Since the end of the previous financial year, no Director of the Company has received or become entitled to receive any benefit (other than Directors’ remuneration and benefits-in-kind as disclosed in Note 38 to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest.

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

AUDITORS

The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.

Signed on behalf of the Board in accordance with a resolution of the Board of Directors.

DATO’ MOHAMED KHADAR MERICAN DATO’ KHAIRUSSALEH RAMLI CHAIRMAN GROUP MANAGING DIRECTOR

Kuala Lumpur 29 February 2016 8 RHB Capital Berhad Annual Report 2015 STATEMENTS OF FINANCIAL POSITION as at 31 December 2015

Group Company

2015 2014 2015 2014 Note RM’000 RM’000 RM’000 RM’000

ASSETS HELD FOR SALE Cash and short term funds 2 12,882,261 16,236,908 2,348,680 24,940 Securities purchased under resale agreements 188,380 491,510 – – Deposits and placements with banks and other financial institutions 3 1,376,202 2,298,588 1,050 1,017 Financial assets at fair value through profit or loss (‘FVTPL’) 4 1,752,641 2,930,681 – – Financial investments available-for-sale (‘AFS’) 5 24,738,796 19,602,176 – – Financial investments held-to-maturity (‘HTM’) 6 20,532,236 20,469,831 – – Loans, advances and financing 7 149,590,961 140,693,003 – – Clients’ and brokers’ balances 8 1,654,213 1,525,147 – – Reinsurance assets 9 371,238 332,113 – – Other assets 10 2,477,769 1,541,989 50 3,637 Derivative assets 11 3,102,389 1,285,230 – – Amounts due from subsidiaries 12 – – 27 93 Statutory deposits 13 5,272,230 5,421,007 – – Tax recoverable 260,965 162,181 93,624 94,219 Deferred tax assets 14 112,201 38,465 – – Investments in subsidiaries 15 – – 11,479,799 11,042,345 Investments in associates and joint ventures 16 15,764 21,021 – – Property, plant and equipment 17 1,041,890 1,030,681 305 322 Goodwill and intangible assets 18 5,347,531 5,273,905 – –

TOTAL ASSETS HELD FOR SALE 230,717,667 219,354,436 13,923,535 11,166,573

Note: On 13 April 2015, the Company announced that it proposed to undertake the Proposed Internal Reorganisation, Proposed Distribution and Capital Repayment and Proposed Transfer of Listing Status of the Company, details of which are as disclosed in Note 54(b). The Company is currently in the midst of procuring all relevant approvals required for the Proposals from the relevant parties/regulatory authorities.

The accompanying accounting policies and notes form an integral part of these financial statements. 9 STATEMENTS OF FINANCIAL POSITION (continued) as at 31 December 2015

Group Company

2015 2014 2015 2014 Note RM’000 RM’000 RM’000 RM’000

LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE AND EQUITY Deposits from customers 19 158,151,008 157,133,993 – – Deposits and placements of banks and other financial institutions 20 20,645,860 21,349,618 – – Obligations on securities sold under repurchase agreements 21 4,906,214 508,416 – – Obligations on securities borrowed 12,202 113,780 – – Bills and acceptances payable 626,399 614,031 – – Clients’ and brokers’ balances 22 1,348,728 1,214,065 – – General insurance contract liabilities 23 870,884 775,699 – – Other liabilities 24 2,395,125 1,714,098 36,864 12,340 Derivative liabilities 11 3,089,781 1,224,684 – – Amounts due to subsidiaries 12 – – 1,929 1,799 Recourse obligation on loans sold to Cagamas Berhad (‘Cagamas’) 25 3,127,656 3,315,335 – – Tax liabilities 37,247 57,321 – – Deferred tax liabilities 14 11,334 53,041 – 20 Borrowings 26 2,436,796 2,874,697 3,104,574 3,111,433 Subordinated obligations 27 5,895,786 6,099,402 – – Hybrid Tier-1 Capital Securities 28 601,856 601,515 – – Senior debt securities 29 3,451,380 2,810,655 – –

TOTAL LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE 207,608,256 200,460,350 3,143,367 3,125,592

Share capital 30 3,074,675 2,572,457 3,074,675 2,572,457 Reserves 31 20,010,118 16,221,840 7,705,493 5,468,524

23,084,793 18,794,297 10,780,168 8,040,981 Non-controlling interests (‘NCI’) 32 24,618 99,789 – –

TOTAL EQUITY 23,109,411 18,894,086 10,780,168 8,040,981

TOTAL LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE AND EQUITY 230,717,667 219,354,436 13,923,535 11,166,573

COMMITMENTS AND CONTINGENCIES 45 186,762,170 133,504,271

The accompanying accounting policies and notes form an integral part of these financial statements. 10 RHB Capital Berhad Annual Report 2015 INCOME STATEMENTS for the financial year ended 31 December 2015

Group Company

2015 2014 2015 2014 Note RM’000 RM’000 RM’000 RM’000

DISCONTINUED OPERATIONS Interest income 33 7,935,334 7,469,699 4,669 6,694 Interest expense 34 (4,635,536) (4,178,367) (132,309) (128,154)

Net interest income/(expense) 3,299,798 3,291,332 (127,640) (121,460) Other operating income 35 2,015,456 2,211,396 614,318 179,092

5,315,254 5,502,728 486,678 57,632 Net income from Islamic Banking business 36 875,917 732,151 – –

Net income 6,191,171 6,234,879 486,678 57,632 Other operating expenses 37 (3,793,162) (3,411,168) (35,195) (28,152)

Operating profit before allowances 2,398,009 2,823,711 451,483 29,480 Allowance for impairment on loans, financing and other losses 39 (340,314) (206,242) – – Impairment losses written back/(made) on other assets 40 48,750 117,309 (34) 2,828

2,106,445 2,734,778 451,449 32,308 Share of results of associates – (105) – – Share of results of joint ventures 299 380 – –

Profit before taxation 2,106,744 2,735,053 451,449 32,308 Taxation 41 (582,711) (671,589) (654) (986)

Net profit for the financial year 1,524,033 2,063,464 450,795 31,322

Attributable to: – Equity holders of the Company 1,511,427 2,038,000 450,795 31,322 – NCI 12,606 25,464 – –

1,524,033 2,063,464 450,795 31,322

Earnings per share (sen) – Basic 42 58.1 79.7 – Diluted 42 58.1 79.7

The accompanying accounting policies and notes form an integral part of these financial statements. 11 STATEMENTS OF COMPREHENSIVE INCOME for the financial year ended 31 December 2015

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

DISCONTINUED OPERATIONS Net profit for the financial year 1,524,033 2,063,464 450,795 31,322 Other comprehensive income/(loss) in respect of: (i) Items that will not be reclassified to profit or loss: – Actuarial gain on defined benefit plan of subsidiaries 1,568 1,290 – – (ii) Items that will be reclassified subsequently to profit or loss: – Foreign currency translation reserves: – Currency translation differences 651,021 160,170 – – – Net investment hedge (74,929) – – – – Financial investments AFS: – Unrealised net (loss)/gain on revaluation (28,303) 115,900 – – – Net transfer to income statements on disposal or impairment (62,926) (43,854) – – Income tax relating to components of other comprehensive loss/ (income) 24,308 (15,578) – –

Other comprehensive income, net of tax, for the financial year 510,739 217,928 – –

Total comprehensive income for the financial year 2,034,772 2,281,392 450,795 31,322

Total comprehensive income attributable to: – Equity holders of the Company 2,003,181 2,266,152 450,795 31,322 – NCI 31,591 15,240 – –

2,034,772 2,281,392 450,795 31,322

The accompanying accounting policies and notes form an integral part of these financial statements. 12 RHB Capital Berhad Annual Report 2015 STATEMENTS OF CHANGES IN EQUITY for the financial year ended 31 December 2015

Attributable to equity holders of the Company

Non- Share Share Statutory Other AFS Translation Regulatory Retained controlling Total Capital Premium Reserve Reserves Reserves Reserves Reserve Profits Sub-total Interests Equity Group Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

DISCONTINUED OPERATIONS Balance as at 1 January 2015 2,572,457 5,053,063 3,817,799 28,196 191,619 191,334 – 6,939,829 18,794,297 99,789 18,894,086 Net profit for the financial year ––––––– 1,511,427 1,511,427 12,606 1,524,033 Foreign currency translation reserves: – Currency translation differences ––– 3,693 – 628,380 –– 632,073 18,948 651,021 – Net investment hedge ––––– (74,929) –– (74,929) – (74,929) Financial investments AFS: – Unrealised net (loss)/gain on revaluation –––– (28,336) ––– (28,336) 33 (28,303) – Net transfer to income statements on disposal or impairment –––– (62,926) ––– (62,926) – (62,926) Actuarial gain on defined benefit plan of subsidiaries ––––––– 1,563 1,563 5 1,568 Income tax relating to components of other comprehensive loss/ (income) 43 –––– 24,640 –– (331) 24,309 (1) 24,308 Other comprehensive income/ (loss), net of tax, for the financial year ––– 3,693 (66,622) 553,451 – 1,232 491,754 18,985 510,739

Total comprehensive income/ (loss) for the financial year ––– 3,693 (66,622) 553,451 – 1,512,659 2,003,181 31,591 2,034,772 Transfer to statutory reserve –– 154,427 –––– (154,427) ––– Transfer to regulatory reserve –––––– 583,153 (583,153) ––– Dividends paid 44 ––––––– (154,347) (154,347) (1,325) (155,672) Shares issued pursuant to: – DRP 30 16,024 96,628 –––––– 112,652 – 112,652 – Rights issue 30&54(b) 486,194 1,843,893 –––––– 2,330,087 – 2,330,087 Dilution of interest in a subsidiary ––– (2,280) – 1,182 – 21 (1,077) 1,077 – Reclassification of puttable instruments to other liabilities ––––––––– (106,514) (106,514)

Balance as at 31 December 2015 3,074,675 6,993,584 3,972,226 29,609 124,997 745,967 583,153 7,560,582 23,084,793 24,618 23,109,411

The accompanying accounting policies and notes form an integral part of these financial statements. 13 STATEMENTS OF Changes in Equity (continued) for the financial year ended 31 December 2015

Attributable to equity holders of the Company

Non- Share Share Statutory Other AFS Translation Retained controlling Total Capital Premium Reserve Reserves Reserves Reserves Profits Sub-total Interests Equity Group Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Balance as at 1 January 2014 2,546,910 4,888,541 3,577,647 28,196 122,389 12,211 5,563,177 16,739,071 203,656 16,942,727 Net profit for the financial year – – – – – – 2,038,000 2,038,000 25,464 2,063,464 Currency translation differences – – – – – 157,965 – 157,965 2,205 160,170 Financial investments AFS: – Unrealised net gain/(loss) on revaluation – – – – 115,977 – – 115,977 (77) 115,900 – Net transfer to income statements on disposal or impairment – – – – (28,960) – – (28,960) (14,894) (43,854) Actuarial gain on defined benefit plan of subsidiaries – – – – – – 1,276 1,276 14 1,290 Income tax relating to components of other comprehensive (income)/ loss 43 – – – – (17,787) – (319) (18,106) 2,528 (15,578) Other comprehensive income/ (loss), net of tax, for the financial year – – – – 69,230 157,965 957 228,152 (10,224) 217,928

Total comprehensive income for the financial year – – – – 69,230 157,965 2,038,957 2,266,152 15,240 2,281,392 Transfer to statutory reserve – – 240,152 – – – (240,152) – – – Dividends paid 44 – – – – – – (262,332) (262,332) (993) (263,325) Shares issued pursuant to DRP 30 25,547 164,522 – – – – – 190,069 – 190,069 Acquisition of a subsidiary – – – – – – – – 51,044 51,044 Acquisition of additional interests by NCI – – – – – – – – 21,389 21,389 Acquisition of additional interests from NCI 54(i) – – – – – 19,450 (158,113) (138,663) (190,547) (329,210) Disposal of a subsidiary 54(g) – – – – – 1,708 (1,708) – – –

Balance as at 31 December 2014 2,572,457 5,053,063 3,817,799 28,196 191,619 191,334 6,939,829 18,794,297 99,789 18,894,086

The accompanying accounting policies and notes form an integral part of these financial statements. 14 RHB Capital Berhad Annual Report 2015 STATEMENTS OF Changes in Equity (continued) for the financial year ended 31 December 2015

Non- Distributable Distributable

Share Share Retained Capital Premium Profits Total Company Note RM’000 RM’000 RM’000 RM’000

DISCONTINUED OPERATIONS Balance as at 1 January 2015 2,572,457 5,053,063 415,461 8,040,981 Net profit for the financial year – – 450,795 450,795 Dividends paid 44 – – (154,347) (154,347) Shares issued pursuant to: – DRP 30 16,024 96,628 – 112,652 – Rights issue 30&54(b) 486,194 1,843,893 – 2,330,087

Balance as at 31 December 2015 3,074,675 6,993,584 711,909 10,780,168

Balance as at 1 January 2014 2,546,910 4,888,541 646,471 8,081,922 Net profit for the financial year – – 31,322 31,322 Dividends paid 44 – – (262,332) (262,332) Shares issued pursuant to DRP 30 25,547 164,522 – 190,069

Balance as at 31 December 2014 2,572,457 5,053,063 415,461 8,040,981

The accompanying accounting policies and notes form an integral part of these financial statements. 15 STATEMENTS OF CASH FLOWS for the financial year ended 31 December 2015

Group

2015 2014 Note RM’000 RM’000

DISCONTINUED OPERATIONS Cash flows from operating activities Profit before taxation 2,106,744 2,735,053 Adjustments for: Allowance for impairment on loans, financing and other losses 605,614 583,281 Property, plant and equipment: – Depreciation 121,288 115,282 – Gain on disposal (7,109) (17,686) – Written off 655 403 – Impairment losses written back (182) (1,252) Intangible assets: – Amortisation 71,760 67,720 – Gain on disposal (161) – – Written off 2,409 99 – Impairment losses (written back)/made (2,283) 3,321 Net impairment written back on financial investments AFS and HTM (54,118) (119,378) Accretion of discount for borrowings and subordinated obligations 1,211 916 Impairment losses on investment in a joint venture 7,833 – Share of results of associates and joint ventures (299) (275) Interest income from financial assets FVTPL, financial investments AFS and HTM (1,424,802) (1,367,091) Investment income from financial assets FVTPL, financial investments AFS and HTM (210,711) (189,824) Net gain arising from sale/redemption of financial assets FVTPL, financial investments AFS and HTM (33,239) (135,637) Net unrealised loss on revaluation of financial assets FVTPL and derivatives 399,409 84,477 Net gain on fair value hedges (680) (2,374) Net unrealised foreign exchange gain (494,044) (37,055) Gross dividend income from financial assets FVTPL and financial investments AFS (48,023) (35,452) Net gain on disposal of an associate – (8,202) Net loss on disposal of a subsidiary – 247 Operating profit before working capital changes 1,041,272 1,676,573 (Increase)/Decrease in operating assets: Securities purchased under resale agreements 490,980 (270,285) Deposits and placements with banks and other financial institutions 959,873 476,503 Financial assets FVTPL 1,285,763 1,257,923 Loans, advances and financing (7,617,388) (21,531,456) Clients’ and brokers’ balances (129,066) 1,048,436 Other assets (962,122) (792,907) Statutory deposits 189,964 (1,241,341) (5,781,996) (21,053,127)

The accompanying accounting policies and notes form an integral part of these financial statements. 16 RHB Capital Berhad Annual Report 2015 STATEMENTS OF CASH FLOWS (continued) for the financial year ended 31 December 2015

Group

2015 2014 Note RM’000 RM’000

DISCONTINUED OPERATIONS Cash flows from operating activities (continued) Increase/(Decrease) in operating liabilities: Deposits from customers (959,306) 19,155,751 Deposits and placements of banks and other financial institutions (1,210,606) 4,282,655 Obligations on securities sold under repurchase agreements 4,397,798 (61,560) Obligations on securities borrowed (105,133) 81,803 Bills and acceptances payable 11,633 (1,462,506) Clients’ and brokers’ balances 134,663 (1,101,745) Other liabilities 899,015 622,452 Recourse obligation on loans sold to Cagamas (187,679) 1,045,982

2,980,385 22,562,832

Cash (used in)/generated from operations (1,760,339) 3,186,278 Net tax paid (773,657) (680,200)

Net cash (used in)/generated from operating activities (2,533,996) 2,506,078

Cash flows from investing activities Net (purchase)/disposal of financial investments AFS and HTM (4,196,621) 7,628 Property, plant and equipment: – Purchase (100,231) (125,644) – Proceeds from disposal 9,484 27,543 Intangible assets: – Purchase (142,018) (110,859) – Proceeds from disposal 242 – Financial investments AFS and HTM: – Interest received 1,390,357 1,356,044 – Investment income received 199,806 180,669 Dividend income received from financial assets FVTPL and financial investments AFS 48,023 35,452 Acquisition of additional interests from NCI 54(i) – (329,210) Net cash inflow from disposal of an associate 54(h) – 9,070 Net cash inflow from disposal of a subsidiary 54(g) – 265 Net cash inflow from acquisition of a subsidiary – 1,520 Refund of Bank Mestika deposits 54(f) – 112,515

Net cash (used in)/generated from investing activities (2,790,958) 1,164,993

The accompanying accounting policies and notes form an integral part of these financial statements. 17 STATEMENTS OF CASH FLOWS (continued) for the financial year ended 31 December 2015

Group

2015 2014 Note RM’000 RM’000

DISCONTINUED OPERATIONS Cash flows from financing activities Proceeds from issuance of subordinated notes – 1,000,000 Drawdown of subordinated notes 700,000 – Repayment of subordinated notes (900,000) – Proceeds from issuance of Subordinated Sukuk Murabahah – 500,000 Proceeds from issuance of USD senior notes – 1,048,950 Net repayment of borrowings (638,482) (53,578) Net proceeds from shares issued pursuant to rights issue 2,330,087 – Dividends paid to equity holders of the Company (41,695) (72,263) Dividends paid to NCI (1,325) (993)

Net cash generated from financing activities 1,448,585 2,422,116

Net (decrease)/increase in cash and cash equivalents (3,876,369) 6,093,187 Effects of exchange rate differences 521,722 145,054 Cash and cash equivalents: – at the beginning of the financial year 16,236,908 9,998,667

– at the end of the financial year 12,882,261 16,236,908

Cash and cash equivalents comprise the following: – Cash and short term funds 2 12,882,261 16,236,908

Note: Significant non-cash transaction during the financial year is as follows: – Dividend reinvestment plan 112,652 190,069

The accompanying accounting policies and notes form an integral part of these financial statements. 18 RHB Capital Berhad Annual Report 2015 STATEMENTS OF CASH FLOWS (continued) for the financial year ended 31 December 2015

Company

2015 2014 Note RM’000 RM’000

DISCONTINUED OPERATIONS Cash flows from operating activities Profit before taxation 451,449 32,308 Adjustments for: Interest expense 132,309 128,154 Property, plant and equipment: – Depreciation 194 216 – Gain on disposal (55) – Dividend income (614,163) (206,956) Interest income (4,669) (6,694) Impairment losses made/(written back) on other assets 34 (2,828)

Operating loss before working capital changes (34,901) (55,800) Increase in deposits and placements with banks and other financial institutions (33) (34) Decrease/(Increase) in inter-company balances 162 (699) Decrease in other assets 542 2,762 Increase in other liabilities 24,525 6,096

Cash used in operations (9,705) (47,675) Net tax paid (79) (71)

Net cash used in operating activities (9,784) (47,746)

Cash flows from investing activities Dividend income received from subsidiaries 176,709 31,956 Interest income received 4,132 6,687 Purchase of property, plant and equipment (177) (212) Proceeds from disposal of property, plant and equipment 55 – Refund of Bank Mestika deposits 54(f) – 112,515 Increase in investments in subsidiaries – (90,610)

Net cash generated from investing activities 180,719 60,336

The accompanying accounting policies and notes form an integral part of these financial statements. 19 STATEMENTS OF CASH FLOWS (continued) for the financial year ended 31 December 2015

Company

2015 2014 Note RM’000 RM’000

DISCONTINUED OPERATIONS Cash flows from financing activities Net drawdown of borrowings 4,500 209,000 Advances from a subsidiary – 21,411 Interest expense paid (140,087) (162,771) Dividends paid to equity holders of the Company (41,695) (72,263) Net proceeds from shares issued pursuant to rights issue 2,330,087 –

Net cash generated from/(used in) financing activities 2,152,805 (4,623)

Net increase in cash and cash equivalents 2,323,740 7,967 Cash and cash equivalents: – at the beginning of the financial year 24,940 16,973

– at the end of the financial year 2,348,680 24,940

Cash and cash equivalents comprise the following: – Cash and short term funds 2 2,348,680 24,940

Note: Significant non-cash transaction during the financial year is as follows: – Dividend reinvestment plan 112,652 190,069

The accompanying accounting policies and notes form an integral part of these financial statements. 20 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

(1) BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS On 13 April 2015, the Company announced that it proposes to undertake the Proposed Internal Reorganisation, Proposed Distribution and Capital Repayment and Proposed Transfer of Listing Status of the Company, details of which are disclosed in Note 54(b). The Company is currently in the midst of procuring all relevant approvals required for the Proposals from the relevant parties/regulatory authorities.

The Proposals will entail the transfer by the Company of its entire equity interests in, or certain assets and liabilities of its subsidiaries to RHB Bank Berhad, and subsequently the delisting and winding up of the Company. Consequentially, the results of the Group and the Company have been disclosed as discontinued operations in the financial statements and all assets and liabilities are therefore classified as held for sale as at year end in accordance with the requirements of MFRS 5: Non-current Assets Held for Sale and Discontinued Operations. As such, the going concern assumption can no longer be used for the preparation of financial statements. The financial statements of the Group and the Company have therefore been prepared using a liquidation basis of accounting.

(I) STATEMENT OF COMPLIANCE The financial statements of the Group and the Company have been prepared in accordance with Malaysian Financial Reporting Standards (‘MFRS’), International Financial Reporting Standards (‘IFRS’) and the requirements of the Companies Act, 1965.

The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial investments AFS, financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.

The financial statements also incorporate those activities relating to Islamic banking which have been undertaken by the Group. Islamic banking refers generally to the acceptance of deposits, granting of financing and dealing in Islamic securities under the Shariah principles.

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 financial year. It also requires Directors to exercise their judgement in the process of applying the Group’s and the Company’s accounting policies. Although these estimates and judgement are based on the Directors’ best knowledge of current events and actions, actual results may differ from those estimates.

Critical accounting estimates and assumptions used that are significant to the financial statements, and areas involving a higher degree of judgement or complexity are disclosed in Section B. 21 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(1) BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (II) ADOPTION OF NEW MFRSs AND AMENDMENTS TO MFRSs AND INTERPRETATION (a) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group and the Company and are effective

The relevant new accounting standards, amendments and improvements to published standards and interpretations to existing accounting standards that are effective for the Group’s and the Company’s financial year beginning on or after 1 January 2015 are as follows:

• Annual Improvements to MFRSs 2010 – 2012 Cycle • Annual Improvements to MFRSs 2011 – 2013 Cycle

The adoption of these annual improvements do not give rise to any material financial impact to the Group and the Company.

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

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

• MFRS 9 ‘Financial Instruments’ (effective from 1 January 2018) will replace MFRS 139 ‘Financial Instruments: Recognition and Measurement’.

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

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

MFRS 9 introduces an expected credit loss model on impairment for all financial assets that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. 22 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(1) BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (II) ADOPTION OF NEW MFRSs AND AMENDMENTS TO MFRSs AND INTERPRETATION (CONTINUED) (b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group and the Company but not yet effective (continued)

• MFRS 15 ‘Revenue from Contracts with Customers’ (effective from 1 January 2018) replaces MFRS 118 ‘Revenue’ and MFRS 111 ‘Construction Contracts’ and related interpretations. The standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.

Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Group is in the process of reviewing the requirements of MFRS 15 and MFRS 9, especially for MFR 9, to identify critical issues and to design robust methodologies arising from the adoption of this standard. The Group expects this process to be completed prior to the effective date on 1 January 2018.

(2) BASIS OF CONSOLIDATION (a) Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases.

Acquisition accounting The Group applies the acquisition method to account for business combination. The consideration transferred for acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to the Group or Company. Non- controlling interest is measured either at fair value or proportionate share of the acquiree’s identifiable net assets at the acquisition date, determined on a case by case basis. At the end of a reporting period, non-controlling interest consists of the amount calculated on the date of combination and its share of changes in the subsidiary’s equity since the date of combination.

Acquisition-related costs are expensed as incurred. 23 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(2) BASIS OF CONSOLIDATION (CONTINUED) (a) Subsidiaries (continued) Acquisition accounting (continued) In a business combination achieved in stages, the previously held equity interest in the acquiree is re-measured at its acquisition date fair value and the resulting gain or loss is recognised in income statements.

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 income statements or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

The excess of the aggregate 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 Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired, the gain is recognised in income statements. Refer to accounting policy Note 7 on goodwill.

All earnings and losses of the subsidiary are attributed to the parent and the non-controlling interest, even if the attribution of losses to the non-controlling interest results in a debit balance in the shareholders’ equity. Profit or loss attributed to non- controlling interest for prior years is not restated.

All material inter-company and intra-group transactions and balances are eliminated on consolidation. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group.

Predecessor accounting 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 reflect both entities’ full year results. The corresponding amounts for the previous year are restated to reflect the combined results of both entities.

(b) Changes in ownership interests in subsidiaries without change of control Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity attributable to owners of the Group. 24 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(2) BASIS OF CONSOLIDATION (CONTINUED) (c) Disposal of subsidiaries 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.

Gain or loss on disposal of subsidiaries included the carrying amount of goodwill relating to subsidiaries sold.

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

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

Where necessary, in applying the equity method, adjustments are made to the financial statements of joint ventures to ensure consistency of accounting policies with those of the Group.

(e) Associates Associates are those corporations or other entities in which the Group exercises significant influence, but which it does not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Significant influence is the power to participate in the financial and operating policies through representation on the Board but not power to exercise control over those policies.

Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting and are initially recognised at cost. Equity accounting involves recognising the Group’s share of its associates’ post-acquisition profits or losses in income statements, and its share of post-acquisition movements in reserves is recognised in other comprehensive income. The cumulative post-acquisition changes are adjusted against the cost of investment and include goodwill on acquisition, less accumulated impairment loss.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group discontinues recognising its shares of further losses. After the Group’s interest is reduced to zero, additional losses are provided for, and a liability is recognised, only to the extent that the investor has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. 25 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(2) BASIS OF CONSOLIDATION (CONTINUED) (e) Associates (continued) Dilution gains and losses arising in investments in associates are recognised in the income statements.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence on impairment of the asset transferred. Where necessary, in applying the equity method of accounting, adjustments are made to the financial statements of associates to ensure consistency of accounting policies with those of the Group.

(3) INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES In the Company’s separate financial statements, investments in subsidiaries, associates and joint ventures are stated at cost less accumulated impairment losses. At the end of each reporting period, the Group assesses whether there is any indication of impairment. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. Refer to accounting policy Note 23 on impairment of non-financial assets.

On disposal of investments in subsidiaries, associates and joint ventures, the difference between disposal proceeds and the carrying amount of the investments is recognised in income statements.

(4) FINANCIAL ASSETS (a) Classification The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, financial investments AFS and HTM. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition.

(i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held-for-trading. A financial asset is classified in this category if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term. Derivatives are also classified in this category unless they are designated as hedges. Refer to accounting policy Note 6.

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

(iii) Financial investments AFS Financial investments AFS are non-derivatives that are either designated in this category or not classified in any of the other categories.

(iv) Financial investments HTM Financial investments HTM are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Group sells other than an insignificant amount of financial investments HTM, the whole category would be tainted and reclassified as financial investments AFS. 26 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(4) FINANCIAL ASSETS (CONTINUED) (b) Recognition and initial measurement Regular purchases and sales of financial assets are recognised on the settlement date on which the Group commits to purchase or sell the asset.

Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in income statements.

(c) Subsequent measurement - gain and loss Financial investments AFS and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and financial investments HTM are subsequently carried at amortised cost using the effective interest method.

Changes in the fair values of financial assets at fair value through profit or loss, including the effects of currency translation, interest and dividend income are recognised in non-interest income in income statements in the period in which the changes arise.

Changes in the fair value of financial investments AFS are recognised in other comprehensive income, except for impairment losses (refer to accounting policy Note 20) and foreign exchange gains and losses on monetary assets. The exchange differences on monetary assets are recognised in income statements, whereas exchange differences on non-monetary assets are recognised in other comprehensive income as part of fair value change.

Interest and dividend income on financial investments AFS are recognised separately in income statements. Interest on financial investments AFS calculated using the effective interest method is recognised in income statements. Dividend income on financial investments AFS is recognised in non-interest income in income statements when the Group’s right to receive payment is established.

(d) De-recognition Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

Loans and receivables that are factored out to banks and other financial institutions with recourse to the Group are not derecognised until the recourse period has expired and the risks and rewards of the loans and receivables have been fully transferred. The corresponding cash received from the financial institutions is recorded as borrowings.

When financial investments AFS are sold, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to income statements. 27 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(4) FINANCIAL ASSETS (CONTINUED) (e) Offsetting financial instruments Financial assets and liabilities are offset and the net amount will be presented in the statements 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 asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy.

(5) REPURCHASE AGREEMENTS Securities purchased under resale agreements are securities which the banking subsidiaries 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 banking subsidiaries 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 statements 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.

(6) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING Derivatives are initially recognised at fair value on the date on which derivative contracts are entered into and are subsequently re-measured 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. Cash collateral held in relation to derivative transactions are carried at amortised cost.

The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that 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. When such evidence exists, the Group recognises profits on day one.

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); or (3) net investment hedge. Hedge accounting is used for derivatives designated in this way provided certain criteria 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 on 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. 28 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(6) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (CONTINUED) (a) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statements, 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 the income statements over the period to maturity.

(b) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statements.

Amounts accumulated in equity are recycled to the income statements in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes 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 in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statements. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statements.

(c) Net investment hedge Net investment hedge is a hedge against the exposure to exchange rate fluctuations on the net assets of the Group’s foreign operations/subsidiaries. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised directly in the foreign currency translation reserve in equity via other comprehensive income while any gain or loss relating to the ineffective portion is recognised directly in the income statements. On disposal of the foreign operations/subsidiaries, the cumulative value of any such gains or losses recognised in equity is transferred to the income statements.

(d) Derivatives that do not qualify for hedge accounting 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 statements. 29 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(7) GOODWILL AND INTANGIBLE ASSETS Intangible assets comprise separately identifiable intangible items arising from business combinations, computer software licenses and other intangible assets. Intangible assets are recognised at cost. The cost of an intangible asset acquired in a business combination is its fair value at the date of acquisition. Intangible assets with a definite useful life are amortised using the straight- line method over their estimated useful economic life. Intangible assets with an indefinite useful life are not amortised. Generally, the identified intangible assets of the Group have a definite useful life. At each date of the consolidated statement of financial position, intangible assets are reviewed for indications of impairment or changes in estimated future economic benefits. If such indications exists, the intangible assets are analysed to assess whether their carrying amount is fully recoverable. An impairment loss is recognised if the carrying amount exceeds the recoverable amount. Intangible assets with indefinite useful life are annually tested for impairment and whenever there is an indication that the asset may be impaired. Refer to accounting policy Note 23 on impairment of non-financial assets.

(a) Goodwill Goodwill arising on the acquisition of subsidiaries represents the excess of consideration transferred over the Group’s interest in the net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of non-controlling interest in the acquiree.

Goodwill is stated at cost less accumulated impairment loss and is tested at least annually for impairment. Impairment loss on goodwill (inclusive of impairment losses recognised in a previous interim period) is not reversed. Gains and losses on the disposal of a subsidiary include the carrying amount of goodwill relating to the subsidiary sold. Refer to accounting policy Note 23 on impairment of non-financial assets.

Goodwill is allocated to Cash-Generating-Units (‘CGUs’) for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the synergies of the business combination in which the goodwill arose, identified according to operating segment.

(b) Computer software licenses Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Computer software licenses are subsequently carried at cost less accumulated amortisation and impairment losses. These costs are amortised over the estimated useful lives of 3 to 10 years.

(c) Other intangible assets Other intangible assets consist of customer relationship, brands, trading rights and membership. Other intangible assets are initially recognised when they are separable or arose from contractual or other legal rights, and when the cost can be measured reliably and, in the case of intangible assets not acquired in a business combination, it is recognised where it is probable that future economic benefits attributable to the assets will flow from their use. The value of intangible assets which are acquired in a business combination is generally determined using income approach methodologies such as the discounted cash flow method.

Other intangible assets with definite life are stated at cost less amortisation and allowance for impairment, if any, plus reversals of impairment, if any. They are amortised over their useful lives in a manner that reflects the pattern to which they contribute to future cash flows, generally over the following useful lives:

Customer relationship 10 years Brand 3 – 10 years 30 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(8) PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. 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 Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repair and maintenance costs are recognised as expense in income statements during the financial period in which they are incurred.

Freehold land, buildings in progress and renovations in progress are not depreciated. Other property, plant and equipment are depreciated on a straight-line basis to write down their costs to their residual values over their estimated useful lives. The principal annual depreciation rates are as follows:

Leasehold land Amortised over the period of the lease* Buildings 2% to 3.33% Renovations and improvements 10% to 11% Computer equipment 14.28% to 33.33% Furniture, fittings and equipment 10% to 20% Motor vehicles 20% Computer software 10% to 33.33%

* The remaining period of the lease ranges from 3 to 868 years.

The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. There are no material adjustments arising from the review that would require disclosure in the financial statements.

Gains or losses on disposals are determined by comparing proceeds with carrying amounts and are included in non-interest income in income statements.

At the end of the reporting period, the Group assesses whether there is any indication of impairment. Where an indication of impairment exists, the carrying amount of the asset is written down to its recoverable amount. Refer to accounting policy Note 23 on impairment of non-financial assets.

(9) NON-CURRENT ASSETS (OR DISPOSAL GROUPS) HELD-FOR-SALE AND DISCOUNTINUED OPERATION Non-current assets (or disposal groups) are classified as assets held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement.

An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of de-recognition. 31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(9) NON-CURRENT ASSETS (OR DISPOSAL GROUPS) HELD-FOR-SALE AND DISCOUNTINUED OPERATION (CONTINUED) Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.

Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the statements of financial position. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the statements of financial position.

A discontinued operation is a component of the entity that has been disposed of or is to be distributed to the shareholders or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the income statements, statements of changes in equity and statements of cash flows.

(10) FINANCIAL LIABILITIES Financial liabilities are measured at amortised cost, except for trading liabilities designated at fair value, which are held at fair value through profit or loss. Financial liabilities are initially recognised at fair value plus transaction costs for all financial liabilities not carried at fair value through profit or loss. Financial liabilities at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in income statements. Financial liabilities are de-recognised when extinguished.

(a) Financial liabilities at fair value through profit or loss This category comprises two sub-categories: financial liabilities as held-for-trading, and financial liabilities designated 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 as hedges. Refer to accounting policy Note 6 on hedge accounting.

(b) Other financial liabilities measured at amortised cost Other financial liabilities are initially recognised at fair value plus transaction costs. Subsequently, other financial liabilities are re-measured at amortised cost using the effective interest rate.

Other financial liabilities measured at amortised cost are deposits from customers, deposits and placements of banks and other financial institutions, obligations on securities sold under repurchase agreements, obligations on securities borrowed, bills and acceptances payable, clients’ and brokers’ balances, recourse obligation on loans sold to Cagamas and other financial liabilities. 32 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(10) FINANCIAL LIABILITIES (CONTINUED) (c) Borrowings measured at amortised cost Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost, any difference between initial recognised amount and the redemption value is recognised in income statements over the period of the borrowings using the effective interest method.

All other borrowing costs are recognised in income statements in the period in which they are incurred.

Borrowings measured at amortised cost are long term and short term borrowings from financial institutions, subordinated obligations, senior debt securities and Hybrid Tier-1 Capital Securities.

(11) RECOURSE OBLIGATION ON LOANS SOLD TO CAGAMAS In the normal course of banking operations, the banking subsidiaries sell loans to Cagamas but undertake to administer the loans on behalf of Cagamas and to buy back any loans which are regarded as defective. Such financing transactions and the obligation to buy back the loans are reflected as a liability on the statements of financial position.

(12) LEASES – WHERE THE GROUP IS LESSEE (a) Operating lease 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 income statements on a straight-line basis over the period of the lease.

The up-front payments made for leasehold land represent prepaid lease rentals and are amortised on straight-line basis over the lease term.

Where an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period when termination takes place.

(b) Finance lease Leases of assets where the Group assumes substantially all the risks and rewards of ownership of the assets are classified as finance leases. The assets are capitalised under property, plant and equipment and subject to depreciation consistent with that of depreciable assets which are owned. The assets and the corresponding lease obligations are recorded at the lower of present value of the minimum lease payments and the fair value of the leased assets at the beginning of the lease term. Each lease payment is allocated between the liability and finance charges using effective yield basis. The corresponding rental obligations, net of finance charges, are included in liabilities. The interest element of the finance charges is charged to income statements 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, plant and equipment acquired under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term. 33 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(13) LEASES – WHERE THE GROUP IS LESSOR (a) Operating lease When assets are leased out under an operating lease, the asset is included in the statements 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.

(b) Finance lease When assets are leased out under a finance lease, the present value of the lease payment 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.

(14) PROVISIONS Provisions are recognised when the Group and the Company have a present legal or constructive obligation, as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of obligation can be made.

Where the Group and the Company 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 expenditure expected to be required to settle the obligation using a pre-tax rate that reflects current market assessment 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.

(15) FINANCIAL GUARANTEE CONTRACTS Financial guarantee contracts are contracts that require the Group 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 issuance 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 premium is recognised.

The fair value of financial guarantee 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. 34 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(16) CONTINGENT LIABILITIES AND CONTINGENT ASSETS The Group and the Company do not recognise a contingent liability but disclose their existence in the financial statements. A contingent liability is a 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 or the Company 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 Company. The Group and the Company do not recognise contingent assets but disclose their existence where inflows of economic benefits are probable, but not virtually certain.

Subsequent to the initial recognition, the Group measures the contingent liabilities that are recognised separately at the date of acquisition at the higher of the amount that would be recognised in accordance with the provision of MFRS 137 ‘Provision, Contingent Liabilities and Contingent Assets’ and the amount initially recognised as profit or loss, when appropriate, cumulative amortisation recognised in accordance with MFRS 118 ‘Revenue’.

(17) SHARE CAPITAL (a) Classification Ordinary shares are classified as equity. Other shares, if issued, are classified as equity and/or liability according to the economic substance of the particular instrument.

(b) Share issue cost Incremental costs directly attributable to the issue of new shares or options are deducted against share premium account.

(c) Dividend distribution Distributions to holders of an equity instrument are debited directly to equity, net of any related income tax benefit and the corresponding liability is recognised in the period in which the shareholders’ right to receive the dividends are established or the dividends are approved.

(18) CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and bank balances and short term deposits maturing within one month. 35 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(19) REVENUE RECOGNITION (a) Interest income is recognised using the effective interest method. The effective interest rate is the rate that discounts estimated future cash receipts or payments through the expected life of the financial instrument or, when appropriate, a shorter period to its carrying amount. The calculation includes significant fees and transaction costs that are integral to the effective interest rate, as well as premiums or discounts.

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

(b) Loan arrangement fees, commissions and placement fees are recognised as income when all conditions precedent are fulfilled.

(d) Commitment fees are recognised as income based on time apportionment.

(e) Income from Islamic Banking business is recognised on accrual basis and in accordance with the principles of Shariah.

(f) Brokerage commission is recognised when services are rendered. Interest income from margin financing, clients’ overdue outstanding purposes and contra losses are recognised using effective interest method.

(g) Premium income from general insurance business (net of all reinsurance) is recognised on the date of assumption of risks. Premium in respect of risk incepted, for which policies have not been raised as at the date of statements of financial position, is accrued at that date.

(h) Corporate advisory fees are recognised as income on completion of each stage of the engagement and issuance of invoice.

(i) Management fees of the unit trust and asset management company are recognised on accrual basis.

(j) Dividends from all investments are recognised when the shareholders’ right to receive payment is established. This applies even if they are paid out of the pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence.

(k) Income from bancassurance/bancatakaful agreements are amortised on a straight-line basis throughout the exclusive services agreement period.

(20) IMPAIRMENT OF FINANCIAL ASSETS (a) Assets carried at amortised cost The Group assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. 36 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(20) IMPAIRMENT OF FINANCIAL ASSETS (CONTINUED) (a) Assets carried at amortised cost (continued) The criteria that the Group uses to determine that there is objective evidence of an impairment loss include: • Significant financial difficulty of the issuer or obligor; • A breach of contract, such as a default or delinquency in interest or principal payments; • The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; • It becomes probable that the borrower will enter bankruptcy or other financial reorganisation; • Disappearance of an active market for that financial asset because of financial difficulties; or • Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:

(i) Adverse changes in the payment status of borrowers in the portfolio; and (ii) National or local economic conditions that correlate with defaults on the assets in the portfolio.

The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the loss is recognised in income statements. If ‘loans and receivables’ or a ‘HTM investment’ have a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in income statements.

When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined.

For loans, advances and financing, the Group first assesses whether objective evidence of impairment exists individually for loans, advances and financing that are individually significant, and individually or collectively for loans, advances and financing that are not individually significant. If the Group determines that no objective evidence of impairment exists for individually assessed loans, advances and financing, whether significant or not, it includes the asset in a group of loans, advances and financing with similar credit risk characteristics and collectively assess them for impairment. 37 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(20) IMPAIRMENT OF FINANCIAL ASSETS (CONTINUED) (a) Assets carried at amortised cost (continued) The Group addresses impairment for loans, advances and financing via either individually assessed allowance or collectively assessed allowance.

(i) Individual impairment allowance The Group determines the allowance appropriate for each individual significant loans, advances and financing on an individual basis. The allowances are established based primarily on estimates of the realisable value of the collateral to secure the loans, advances and financing and are measured as the difference between the carrying amount of the loans, advances and financing and the present value of the expected future cash flows discounted at the original effective interest rate of the loans, advances and financing. All other loans, advances and financing that have been individually evaluated, but not considered to be individually impaired, are assessed collectively for impairment.

(ii) Collective impairment allowance Loans which are not individually significant and loans that have been individually assessed with no evidence of impairment loss are grouped together for collective impairment assessment. These loans are grouped within similar credit risk characteristics for collective assessment, whereby data from the loan portfolio (such as credit quality, levels of arrears, credit utilisation, loan to collateral ratios etc.) and concentrations of risks (such as the performance of different individual groups) are taken into consideration.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated based on the historical loss experience of the Group. Historical loss experience is adjusted on the basis of current observable data to reflect current conditions on which the historical loss experience is based on and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

(iii) Regulatory reserve The Group has early adopted the requirement to maintain, in aggregate, the collective impairment allowances and regulatory reserves of no less than 1.2% of total outstanding loans/financing, net of individual impairment allowances. The regulatory reserve is debited against retained earnings. 38 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(20) IMPAIRMENT OF FINANCIAL ASSETS (CONTINUED) (a) Assets carried at amortised cost (continued) Bank Negara Malaysia (‘BNM’), had on 6 April 2015, issued the Revised Policy on Classification and Impairment Provisions for Loans/Financing. The requirements to the Revised Policy are effective for financial years beginning on or after 1 January 2015, except for the following:

• Classification of a loan/financing as impaired when the loan/financing is classified as rescheduled and restructured (‘R&R’) in BNM’s Central Credit Reference Information System (‘CCRIS’) effective on or after 1 April 2015. The R&R loan/financing shall only be reclassified from impaired to non-impaired when repayments based on revised and restructured terms have been observed continuously for a period of at least six (6) months; and

• Banking institutions are required to maintain, in aggregate, collective impairment allowances and regulatory reserves of no less than 1.2% of total outstanding loans/financing, net of individual impairment allowances, effective beginning 31 December 2015.

(b) Assets classified as AFS The Group assesses at the end of the reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired.

For debt securities, the Group uses criteria and measurement of impairment loss applicable for ‘assets carried at amortised cost’ above. If, in a subsequent period, the fair value of a debt instrument classified as AFS increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in income statements, the impairment loss is reversed through income statements.

In the case of equity securities classified as AFS, in addition to the criteria for ‘assets carried at amortised cost’ above, a significant or prolonged decline in the fair value of the security below its cost is also considered as an indicator that the assets are impaired. If any such evidence exists for AFS financial assets, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in income statements. The amount of cumulative loss that is reclassified to income statements is the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in income statements. Impairment losses recognised in income statements on equity instruments classified as AFS are not reversed through income statements.

(21) GENERAL INSURANCE Insurance contracts are those contracts that transfer significant insurance risk. An insurance contract is a contract under which the insurance subsidiary (the insurer) has accepted significant insurance risk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. As a general guideline, the Group determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. 39 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(21) GENERAL INSURANCE (CONTINUED) The general insurance underwriting results are determined for each class of business after taking into account, reinsurances, commissions, unearned premiums and claims incurred.

(a) Premium income Premium income is recognised on the date of assumption of risk. Premium in respect of risks incepted for which policies have not been raised as of the date of statements of financial position are accrued.

Premiums, claims and other transactions of inward treaty business are accounted for in the income statements as and when the statements of account are received.

Outward reinsurance premium are recognised in the same accounting period as the original policies to which the reinsurance relate.

(b) Premium liabilities Premium liabilities refer to the higher of:

(i) The aggregate of the unearned premium reserves; or

(ii) The best estimate value of the insurer’s unexpired risk reserves at the valuation date and the Provision of Risk Margin for Adverse Deviation calculated at the overall company level of the insurance subsidiary. The best estimate value is a prospective estimate of the expected future payments arising from future events insured under policies in force as at the valuation date and also includes allowance for the insurer’s expense including overheads and cost of reinsurance, expected to be incurred during the unexpired period in administering these policies and settling the relevant claims, and shall allow for expected future premium refunds.

(c) Claim liabilities A liability for outstanding claims is recognised in respect of both direct insurance and inward reinsurance. The amount of claim liabilities is the best estimate of the expenditure required together with related expenses less recoveries to settle the present obligations at the date of statements of financial position. These include provision for claims reported, claim incurred but not reported, claims incurred but not enough reserve and direct and indirect claims-related expenses such as investigation fees, loss adjustment fees, legal fees, sue and labour charges and the expected internal costs that the insurer expects to incur when settling these claims.

(d) Acquisition costs and deferred acquisition costs (‘DAC’) The gross cost of acquiring and renewing insurance policies net of income derived from ceding reinsurance premium is recognised as incurred and properly allocated to the periods in which it is probable they give rise to income.

Those costs are deferred to the extent that these costs are recoverable out of future premiums. All other acquisition costs are recognised as an expense when incurred. 40 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(21) GENERAL INSURANCE (CONTINUED) (d) Acquisition costs and deferred acquisition costs (‘DAC’) (continued) Subsequent to initial recognition, these costs are amortised on a straight-line basis based on the term of expected future premiums. Amortisation is recognised in income statements.

Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in these assets are accounted for by changing the amortisation period and are treated as a change in an accounting estimate.

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in income statements. DAC is also considered in the liability adequacy test for each accounting period.

DAC is derecognised when the related contracts are either settled or disposed of.

For presentation purposes, DAC is net off against premium liabilities in the financial statements.

(e) Reinsurance The insurance subsidiary cedes insurance risk in the normal course of business for all of its businesses. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies and are in accordance with the related reinsurance contracts.

Ceded reinsurance arrangements do not relieve the insurance subsidiary from its obligations to policyholders. Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance.

Reinsurance assets are reviewed for impairment at each reporting date or more frequently when an indication of impairment arises during the reporting period. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the insurer may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the insurer will receive from the reinsurer. The impairment loss is recorded in the income statements.

Gains or losses on buying reinsurance are recognised in the income statements immediately at the date of purchase and are not amortised.

The Group also assumes reinsurance risk in the normal course of business for general insurance contracts when applicable.

Premiums and claims on assumed reinsurance are recognised as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract.

Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expired or when the contract is transferred to another party. 41 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(21) GENERAL INSURANCE (CONTINUED) (e) Reinsurance (continued) Reinsurance contracts that do not transfer significant insurance risk are accounted for directly through the statements of financial position. These are deposit assets or financial liabilities that are recognised based on the consideration paid or received less any explicit identified premiums or fees to be retained by the reinsured. Investment income on these contracts is accounted for using the effective yield method when accrued.

(f) Insurance contract liabilities General insurance contract liabilities are recognised when contracts are entered into and premiums are charged. These liabilities comprise claims liabilities and premium liabilities.

Outstanding claims provision are based on the estimated ultimate cost of all claims incurred but not settled at the date of statements of financial position, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore, the ultimate cost of these claims cannot be known with certainty at the date of statements of financial position. The liability is calculated at the reporting date using a range of standard actuarial claim projection techniques based on empirical data and current assumptions that may include a margin for adverse deviation. The liability is not discounted for the time value of money. No provision for equalisation or catastrophe reserves is recognised. The liabilities are derecognised when the contract expires, is discharged or is cancelled. The provision for unearned premiums represents premiums received for risks that have not yet expired. Generally, the reserve is released over the term of the contract and is recognised as premium income.

At each reporting date, the Group reviews its unexpired risks and a liability adequacy test is performed to determine whether there is any overall excess of expected claims and deferred acquisition costs over unearned premiums. This calculation uses current estimates of future contractual cash flows (taking into consideration current loss ratios) after taking account of the investment return expected to arise on assets relating to the relevant general insurance technical provisions. If these estimates show that the carrying amount of the unearned premium less related deferred acquisition costs is inadequate, the deficiency is recognised in income statements by setting up a provision for liability adequacy.

(22) EMPLOYEE BENEFITS (a) Short term employee benefits The Group and the Company recognise a liability and an expense for bonuses. The Group and the Company recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

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 and the Company. 42 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(22) EMPLOYEE BENEFITS (CONTINUED) (b) Defined contribution plans A defined contribution plan is a pension plan under which the Group and the Company pay fixed contributions to the national pension scheme, the Employees’ Provident Fund. The Group’s and the Company’s contributions to defined contribution plans are charged to income statements in the period to which they relate. Once the contributions have been paid, the Group and the Company have no further legal or constructive obligations.

(c) 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.

(23) IMPAIRMENT OF NON-FINANCIAL ASSETS Non-financial assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Non-financial 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 carrying amount of the non-financial assets exceeds its recoverable amount.

The recoverable amount is the higher of a non-financial assets’ fair value less costs to sell and value in use. For the purpose of assessing impairment, non-financial assets are grouped at the lowest levels for which there is separately identifiable cash flows or CGU. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting period.

The impairment loss is charged to income statements. Impairment losses on goodwill are not reversed. In respect of other non- financial assets, any subsequent increase in recoverable amount is recognised in income statements.

(24) CURRENT AND DEFERRED INCOME TAXES The tax expense for the period comprises current and deferred tax. Tax is recognised in income statements, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is recognised in other comprehensive income or directly in equity, respectively.

Current tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and include all taxes based upon the taxable profits, including withholding taxes payable by foreign subsidiaries, associates and joint ventures and arising from distributions of retained profits to companies in the Group.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities 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 future taxable profits will be available against which the deductible temporary differences or unused tax losses can be utilised. 43 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(24) CURRENT AND DEFERRED INCOME TAXES (CONTINUED) Deferred tax is recognised on temporary differences arising on investments in subsidiaries, associates and joint ventures except where the timing of the reversal of the temporary differences can be controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the date of statements of financial position and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

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 a net basis.

(25) CURRENCY CONVERSION AND TRANSLATION (a) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’). The financial statements are presented in Ringgit Malaysia, which is the Company’s functional and presentation currency.

(b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates 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 statements, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses are presented in income statements within other operating income.

Changes in the fair value of monetary securities denominated in foreign currency classified as AFS are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in income statements, and other changes in 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 or loss are recognised in income statements as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as AFS, are included in other comprehensive income.

(c) Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) Assets and liabilities for each statements of financial position presented are translated at the closing rate at the date of that statements of financial position; 44 RHB Capital Berhad Annual Report 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(25) CURRENCY CONVERSION AND TRANSLATION (CONTINUED) (c) Group companies (continued) (ii) Income and expenses for each statements of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of transactions); and

(iii) All resulting exchange differences are recognised as a separate component of other comprehensive income.

On consolidation, exchange differences arising from the translation of any net investment in foreign operations, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is partially disposed of or sold, a proportionate share of such exchange differences is recognised in income statements as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(26) SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is responsible for allocating resources to and assessing performance of the operating segments of an entity. The Group has determined its Group Management Committee as its chief operating decision-maker.

(B) CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets within the next financial year are outlined below:

(a) Allowance for impairment of financial assets

In determining impairment of financial assets, management considers objective evidence of impairment and exercises judgement in estimating cash flow and collateral value.

The Group makes allowance for losses based on assessment of recoverability. Management’s judgement is made in estimation of the amount and timing of future cash flows in assessing allowance for impairment of financial assets. Among the factors considered are the Group’s aggregate exposure to the borrower, the net realisable value of the underlying collateral value, the viability of the customer’s business model, the capacity to generate sufficient cash flow to service debt obligations and the aggregate amount and ranking of all other creditor claims. 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 impairment made. 45 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (continued) for the financial year ended 31 December 2015

(B) CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (CONTINUED)

(b) Goodwill impairment Goodwill is tested at least annually for impairment. Testing of goodwill for impairment involves a significant amount of estimation. This includes the identification of independent CGUs and the allocation of goodwill to these units based on which units are expected to benefit from the acquisition. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the CGU. Determining both the expected pre-tax cash flows and the risk adjusted discount rate appropriate to the CGU also require the exercise of judgement. The variables are subject to fluctuations in external market rates and economic conditions beyond management control and are subject to uncertainty and require the exercise of significant judgement. The detailed disclosures on the assessment of impairment of goodwill is disclosed in Note 18 to the financial statements.

(c) Income tax The Group and the Company are subject to taxation in many jurisdictions and significant judgement is required in estimating the provision for income taxes. There are many transactions and calculations during the course of business for which the ultimate tax determination is uncertain, as tax authorities may challenge some of the Group and the Company’s positions and propose adjustments or changes to its tax filings.

Liabilities for taxation and recoverability of tax amount from tax authorities are recognised based on estimates of whether additional taxes will be payable. The estimation process includes seeking advice on the tax treatments where appropriate. Where the final liability for taxation is different from the amounts that were initially recorded, the differences will affect the income tax and deferred tax provisions in the period in which the estimate is revised or the final liability is established.

The Group and the Company review the adequacy of these provisions and tax recoverable amount at the end of each reporting period and adjusts them based on changing facts and circumstances. 46 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 December 2015

1 GENERAL INFORMATION

The Company is a public limited company, incorporated and domiciled in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad.

There have been no significant changes in these principal activities during the financial year.

The address of the registered office of the Company is Level 9, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur.

The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 25 February 2016.

2 CASH AND SHORT TERM FUNDS

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Cash and balances with banks and other financial institutions 3,842,900 3,433,011 2,636 431 Money at call and deposit placements maturing within one month 9,039,361 12,803,897 2,346,044 24,509

12,882,261 16,236,908 2,348,680 24,940

Included in the cash and short term funds of the Group are accounts held in trust for remisiers amounting to RM62,824,000 (2014: RM59,480,000).

3 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Licensed banks 715,838 1,343,452 1,050 1,017 Licensed Islamic banks 100,011 340,892 – – Licensed investment banks – 61,989 – – BNM 34,167 – – – Other financial institutions 526,186 552,255 – –

1,376,202 2,298,588 1,050 1,017 47 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

4 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (‘FVTPL’)

Group

2015 2014 RM’000 RM’000

(a) Designated as fair value through profit or loss 170,314 – (b) Held-for-trading 1,582,327 2,930,681 1,752,641 2,930,681

(a) Financial assets designated as fair value through profit or loss QUOTED SECURITIES: In Malaysia Unit trusts 51,583 –

UNQUOTED SECURITIES: Outside Malaysia Private equity funds 118,731 – 170,314 –

(b) Financial assets held-for-trading At fair value MONEY MARKET INSTRUMENTS: Malaysian Government Securities 289,533 557,950 Malaysian Government Investment Issues 50,583 728,287 Cagamas bonds 60,163 6,968 Sukuk Perumahan Kerajaan (‘SPK’) bonds 48,819 20,116 Singapore Government Treasury Bills – 502,281 Other foreign government securities 84,207 –

QUOTED SECURITIES: In Malaysia Shares, exchanged traded funds and warrants 220,526 155,976 Unit trusts 1,910 56,483 Private debt securities 3,636 3,841

Outside Malaysia Shares, exchanged traded funds and warrants 103,946 150,145 Unit trusts 126,504 82,994

UNQUOTED SECURITIES: In Malaysia Private debt securities 538,373 424,192 Commercial paper 49,379 49,870

Outside Malaysia Private debt securities 4,748 17,588 Credit link notes – 173,990 1,582,327 2,930,681 48 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

4 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (‘FVTPL’) (CONTINUED)

In 2008, the Group reclassified a portion of its financial assets FVTPL into financial investments AFS and HTM. The reclassifications have been accounted for in accordance with BNM’s circular on ‘Reclassification of Securities under Specific Circumstances’ dated 17 October 2008, which is effective from 1 July 2008 until 31 December 2009.

The effects of the reclassification on the income statements for the period from the date of reclassification to 31 December 2015 were as follows:

Carrying amount Fair value

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Group

Reclassified from financial assets FVTPL to financial investments AFS 30,188 29,823 30,146 29,450 Reclassified from financial assets FVTPL to financial investments HTM – 21,140 – 21,409

30,188 50,963 30,146 50,859

Group

2015 2014 RM’000 RM’000

Fair value loss that would have been recognised if the financial assets FVTPL had not been reclassified (42) (104) 49 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

5 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE (‘AFS’)

Group

2015 2014 RM’000 RM’000

At fair value MONEY MARKET INSTRUMENTS: Malaysian Government Securities 1,560,326 1,168,982 Malaysian Government Investment Issues 2,757,496 2,413,705 Cagamas bonds 343,970 176,532 Khazanah bonds 60,365 58,123 1 Malaysia Sukuk – 330,256 Wakala Global Sukuk 102,010 84,587 Bankers’ acceptances and Islamic accepted bills 58,458 73,627 Negotiable instruments of deposits 349,010 649,516 SPK bonds 230,466 125,034 Malaysia Sovereign Sukuk 64,572 – Singapore Government Securities 286,214 161,233 Singapore Government Treasury Bills 1,184,564 409,666 Thailand Government bonds 358,074 120,895 Other foreign government securities 30,806 –

QUOTED SECURITIES: In Malaysia Shares 6,014 15,830 Unit trusts 14,752 12,976

Outside Malaysia Shares 10,252 1,800 Unit trusts 28,562 30,368

UNQUOTED SECURITIES: In Malaysia Private and Islamic debt securities 15,404,565 12,664,877 Shares 672,480 609,194 Corporate loan stocks 18,422 17,843 Prasarana bonds 145,188 35,185 Perpetual notes/Sukuk 286,117 286,084

Outside Malaysia Private and Islamic debt securities 1,040,551 442,042 Corporate loan stocks – 2,151 Shares 387 396 25,013,621 19,890,902 Accumulated impairment losses (274,825) (288,726) 24,738,796 19,602,176

Included in financial investments AFS are private and Islamic debt securities, which are pledged as collateral for obligations on securities sold under repurchase agreements amounting to RM188,814,000 (2014: RM20,484,000). 50 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

5 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE (‘AFS’) (CONTINUED)

Group 2015 2014 RM’000 RM’000

Movements in allowance for impairment losses: Balance as at the beginning of the financial year 288,726 492,543 Charge during the financial year 6,538 15,601 Written back during the financial year (18,294) (124,229) Written off during the financial year (2,147) – Disposal/redemption (287) (65,654) Transfer to individual impairment allowance – (29,666) Exchange differences 289 131 Balance as at the end of the financial year 274,825 288,726

6 FINANCIAL INVESTMENTS HELD-TO-MATURITY (‘HTM’)

Group 2015 2014 RM’000 RM’000

At amortised cost MONEY MARKET INSTRUMENTS: Malaysian Government Securities 2,239,247 2,343,015 Malaysian Government Investment Issues 5,366,226 5,710,589 Cagamas bonds 1,357,117 1,846,208 Khazanah bonds 106,368 101,835 Negotiable instruments of deposits 2,222,850 2,027,550 Wakala Global Sukuk 306,836 249,958 SPK bonds 111,147 111,178 Singapore Government Securities 61,267 187,519 Thailand Government Securities 163,746 275,711 Sukuk (Brunei) Incorporation 45,582 39,689 UNQUOTED SECURITIES: In Malaysia Private and Islamic debt securities 7,736,966 6,868,950 Corporate loan stocks 62,607 70,171 Bonds 883 883 Prasarana bonds 808,227 810,498 Credit link notes 30,043 45,058 Outside Malaysia Private and Islamic debt securities 147,959 37,222 Credit link notes – 17,891 20,767,071 20,743,925 Accumulated impairment losses (234,835) (274,094) 20,532,236 20,469,831

Included in financial investments HTM are government securities and private and Islamic debt securities, which are pledged as collateral for obligations on securities sold under repurchase agreements amounting to RM4,865,000,000 (2014: RM500,000,000). 51 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

6 FINANCIAL INVESTMENTS HELD-TO-MATURITY (‘HTM’) (CONTINUED)

Group

2015 2014 RM’000 RM’000

Movements in allowance for impairment losses: Balance as at the beginning of the financial year 274,094 274,517 Charge during the financial year 1,306 2,817 Written back during the financial year (43,668) (13,567) Transfer to individual impairment allowance – 9,871 Exchange differences 3,103 456 Balance as at the end of the financial year 234,835 274,094

7 LOANS, ADVANCES AND FINANCING

Group

2015 2014 RM’000 RM’000

At amortised cost Overdrafts 6,311,063 6,327,913 Term loans/financing: – Housing loans/financing 37,023,836 31,988,629 – Syndicated term loans/financing 7,353,366 5,581,599 – Hire purchase receivables/financing 11,697,202 13,348,197 – Lease receivables 20,357 33,706 – Other term loans/financing 70,123,673 66,671,673 Bills receivables 2,450,943 2,452,642 Trust receipts 802,714 626,381 Claims on customers under acceptance credits 3,687,879 3,662,085 Staff loans/financing 198,233 221,146 Credit/charge card receivables 1,978,968 1,994,710 Revolving credits/financing 9,738,150 9,577,509 Gross loans, advances and financing 151,386,384 142,486,190 Fair value changes arising from fair value hedges (11,158) (26,870) 151,375,226 142,459,320 Allowance for impaired loans, advances and financing: – Individual impairment allowance (593,147) (417,232) – Collective impairment allowance (1,191,118) (1,349,085) Net loans, advances and financing 149,590,961 140,693,003 52 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

7 LOANS, ADVANCES AND FINANCING (CONTINUED)

Included in loans, advances and financing are housing loans, hire purchase receivables and other term loans/financing sold to Cagamas with recourse amounting to RM3,057,518,000 (2014: RM3,304,749,000).

Group

2015 2014 RM’000 RM’000

(a) By type of customer Domestic non-bank financial institutions: – Others 2,096,562 2,048,118 Domestic business enterprises: – Small and medium enterprises 22,598,253 16,255,916 – Others 33,678,193 36,538,619 Government and statutory bodies 5,370,404 7,457,968 Individuals 68,212,126 64,275,120 Other domestic entities 144,371 124,840 Foreign entities 19,286,475 15,785,609

151,386,384 142,486,190

(b) By geographical distribution Malaysia 131,237,797 125,761,783 Labuan Offshore 4,246,116 3,585,654 Singapore 12,715,681 11,017,471 Thailand 1,065,947 1,061,038 Brunei 146,351 114,997 Indonesia 28,977 7,209 Hong Kong 358,550 143,844 Cambodia 1,484,137 758,885 Lao 102,828 35,309

151,386,384 142,486,190 53 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

7 LOANS, ADVANCES AND FINANCING (CONTINUED)

Group

2015 2014 RM’000 RM’000

(c) By interest/profit rate sensitivity Fixed rate: – Housing loans/financing 1,515,718 1,522,767 – Hire purchase receivables/financing 11,697,202 13,348,197 – Other fixed rate loans/financing 18,021,189 19,506,915 Variable rate: – Base lending/financing rate plus 70,835,309 63,266,561 – Cost-plus 36,183,664 36,418,784 – Other variable rates 13,133,302 8,422,966

151,386,384 142,486,190

(d) By purpose Purchase of securities 14,440,659 15,606,564 Purchase of transport vehicles 10,853,772 12,222,831 Purchase of landed property: – Residential 37,866,118 31,469,445 – Non-residential 12,849,551 10,633,960 Purchase of property, plant and equipment other than land and building 3,951,869 3,675,777 Personal use 8,331,723 7,650,256 Credit card 1,978,968 1,994,710 Purchase of consumer durables 37,787 28,926 Construction 5,803,757 4,929,162 Working capital 37,775,816 35,060,938 Merger and acquisition 3,172,991 3,227,805 Other purpose 14,323,373 15,985,816

151,386,384 142,486,190

(e) By remaining contractual maturities Maturity within one year 47,115,707 48,168,576 One year to three years 9,240,476 8,693,192 Three years to five years 15,372,854 11,464,772 Over five years 79,657,347 74,159,650

151,386,384 142,486,190 54 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

7 LOANS, ADVANCES AND FINANCING (CONTINUED)

Group

2015 2014 RM’000 RM’000

(f) Impaired loans, advances and financing (i) Movements in impaired loans, advances and financing Balance as at the beginning of the financial year 2,892,367 3,426,629 Classified as impaired 4,070,140 3,704,991 Reclassified as non-impaired (2,468,834) (2,497,162) Amount recovered (1,093,995) (765,732) Amount written off (581,340) (1,021,213) Transfer from financial investments AFS – 39,543 Exchange differences 22,873 5,311

Balance as at the end of the financial year 2,841,211 2,892,367

(ii) By purpose Purchase of securities 122,487 218,313 Purchase of transport vehicles 135,530 180,120 Purchase of landed property: – Residential 788,011 783,908 – Non-residential 181,580 181,589 Purchase of property, plant and equipment other than land and building 48,212 38,834 Personal use 164,915 153,432 Credit card 37,233 36,911 Purchase of consumer durables 868 1,425 Construction 108,541 115,694 Working capital 1,178,142 1,139,887 Other purpose 75,692 42,254

2,841,211 2,892,367 55 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

7 LOANS, ADVANCES AND FINANCING (CONTINUED)

Group

2015 2014 RM’000 RM’000

(f) Impaired loans, advances and financing (continued) (iii) By geographical distribution In Malaysia 2,539,116 2,754,303 Labuan Offshore 12,728 – Singapore 235,737 104,211 Thailand 25,792 21,872 Brunei 13,077 8,245 Hong Kong 1,908 – Cambodia 12,853 3,736

2,841,211 2,892,367

(iv) Movements in allowance for impaired loans, advances and financing Individual impairment allowance Balance as at the beginning of the financial year 417,232 903,388 Net allowance made/(written back) 235,504 (27,937) Amount written off (69,249) (482,988) Reclassified to collective impairment allowance – (64) Transfer to impairment of financial investments HTM – (9,871) Transfer from impairment of financial investments AFS – 29,666 Exchange differences 9,660 5,038

Balance as at the end of the financial year 593,147 417,232

Collective impairment allowance Balance as at the beginning of the financial year 1,349,085 1,280,266 Net allowance made 194,513 405,898 Amount written off (365,182) (339,584) Reclassified from individual impairment allowance – 64 Exchange differences 12,702 2,441

Balance as at the end of the financial year 1,191,118 1,349,085 56 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

8 CLIENTS’ AND BROKERS’ BALANCES

Group

2015 2014 RM’000 RM’000

Amounts owing by clients 481,139 828,187 Allowance for impaired balances: – Individual impairment allowance (16,480) (35,505) – Collective impairment allowance (6,654) (6,142) 458,005 786,540

Amounts owing by brokers 821,511 522,266 Allowance for impaired balances: – Individual impairment allowance (1,297) (1,309) 1,278,219 1,307,497 Amounts owing by clearing houses and stock exchanges 375,994 217,650 1,654,213 1,525,147

Movements in allowance for impaired balances are as follows: Individual impairment allowance Balance as at the beginning of the financial year 36,814 38,315 Allowance made/(written back) 4,941 (1,198) Amount written off (26,743) (1,036) Exchange differences 2,765 733 Balance as at the end of the financial year 17,777 36,814

Collective impairment allowance Balance as at the beginning of the financial year 6,142 4,175 Allowance made 127 1,967 Exchange differences 385 – Balance as at the end of the financial year 6,654 6,142

9 REINSURANCE ASSETS

Group

2015 2014 Note RM’000 RM’000

Claims liabilities 23 (a) 275,023 241,647 Premium liabilities 23 (b) 96,215 90,466 Balance as at the end of the financial year 371,238 332,113 57 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

10 OTHER ASSETS

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Other debtors 682,510 770,176 – 2 Cash collateral in relation to derivative transactions 1,615,586 620,577 – – Deposits 98,786 87,536 – – Prepayments 80,887 63,700 50 3,635

2,477,769 1,541,989 50 3,637

Other debtors of the Group are stated net of allowance for impairment losses of RM23,805,000 (2014: RM13,186,000).

11 DERIVATIVE ASSETS/(LIABILITIES)

Derivative financial instruments are financial instruments whose values change in response to changes in prices or rates (such as foreign exchange rates, interest rates and security prices) of the underlying instruments. These instruments are used by the Group for economic hedges and for proprietary trading purposes. The default classification for derivative financial instruments is trading, unless designated in a hedge relationship and are in compliance with the stringent requirements of hedge accounting mentioned in the Group’s accounting policies.

The table below shows the Group’s derivative financial instruments as at the date of statements of financial position. The contractual or underlying principal amounts of these derivative financial instruments and their corresponding gross positive (derivative assets) and gross negative (derivative liabilities) fair values at the date of statements of financial position are analysed below:

Group

2015 2014 RM’000 RM’000

Derivative assets: – Trading derivatives 3,092,381 1,269,617 – Fair value hedging derivatives 10,008 15,613

3,102,389 1,285,230

Derivative liabilities: – Trading derivatives (3,087,579) (1,224,684) – Fair value hedging derivatives (2,202) –

(3,089,781) (1,224,684)

12,608 60,546 58 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

11 DERIVATIVE ASSETS/(LIABILITIES) (CONTINUED)

Group

Contract or underlying Year-end Year-end principal positive negative amount fair value fair value RM’000 RM’000 RM’000

2015 Trading derivatives: Foreign exchange related contracts: – Forwards/swaps 67,057,530 1,164,438 (947,415) – Options 1,207,428 8,452 (6,444) – Cross-currency interest rate swaps 12,746,295 1,765,293 (1,977,751) 81,011,253 2,938,183 (2,931,610) Interest rate related contracts: – Swaps 39,680,278 154,197 (125,923) Equity related contracts: – Options 303 – (8) – Index futures 12 1 – 315 1 (8) Structured warrants 87,608 – (30,038) Fair value hedging derivatives: Interest rate related contracts: – Swaps 2,350,000 10,008 (2,202) 3,102,389 (3,089,781)

2014 Trading derivatives: – Forwards/swaps 23,827,241 454,871 (393,667) – Options 4,954,671 42,665 (43,381) – Cross-currency interest rate swaps 11,838,652 640,085 (637,832) 40,620,564 1,137,621 (1,074,880) Interest rate related contracts: – Swaps 32,733,945 127,082 (136,691) Equity related contracts – Options 15,508 4,914 – Structured warrants 50,412 – (13,113) Fair value hedging derivatives: Interest rate related contracts: – Swaps 1,950,000 15,613 – 1,285,230 (1,224,684) 59 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

11 DERIVATIVE ASSETS/(LIABILITIES) (CONTINUED)

(i) Fair value hedges Fair value hedging are used by the Group for protection against the changes in fair value of financial assets and financial liabilities due to movements in market interest rates. The Group uses interest rate swaps to hedge against interest rate risk of specific identified fixed rate long term as well as portfolio homogenous pools of loans, advances and financing. Included in other operating income as disclosed in Note 35 is the net gains and losses arising from fair value hedges for the financial year as follows:

Group

2015 2014 RM’000 RM’000

(Loss)/gain on hedging instruments (11,959) 3,878 Gain/(loss) on the hedged items attributable to the hedged risk 12,639 (1,504)

680 2,374

(ii) Net investment hedge The Group’s statements of financial position is affected by gains and losses as a result of the revaluation of net assets of its subsidiary companies denominated in currencies other than its functional currency. The Group hedges its exposures to foreign currency risk via the designation of foreign currency denominated deposits and the fair value as at 31 December 2015 amounting to RM498.0 million (2014: RMNil). The hedging relationship was fully effective for the total hedging period and as of the reporting date. No amounts were withdrawn from equity during the financial year as there was no disposal of foreign operations.

12 AMOUNTS DUE FROM/(TO) SUBSIDIARIES

The amounts due from/(to) subsidiaries are as follows:

Company 2015 2014 Note RM’000 RM’000

Amounts due from: Cash and short term funds 2 2,348,678 24,940 Intercompany balances (a) 27 93

2,348,705 25,033

Amounts due to: Intercompany balances (a) 1,929 1,799 Borrowings 26 1,456,029 1,055,505

1,457,958 1,057,304

(a) The amounts due from/(to) subsidiaries are unsecured, interest free and receivable/(payable) within the normal credit period. 60 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

13 STATUTORY DEPOSITS

Group

2015 2014 Note RM’000 RM’000

Statutory deposits with BNM (a) 4,861,722 5,187,397 Statutory deposits with Monetary Authority of Singapore (b) 156,904 136,629 Statutory deposits with Ministry of Finance Negara Brunei Darussalam (c) 13,845 14,740 Statutory deposits with Labuan Offshore Financial Services Authority (‘LOFSA’) (d) 100 100 Statutory deposits and reserve deposits with National Bank of Cambodia (‘NBC’) (e) 238,225 81,762 Statutory deposits with National Bank of Lao (‘BOL’) (f) 1,434 379

5,272,230 5,421,007

(a) Non-interest bearing statutory deposits maintained with BNM in compliance with Section 26(2)(c) of the Central Bank of Malaysia Act, 2009. The amount is determined at a set percentage of total eligible liabilities.

(b) Non-interest bearing statutory deposits maintained with the Monetary Authority of Singapore in compliance with Banking Act, Cap. 19 and Singapore Finance Companies Act, Cap.108.

(c) Non-interest bearing statutory deposits maintained with the Ministry of Finance, Negara Brunei Darussalam in compliance with Section 6A of the Banking Act.

(d) Non-interest bearing statutory deposits maintained with LOFSA relating to a trust subsidiary which is maintained in accordance with Section 61(2)(b)(ii) of the Labuan Financial Services and Securities Act 2012.

(e) Included in statutory deposits with NBC are:

(i) Interest bearing statutory deposits of RM28.8 million (2014: RM18.1 million) maintained with NBC in compliance with NBC’s Prakas B7-01-136 dated 15 October 2001 as capital guarantee. This deposit bears interest at 0.18% (2014: 0.18%) per annum, and is not available for use in day-to-day operations but it is refundable when RHB Indochina Bank Limited voluntarily ceases to operate its banking business in Cambodia.

(ii) Non-interest bearing deposits of RM209.5 million (2014: RM63.6 million) maintained with NBC as reserve requirements, computed at 12.5% (2014: 12.5%) of customer deposits in Cambodian Riel (‘KHR’) and in foreign currencies, respectively.

(f) Non-interest bearing statutory deposits maintained with BOL computed at 5% and 10% (2014: 5% and 10%) of customer deposits in Lao Kip (‘LAK’) and in foreign currencies, respectively.

The statutory deposits amount and reserve requirements mentioned above are determined by the respective authorities. 61 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

14 DEFERRED TAX ASSETS/(LIABILITIES)

Deferred income 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 authority. The following amounts determined after appropriate set off, are shown in the statements of financial position:

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Deferred tax assets 112,201 38,465 – – Deferred tax liabilities (11,334) (53,041) – (20)

100,867 (14,576) – (20)

Deferred tax assets: – Settled more than twelve months 17,771 10,153 – – – Settled within twelve months 193,215 120,911 – –

Deferred tax liabilities: – Settled more than twelve months (73,805) (107,551) – – – Settled within twelve months (36,314) (38,089) – (20)

100,867 (14,576) – (20)

The deferred tax assets and liabilities have been adjusted to take into account the reduction in tax rate to 24% in Year of Assessment 2016 and thereafter, where adjustments are made based on amounts of temporary differences expected to be reversed in the prospective years. 62 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

14 DEFERRED TAX ASSETS/(LIABILITIES) (CONTINUED)

The movements in deferred tax assets and liabilities during the financial year comprise the following:

Property, plant and equipment and Financial Other intangible investments Tax Other temporary assets AFS losses liabilities differences Total Group Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

2015 Balance as at the beginning of the financial year (80,814) (64,595) 203 125,061 5,569 (14,576) Transfer from income statements 41 26,335 – 3,692 57,727 2,251 90,005 Transfer to equity – 24,640 – – (332) 24,308 Exchange differences (66) (45) 174 1,258 (191) 1,130

Balance as at the end of the financial year (54,545) (40,000) 4,069 184,046 7,297 100,867

2014 Balance as at the beginning of the financial year (74,624) (49,353) 260 101,070 2,058 (20,589) Transfer (to)/from income statements 41 (6,158) – (57) 24,316 3,818 21,919 Transfer to equity – (15,259) – – (319) (15,578) Exchange differences (32) 17 – (325) 12 (328)

Balance as at the end of the financial year (80,814) (64,595) 203 125,061 5,569 (14,576)

Property, plant and Other equipment liabilities Total Company Note RM’000 RM’000 RM’000

2015 Balance as at the beginning of the financial year (20) – (20) Transfer from income statements 41 20 – 20

Balance as at the end of the financial year – – –

2014 Balance as at the beginning of the financial year (9) 1,190 1,181 Transfer to income statements 41 (11) (1,190) (1,201)

Balance as at the end of the financial year (20) – (20) 63 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

14 DEFERRED TAX ASSETS/(LIABILITIES) (CONTINUED)

Deferred tax assets have not been recognised on the following amounts as it is not probable that the relevant subsidiaries will generate sufficient future taxable profits available against which the deductible temporary differences can be utilised:

Group

2015 2014 RM’000 RM’000

Unabsorbed tax losses carried forward 1,466,272 1,466,925 Unabsorbed capital allowances carried forward 24,449 24,152

1,490,721 1,491,077

The above deductible temporary differences have no expiry date.

15 INVESTMENTS IN SUBSIDIARIES

Company

2015 2014 RM’000 RM’000

Unquoted shares, at cost: – In Malaysia 11,721,353 11,283,899 – Outside Malaysia 97,777 97,777

11,819,130 11,381,676 Accumulated impairment losses (339,331) (339,331)

11,479,799 11,042,345 64 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows:

Effective equity Effective equity Paid-up interest held interest held share capital by the Group by NCI (in RM unless Country of otherwise 2015 2014 2015 2014 Name of company incorporation stated) % % % % Principal activities

RHB Bank Berhad Malaysia 3,460,585,030.50 100 100 – – Commercial banking and (‘RHB Bank’)3 finance business

RHB Islamic Bank Malaysia 1,173,424,002 100 100 – – Islamic banking Berhad (‘RHB Islamic Bank’)

RHB Bank (L) Ltd Malaysia USD54,000,000 100 100 – – Offshore banking

RHB International Malaysia USD40,000 100 100 – – Labuan trust company Trust (L) Ltd

RHB Corporate Malaysia 150,000 100 100 – – Corporate secretarial Services Sdn Bhd services

RHB Indochina Bank Cambodia USD67,000,000 100 100 – – Commercial banking Limited1,4 (‘RHB Indochina Bank’)

RHB Bank Lao Limited1 Lao PDR LAK301,500 million 100 100 – – Commercial banking

RHB Capital Nominees Malaysia 10,000 100 100 – – Nominee services for (Tempatan) Sdn Bhd Malaysian beneficial shareholders

RHB Capital Malaysia 10,000 100 100 – – Nominee services for Nominees (Asing) foreign beneficial Sdn Bhd shareholders

RHB Investment Ltd1 Singapore SGD19,000,000 100 100 – – Property investment and rental

Banfora Pte Ltd1 Singapore SGD25,000,000 100 100 – – Property investment and rental 65 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows: (continued)

RHB Bank Nominees Singapore SGD100,000 100 100 – – Nominee services Pte Ltd1

RHB Leasing Sdn Bhd Malaysia 10,000,000 100 100 – – Leasing

RHB Trade Services Hong Kong HKD2 100 100 – – Issue for the benefit of Limited2 its immediate holding company, letters of credit to foreign beneficiaries

RHB Capital Properties Malaysia 21,800,000 100 100 – – Property investment Sdn Bhd

Utama Assets Sdn Bhd Malaysia 2,300,000 100 100 – – Property investment

RHB Investment Bank Malaysia 818,646,000 100 100 – – Merchant banking Berhad (‘RHB business, dealing in Investment Bank’) securities, stock, debt and derivatives, stockbroking business and the business of brokers and dealers in futures and options contracts

RHB Merchant Malaysia 10,000 100 100 – – Nominee services for Nominees (Tempatan) Malaysian beneficial Sdn Bhd shareholders

RHB Merchant Malaysia 10,000 100 100 – – Nominee services for Nominees (Asing) foreign beneficial Sdn Bhd shareholders

RHB Nominees Sdn Bhd Malaysia 25,000 100 100 – – Nominee and custodian services 66 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows: (continued)

RHB Nominees (Asing) Malaysia 25,000 100 100 – – Nominee and custodian Sdn Bhd services for foreign beneficial shareholders

RHB Nominees Malaysia 25,000 100 100 – – Nominee and custodian (Tempatan) Sdn Bhd services for Malaysian beneficial shareholders

RHB Asset Management Malaysia 10,000,000 100 100 – – Rendering of investment Sdn Bhd management services, management of unit trust funds and private retirement schemes and provision of investment advisory services

RHB Islamic Malaysia 13,000,000 100 100 – – Rendering of Islamic International Asset fund management Management services and Berhad management of Islamic unit trust funds

RHB Research Institute Malaysia 500,000 100 100 – – Research services Sdn Bhd

RHB Private Equity Malaysia 55,000,002 100 100 – – Investment holding Holdings Sdn Bhd

RHB Private Equity Malaysia USD 1 100 100 – – Investment holding, Management Ltd investment management and other ancillary services for private equity business

RHB Private Equity Cayman USD 10,001 100 100 – – Investment company Fund Ltd11 Islands 67 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows: (continued)

RHB International Singapore SGD12,000,000 100 100 – – Investment holding Investments Pte Ltd1,5 (formerly known as RHB OSK International Investments Pte Ltd) (‘RII’)

RHB Asset Singapore SGD12,100,000 100 100 – – Fund management Management Pte Ltd1,5 (formerly known as RHB OSK Asset Management Pte Ltd) (‘RAM’)

RHB Hong Kong Hong Kong HKD300,000,000 100 100 – – Investment holding Limited2 (formerly known as RHB Holdings Hong Kong Limited)

RHB Securities Hong Hong Kong HKD340,000,000 100 100 – – Securities dealing and Kong Limited2 provision of securities (formerly known as margin financing and RHB OSK Securities advising on securities Hong Kong Limited)

RHB Nominees Hong Kong HKD1 100 100 – – Provision of nominees Hong Kong services Limited2 (formerly known as RHB OSK Nominees Hong Kong Limited) 68 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows: (continued)

RHB Futures Hong Hong Kong HKD35,000,000 100 100 – – Dealing in futures and Kong Limited2 options contracts (formerly known as RHB OSK Futures Hong Kong Limited)

RHB Finance Hong Hong Kong HKD1 100 100 – – Money lending Kong Limited2 (formerly known as RHB OSK Finance Hong Kong Limited)

RHB Capital Hong Hong Kong HKD10,000,000 100 100 – – Provision of corporate Kong Limited2 finance advisory (formerly known as services and to engage RHB OSK Capital in securities dealing Hong Kong Limited) activities incidental to its corporate finance advisory activities

RHB Fundamental Hong Kong HKD10,000,000 100 100 – – Investment activities Capital Hong Kong Limited2

RHB Asset Hong Kong HKD17,000,000 100 100 – – Dealing in securities, Management advising on securities Limited2,13 and provision of asset (formerly known as management services RHB OSK Asset Management Limited) 69 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows: (continued)

RHB Wealth Hong Kong HKD5,000,000 100 100 – – Negotiating or arranging Management Hong contracts of insurance Kong Limited2 in or from Hong Kong (formerly known as as the agent of the RHB OSK Wealth policy holder or Management Hong potential policy holder Kong Limited) or advising on matters related to insurance

RHB (China) People’s USD2,000,000 100 100 – – Consulting for Investment Republic of investment and Advisory Co Ltd2 China business advisory and (formerly known as related services RHB OSK (China) Investment Advisory Co. Ltd.)

PT RHB Securities Indonesia IDR204,082 million 99 99 1 1 Securities brokerage and Indonesia1 underwriting (formerly known as PT RHB OSK Securities Indonesia)

PT RHB Asset Indonesia IDR50,000 million 98.62 98.62 1.38 1.38 Investment manager Management Indonesia1 (formerly known as PT RHB OSK Asset Management)

RHB Securities Singapore SGD75,000,000 100 100 – – Provision of stock and Singapore Pte. Ltd.1 share broking services (formerly known as and corporate finance DMG & Partners advisory services Securities Pte Ltd) (‘RHB Securities Singapore’) 70 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows: (continued)

RHB Research Singapore SGD175,000 100 100 – – Financial advisory Institute Singapore services Pte. Ltd.1 (formerly known as DMG & Partners Research Pte. Ltd.)

RHB Securities Thailand THB819,171,600 99.95 99.95 0.05 0.05 Provision of stock and (Thailand) Public derivatives broking Company Limited1 services (formerly known as RHB OSK Securities (Thailand) Public Company Limited)

RHB Resources Fund1,^ Hong Kong – 94.3 94.4 5.7 5.6 Investment in equity and (formerly known as equity related RHB OSK Resources securities of entities Fund) operating in substantially related to natural resources industries

RHB Trustees Berhad Malaysia 6,000,000 100 100 – – Professional retail trustee services (will writing, estate planning and private trust) and corporate trustee services (collective investment schemes) 71 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows: (continued)

Malaysian Trustees Malaysia 550,000 100 100 – – Engage in the business Berhad of trustee agents, executors and administrators pursuant to the Trust Companies Act, 1949

RHB Finexasia.Com Sdn Malaysia 11,361,111 100 100 – – Investment holding, Bhd (‘RHB Finex’) development of products and provision of services related to information technology

RHB OSK Indochina Cambodia USD12,500,000 100 100 – – Securities underwriting, Securities Limited1,6 dealing, brokerage and (‘RHBISL’) investment advisory service

RHB Insurance Berhad Malaysia 100,000,000 94.7 94.7 5.3 5.3 General insurance (‘RHB Insurance’)

RHB-OSK Income Plus Malaysia – 94.7 94.7 5.3 5.3 Wholesale unit trust Fund 9^ fund

RHB-OSK Income Plus Malaysia – 94.7 94.7 5.3 5.3 Wholesale unit trust Fund 2^ fund

AmIncome Value^ Malaysia – 94.7 94.7 5.3 5.3 Wholesale unit trust fund

Straits Asset Holdings Malaysia 48,240,000 100 100 – – Investment holding Sdn Bhd

RHB Hartanah Sdn Bhd Malaysia 100,000 100 100 – – Property investment (‘RHB Hartanah’) 72 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows: (continued)

RHB Property Malaysia 500,000 100 100 – – Property management Management Sdn Bhd (‘RHB Property Management’)

RHB Capital (Jersey) Jersey, Channel GBP4,012 100 100 – – Investment holding Limited Islands

RHB Kawal Sdn Bhd Malaysia 1,500,000 100 100 – – Security services

RHB OSK Rupiah Liquid Indonesia – 38.24 55.79 61.76 44.21 Investment in money Fund2,12^ market instrument and equity market

RHB Capital Berhad’s dormant subsidiaries

RHB Equities Sdn Bhd7 Malaysia 20,000,000 100 100 – – Dormant

RHB (Philippines) Inc.1,8 Philippines PHP180,000,000 100 100 – – Dormant

RHBF Sdn Bhd Malaysia 148,145,176 100 100 – – Dormant

SFSB Services (Melaka) Malaysia 5,000,000 100 100 – – Dormant Sdn Bhd

SSSB Services (Melaka) Malaysia 40,000,000 100 100 – – Dormant Sdn Bhd9

KYB Sdn Bhd9 Malaysia 1,735,137,489 100 100 – – Dormant

RHB Venture Capital Malaysia 2 100 100 – – Dormant Sdn Bhd

OSKIB Sdn Bhd Malaysia 660,000,000 100 100 – – Dormant 73 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows: (continued)

RHB Capital Berhad’s dormant subsidiaries (continued)

Positive Properties Malaysia 23,192,000 100 100 – – Dormant Sdn Bhd

OSK Investment Bank Malaysia USD4,811,000 100 100 – – Dormant (Labuan) Limited

RHB OSK Stock 188.Com Malaysia 480,000 100 100 – – Dormant Sdn Bhd

RHB Bank’s dormant subsidiaries

UMBC Sdn Bhd Malaysia 499,999,818 100 100 – – Dormant

RHB Delta Sdn Bhd10 Malaysia 175,000,000 100 100 – – Dormant

Utama Gilang Sdn Bhd10 Malaysia 800,000,000 100 100 – – Dormant

RHB Investment Bank’s dormant subsidiaries

RHB Excel Sdn Bhd9 Malaysia 200,000,000 100 100 – – Dormant

RHB Progressive Malaysia 13,500,000 100 100 – – Dormant Sdn Bhd9

RHB Marketing Services Malaysia 100,000 100 100 – – Dormant Sdn Bhd10

RHB Unit Trust Malaysia 5,000,000 100 100 – – Dormant Management Berhad9 74 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows: (continued)

RHB Investment Bank’s dormant subsidiaries (continued)

OSK Futures and Options Malaysia 10,000,000 100 100 – – Dormant Sdn Bhd

OSK Research Sdn Bhd Malaysia 500,000 100 100 – – Dormant

RHB OSK International Malaysia 7,000,000 100 100 – – Dormant Asset Management Sdn Bhd

OSK Nominees Malaysia 3,670,000 100 100 – – Dormant (Tempatan) Sdn Berhad

OSK Nominees Malaysia 2,670,000 100 100 – – Dormant (Asing) Sdn Berhad

RHB Islamic Asset Malaysia 4,000,000 100 100 – – Dormant Management Sdn Bhd

OSK Investment Malaysia 10,000,000 100 100 – – Dormant Management Berhad

TCL Nominees Malaysia 644,000 100 100 – – Dormant (Tempatan) Sdn Bhd

TCL Nominees (Asing) Malaysia 4,000 100 100 – – Dormant Sdn Bhd

KE-ZAN Nominees Malaysia 650,000 100 100 – – Dormant (Tempatan) Sdn Bhd

KE-ZAN Nominees (Asing) Malaysia 10,000 100 100 – – Dormant Sdn Bhd 75 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

15 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

The details of the subsidiaries are as follows: (continued)

RHB Investment Bank’s dormant subsidiaries (continued)

RHB Nominees Singapore Singapore SGD2 100 100 – – Inactive Pte. Ltd.1 (formerly known as DMG & Partners Nominees Pte Ltd)

Summit Nominees Pte Singapore SGD2,000 100 100 – – Inactive Ltd1

Notes: 1 Subsidiaries audited by a member firm of PricewaterhouseCoopers International Limited which is a separate and independent legal entity from PricewaterhouseCoopers, Malaysia. 2 Subsidiaries audited by a firm other than member firms of PricewaterhouseCoopers International Limited. 3 The Company has recapitalised dividend income from RHB Bank of RM437,454,000 as cost of investment during the financial year. 4 RHB Bank has on 30 January 2015, injected additional capital of USD15,000,000 into RHB Indochina Bank, increasing the share capital from USD52,000,000 to USD67,000,000. 5 On 30 June 2015, RHB Investment Bank subscribed for SGD3,000,000 new ordinary shares in RII. The issued and paid-up share capital of RII increased from SGD9,000,000 to SGD12,000,000. On even date, RII subscribed for SGD3,000,000 new ordinary shares in RAM. The issued and paid-up share capital of RAM increased from SGD9,100,000 to SGD12,100,000. 6 On 9 December 2015, RHBISL became a wholly owned subsidiary of RHB Investment Bank upon divestment of 100% equity interest in RHBISL by RHB Indochina Bank to RHB Investment Bank for a cash consideration of USD12,500,000. 7 With effect from 1 July 2001, the company’s activities relate primarily to recovery of outstanding debts. 8 The company has ceased operations effective from the close of business on 10 December 2001. 9 The company has commenced member’s voluntary winding up on 28 March 2012. 10 The company has commenced member’s voluntary winding up on 16 February 2011. 11 Subsidiary not audited pursuant to Companies Act, 2013 in Cayman Islands. 12 The Group is deemed to have de facto control of RHB OSK Rupiah Liquid Fund (“the Fund”) even though it has less than 50% of the voting rights on the basis that the Company is the single largest unit holder of the Fund. All other unit holders individually own less than 5% as at 31 December 2015. 13 On 18 December 2015, RHB Hong Kong Limited subscribed for HKD3,000,000 new ordinary shares in RHB Asset Management Limited for additional working capital purpose. The issued and paid-up share capital of RHB Asset Management Limited increased from HKD14,000,000 to HKD17,000,000. ^ The funds are subsidiaries consolidated in the Group as the Group controls the funds in accordance with MFRS 10 ‘Consolidated Financial Statements’. 76 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

16 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

Group

2015 2014 Note RM’000 RM’000

Share of net assets of associates (a) – – Share of net assets of joint ventures (b) 29,533 26,957 Less: Allowance for impairment loss (13,769) (5,936)

15,764 21,021

(a) Share of net assets of associates The details of the associates are as follows:

Effective equity Paid-up interest share capital Country of (in RM unless 2015 2014 Name of company incorporation otherwise stated) % % Principal activities

Prostar Capital (Asia-Pacific) Cayman Islands USD 60 33.33 – Investment holding with Ltd.^ (‘Prostar’) undertaking the subsidiaries involved in the investment advisory services and management of private equity funds

^ The associate is being held through RHB Private Equity Management Ltd, a wholly-owned subsidiary of RHB Private Equity Holdings Sdn Bhd, which in turn is a wholly-owned subsidiary of RHB Investment Bank.

As at 31 December 2015, the Group’s share of cumulative losses in Prostar of RM940,000 (2014: Nil) has exceeded the cost of investment. Accordingly the Group does not recognise further losses in the current financial year.

There are no capital commitments or contingent liabilities relating to the Group’s interest in the associates as at 31 December 2015. 77 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

16 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)

(b) Share of net assets of joint ventures The details of the joint ventures are as follows:

Effective equity Paid-up interest share capital Country of (in RM unless 2015 2014 Name of company incorporation otherwise stated) % % Principal activities

Vietnam Securities Corporation Vietnam VND135 billion 49 49 Securities brokerage, securities (‘VSEC’) investment, consulting and self trading

RHB GC-Millennium Capital Pte Singapore SGD10,000 40 40 Investment activities Ltd (formerly known as RHB OSK GC-Millennium Capital Pte Ltd) (‘RHB GC’)

There are no capital commitments or contingent liabilities relating to the Group’s interest in the joint ventures as at 31 December 2015.

Summarised financial information of VSEC and RHB GC which are accounted for using the equity method is as follows:

(i) Summarised statements of financial position

VSEC RHB GC Total

2015 2014 2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets Cash and cash equivalents 31,847 26,493 27 26 31,874 26,519 Other current assets 827 1,223 40 32 867 1,255

Total assets 32,674 27,716 67 58 32,741 27,774

Liabilities Financial liabilities (177) (200) (37) (30) (214) (230) Other current liabilities (47) (117) – – (47) (117)

Total liabilities (224) (317) (37) (30) (261) (347)

Net assets 32,450 27,399 30 28 32,480 27,427 78 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

16 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)

(b) Share of net assets of joint ventures (continued) Summarised financial information of VSEC and RHB GC which are accounted for using the equity method is as follows: (continued) (ii) Summarised statements of comprehensive income

VSEC RHB GC Total

2015 2014 2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Interest income 2,270 2,063 – – 2,270 2,063 Interest expense (1) (1) – – (1) (1)

Net interest income 2,269 2,062 – – 2,269 2,062 Other operating income/(loss) (223) 84 50 31 (173) 115

Net operating income 2,046 2,146 50 31 2,096 2,177 Other operating expenses (1,276) (1,163) (50) (31) (1,326) (1,194) Including: Depreciation and amortisation (149) (141) – – (149) (141)

Profit before taxation 770 983 – – 770 983 Taxation (158) (208) – – (158) (208)

Net profit for the financial year 612 775 – – 612 775

(iii) Reconciliation of summarised financial information presented to the carrying amount of its interest in joint ventures:

VSEC RHB GC Total

2015 2014 2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Balance as at the beginning of the financial year 27,399 25,283 28 (1) 27,427 25,282 Net profit for the financial year 612 775 – – 612 775 Translation reserves 4,439 1,341 2 29 4,441 1,370

Balance as at the end of the financial year 32,450 27,399 30 28 32,480 27,427

Equity interest attributable to net assets 15,901 13,425 12 11 15,913 13,436 Goodwill 14,204 14,204 – – 14,204 14,204 Accumulated impairment losses (13,769) (5,936) – – (13,769) (5,936) Exchange differences (584) (683) – – (584) (683)

Carrying value 15,752 21,010 12 11 15,764 21,021 79 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

17 PROPERTY, PLANT AND EQUIPMENT

Leasehold land Renovations Furniture, Freehold Less than 50 years and Computer fittings and Motor land 50 years or more Buildings improvements equipment equipment vehicles Total Group Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

2015 Cost Balance as at the beginning of the financial year 194,917 1,426 133,135 485,098 500,837 636,178 345,798 27,548 2,324,937 Additions – – – – 44,066 30,669 23,292 2,204 100,231 Disposals (1,192) – – (1,384) – (2,153) (874) (4,596) (10,199) Written off – – – – (2,812) (11,220) (2,596) – (16,628) Exchange differences 250 – 16,122 8,482 10,569 5,823 5,575 1,145 47,966 Reclassifications – – – – (7,813) 2,770 7,240 – 2,197

Balance as at the end of the financial year 193,975 1,426 149,257 492,196 544,847 662,067 378,435 26,301 2,448,504

Accumulated depreciation Balance as at the beginning of the financial year – 819 7,202 162,797 291,495 504,570 304,216 20,069 1,291,168 Charge for the financial year 37 – 38 493 10,092 31,513 53,226 23,126 2,800 121,288 Disposals – – – (910) – (1,914) (459) (4,541) (7,824) Written off – – – – (2,363) (12,115) (1,495) – (15,973) Exchange differences – – 205 2,969 3,944 4,196 3,049 589 14,952

Balance as at the end of the financial year – 857 7,900 174,948 324,589 547,963 328,437 18,917 1,403,611

Accumulated impairment loss Balance as at the beginning of the financial year – – – 1,242 – 1,846 – – 3,088 Reversal for the financial year 40 –––– – (182) – – (182) Exchange differences – – – 85 – 12 – – 97

Balance as at the end of the financial year – – – 1,327 – 1,676 – – 3,003

Net book value as at the end of the financial year 193,975 569 141,357 315,921 220,258 112,428 49,998 7,384 1,041,890 80 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

17 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

2014 Cost Balance as at the beginning of the financial year 198,140 1,426 130,968 491,807 445,825 545,749 383,063 27,612 2,224,590 Additions – – – – 51,883 56,987 13,813 2,961 125,644 Disposals (3,257) – – (7,892) (169) (332) (99) (3,404) (15,153) Written off – – – – (1,849) (18,941) (2,300) (10) (23,100) Exchange differences 34 – 2,167 1,183 1,896 1,857 1,486 389 9,012 Reclassifications – – – – 3,251 50,858 (50,165) – 3,944

Balance as at the end of the financial year 194,917 1,426 133,135 485,098 500,837 636,178 345,798 27,548 2,324,937

Accumulated depreciation Balance as at the beginning of the financial year – 785 6,669 153,867 252,541 427,186 338,211 20,533 1,199,792 Charge for the financial year 37 – 34 507 10,027 30,100 52,042 19,960 2,612 115,282 Disposals – – – (1,507) (157) (248) (85) (3,299) (5,296) Written off – – – – (1,728) (18,939) (2,020) (10) (22,697) Exchange differences – – 26 410 998 1,322 941 233 3,930 Reclassifications – – – – 9,741 43,207 (52,791) – 157

Balance as at the end of the financial year – 819 7,202 162,797 291,495 504,570 304,216 20,069 1,291,168

Accumulated impairment loss Balance as at the beginning of the financial year – – – 2,641 – 1,676 – – 4,317 Charge for the financial year 40 –––– – 169 – – 169 Reversal for the financial year 40 – – – (1,421) – – – – (1,421) Exchange differences – – – 22 – 1 – – 23

Balance as at the end of the financial year – – – 1,242 – 1,846 – – 3,088

Net book value as at the end of the financial year 194,917 607 125,933 321,059 209,342 129,762 41,582 7,479 1,030,681 81 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

17 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

The above property, plant and equipment include the following assets under construction:

Group

2015 2014 RM’000 RM’000

Cost Renovations and improvements 28,982 19,393

Furniture, fittings and Motor Computer Renovations equipment vehicles equipment Total Company Note RM’000 RM’000 RM’000 RM’000 RM’000

2015 Cost Balance as at the beginning of the financial year 400 630 535 954 2,519 Additions 61 80 – 36 177 Disposals – – (154) – (154) Written off – (20) – (30) (50)

Balance as at the end of the financial year 461 690 381 960 2,492

Accumulated depreciation Balance as at the beginning of the financial year 314 630 472 781 2,197 Charge for the financial year 37 17 18 63 96 194 Disposals – – (154) – (154) Written off – (20) – (30) (50)

Balance as at the end of the financial year 331 628 381 847 2,187

Net book value as at the end of the financial year 130 62 – 113 305 82 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

17 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Furniture, fittings and Motor Computer Renovations equipment vehicles equipment Total Company Note RM’000 RM’000 RM’000 RM’000 RM’000

2014 Cost Balance as at the beginning of the financial year 370 625 535 790 2,320 Additions 30 5 – 177 212 Written off – – – (13) (13)

Balance as at the end of the financial year 400 630 535 954 2,519

Accumulated depreciation Balance as at the beginning of the financial year 302 621 396 675 1,994 Charge for the financial year 37 12 9 76 119 216 Written off – – – (13) (13)

Balance as at the end of the financial year 314 630 472 781 2,197

Net book value as at the end of the financial year 86 – 63 173 322

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Accumulated depreciation and impairment loss Balance as at the beginning of the financial year 1,294,256 1,204,109 2,197 1,994

Balance as at the end of the financial year 1,406,614 1,294,256 2,187 2,197 83 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

18 GOODWILL AND INTANGIBLE ASSETS

Group

2015 2014 Note RM’000 RM’000

Goodwill on consolidation (a) 5,020,840 5,020,840 Intangible assets: (b) – Customer relationship 15,262 17,495 – Brand 3,379 9,471 – Trading rights and memberships 1,361 1,196 – Computer software license 306,689 224,903

326,691 253,065

5,347,531 5,273,905

(a) Goodwill on consolidation The carrying amounts of goodwill allocated to the Group’s CGUs are as follows:

Group

2015 2014 RM’000 RM’000

CGU Corporate and Investment Banking (‘CIB’) 1,287,235 1,287,235 Retail Banking 1,058,483 1,058,483 Business Banking 421,741 421,741 Group Treasury 1,995,202 1,995,202 RHB Indochina Bank 116,301 116,301 RHB Securities Singapore 63,948 63,948 PT RHB Securities Indonesia 74,005 74,005 Others 3,925 3,925

5,020,840 5,020,840

The recoverable amount of a CGU is determined based on value in use calculations. These calculations use pre-tax cash flow projections based on financial budgets or forecasts approved by Directors covering a three-year (2014: four-year). Cash flows beyond the three-year period are extrapolated using the estimated growth rates and discounted using pre-tax discount rates which reflect the specific risks relating to the CGU. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. 84 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

18 GOODWILL AND INTANGIBLE ASSETS

(a) Goodwill on consolidation (continued) The cash flow projections are derived based on a number of key factors including the past performance and the management’s expectations of the market developments.

The discount rates used are pre-tax and reflect specific risks relating to the relevant CGUs.

Impairment was not required for goodwill arising from all CGUs. Management believes that any reasonable possible change to the assumptions applied is not likely to cause the recoverable amount of all the CGUs to be lower than its carrying amount.

The estimated growth rates and discount rates used for value in use calculation are as follows:

Discount rate Growth rate

2015 2014 2015 2014 % % % %

CGU CIB 9.5 8.2 4.0 3.0 Retail Banking 9.5 8.1 4.0 3.0 Business Banking 9.5 8.1 4.0 3.0 Group Treasury 9.5 8.2 4.0 3.0 RHB Indochina Bank 19.1 18.3 7.0 7.0 RHB Securities Singapore 6.5 6.1 2.0 2.0 PT RHB Securities Indonesia 9.3 10.6 5.0 5.8

85 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

18 GOODWILL AND INTANGIBLE ASSETS (CONTINUED)

(b) Intangible assets

Trading Computer Customer rights and software relationship Brand memberships license Total Group Note RM’000 RM’000 RM’000 RM’000 RM’000

2015 Cost Balance as at the beginning of the financial year 22,333 25,098 2,314 873,332 923,077 Additions – – – 142,018 142,018 Disposals – – – (242) (242) Written off – – – (3,641) (3,641) Exchange differences – – 337 10,610 10,947 Reclassifications – – – (2,197) (2,197)

Balance as at the end of the financial year 22,333 25,098 2,651 1,019,880 1,069,962

Accumulated amortisation Balance as at the beginning of the financial year 4,838 15,627 833 617,227 638,525 Amortisation for the financial year 37 2,233 6,092 – 63,435 71,760 Disposals – – – (161) (161) Written off – – – (1,232) (1,232) Exchange differences – – 457 4,853 5,310

Balance as at the end of the financial year 7,071 21,719 1,290 684,122 714,202

Accumulated impairment loss Balance as at the beginning of the financial year – – 285 31,202 31,487 Written back 40 – – – (2,283) (2,283) Exchange differences – – (285) 150 (135)

Balance as at the end of the financial year – – – 29,069 29,069

Net book value as at the end of the financial year 15,262 3,379 1,361 306,689 326,691 86 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

18 GOODWILL AND INTANGIBLE ASSETS (CONTINUED)

(b) Intangible assets (continued)

Trading Computer Customer rights and software relationship Brand memberships license Total Group Note RM’000 RM’000 RM’000 RM’000 RM’000

2014 Cost Balance as at the beginning of the financial year 22,333 25,098 2,175 766,878 816,484 Additions – – – 110,859 110,859 Written off – – – (1,765) (1,765) Exchange differences – – 139 1,304 1,443 Reclassifications – – – (3,944) (3,944)

Balance as at the end of the financial year 22,333 25,098 2,314 873,332 923,077

Accumulated amortisation Balance as at the beginning of the financial year 2,605 8,415 766 559,913 571,699 Amortisation for the financial year 37 2,233 7,212 – 58,275 67,720 Written off – – – (1,666) (1,666) Exchange differences – – 67 862 929 Reclassifications – – – (157) (157)

Balance as at the end of the financial year 4,838 15,627 833 617,227 638,525

Accumulated impairment loss Balance as at the beginning of the financial year – – 285 27,870 28,155 Charge for the financial year 40 – – – 3,321 3,321 Exchange differences – – – 11 11

Balance as at the end of the financial year – – 285 31,202 31,487

Net book value as at the end of the financial year 17,495 9,471 1,196 224,903 253,065 87 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

19 DEPOSITS FROM CUSTOMERS

Group

2015 2014 RM’000 RM’000

(a) By type of deposits Demand deposits 29,468,662 26,239,569 Savings deposits 8,459,822 7,927,118 Fixed/investment deposits 120,190,223 122,935,277 Negotiable instruments of deposits 32,301 32,029

158,151,008 157,133,993

(b) By type of customer Government and statutory bodies 10,651,504 11,148,094 Business enterprises 97,016,465 97,051,175 Individuals 45,392,366 44,344,043 Others 5,090,673 4,590,681

158,151,008 157,133,993

(c) By maturity structure of fixed/investment deposits and negotiable instruments of deposits Due within six months 102,084,856 101,842,151 Six months to one year 16,572,590 20,318,902 One year to three years 1,532,750 788,624 Three years to five years 32,328 17,629

120,222,524 122,967,306

20 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS

Group

2015 2014 RM’000 RM’000

Licensed banks 15,456,428 14,973,762 Licensed Islamic banks 1,853,985 221,130 Licensed investment banks 1,008,216 1,607,590 BNM 545,216 515,027 Other financial institutions 1,782,015 4,032,109

20,645,860 21,349,618 88 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

21 OBLIGATIONS ON SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

Obligations on securities sold under repurchase agreements are securities which the Group has sold from its investment 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 statements of financial position.

The financial assets sold under repurchase agreements are as follows:

Group

2015 2014 RM’000 RM’000

Financial investments AFS 188,814 20,484 Financial investments HTM 4,865,000 500,000

5,053,814 520,484

22 CLIENTS’ AND BROKERS’ BALANCES

Group

2015 2014 RM’000 RM’000

Amounts due to: – Clients 999,812 988,375 – Brokers 146,046 163,925 – Clearing houses and stock exchanges 202,870 61,765

1,348,728 1,214,065

23 GENERAL INSURANCE CONTRACT LIABILITIES

Group

2015 2014 RM’000 RM’000

Claims liabilities 572,940 514,960 Premium liabilities 297,944 260,739

870,884 775,699 89 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

23 GENERAL INSURANCE CONTRACT LIABILITIES (CONTINUED)

Gross Reinsurance Net Note RM’000 RM’000 RM’000

2015 Claims reported by policyholders 416,353 (205,126) 211,227 Incurred but not reported claims (‘IBNR’) 156,587 (69,897) 86,690

Claims liabilities (a) 572,940 (275,023) 297,917 Premium liabilities (b) 297,944 (96,215) 201,729

Total 870,884 (371,238) 499,646

2014 Claims reported by policyholders 365,757 (173,795) 191,962 IBNR 149,203 (67,852) 81,351

Claims liabilities (a) 514,960 (241,647) 273,313 Premium liabilities (b) 260,739 (90,466) 170,273

Total 775,699 (332,113) 443,586

Gross Reinsurance Net RM’000 RM’000 RM’000

(a) Claims liabilities 2015 Balance as at the beginning of the financial year 514,960 (241,647) 273,313 Claims incurred in current accident year: – Paid 98,984 (25,918) 73,066 – Case reserve 170,515 (90,909) 79,606 – IBNR 106,690 (46,932) 59,758 Claims incurred in prior accident year: – Paid 179,950 (85,406) 94,544 – Case reserve (398,853) 170,902 (227,951) – IBNR (99,306) 44,887 (54,419)

Balance as at the end of the financial year 572,940 (275,023) 297,917 90 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

23 GENERAL INSURANCE CONTRACT LIABILITIES (CONTINUED)

Gross Reinsurance Net RM’000 RM’000 RM’000

(a) Claims liabilities (continued) 2014 Balance as at the beginning of the financial year 432,709 (181,461) 251,248 Claims incurred in current accident year: – Paid 71,277 (25,607) 45,670 – Case reserve 157,602 (87,922) 69,680 – IBNR 114,355 (52,516) 61,839 Claims incurred in prior accident year: – Paid 164,701 (54,855) 109,846 – Case reserve (343,047) 132,074 (210,973) – IBNR (82,637) 28,640 (53,997) Balance as at the end of the financial year 514,960 (241,647) 273,313

(b) Premium liabilities 2015 Balance as at the beginning of the financial year 260,739 (90,466) 170,273 Premium written for the financial year 659,277 (224,598) 434,679 Premium earned during the financial year (622,072) 218,849 (403,223) Balance as at the end of the financial year 297,944 (96,215) 201,729 2014 Balance as at the beginning of the financial year 229,502 (79,491) 150,011 Premium written for the financial year 585,429 (205,086) 380,343 Premium earned during the financial year (554,192) 194,111 (360,081) Balance as at the end of the financial year 260,739 (90,466) 170,273

24 OTHER LIABILITIES

Group Company 2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Other creditors and accruals 1,294,101 1,017,879 36,864 7,925 Deferred income 170,305 11,384 – – Short term employee benefits 362,078 402,475 – 4,415 Prepaid instalments 67,846 71,037 – – Cash collateral in relation to derivative transactions 224,721 105,640 – – Remisiers’ trust deposits 62,824 59,480 – – Amount due to Danaharta 2,199 1,935 – – Amount due to trust funds 23,783 44,268 – – Puttable instruments 187,268 – – –

2,395,125 1,714,098 36,864 12,340 91 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

25 RECOURSE OBLIGATION ON LOANS SOLD TO CAGAMAS

Recourse obligation on loans sold to Cagamas represents those acquired from the originators and sold to Cagamas with recourse. Under the agreement, the Group undertakes to administer the loans on behalf of Cagamas and to buy back any loans which are regarded as defective based on pre-determined and agreed-upon prudential criteria with recourse against the originators. Such financing transactions and the obligation to buy back the loans are reflected as a liability on the statements of financial position. The loans are not derecognised and are analysed in Note 7.

26 BORROWINGS

Group Company

2015 2014 2015 2014 Note RM’000 RM’000 RM’000 RM’000

Unsecured Revolving credits: – Ringgit Malaysia (‘RM’) (a(i)) 596,840 404,196 2,052,868 1,194,481 – United States Dollar (‘USD’) (a(ii)) 107,436 174,863 – – – Hong Kong Dollar (‘HKD’) (a(iii)) 192,778 13,524 – – Term loans: – RM (b(i)) 1,051,706 1,051,674 1,051,706 1,316,860 – USD (b(ii)) 468,282 495,029 – – – Singapore Dollar (‘SGD’) (b(iii)) 19,754 119,089 – – – Indonesia Rupiah (‘IDR’) (b(iv)) – 14,115 – – – Japanese Yen (‘JPY’) (b(v)) – 2,115 – – RM1.1 billion 7 years Commercial Papers/ Medium Term Notes (c) – 600,092 – 600,092 2,436,796 2,874,697 3,104,574 3,111,433

Schedule repayment of borrowings: – Within one year 2,109,417 2,494,452 3,104,574 3,111,433 – One year to three years 236,143 227,273 – – – Three years to five years 91,236 135,489 – – – Over five years – 17,483 – – 2,436,796 2,874,697 3,104,574 3,111,433

The borrowings of the Group and the Company are as follows:

(a) Revolving credits (i) RM revolving credits The unsecured RM revolving facilities of the Group and the Company bear interest at rates ranging from 4.17% to 4.25% (2014: 4.25% to 4.40%) and 4.13% to 4.44% (2014: 3.97% to 4.40%) per annum respectively.

(ii) USD revolving credits The unsecured USD revolving credit facilities of the Group bears interest at 4.29% (2014: 3.49%) per annum. 92 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

26 BORROWINGS (CONTINUED)

The borrowings of the Group and the Company are as follows: (continued)

(a) Revolving credits (continued) (iii) HKD revolving credits The unsecured HKD revolving credit facilities of the Group bears interest at rates ranging from 1.55% to 1.95% (2014: 1.55% to 1.65%) per annum.

(b) Term loans (i) RM term loans The Group and the Company have unsecured RM term loans which bear interest at rates ranging from 4.17% to 4.57% (2014: 4.02% to 4.57%) per annum respectively.

(ii) USD term loans On 7 April 2006, RHB Bank, a wholly-owned subsidiary, entered into an agreement with Japan Bank for International Cooperation (‘JBIC’), to obtain an unsecured Untied Loan facility of USD100 million for a tenure of 11 years. Disbursements of USD50 million and USD30 million were done on 29 June 2006 and 20 October 2006 respectively. Final disbursement of USD20 million was done on 31 January 2007. The said loan is repayable on 8 March and 8 September each year for 20 equal instalments commencing on 8 March 2008 until 8 September 2017 and bears a floating interest rate of British Bankers Association Interest Settlement Rate in USD (‘BBA LIBOR’) plus 0.395% per annum. The interest rate for the year was at 0.72% (2014: ranging from 0.72% to 1.13%) per annum.

On 24 March 2008, RHB Bank entered into another agreement with JBIC to obtain an unsecured Untied Loan facility of USD100 million for a tenure of 10 years. Disbursement of USD100 million was done on 30 May 2008. The said loan is repayable on 8 March and 8 September each year for 20 equal instalments commencing 8 September 2010 to 8 March 2020 and bears a floating interest rate of BBA LIBOR plus 0.315% per annum. The interest rate for the year was at 0.64% (2014: ranging from 0.64% to 1.05%) per annum.

On 28 May 2009, RHB Bank entered into a third agreement with JBIC to obtain an unsecured Untied Loan facility of USD100 million for a tenure of 8 years. Disbursement of USD100 million was done on 28 July 2009. The said loan is repayable on 10 April and 10 October each year for 16 equal instalments commencing 10 October 2011 to 10 April 2019 and bears a floating interest rate of BBA LIBOR plus 0.80% per annum. The average interest rate ranges from 1.12% to 1.53% (2014: 1.12% to 1.53%) per annum.

(iii) SGD term loans The Group has unsecured SGD term loans which bears interest at 1.89% (2014: ranging from 1.20% to 1.40%) per annum.

(iv) IDR term loans In 2014, the Group has unsecured IDR term loans which bears interest at 10.65% per annum. The loan has been fully settled during the year.

(v) JPY term loans In 2014, the Group has unsecured JPY term loans which bears interest at 1.36% per annum. The loan has been fully settled during the year. 93 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

26 BORROWINGS (CONTINUED)

The borrowings of the Group and the Company are as follows: (continued)

(c) RM1.1 billion 7 years Commercial Papers/Medium Term Notes (‘CP/MTN Programme’) During the current financial year, the Company has fully settled the following Medium Term Notes under the CP/MTN Programme:

Coupon rate (per annum) Nominal value Issuance date RM’million Maturity date 2015 2014

30 December 2010 350 31 December 2015 4.80% 4.80% 8 November 2012 250 6 November 2015 4.15% 4.15%

Interest for the above Medium Term Notes was payable semi-annually in arrears.

27 SUBORDINATED OBLIGATIONS

Group

2015 2014 Note RM’000 RM’000

5.50% RM700 million Tier II Subordinated Notes 2007/2022 (a) 703,376 703,586 5.00% RM700 million Tier II Subordinated Notes 2010/2020 (b) – 706,137 5.60% RM300 million Tier II Subordinated Notes 2010/2025 (b) 302,946 302,946 4.25% RM250 million Tier II Subordinated Notes 2011/2021 (c) 251,591 251,276 4.30% RM750 million Tier II Subordinated Notes 2012/2022 (d) 754,394 754,367 4.40% RM1,300 million Tier II Subordinated Notes 2012/2022 (d) 1,304,484 1,304,537 4.40% RM245 million Tier II Subordinated Notes 2012/2022 (e) 245,650 245,650 7.25% RM125 million Tier II Subordinated Notes 2010/2020 (f) – 127,135 7.15% RM75 million Tier II Subordinated Notes 2010/2020 (g) – 75,543 5.20% RM100 million Tier II Subordinated Notes 2011/2021 (h) 101,112 101,112 4.95% RM500 million Tier II Subordinated Sukuk Murabahah 2014/2024 (i) 503,119 503,051 4.99% RM1 billion Tier II Subordinated Notes 2014/2024 (j) 1,024,061 1,024,062 4.95% RM200 million Tier II Subordinated Notes 2015/2025 (k) 202,060 – 4.75% RM500 million Tier II Subordinated Notes 2015/2025 (l) 502,993 –

5,895,786 6,099,402

The subordinated obligations comprise of unsecured liabilities of its commercial bank, investment bank and islamic bank subsidiaries and are subordinated to the senior indebtedness in accordance with their respective terms and conditions of issuance and qualify as Tier II capital as disclosed in Note 50 for the purpose of determining the capital adequacy ratios of the respective subsidiaries. 94 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

27 SUBORDINATED OBLIGATIONS (CONTINUED)

(a) 5.50% RM700 million Tier II Subordinated Notes 2007/2022 On 30 November 2007, RHB Bank issued RM700 million in nominal value redeemable unsecured Subordinated Notes as follows:

Principal Tranche RM’million Maturity date Interest rate Interest payment

2007/2022 700 30 November 2022 5.50% per annum chargeable Accrued and payable (callable with step-up to 30 November 2017 (but semi-annually in arrears in 2017) exclusive of payment date), thereafter on step-up coupon rate at 0.5% per annum

The Subordinated Notes constitute direct unsecured obligations of RHB Bank, subordinated in right and priority of payment, to the extent and in the manner provided for in the Subordinated Notes, to all deposit liabilities and other liabilities of RHB Bank except all other present and future unsecured and subordinated obligations of RHB Bank which by their terms rank pari passu in right of and priority of payment with or subordinated to the Subordinated Notes.

(b) 5.00% RM700 million Tier II Subordinated Notes 2010/2020 and 5.60% RM300 million Tier II Subordinated Notes 2010/2025 On 29 April 2010, RHB Bank issued RM1 billion nominal value of Subordinated Notes, being the remaining balance of the issuance of RM3 billion in nominal value of Subordinated Notes and/or Senior Notes under a Medium Term Note Programme. The RM1 billion Subordinated Notes comprise:

Principal Tranche RM’million Maturity date Interest rate Interest payment

2010/2020 700 29 April 2020 5.00% per annum chargeable Accrued and payable (callable with step-up to 29 April 2015 (but exclusive semi-annually in arrears in 2015) of payment date), thereafter on step-up coupon rate at 0.5% per annum

2010/2025 300 29 April 2025 (callable 5.60% per annum chargeable Accrued and payable with step-up in 2020) to 29 April 2020 (but exclusive semi-annually in arrears of payment date), thereafter on step-up coupon rate of 0.5% per annum

RHB Bank had fully redeemed the 5.00% RM700 million Tier II Subordinated Notes 2010/2020 during the current financial year. 95 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

27 SUBORDINATED OBLIGATIONS (CONTINUED)

(c) 4.25% RM250 million Tier II Subordinated Notes 2011/2021 On 31 October 2011, RHB Bank issued RM250 million nominal value of Subordinated Notes, being part of RM3 billion in nominal value of Subordinated Notes and/or Senior Notes under a Multi-Currency Medium Term Note Programme.

Principal Tranche RM’million Maturity date Interest rate Interest payment

2011/2021 250 29 October 2021 4.25% per annum chargeable to Accrued and payable (callable in 2016) 29 October 2021 semi-annually in arrears

(d) 4.30% RM750 million Tier II Subordinated Notes 2012/2022 and 4.40% RM1,300 million Tier II Subordinated Notes 2012/2022 On 7 May 2012 and 30 November 2012, RHB Bank issued RM750 million and RM1,300 million nominal value of Subordinated Notes respectively, being part of RM3 billion in nominal value of Subordinated Notes and/or Senior Notes under a Multi-Currency Medium Term Note Programme.

Principal Tranche RM’million Maturity date Interest rate Interest payment

2012/2022 750 6 May 2022 (callable 4.30% per annum chargeable to Accrued and payable in 2017) 6 May 2022 semi-annually in arrears

2012/2022 1,300 30 November 2022 4.40% per annum chargeable to Accrued and payable (callable in 2017) 30 November 2022 semi-annually in arrears

(e) 4.40% RM245 million Tier II Subordinated Notes 2012/2022 On 10 December 2012, RHB Investment Bank issued RM245 million nominal value of Subordinated Notes.

Principal Tranche RM’million Maturity date Interest rate Interest payment

2012/2022 245 9 December 2022 4.40% per annum chargeable to Accrued and payable (callable in 2017) 9 December 2022 semi-annually in arrears 96 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

27 SUBORDINATED OBLIGATIONS (CONTINUED)

(f) 7.25% RM125 million Tier II Subordinated Notes 2010/2020 On 5 April 2010, RHB Investment Bank issued RM125 million of Subordinated Notes via direct placement. The tenure of issue is 10 years maturing on 6 April 2020 and callable after a minimum period of 5 years from the issue date (i.e. on 6 April 2015) and on every semi-annual coupon payment date thereafter. These Subordinated Notes carry a yield to maturity of 7.25% per annum and a coupon rate of 7.25% per annum. There will be a step-up coupon from 7.25% to 8.25% per annum on the 5th year from the issuance date until the date of early redemption in full or final maturity, whichever is earlier.

RHB Investment Bank had fully redeemed the RM125 million Tier II Subordinated Notes 2010/2020 during the current financial year.

(g) 7.15% RM75 million Tier II Subordinated Notes 2010/2020 On 24 May 2010, RHB Investment Bank issued RM75 million of Subordinated Notes via direct placement. The tenure of issue is 10 years maturing on 25 May 2020 and callable after a minimum period of 5 years from the issue date (i.e. on 25 May 2015) and on every semi-annual coupon payment date thereafter. These Subordinated Notes carry a yield to maturity of 7.15% per annum and a coupon rate of 7.15% per annum. There will be a step-up coupon from 7.15% to 8.15% per annum on the 5th year from the issuance date until the date of early redemption in full or final maturity, whichever is earlier.

RHB Investment Bank had fully redeemed the RM75 million Tier II Subordinated Notes 2010/2020 during the current financial year.

(h) 5.20% RM100 million Tier II Subordinated Notes 2011/2021 On 15 April 2011, RHB Investment Bank issued RM100 million of Subordinated Notes via direct placement. The tenure of issue is 10 years maturing on 15 April 2021 and callable after a minimum period of 5 years from the issue date (i.e. on 15 April 2016) and on every semi-annual coupon payment date thereafter. These Subordinated Notes carry a yield to maturity of 5.20% per annum and a coupon rate of 5.20% per annum. There will be a step-up coupon from 5.20% to 5.25% per annum on the 5th year from the issuance date until the date of early redemption in full or final maturity, whichever is earlier.

(i) 4.95% RM500 million Tier II Subordinated Sukuk Murabahah 2014/2024 On 15 May 2014, RHB Islamic Bank issued RM500 million nominal value of Subordinated Sukuk Murabahah, being part of RM1 billion Subordinated Sukuk Programme.

Principal Tranche RM’million Maturity date Interest rate Interest payment

2014/2024 500 15 May 2024 (callable 4.95% per annum chargeable to Accrued and payable in 2019) 15 May 2024 semi-annually in arrears 97 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

27 SUBORDINATED OBLIGATIONS (CONTINUED)

(j) 4.99% RM1 billion Tier II Subordinated Notes 2014/2024 On 8 July 2014, RHB Bank issued RM1 billion nominal value of Subordinated Notes, being the remaining balance of the issuance of RM3 billion in nominal value of Subordinated Notes and/or Senior Notes under a Medium Term Note Programme.

Principal Tranche RM’million Maturity date Interest rate Interest payment

2014/2024 1,000 7 July 2024 4.99% per annum chargeable to Accrued and payable (callable in 2019) 7 July 2024 semi-annually in arrears

(k) 4.95% RM200 million Tier II Subordinated Notes 2015/2025 On 16 April 2015, RHB Investment Bank issued RM200 million nominal value of Subordinated Notes, being part of RM1 billion MCMTN Programme.

Principal Tranche RM’million Maturity date Interest rate Interest payment

2015/2025 200 16 April 2025 4.95% per annum chargeable to Accrued and payable (Callable in 2020) 16 April 2025 semi-annually in arrears

(l) 4.75% RM500 million Tier II Subordinated Notes 2015/2025 On 8 May 2015, RHB Bank issued RM500 million nominal value of Subordinated Notes, being part of RM5 billion MCMTN Programme.

Principal Tranche RM’million Maturity date Interest rate Interest payment

2015/2025 500 8 May 2025 (Callable 4.75% per annum chargeable to Accrued and payable in 2020) 8 May 2025 semi-annually in arrears

28 HYBRID TIER-1 CAPITAL SECURITIES

Group

2015 2014 RM’000 RM’000

RM370 million Hybrid Tier-1 Capital Securities 368,448 368,107 RM230 million Hybrid Tier-1 Capital Securities 233,408 233,408

601,856 601,515 98 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

28 HYBRID TIER-1 CAPITAL SECURITIES (CONTINUED)

Principal Issuance date Tranche RM’million Maturity date Interest rate Interest payment

31 March 2009 I 370 31 March 2039 8.00% per annum to 2019, Accrued and payable (callable with thereafter at 9.00% per semi-annually in arrears step-up in 2019) annum if not called

17 December 2009 II 230 16 December 2039 6.75% per annum to 2019, Accrued and payable (callable with thereafter at 7.75% per semi-annually in arrears step-up in 2019) annum if not called

29 SENIOR DEBT SECURITIES

Group

2015 2014 Note RM’000 RM’000

USD300 million 3.25% senior debt securities due in 2017 (a) 1,291,357 1,049,892 USD200 million 3.25% senior debt securities due in 2017 (a) 866,244 707,214 USD300 million 3.088% senior debt securities due in 2019 (b) 1,293,779 1,053,549

3,451,380 2,810,655

The senior debt securities of the Group is as follows:

(a) 3.25% USD300 million and USD200 million Senior Debts Securities 2012/2017 The amount of senior unsecured Medium Term Notes issued by RHB Bank under the USD500 million Euro Medium Term Notes (‘EMTN’) Programme are as follows:

Principal Issuance date Tranche USD’million Maturity date Interest rate Interest payment

11 May 2012 I 300 11 May 2017 3.25% per annum Accrued and payable semi-annually in arrears payable semi-annually in arrears

28 September 2012 II 200 11 May 2017 3.25% per annum Accrued and payable semi-annually in arrears payable semi-annually in arrears 99 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

29 SENIOR DEBT SECURITIES (CONTINUED)

The senior debt securities of the Group is as follows: (continued)

(b) 3.088% USD300 million Senior Debts Securities 2014/2019 The senior unsecured notes issued under a USD5 billion (or its equivalent in other currencies) EMTN is as follows:

Principal Issuance date Tranche USD’million Maturity date Interest rate Interest payment

3 October 2014 I 300 3 October 2019 3.088% per annum Accrued and payable semi-annually in arrears payable semi-annually in arrears

30 SHARE CAPITAL

Group and Company

2015 2014 Note RM’000 RM’000

Ordinary shares of RM1.00 each Authorised: Balance as at the beginning/end of the financial year 5,000,000 5,000,000

Issued and fully paid: Balance as at the beginning of the financial year 2,572,457 2,546,910 Shares issued under DRP and renounceable rights issue: – Issued on 24 April 2015 (i) 16,024 – – Issued on 18 December 2015 (ii) 486,194 – – Issued on 23 July 2014 (iii) – 25,547

Balance as at the end of the financial year 3,074,675 2,572,457

On 1 March 2011, RHB Investment Bank, on behalf of the Company, announced that as part of the Company’s capital management plan and to enhance the Company’s shareholders’ value, the Company has proposed to undertake a dividend reinvestment plan that provides the shareholders the option to elect to reinvest their cash dividend declared by the Company (whether interim, final, special or any other cash dividend) (‘Dividend’) into new ordinary shares of RM1.00 each in the Company (‘RHB Capital Shares’) [hereinafter referred to as Dividend Reinvestment Plan (‘DRP’)]. Approval from shareholders for the DRP and the issuance of new shares arising from the DRP was obtained at the Extraordinary General Meeting held on 6 April 2011.

The DRP further provides that whenever a cash dividend (either an interim, final, special or other dividend) (‘Dividend’) is proposed, the Board may, in its absolute discretion, determine that the DRP to be applied to the whole or a portion of the cash Dividend and where applicable, any remaining portion of the Dividend will be paid in cash. 100 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

30 SHARE CAPITAL (CONTINUED)

During the financial year, the Company increased its issued and paid up share capital from:

(i) RM2,572,456,783 to RM2,588,481,428 via the issuance of 16,024,645 new ordinary shares of RM1.00 each arising from the DRP relating to the single-tier interim dividend of 6.0% in respect of the financial year ended 31 December 2014 on 24 April 2015; and

(ii) RM2,588,481,428 to RM3,074,674,722 via the renounceable rights issue of 486,193,294 new ordinary shares of RM1.00 each at an issue price of RM4.82 per right share on 18 December 2015, on the basis of one (1) right share for every five (5) existing shares held.

In the previous financial year, the Company increased its issued and paid up share capital from:

(iii) RM2,546,909,962 to RM2,572,456,783 via the issuance of 25,546,821 new ordinary shares of RM1.00 each arising from the DRP relating to the single-tier final dividend of 10.30% in respect of the financial year ended 31 December 2013 on 23 July 2014.

The new ordinary shares issued during the financial year rank pari passu in all respects with the existing shares of the Company.

31 RESERVES

Group Company

2015 2014 2015 2014 Note RM’000 RM’000 RM’000 RM’000

Retained profits (a) 7,560,582 6,939,829 711,909 415,461 Share premium 6,993,584 5,053,063 6,993,584 5,053,063 Statutory reserve (b) 3,972,226 3,817,799 – – AFS reserves (c) 124,997 191,619 – – Translation reserves (d) 745,967 191,334 – – Regulatory reserve (e) 583,153 – – – Other reserves 29,609 28,196 – –

20,010,118 16,221,840 7,705,493 5,468,524

(a) Pursuant to the Finance Act, 2007 which was gazetted on 28 November 2007, dividends paid, credited or distributed to shareholders are not tax deductible by the Company, but are exempted from tax to the shareholders (‘single-tier system’). As at 31 December 2015, the Company’s retained profits are distributable profits and may be distributed as dividends under the single- tier system.

As at 31 December 2015, the Company has sufficient tax exempt account balances to pay tax exempt dividends out of its retained earnings. 101 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

31 RESERVES (CONTINUED)

(b) Statutory reserve represents non-distributable profits held by:

(i) The commercial banking subsidiary in compliance with Section 47(2)(f) of Financial Services Act, 2013 and Section 18 of the Singapore Finance Companies (Amendment) Act, 1994;

(ii) The investment banking subsidiary in compliance with Section 47(2)(f) of Financial Services Act, 2013;

(iii) The Islamic banking subsidiary in compliance with Section 12 of Islamic Financial Services Act, 2013; and

(iv) The Thailand’s stockbroking subsidiary in compliance with Section 116 of the Public Limited Company Act B.E. 2535 in Thailand.

The statutory reserve funds are not distributable as cash dividends.

(c) AFS reserves arise from a change in the fair value of financial investments classified as AFS. The unrealised gains or losses are transferred to the income statements upon disposal, de-recognition or impairment of such securities.

(d) Translation reserves comprise all foreign exchange differences from the translation of the financial statements of foreign operations and subsidiaries and joint ventures, and the effect of the effective portion of net investment hedges.

(e) Regulatory reserve represents the Group’s adoption of BNM’s Policy on Classification and Impairment Provisions for Loans/ Financing, to maintain, in aggregate, the collective impairment allowances and regulatory reserve of no less than 1.2% of total outstanding loans/financing, net of individual impairment allowances.

32 NON-CONTROLLING INTERESTS (‘NCI’)

Group

2015 2014 RM’000 RM’000

Balance as at the beginning of the financial year 99,789 203,656 Share of profit during the financial year 12,606 25,464 Exchange differences 18,948 2,205 Share of AFS reserves during the financial year, net of tax 33 (12,440) Actuarial gain on defined benefit plan of subsidiaries, net of tax 4 11 Dividends paid (1,325) (993) Acquisition of a subsidiary – 51,044 Acquisition of additional interests by NCI – 21,389 Dilution of interest in a subsidiary 1,077 – Acquisition of additional interests from NCI – (190,547) Reclassification of puttable instruments to other liabilities (106,514) –

Balance as at the end of the financial year 24,618 99,789 102 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

33 INTEREST INCOME

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Loans and advances 6,326,183 5,863,498 – – Money at call and deposits and placements with banks and other financial institutions 149,639 222,062 4,669 559 Securities purchased under resale agreements 2,027 268 – – Financial assets FVTPL 59,419 48,449 – – Financial investments AFS 681,801 572,043 – – Financial investments HTM 683,582 746,599 – – Others 32,683 16,780 – 6,135

7,935,334 7,469,699 4,669 6,694

Of which: – Interest income accrued on impaired financial assets 164,069 167,672 – –

34 INTEREST EXPENSE

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Deposits and placements of banks and other financial institutions 425,090 430,515 – – Deposits from customers 3,497,578 3,186,110 – – Borrowings 100,156 106,982 132,309 128,154 Senior debt securities 101,054 60,906 – – Subordinated obligations 260,368 235,886 – – Hybrid Tier-1 Capital Securities 45,128 45,102 – – Recourse obligation on loans sold to Cagamas 98,485 46,418 – – Obligations on securities sold under repurchase agreements 61,985 1,815 – – Others 45,692 64,633 – –

4,635,536 4,178,367 132,309 128,154 103 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

35 OTHER OPERATING INCOME

Group Company

2015 2014 2015 2014 Note RM’000 RM’000 RM’000 RM’000

Fee income Service charges and fees 223,275 235,220 – – Commission 148,823 169,780 – – Guarantee fees 65,937 66,636 – – Commitment fees 60,559 56,381 – – Net brokerage income 336,759 362,875 – – Fund management fees 135,891 114,532 – – Unit trust fee income 91,145 45,849 – – Corporate advisory fees 50,093 161,611 – – Underwriting and arrangement fees 122,681 105,628 – – Other fee income 63,393 135,319 – –

1,298,556 1,453,831 – –

Net gain/(loss) arising from financial assets FVTPL – Net (loss)/gain on disposal (30,118) 62,558 – – – Unrealised net gain/(loss) on revaluation 1,342 (30,775) – – – Gross dividend income 18,045 8,526 – –

(10,731) 40,309 – –

Net gain on revaluation of derivatives 41,921 6,982 – –

Net gain on fair value hedges 11 680 2,374 – –

Net gain arising from financial investments AFS – Net gain on disposal 59,227 50,851 – – – Gross dividend income 29,978 26,926 – –

89,205 77,777 – –

Net gain arising from financial investments HTM – Net gain on early redemption 249 12,782 – –

Gross dividend income from subsidiaries – – 614,163 206,956 104 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

35 OTHER OPERATING INCOME (CONTINUED)

Group Company

2015 2014 2015 2014 Note RM’000 RM’000 RM’000 RM’000

Other income Net foreign exchange gain/(loss): – Realised (126,322) 325,069 – (27,864) – Unrealised 494,044 37,055 – – Insurance underwriting surplus before management expenses 141,826 144,223 – – Net gain on disposal of property, plant and equipment/ intangible assets 7,270 17,686 55 – Rental income 1,222 1,489 – – Net loss on disposal of a subsidiary – (247) – – Net gain on disposal of an associate 54(h) – 8,202 – – Other operating income 72,236 76,434 – – Other non-operating income 5,300 7,430 100 –

595,576 617,341 155 (27,864)

2,015,456 2,211,396 614,318 179,092

36 NET INCOME FROM ISLAMIC BANKING BUSINESS

Group

2015 2014 RM’000 RM’000

Income derived from investment of depositors’ fund 1,713,727 1,325,425 Income derived from investment of shareholders’ fund 141,147 130,232

1,854,874 1,455,657 Income attributable to depositors (978,957) (723,506)

875,917 732,151

Of which: Financing income earned on impaired financing and advances 8,263 13,995 105 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

37 OTHER OPERATING EXPENSES

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Personnel costs Salaries, bonuses, wages and allowances 1,622,442 1,627,368 2,512 11,652 Defined contribution plan 223,499 223,598 402 1,649 Career transition scheme (‘CTS’) 308,801 – – – Other staff related costs 164,365 176,604 121 239

2,319,107 2,027,570 3,035 13,540

Establishment costs Property, plant and equipment: – Depreciation 121,288 115,282 194 216 – Written off 655 403 – – Intangible assets: – Amortisation 71,760 67,720 – – – Written off 2,409 99 – – Information technology expenses 186,744 159,349 3 5 Repair and maintenance 35,362 37,780 22 82 Security and escorting charges 49,146 52,031 – 10 Rental of premises 151,603 144,911 100 279 Water and electricity 39,751 38,183 17 58 Rental of equipment 14,959 11,501 – – Insurance 48,144 23,458 – – Others 14,311 15,757 – –

736,132 666,474 336 650

Marketing expenses Sales commission 142,261 139,243 – – Advertisement and publicity 79,180 83,687 1,169 1,239 Others 127,594 133,374 33 120

349,035 356,304 1,202 1,359 106 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

37 OTHER OPERATING EXPENSES (CONTINUED)

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Administration and general expenses Auditors’ remuneration (i) Audit: Statutory audit: – Malaysia 2,990 2,763 206 190 – Overseas 2,515 1,899 – – Limited review 425 430 – – Other audit related 300 300 – – (ii) Non-audit: – Malaysia 808 1,232 672 624 – Overseas 77 – – – Communication expenses 166,384 153,874 123 156 Legal and professional fees 30,195 62,153 5,800 10,257 Others 185,194 138,169 23,821 1,376

388,888 360,820 30,622 12,603

3,793,162 3,411,168 35,195 28,152

Included in the personnel costs of the Group and Company are the Group Managing Director’s remuneration (excluding estimated monetary value of benefits-in-kind) totalling RM8,029,000 (2014: RM6,093,000) and RM2,960,000 (2014: RM6,093,000) respectively as disclosed in Note 38.

Included in the administration and general expenses of the Group and Company are other Directors’ remuneration (excluding estimated monetary value of benefits-in-kind) totalling RM3,657,000 (2014: RM3,525,000) and RM1,449,000 (2014: RM1,370,000) respectively as disclosed in Note 38. 107 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

38 DIRECTORS’ REMUNERATION

Benefits- in-kind (based on an Salary and estimated other monetary remuneration value) Bonus Total RM’000 RM’000 RM’000 RM’000

Group 2015 Group Managing Director Dato’ Khairussaleh Ramli (Appointed on 5 May 2015) 1,646 36 3,423 5,105 Kellee Kam Chee Khiong (Resigned on 4 May 2015) 960 10 2,000 2,970

2,606 46 5,423 8,075

2014 Group Managing Director Kellee Kam Chee Khiong 2,343 36 3,750 6,129

Company 2015 Group Managing Director Kellee Kam Chee Khiong (Resigned on 4 May 2015) 960 10 2,000 2,970

2014 Group Managing Director Kellee Kam Chee Khiong 2,343 36 3,750 6,129 108 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

38 DIRECTORS’ REMUNERATION (CONTINUED)

Group Company

Benefits- Benefits- in-kind in-kind (based on an (based on an estimated estimated monetary Other monetary Other Fees value) remuneration Total Fees value) remuneration Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

2015 Non-executive Directors Dato’ Mohamed Khadar Merican 507 18 328 853 180 18 140 338 Tan Sri Azlan Zainol 424 31 79 534 150 – 37 187 Datuk Haji Faisal Siraj 470 – 247 717 150 – 57 207 Tan Sri Dato’ Teo Chiang Liang 220 – 101 321 150 – 66 216 Datuk Seri Saw Choo Boon 322 – 271 593 150 – 100 250 Mohamed Ali Ismaeil Ali AlFahim 420 – 56 476 150 – 18 168 Dato’ Nik Mohamed Din Datuk Nik Yusoff 202 – 10 212 92 – 9 101

2,565 49 1,092 3,706 1,022 18 427 1,467

2014 Non-executive Directors Dato’ Mohamed Khadar Merican 493 31 215 739 180 31 37 248 Tan Sri Azlan Zainol 458 31 57 546 150 – 26 176 Datuk Haji Faisal Siraj 470 – 232 702 150 – 62 212 Tan Sri Dato’ Teo Chiang Liang 270 – 116 386 150 – 62 212 Datuk Seri Saw Choo Boon 320 – 227 547 150 – 100 250 Dato’ Nik Mohamed Din Datuk Nik Yusoff 311 – 28 339 150 – 23 173 Mohamed Ali Ismaeil Ali AlFahim 273 – 42 315 97 – 20 117 Datuk Wira Jalilah Baba 12 – 1 13 12 – 1 13

2,607 62 918 3,587 1,039 31 331 1,401 109 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

39 ALLOWANCE FOR IMPAIRMENT ON LOANS, FINANCING AND OTHER LOSSES

Group

2015 2014 RM’000 RM’000

Allowance for impaired loans and financing: – Individual impairment allowance made/(written back) 235,504 (27,937) – Collective impairment allowance made 194,513 405,898 Impaired loans and financing recovered (265,300) (377,039) Impaired loans and financing written off 157,947 204,425 Allowance made for impairment on other debtors 17,650 895

340,314 206,242

40 IMPAIRMENT LOSSES (WRITTEN BACK)/MADE ON OTHER ASSETS

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Charge for the financial year – Financial investments AFS 6,538 15,601 – – – Financial investments HTM 1,306 2,817 – – – Property, plant and equipment – 169 – – – Intangible assets – 3,321 – – – Investment in a joint venture 7,833 – – – – Investments in subsidiaries – – – 2,717 – Waiver of intercompany balances – – 34 –

15,677 21,908 34 2,717

Reversal for the financial year: – Financial investments AFS (18,294) (124,229) – – – Financial investments HTM (43,668) (13,567) – – – Property, plant and equipment (182) (1,421) – – – Intangible assets (2,283) – – – – Waiver of intercompany balances – – – (5,545)

(64,427) (139,217) – (5,545)

(48,750) (117,309) 34 (2,828) 110 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

41 TAXATION

Group Company

2015 2014 2015 2014 Note RM’000 RM’000 RM’000 RM’000

Income tax based on profit for the financial year: – Malaysian income tax 603,075 680,961 669 61 – Overseas tax 29,351 34,937 – – Deferred tax 14 (90,005) (21,919) (20) 1,201

542,421 693,979 649 1,262 Under/(Over) provision in respect of prior financial years 40,290 (22,390) 5 (276)

582,711 671,589 654 986

The numerical reconciliation between the applicable statutory income tax rate and the effective income tax rate of the Group and the Company are as below:

Group Company

2015 2014 2015 2014 % % % %

Tax at Malaysian statutory tax rate 25.0 25.0 25.0 25.0 Tax effects in respect of: Effects of different tax rate in Labuan/other countries – (0.6) – – Non-taxable income (1.3) (1.4) (33.5) (160.3) Non-allowable expenses 3.4 2.4 8.6 139.2 Temporary differences not recognised in prior years (1.3) – – – Under/(Over) provision in respect of prior years 1.9 (0.8) – (0.9)

27.7 24.6 0.1 3.0 111 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

42 EARNINGS PER SHARE (‘EPS’)

(a) Basic earnings per share Basic EPS is calculated by dividing the net profit attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the financial year.

Group

2015 2014 RM’000 RM’000

Net profit attributable to equity holders 1,511,427 2,038,000

Weighted average number of ordinary shares in issue (’000) 2,602,169 2,558,249

Basic EPS (sen) 58.1 79.7

(b) Diluted earnings per share There were no dilutive potential ordinary shares outstanding as at 31 December 2015. As a result, the diluted EPS equal to the basic EPS for financial year ended 31 December 2015.

43 INCOME TAX RELATING TO COMPONENTS OF OTHER COMPREHENSIVE INCOME/(LOSS)

Attributable to equity holders of the Company:

Group

Before Tax Net of tax benefits tax RM’000 RM’000 RM’000

2015 Financial investments AFS – Fair value loss on revaluation, net of transfer to income statements (91,262) 24,640 (66,622) Actuarial gain on defined benefit plan of subsidiaries 1,563 (331) 1,232

(89,699) 24,309 (65,390)

2014 Financial investments AFS – Fair value gain on revaluation, net of transfer to income statements 87,017 (17,787) 69,230 Actuarial gain on defined benefit plan of subsidiaries 1,276 (319) 957

88,293 (18,106) 70,187 112 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

44 ORDINARY DIVIDENDS

Dividends declared or proposed during the financial year are as follows:

Group and Company

2015 2014

Dividend Total Dividend Total per share dividend per share dividend % RM’000 % RM’000

Ordinary shares: Interim dividend 12.00% 368,961 6.00% 154,347

The Directors have declared a single-tier interim cash dividend of 12.00% per share amounting to RM368,961,000 in respect of the financial year ended 31 December 2015. The interim dividend was approved by the Board of Directors on 28 January 2016.

The Directors do not propose any final dividend in respect of the financial year ended 31 December 2015.

Dividends recognised as distribution to ordinary equity holders of the Company:

Group and Company

2015 2014

Amount of Amount of Dividend dividends, Dividend dividends, per share single-tier per share single-tier % RM’000 % RM’000

Ordinary shares Interim dividend – 2014 6.00% 154,347 – – Final dividend – 2013 – – 10.30% 262,332

6.00% 154,347 10.30% 262,332 113 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

45 COMMITMENT AND CONTINGENCIES

In the normal course of business, the Group makes various commitments and incurs certain contingent liabilities with legal recourse to its customers. Apart from the allowance for commitments and contingencies already made in the financial statements, no material losses are anticipated as a result of these transactions.

As disclosed in Note 53, the Company announced that it proposed to undertake the Proposed Internal Reorganisation, Proposed Distribution and Capital Repayment and Proposed Transfer of Listing Status of the Company. The assets and liabilities, including the commitments and contingencies below are classified as held for sale because they are held for distribution to owners of the Group:

2015 2014 Group RM’000 RM’000

Direct credit substitutes# 2,352,315 2,659,088 Transaction-related contingent items# 5,148,273 4,829,166 Short term self-liquidating trade-related contingencies 1,840,490 1,822,569 Obligations under underwriting agreements 76,000 – Lending of banking subsidiaries’ securities or the posting of securities as collateral by banking subsidiaries, including instances where these arise out of repo-style transactions 5,212,499 517,610 Irrevocable commitments to extend credit: – Maturity not exceeding one year 2,903,165 2,701,468 – Maturity exceeding one year 29,517,195 30,652,168 Foreign exchange-related contracts^: – Less than one year 67,040,910 28,493,237 – One year to less than five years 13,240,884 11,522,508 – More than five years 541,189 469,108 Equity related contracts^ – Less than one year 315 15,508 Interest rate-related contracts^: – Less than one year 8,067,611 5,959,805 – One year to less than five years 31,884,672 27,736,220 – More than five years 2,077,995 987,920 Any commitments that are unconditionally cancelled at any time by the banking subsidiaries without prior notice or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness 16,858,657 15,137,896

186,762,170 133,504,271

# Included in direct credit substitutes and transaction-related contingent items are financial guarantee contract of RM5,148,273,000 (2014: RM4,829,166,000).

^ These derivatives are revalued on gross position basis and the unrealised gains or losses has been reflected in the income statements and statements of financial position as derivative assets or derivative liabilities. 114 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

45 COMMITMENT AND CONTINGENCIES (CONTINUED)

The commercial banking subsidiary, RHB Bank, has given a continuing guarantee to BNM to meet the liabilities and financial obligations and requirements of its subsidiary, RHB Bank (L) Ltd, arising from its offshore banking business in the Federal Territory of Labuan.

RHB Bank has also given a guarantee to the Bank of Thailand to provide support to meet any legal liabilities which may be incurred in respect of its operations in Thailand.

Group

2015 2014 RM’000 RM’000

Corporate guarantee in favour of client’s trading facilities granted by a subsidiary 68,000 68,000

Company

2015 2014 RM’000 RM’000

Corporate guarantee provided to licensed banks for credit facilities granted to subsidiaries 91,401 214,243 Corporate guarantee in favour of client’s trading facilities granted by a subsidiary 68,000 68,000 Letter of undertaking in favour of Monetary Authority of Singapore provided for a subsidiary 151,950 132,315

311,351 414,558

The maturity of the financial guarantee contracts of the Company is less than one year (2014: less than one year).

46 NON-CANCELLABLE OPERATING LEASE COMMITMENTS

The Group has lease commitments in respect of rented premises which are classified as operating leases. A summary of the non- cancellable long term commitments, net of sub-leases, is as follows:

Group

2015 2014 RM’000 RM’000

Rental of premises: – Within one year 81,441 82,162 – Between one to five years 69,746 69,377 – More than five years 577 97

151,764 151,636 115 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

47 CAPITAL COMMITMENTS

Group

2015 2014 RM’000 RM’000

Capital expenditure for property, plant and equipment: – Authorised and contracted for 177,638 109,535 – Authorised but not contracted for 300,694 202,131

478,332 311,666

48 RELATED PARTY TRANSACTIONS

(a) Related parties and relationships The related parties of, and their relationship with the Company, are as follows:

Related parties Relationship

Employees Provident Fund (‘EPF’) Substantial shareholder, a fund body that is significantly influenced by the government

Subsidiaries, associates and joint ventures of EPF as Reporting entities that EPF has control or significant influence disclosed in its financial statements

Subsidiaries of the Company as disclosed in Note 15 Subsidiaries

Key management personnel The key management personnel of the Group and the Company consists of: – All Directors of the Company and its key subsidiaries; and – Members of the Group Management Committee (‘GMC’)

Related parties of key management personnel (i) Close family members and dependents of key management personnel; (deemed as related to the Company) and

(ii) Entities that are controlled, jointly controlled or significantly influenced by, or for which voting power in such entity resides with, directly or indirectly by key management personnel or its close family members

(b) Significant related party balances and transactions In addition to related party disclosures mentioned in Note 12, set out below are other significant related party transactions and balances.

Other related parties of the Company comprise of transactions or balances with the Company’s subsidiaries.

All related party transactions are entered into in the normal course of business at agreed terms between the related parties. 116 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

48 RELATED PARTY TRANSACTIONS (CONTINUED)

(b) Significant related party balances and transactions (continued)

2015 2014

Key EPF and Key EPF and management EPF Group of management EPF Group of personnel companies personnel companies RM’000 RM’000 RM’000 RM’000

Group Income Interest on loans, advances and financing 469 58,216 220 50,691 Interest on financial investments AFS – 5,788 – 6,059 Fee income 2,855 20,189 4 11,598 Insurance premium 195 37,056 33 27,723 Brokerage income 395 16,389 – 18,024 Other income 38 85 – 14,964

3,952 137,723 257 129,059

Expenses Interest on deposits from customers 1,489 7,402 1,264 11,711 Insurance premium 375 – – – Marketing expenses 518 780 – – Rental of premises 11,002 – 11,038 – Other expenses 20 8,660 38 6,241

13,404 16,842 12,340 17,952

Amounts due from Loans, advances and financing 13,269 1,591,114 8,776 1,280,989 Clients’ and brokers’ balances 2,480 78,001 – 54,400 Financial investments AFS – 80,570 – 145,631 Other assets 5 13,803 – 1,845

15,754 1,763,488 8,776 1,482,865

Amounts due to Deposits from customers 109,446 524,847 73,295 915,909 Clients’ and brokers’ balances – 29,327 – 103,825 Other liabilities 22 7,687 – 30,271

109,468 561,861 73,295 1,050,005 117 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

48 RELATED PARTY TRANSACTIONS (CONTINUED)

(b) Significant related party balances and transactions (continued)

Subsidiary companies

2015 2014 RM’000 RM’000

Company Income Interest on deposits and placements with other financial institutions 4,634 520 Waiver of intercompany balances (34) 5,545 Dividend income 614,163 206,956

618,763 213,021

Expenses Interest on borrowings 47,073 36,977 Rental of premises – 179 Legal and professional fees 310 2,691 Security and escorting charges – 10 Personnel costs 2 15 Other expenses 12 17

47,397 39,889

Amounts due from Cash and short term funds 2,348,678 24,940 Intercompany balances 27 93

2,348,705 25,033

Amounts due to Intercompany balances 1,929 1,799 Borrowings 1,456,029 1,055,505

1,457,958 1,057,304 118 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

48 RELATED PARTY TRANSACTIONS (CONTINUED)

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Short term employee benefits: – Fees 2,565 2,607 1,022 1,039 – Salary and other remuneration 23,613 26,094 2,986 6,564 – Contribution to EPF 3,251 3,886 402 1,111 – Benefits-in-kind 196 213 28 67

29,625 32,800 4,438 8,781

The above includes Directors’ remuneration as disclosed in Note 38.

Group

2015 2014 RM’000 RM’000

Approved limit on loans, advances and financing for key management personnel 35,484 27,722

49 SEGMENT REPORTING

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is the person or group that allocates resources to and assesses the performance of the operating segments of an entity. The Group has determined its Group Management Committee as its chief operating decision-maker.

Pursuant to the Group’s refinement on internal fund transfer-pricing methodology and internal management reporting framework, funding center is now under the purview and responsibility of Group Treasury. As such, the Group has restated the corresponding segment information in all affected business segments retrospectively. The funding center was previously categorised under ‘Support Center and Others’ segment.

The Group’s business segments can be organised into the following main segments reflecting the Group’s internal reporting structure:

(a) Corporate and Investment Banking (‘CIB’) CIB caters to the funding or lending needs of corporate customers including public listed corporations and its related entities, multinational corporations (including Japanese), financial institutions and Government and state owned enterprises. Included under Corporate Banking are offshore banking activities carried out by RHB Bank (L) Ltd whose borrowings and lending facilities are offered in major currencies mainly to corporate customers. 119 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

49 SEGMENT REPORTING (CONTINUED)

The Group’s business segments can be organised into the following main segments reflecting the Group’s internal reporting structure: (continued)

(a) Corporate and Investment Banking (‘CIB’) (continued) Investment banking provides services for advisory, fund raising in the structuring and issuance of debt securities and capital market instruments, corporate and debt restructuring, mergers and acquisitions, private placements, underwriting and structuring of bilateral lending, project financing, loans syndication, infrastructure financing, initial public offerings of equity related instruments, private placements and underwriting. This segment also covers facilities for equity share trading in local and foreign markets, share margin financing, futures broking products and services, custodian and nominees services, investment cash management and unit trust funds.

This segment also offers stockbroking and investment banking products and services to the Group’s regional customers in Singapore, Hong Kong, Indonesia and Thailand.

(b) Retail Banking Retail Banking focuses on providing products and services to individual customers. The products and services offered to customers include credit facilities (mortgages, non-residential mortgages, hire purchase, purchase of securities, credit cards and other personal loans and financing), remittances, deposits collection, investment related products, and general and takaful insurance products.

(c) Business Banking Business Banking caters for funding needs as well as deposit collection from small and medium sized enterprises and wholesale clients.

(d) Group Treasury Group Treasury operations are involved in proprietary and non-proprietary trading in fixed income securities and foreign exchange, derivatives trading and structuring, managing customer-based foreign exchange and money market transactions, funding and investments in ringgit and foreign currencies for the Group, as well as funding center.

(e) Group International Business Group International Business primarily focuses on providing commercial banking related products and services tailored to the specific needs of the customers in foreign countries in which the Group has operations. The Group currently has foreign presences in Singapore, Thailand, Brunei, Cambodia and Lao.

(f) Support Center and Others Support Center and Others comprise results from other business segments in the Group (nominee services, property investment and rental of premises and other related financial services) and investment holding company. The results of these other businesses are not material to the Group and therefore do not render a separate disclosure and are reported in aggregate in the financial statements. 120 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

49 SEGMENT REPORTING (CONTINUED)

The business segment results are prepared based on the Group’s internal management reporting, which reflects the organisation’s management reporting structure. Internal allocation of costs, for example, back office support, centralised cost, funding centre and the application of transfer pricing, where appropriate, has been used in preparing the segmental reporting.

During the financial year, no one group of related customers accounted for more than 10% of the Group’s revenue.

(a) Segment analysis

Support Group Center Inter- Retail Business Group International and Segment CIB Banking Banking Treasury Business Others Elimination Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

2015 External revenue 1,758,079 2,464,246 937,992 537,156 557,887 (64,189) – 6,191,171 Inter-segment revenue 50,408 41,314 – 42,991 6,203 (5,151) (135,765) –

Segment revenue 1,808,487 2,505,560 937,992 580,147 564,090 (69,340) (135,765) 6,191,171 Other operating expenses (1,139,533) (1,330,846) (474,435) (177,526) (358,463) (448,124) 135,765 (3,793,162) Including: Depreciation of property, plant and equipment (27,571) (61,191) (7,103) (2,882) (12,888) (9,653) – (121,288) Amortisation of intangible assets (20,839) (27,494) (10,240) (6,851) (6,336) – – (71,760) Career transition scheme – – – – – (308,801) – (308,801) Allowance for impairment on loans, financing and other losses (133,512) (27,267) (101,021) (8,461) (70,701) 648 – (340,314) Impairment losses written back on other assets 15,428 12 23 32,975 312 – – 48,750

Segment profit/(loss) 550,870 1,147,459 362,559 427,135 135,238 (516,816) – 2,106,445 Share of results of associates and joint ventures 299

Profit before taxation 2,106,744 Taxation (582,711)

Net profit for the financial year 1,524,033 121 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

49 SEGMENT REPORTING (CONTINUED)

(a) Segment analysis (continued)

Support Group Center Retail Business Group International and CIB Banking Banking Treasury Business Others Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

2015 Segment assets: 53,924,237 69,218,588 19,873,763 57,457,406 26,933,037 704,765 228,111,796 Investments in associates and joint ventures 15,764 Tax recoverable 260,965 Deferred tax assets 112,201 Unallocated assets 2,216,941

Total assets 230,717,667

Segment liabilities: 44,822,949 41,169,990 22,216,305 63,205,292 20,742,032 40,605 192,197,173 Tax liabilities 37,247 Deferred tax liabilities 11,334 Borrowings 2,436,796 Subordinated obligations 5,895,786 Hybrid Tier-1 Capital Securities 601,856 Senior debt securities 3,451,380 Unallocated liabilities 2,976,684

Total liabilities 207,608,256

Other segment items: Capital expenditure 48,043 119,183 37,689 9,656 13,549 14,129 242,249 122 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

49 SEGMENT REPORTING (CONTINUED)

(a) Segment analysis (continued)

2014 External revenue 1,988,085 2,537,704 893,718 509,173 422,536 (116,337) – 6,234,879 Inter-segment revenue 44,847 21,078 35 43,262 3,956 32,664 (145,842) –

Segment revenue 2,032,932 2,558,782 893,753 552,435 426,492 (83,673) (145,842) 6,234,879 Other operating expenses (1,132,449) (1,359,880) (437,530) (199,705) (304,218) (123,228) 145,842 (3,411,168) Including: Depreciation of property, plant and equipment (23,802) (64,194) (6,596) (2,725) (8,953) (9,012) – (115,282) Amortisation of intangible assets (25,280) (24,920) (9,285) (5,017) (3,218) – – (67,720) Allowance for impairment on loans, financing and other losses 235,519 (348,107) (58,633) (25,179) (18,571) 8,729 – (206,242) Impairment losses written back/(made) on other assets 127,850 – 623 (11,385) 1,373 (1,152) – 117,309

Segment profit/(loss) 1,263,852 850,795 398,213 316,166 105,076 (199,324) – 2,734,778 Share of results of associates (105) Share of results of joint ventures 380

Profit before taxation 2,735,053 Taxation (671,589)

Net profit for the financial year 2,063,464 123 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

49 SEGMENT REPORTING (CONTINUED)

(a) Segment analysis (continued)

Support Group Center Retail Business Group International and CIB Banking Banking Treasury Business Others Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

2014 Segment assets: 52,251,192 65,023,028 18,359,314 58,296,263 23,068,520 545,352 217,543,669 Investments in associates and joint ventures 21,021 Tax recoverable 162,181 Deferred tax assets 38,465 Unallocated assets 1,589,100

Total assets 219,354,436

Segment liabilities: 38,976,927 40,682,043 21,689,281 66,798,718 17,582,367 17,790 185,747,126 Tax liabilities 57,321 Deferred tax liabilities 53,041 Borrowings 2,874,697 Subordinated obligations 6,099,402 Hybrid Tier-1 Capital Securities 601,515 Senior debt securities 2,810,655 Unallocated liabilities 2,216,593

Total liabilities 200,460,350

Other segment items: Capital expenditure 52,430 100,621 27,527 9,052 42,100 4,773 236,503 124 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

49 SEGMENT REPORTING (CONTINUED)

(b) The following geographical information is prepared based on the location of the assets:

Segment Capital Revenue assets expenditure RM’000 RM’000 RM’000

2015 Malaysia 5,296,509 201,638,655 214,972 Outside Malaysia 894,662 29,079,012 27,277

6,191,171 230,717,667 242,249

2014 Malaysia 5,417,699 194,474,298 171,572 Outside Malaysia 817,180 24,880,138 64,931

6,234,879 219,354,436 236,503

50 CAPITAL ADEQUACY RATIO

BNM Guidelines on capital adequacy requires RHB Bank, RHB Islamic Bank and RHB Investment Bank to maintain an adequate level of capital to withstand any losses which may result from credit and other risks associated with financing operations. The capital adequacy ratio is computed based on the eligible capital in relation to the total risk-weighted assets as determined by BNM.

RHB Indochina Bank, a wholly owned subsidiary of RHB Bank, are subject to National Bank of Cambodia’s capital adequacy requirements.

Individual entities within the Group comply with all externally imposed capital requirements to which they are subject to. Currently, the Group is not required to maintain any capital adequacy ratio requirements. 125 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

50 CAPITAL ADEQUACY RATIO (CONTINUED)

(a) The capital adequacy ratios of RHB Bank, RHB Islamic Bank and RHB Investment Bank are as follows:

RHB Bank@

2015 2014 RM’000 RM’000

Common Equity Tier 1 (‘CET 1’)/Tier 1 Capital Paid-up ordinary share capital 3,460,585 3,365,486 Share premium 478,517 136,162 Retained profits 7,096,570 6,860,657 Other reserves 3,994,464 3,589,300 AFS reserves 154,358 218,816

15,184,494 14,170,421 Less: Goodwill (905,519) (905,519) Intangible assets (include associated deferred tax liabilities) (239,193) (166,462) Net deferred tax assets (84,375) – 55% of cumulative gains of AFS financial instruments (84,897) (120,349) Shortfall of eligible provisions to expected losses under the IRB approach (123,459) (307,612) Investments in subsidiaries* (687,429) (332,839) Other deductions# (76,619) (29,667)

Total CET 1 Capital 12,983,003 12,307,973 Hybrid Tier-I Capital Securities** 420,000 480,000

Total Tier I Capital 13,403,003 12,787,973

Tier II Capital Subordinated obligations*** 2,800,000 3,200,000 Subordinated obligations meeting all relevant criteria 1,499,544 1,000,000 Collective impairment allowance and regulatory reserve^ 332,233 258,406

4,631,777 4,458,406 Less: Investments in subsidiaries* (1,031,143) (1,331,358)

Total Tier II Capital 3,600,634 3,127,048

Total Capital 17,003,637 15,915,021 126 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

50 CAPITAL ADEQUACY RATIO (CONTINUED)

(a) The capital adequacy ratios of RHB Bank, RHB Islamic Bank and RHB Investment Bank are as follows: (continued)

RHB Bank@

2015 2014

Capital ratios Before proposed dividends: CET I Capital Ratio 12.126% 11.678% Tier I Capital Ratio 12.518% 12.133% Total Capital Ratio 15.881% 15.100%

After proposed dividends: CET I Capital Ratio 11.598% 11.124% Tier I Capital Ratio 11.990% 11.580% Total Capital Ratio 15.353% 14.547%

@ The capital adequacy ratios of RHB Bank consist of capital base and risk-weighted assets derived from RHB Bank and its wholly-owned offshore banking subsidiary, RHB Bank (L) Ltd. * Investments in subsidiaries are subject to the gradual deduction in the calculation under CET 1 Capital effective from 1 January 2014 as prescribed under paragraph 36.15 of the BNM’s Capital Adequacy Framework (Capital Components). # Pursuant to Basel II Market Risk para 5.19 & 5.20 - Valuation Adjustments, the Capital Adequacy Framework (Basel II - RWA) calculation shall account for the ageing, liquidity and holding back adjustments on its trading portfolio. ** Hybrid Tier-1 Capital Securities that are recognised as Tier I capital instruments are subject to the gradual phase-out treatment effective from 1 January 2013 as prescribed under paragraph 36.10 of the BNM’s Capital Adequacy Framework (Capital Components). *** Subordinated obligations that are recognised as Tier II capital instruments are subject to the gradual phase-out treatment effective from 1 January 2013 as prescribed under paragraph 36.10 of the BNM’s Capital Adequacy Framework (Capital Components). ^ Excludes collective impairment allowance attributable to loans, advances and financing classified as impaired but not individually assessed for impairment pursuant to BNM’s Guideline on ‘Classification and Impairment Provisions for Loans/ Financing’. Includes the qualifying regulatory reserve under the Standardised Approach for non-impaired loans of RHB Bank of RM138,588,000 (2014: RMNil). 127 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

50 CAPITAL ADEQUACY RATIO (CONTINUED)

(a) The capital adequacy ratios of RHB Bank, RHB Islamic Bank and RHB Investment Bank are as follows: (continued)

RHB Islamic Bank

2015 2014 RM’000 RM’000

CET 1/Tier I Capital Paid-up ordinary share capital 1,173,424 1,173,424 Retained profits 520,625 553,560 Other reserves 681,192 553,765 AFS reserves (39,195) (28,352)

2,336,046 2,252,397 Less: Net deferred tax assets (16,840) (15,497) Intangible assets (include associated deferred tax liabilities) (687) (1,119) Other deductions# (763) (551)

Total CET I Capital/Total Tier I Capital 2,317,756 2,235,230

Tier II Capital Subordinated sukuk* 500,000 500,000 Collective impairment allowance and regulatory reserve^ 248,696 100,832

Total Tier II Capital 748,696 600,832

Total Capital 3,066,452 2,836,062

Capital ratios Before proposed dividends: CET I Capital Ratio 11.041% 12.875% Tier I Capital Ratio 11.041% 12.875% Total Capital Ratio 14.608% 16.336%

After proposed dividends: CET I Capital Ratio 11.041% 12.875% Tier I Capital Ratio 11.041% 12.875% Total Capital Ratio 14.608% 16.336%

# Pursuant to Basel II Market Risk para 5.19 & 5.20 – Valuation Adjustments, the Capital Adequacy Framework (Basel II - RWA) calculation shall account for the ageing, liquidity and holding back adjustments on its trading portfolio. ^ Excludes collective impairment allowance attributable to financing and advances classified as impaired but not individually assessed for impairment pursuant to BNM’s Guideline on ‘Classification and Impairment Provisions for Loans/Financing’. Includes the qualifying regulatory reserve under the Standardised Approach for non-impaired loans of RHB Islamic Bank of RM140,615,000 (2014: RMNil). * Qualify as Tier II capital as specified in the BNM’s Capital Adequacy Framework for Islamic Bank (Capital Components). 128 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

50 CAPITAL ADEQUACY RATIO (CONTINUED)

(a) The capital adequacy ratios of RHB Bank, RHB Islamic Bank and RHB Investment Bank are as follows: (continued)

RHB Investment Bank

2015 2014 RM’000 RM’000

CET 1/Tier I Capital Paid-up ordinary share capital 818,646 818,646 Share premium 1,515,150 1,515,150 Retained profits 303,449 290,106 Other reserves 433,295 406,544 AFS reserves (5,149) (11,933)

3,065,391 3,018,513 Less: Goodwill (1,118,418) (1,118,418) Investments in subsidiaries, associates and joint ventures* (588,970) (283,162) Intangible assets (include associated deferred tax liabilities) (25,530) (29,718) Other deductions (84) (234) Deferred tax assets (21,063) (23,891) Reduction in excess of Tier II Capital due to insufficient Tier II Capital# (322,564) (581,966)

Total CET I Capital/Total Tier I Capital 988,762 981,124

Tier II Capital Subordinated obligations** 345,000 539,765 Subordinated obligations meeting all relevant criteria 200,000 – Collective impairment allowance and regulatory reserve^ 15,890 10,916

560,890 550,681 Less: Investments in subsidiaries, associates and joint ventures* (560,890) (550,681)

Total Tier II Capital – –

Total Capital 988,762 981,124 129 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

50 CAPITAL ADEQUACY RATIO (CONTINUED)

(a) The capital adequacy ratios of RHB Bank, RHB Islamic Bank and RHB Investment Bank are as follows: (continued)

RHB Investment Bank

2015 2014

Capital ratios Before proposed dividends: CET I Capital Ratio 22.917% 26.337% Tier I Capital Ratio 22.917% 26.337% Total Capital Ratio 22.917% 26.337%

After proposed dividends: CET I Capital Ratio 22.917% 26.337% Tier I Capital Ratio 22.917% 26.337% Total Capital Ratio 22.917% 26.337%

* Investments in subsidiaries are subject to the gradual deduction in the calculation under CET 1 Capital effective from 1 January 2014 as prescribed under paragraph 36.15 of the BNM’s Capital Adequacy Framework (Capital Components). # The remaining portion of regulatory adjustments not deducted in the calculation of Tier II capital shall be deducted in the next higher tier of capital as prescribed under paragraph 31.1 of the BNM’s Capital Adequacy Framework (Capital Components). ** Subordinated obligations that are recognised as Tier II capital instruments are subject to the gradual phase-out treatment effective from 1 January 2013 as prescribed under paragraph 36.10 of the BNM’s Capital Adequacy Framework (Capital Components). ^ Excludes collective impairment allowance attributable to loans, advances and financing classified as impaired but not individually assessed for impairment pursuant to BNM’s Guideline on ‘Classification and Impairment Provisions for Loans/ Financing’. Includes the qualifying regulatory reserve for non-impaired loans of RHB Investment Bank of RM13,405,000 (2014: RMNil).

(b) The breakdown of risk-weighted assets in the various categories of risk-weights are as follows:

RHB RHB Islamic RHB Investment Bank@ Bank Bank RM’000 RM’000 RM’000

2015 Credit risk 95,747,368 19,895,738 2,640,434 Market risk 3,086,116 61,645 469,440 Operational risk 8,233,562 1,032,842 1,204,734

Total risk-weighted assets 107,067,046 20,990,225 4,314,608 130 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

50 CAPITAL ADEQUACY RATIO (CONTINUED)

(b) The breakdown of risk-weighted assets in the various categories of risk-weights are as follows: (continued)

RHB RHB Islamic RHB Investment Bank@ Bank Bank RM’000 RM’000 RM’000

2014 Credit risk 94,067,828 16,316,757 2,448,720 Market risk 3,369,497 124,357 284,376 Operational risk 7,957,062 918,886 992,064

Total risk-weighted assets 105,394,387 17,360,000 3,725,160

@ The capital adequacy ratios of RHB Bank consist of capital base and risk-weighted assets derived from RHB Bank and its wholly- owned offshore banking subsidiary, RHB Bank (L) Ltd.

The total risk-weighted assets of RHB Bank are computed based on BNM’s Guideline on Risk Weighted Capital Adequacy Framework: IRB Approach for Credit Risk, Standardised Approach for Market Risk and Basic Indicator Approach for Operational Risk (Basel II).

The total risk-weighted assets of RHB Islamic Bank are computed based on BNM’s Capital Adequacy Framework for Islamic Banks (‘CAFIB’): Standardised Approach for Credit and Market Risk and Basic Indicator Approach for Operational Risk (Basel II).

The total risk-weighted assets of RHB Investment Bank are computed based on BNM’s Guideline on Risk Weighted Capital Adequacy Framework: Standardised Approach for Credit and Market Risk and Basic Indicator Approach for Operational Risk (Basel II).

2015 2014

Before proposed dividends: Core capital ratio # # Solvency ratio 16.884% 17.042%

After proposed dividends: Core capital ratio # # Solvency ratio 16.884% 17.042%

The Solvency Ratio of RHB Indochina Bank is the nearest equivalent regulatory compliance ratio in Cambodia computed in accordance with Prakas B7-00-46, B7-04-206 and B7-07-135 issued by the National Bank of Cambodia. This ratio is derived as RHB Indochina Bank’s net worth divided by its risk-weighted assets and off-balance sheet items. The minimum regulatory solvency ratio requirement in Cambodia is 15%.

# No equivalent ratio in Cambodia. 131 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT

(a) Financial Risk Management Objectives and Policies The Group’s financial risk management policy is adopted from the main operating subsidiaries’ risk management policies. Various programmes have been initiated at the respective operating subsidiaries in order to identify, measure, control and monitor all identifiable risks.

The Group operates within clearly defined set of principles and guidelines based on best practices that have been approved by the Board. Various working committees have been formed at the operating subsidiaries to ensure that all identifiable risks are addressed and managed adequately.

Risk is inherent in the Group’s activities and is managed through a process of on-going identification, measurement and monitoring, subject to limits and other controls. Besides credit risk, the Group is exposed to a range of other risk types such as market, liquidity, operational, legal, Shariah, strategic and cross-border, as well as other forms of risk inherent to its strategy, product range and geographical coverage.

Effective risk management is fundamental to being able to drive sustainable growth and shareholders’ value, while maintaining competitive advantage, and is thus a central part of the proactive risk management of the Group’s operating environment.

The Group Risk Management Framework governs the management of risks in the Group, as follows:

1. It provides a holistic overview of the risk and control environment of the Group, with risk management aimed towards loss minimisation and protection against losses which may occur through, principally, the failure of effective checks and controls in the organisation.

2. It sets out the strategic progression of risk management towards becoming a value creation enterprise. This is realised through building up capabilities and infrastructure in risk management sophistication, and enhanced risk quantification to optimise risk-adjusted returns.

The Risk Management Framework contains five fundamental principles that drive the philosophy of risk management in the Group. They are:

1. Risk governance from the Boards of Directors of various operating entities within the Group The ultimate responsibility of the Boards of Directors in the Group is to ensure that an effective risk management strategy is in place and uniformly understood across the Group. The Group has a structured framework to support the Board’s oversight responsibilities.

The Board Risk Committee (‘BRC’) is the principal Board Committee that provides oversight over risk management for the Group to ensure that the Group’s risk management process is in place and functional. The BRC assists the Board to review the Group’s overall risk management philosophy, framework, policies and models. An Islamic Risk Management Committee (‘IRMC’) has also been established to assist the Board of Directors of RHB Islamic Bank on issues relevant and unique to Islamic finance. 132 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(a) Financial Risk Management Objectives and Policies (continued) The Risk Management Framework contains five fundamental principles that drive the philosophy of risk management in the Group. They are: (continued)

1. Risk governance from the Boards of Directors of various operating entities within the Group (continued) The responsibility for the supervision of the day-to-day management of enterprise risk and capital matters is delegated to the Group Capital and Risk Committee (‘GCRC’) comprising Senior Management of the Group and which reports to the BRC/IRMC and the Group Management Committee (‘GMC’). There are other committees set up to manage specific areas of risks in the Group.

2. Clear understanding of risk management ownership Proactive risk ownership is important for effective management of risk. This promotes a risk awareness culture throughout the Group. The Strategic Business Units (‘SBUs’) and Strategic Functional Units (‘SFUs’) of the respective operating entities in the Group are collectively responsible for identifying, managing and reporting risks. The business units manage certain defined risks supported by the services provided by the functional units, including the risk management function.

3. Institutionalisation of a risk-focused organisation In addition to risk ownership, a risk-focused culture is promoted throughout the Group through strengthening of the central risk management functions and continuous reinforcement of a risk and control environment within the Group.

4. Alignment of risk management to business strategies The Group Risk Management Framework serves to align the Group’s business strategy to risk strategy, and vice-versa. This is articulated through the risk appetite setting and the Group’s annual business and financial budgetary plan, which is facilitated by the integration of risk measures in capital management.

Risk appetite is set by the Board and reported through various metrics that enable the Group to manage capital constraints and shareholders’ expectations. The risk appetite is a key component of the management of risks and describes the types and level of risk that the Group are prepared to accept in delivering its strategy.

5. Optimisation of risk-adjusted return One of the objectives of capital management is to reflect a risk-adjusted return assumed by the businesses throughout the Group. By linking risk to capital, the risk-adjusted return measure contributes to the creation of shareholder value by facilitating the allocation of capital to the businesses.

The medium to long-term strategy and principle of risk management of the Group is to intensify the integration of capital management within the Group. The Group is progressively implementing a risk-adjusted return based framework for allocation of capital to business units and for performance measurement and management. 133 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(a) Financial Risk Management Objectives and Policies (continued) The main areas of financial risks faced by the Company and the Group which is represented by RHB Bank, RHB Islamic Bank and RHB Investment Bank, and the policies to address these financial risks are set out below:

RHB CAPITAL BERHAD Liquidity risk The Company manages its debt maturity profile, operating cash flow and the availability of funding to ensure that all repayment and funding requirements are met. The Company’s cash flows is reviewed regularly to ensure that it has sufficient level of cash and cash equivalents to meet its working capital requirements and is able to settle its financial commitments when they fall due.

Interest rate risk The Company’s primary interest rate risk relates to interest-bearing borrowings. The Company manages its interest rate exposure through the use of fixed and floating rate debt. The objective for the mix between fixed and floating rate borrowings is to enable the Company to manage the fluctuations in interest rates and their impact on the Company.

BANKING SUBSIDIARIES: RHB BANK, RHB ISLAMIC BANK AND RHB INVESTMENT BANK Major Areas of Risk As a banking institution with key activities covering retail, business banking, corporate banking and advisory services, treasury products and services, and securities and futures related business, the Group is subject to business risks which are inherent in the financial services industry. Generally, these business risks can be broadly classified as follows:

(i) Market risk – the risk of loss arising from adverse movements in market indicators, such as interest/profit rates, credit spreads, equity prices, currency exchange rates and commodity prices.

(ii) Liquidity risk – the risk of the banking subsidiaries being unable to maintain sufficient liquid assets to meet its financial commitments and obligations when they fall due and transact at a reasonable cost. Liquidity risk also arises from the inability to manage unplanned decreases or changes in funding sources.

(iii) Credit risk – the risk of loss arising from customers’ or counterparties’ failure to fulfil their financial and contractual obligations in accordance to the agreed terms. It stems primarily from the banking subsidiaries lending/financing, trade finance and its fundings, investment and trading activities from both on- and off-balance sheet transactions.

(iv) Operational risk – the risk of loss resulting from inadequate or failed internal processes, people, systems and/or external events, which also includes IT, legal and Shariah non-compliance risk but excludes strategic and reputational risk. 134 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(a) Financial Risk Management Objectives and Policies (continued) BANKING SUBSIDIARIES: RHB BANK, RHB ISLAMIC BANK AND RHB INVESTMENT BANK (continued) To mitigate the various business risks of the banking subsidiaries, the following has been put in place: Market Risk • A framework of risk policies, measurement methodologies and limits, as approved by the Board, which controls the banking subsidiaries’ financial market activities as well as to identify potential risk areas early in order to mitigate against any adverse effects arising from market volatility.

• The Group Asset and Liability Committee (‘Group ALCO’) performs a critical role in the oversight of the management of market risk and supports the IRMC and BRC in the overall market risk management.

• The Group Risk Management function forms a centralised function to support Senior Management to operationalise the processes and methods, to ensure adequate risk control and oversight are in place.

• The banking subsidiaries apply risk monitoring and assessment tools to measure trading book positions and market risk factors. Statistical and non-statistical risk assessment tools applied include Value-at-Risk (‘VaR’), sensitivity analysis and stress testing.

• Market risk is primarily monitored and controlled via a structure of limits and triggers i.e. cut loss, Value-at-Risk, trading and notional limit set in accordance with the size of positions and risk tolerance appetites. • Periodic stress testing are applied to the banking subsidiaries to ascertain market risk under abnormal market conditions.

Liquidity Risk • The Group ALCO plays a fundamental role in the asset and liability management of the banking subsidiaries, and establishes strategies to assist in controlling and reducing any potential exposures to liquidity risk.

• The liquidity risk management process involves establishing liquidity risk management policies and limits, regular monitoring against liquidity risk limits, regular stress testing, and establishing contingency funding plans. These processes are subject to regular reviews to ensure that they remain relevant in the context of prevailing market conditions. • Limits on the minimum portion of maturing funds available to meet obligations and the minimum level of inter-bank and other borrowing facilities are set to ensure adequate cover for withdrawals arising from unexpected levels of demand.

• Defined liquidity management ratios are maintained and monitored. • The Group has established a Group Liquidity Incident Management Procedure to manage any potential adverse liquidity incidences, and which can be implemented on a timely basis so that appropriate actions can be taken to mitigate against any unexpected market developments.

Credit Risk • The Group abides to the Board approved credit policy which supports the development of a strong credit culture and with the objective of maintaining a well-diversified portfolio that addresses credit risk, and mitigates concern for unexpected losses. International best practices are incorporated into this policy. • Group Credit Committee (‘GCC’) is responsible for ensuring adherence to the Board approved credit risk appetite as well as the effectiveness of credit risk management. GCC also approves and renews financing facilities and submits to the Board Credit Committee (‘BCC’) for affirmation or veto if the financing facilities exceed a pre-defined threshold. 135 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(a) Financial Risk Management Objectives and Policies (continued) BANKING SUBSIDIARIES: RHB BANK, RHB ISLAMIC BANK AND RHB INVESTMENT BANK (continued) Credit Risk (continued) • The Group also ensures that internal processes and credit underwriting standards are adhered to before credit proposals are approved. All credit proposals are first evaluated by the originating business units before being evaluated prior to submission to the relevant committees for approval. For financing applications submitted for joint approvals, there is proper check and control as the joint approval is between business units and Group Credit Management.

• Internal credit rating models are an integral part of the Group’s credit risk management, decision-making process, and regulatory capital calculations. Clients’ accounts are reviewed at regular intervals and weakening credits are transferred to Loan Recovery for more effective management.

• Counterparty, industry and product exposure limits/directions are set and risk reward relationship are mapped with the aim of maintaining a diverse credit profile and track the changing risk concentrations in response to market changes and external events.

• RHB Bank has obtained BNM’s approval to apply the Internal Ratings-Based (‘IRB’) approach for credit risk, whereby more advanced Basel II approaches and key program components are implemented, which includes (i) enhancing the returns of RHB Bank using established credit risk framework and methodologies, (ii) implementing and using empirical credit scoring models for consumer financing and credit grading models for business loans/financing, and (iii) designing and implementing modelling of expected and unexpected losses.

• Plans are underway to migrate other material portfolios to the IRB approach for credit risk.

Operational Risk • The Group Risk Management function is responsible for the development of group-wide operational risk policies, framework and methodologies, and providing guidance and information to the business units on operational risk areas. The respective business units are primarily responsible for managing operational risk on a day-to-day basis. Some of the operational risk tools used include Risk and Control Self-Assessment, Key Risk Indicators, Incident and Loss Management.

• The Group’s operational risk management system has integrated applications to support the operational risk management process. This system facilitates the banking subsidiaries’ capabilities for the Advanced Measurement Approach of the Basel II Framework in the future.

• The Group has Business Continuity Planning (‘BCP’) programmes for the major critical business operations and activities at the Head Office, data centre, and branch locations. The BCP programmes are subject to regular testing to ensure efficacy, reliability and functionality. • There is continuous refinement of existing policies, procedures and internal control measures; and regular internal review, compliance monitoring, and audits are performed to prevent and/or minimise unexpected losses. • Regular operational risk reporting is made to senior management, relevant committees and board to facilitate the identification of adverse operational lapses, taking of prompt corrective actions, and ensuring appropriate risk mitigation decision making and action plans. 136 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(b) Financial Instruments by Category

Assets at fair value Financial Financial Loans and through the investments investments Group receivables profit and loss AFS HTM Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS Cash and short term funds 12,882,261 – – – 12,882,261 Securities purchased under resale agreements 188,380 – – – 188,380 Deposits and placements with banks and other financial institutions 1,376,202 – – – 1,376,202 Financial assets FVTPL – 1,752,641 – – 1,752,641 Financial investments AFS – – 24,738,796 – 24,738,796 Financial investments HTM – – – 20,532,236 20,532,236 Loans, advances and financing 149,590,961 – – – 149,590,961 Clients’ and brokers’ balances 1,654,213 – – – 1,654,213 Other financial assets 2,101,146 – – – 2,101,146 Derivative assets – 3,102,389 – – 3,102,389 167,793,163 4,855,030 24,738,796 20,532,236 217,919,225

Liabilities at Other financial fair value liabilities through the at amortised Group profit and loss cost Total 2015 RM’000 RM’000 RM’000

LIABILITIES Deposits from customers – 158,151,008 158,151,008 Deposits and placements of banks and other financial institutions – 20,645,860 20,645,860 Obligations on securities sold under repurchase agreements – 4,906,214 4,906,214 Obligations on securities borrowed – 12,202 12,202 Bills and acceptances payables – 626,399 626,399 Clients’ and brokers’ balances – 1,348,728 1,348,728 Other financial liabilities – 1,786,006 1,786,006 Derivative liabilities 3,089,781 – 3,089,781 Recourse obligation on loans sold to Cagamas – 3,127,656 3,127,656 Borrowings – 2,436,796 2,436,796 Subordinated obligations – 5,895,786 5,895,786 Hybrid Tier-1 Capital Securities – 601,856 601,856 Senior debt securities – 3,451,380 3,451,380 3,089,781 202,989,891 206,079,672 137 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(b) Financial Instruments by Category (continued)

Assets at fair value Financial Financial Loans and through the investments investments Group receivables profit and loss AFS HTM Total 2014 RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS Cash and short term funds 16,236,908 – – – 16,236,908 Securities purchased under resale agreements 491,510 – – – 491,510 Deposits and placements with banks and other financial institutions 2,298,588 – – – 2,298,588 Financial assets FVTPL – 2,930,681 – – 2,930,681 Financial investments AFS – – 19,602,176 – 19,602,176 Financial investments HTM – – – 20,469,831 20,469,831 Loans, advances and financing 140,693,003 – – – 140,693,003 Clients’ and brokers’ balances 1,525,147 – – – 1,525,147 Other financial assets 1,412,627 – – – 1,412,627 Derivative assets – 1,285,230 – – 1,285,230 162,657,783 4,215,911 19,602,176 20,469,831 206,945,701

Liabilities at Other financial fair value liabilities through the at amortised Group profit and loss cost Total 2014 RM’000 RM’000 RM’000

LIABILITIES Deposits from customers – 157,133,993 157,133,993 Deposits and placements of banks and other financial institutions – 21,349,618 21,349,618 Obligations on securities sold under repurchase agreements – 508,416 508,416 Obligations on securities borrowed – 113,780 113,780 Bills and acceptances payables – 614,031 614,031 Clients’ and brokers’ balances – 1,214,065 1,214,065 Other financial liabilities – 1,320,618 1,320,618 Derivative liabilities 1,224,684 – 1,224,684 Recourse obligation on loans sold to Cagamas – 3,315,335 3,315,335 Borrowings – 2,874,697 2,874,697 Subordinated obligations – 6,099,402 6,099,402 Hybrid Tier-1 Capital Securities – 601,515 601,515 Senior debt securities – 2,810,655 2,810,655 1,224,684 197,956,125 199,180,809 138 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(b) Financial Instruments by Category (continued)

Loans and receivables

2015 2014 Company RM’000 RM’000

Cash and short term funds 2,348,680 24,940 Deposits and placements with banks and other financial institutions 1,050 1,017 Amounts due from subsidiaries 27 93 Other financial assets – 2

2,349,757 26,052

Other financial liabilities at amortised cost

2015 2014 Company RM’000 RM’000

Other financial liabilities 36,864 12,340 Amounts due to subsidiaries 1,929 1,799 Borrowings 3,104,574 3,111,433

3,143,367 3,125,572

(c) Market Risk Market risk sensitivity assessment is based on the changes in key variables, such as interest/profit rates and foreign currency rates, while all other variables remain unchanged. The sensitivity factors used are assumptions based on parallel shifts in the key variables to project the impact on the assets and liabilities position of the Group and the Company.

The scenarios used are based on the assumption that all key variables for all maturities move at the same time and by the same magnitude and do not incorporate actions that would be otherwise taken by the business units and risk management to mitigate the effect of this movement in key variables. The Group and the Company seeks to ensure that the interest/profit rate risk profile is managed to minimise losses and optimise net revenues. 139 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(c) Market Risk (continued) (i) Interest/profit rate sensitivity analysis The interest/profit rate sensitivity results below shows the impact on profit after tax and equity of financial assets and financial liabilities bearing floating interest/profit rates and fixed rate financial assets and financial liabilities:

2015 2014

Impact on Impact Impact on Impact profit after tax on equity profit after tax on equity RM’000 RM’000 RM’000 RM’000

Group +100 bps 29,663 (611,605) (61,796) (484,742) –100 bps (27,516) 655,263 67,140 516,962

Company +100 bps (5,356) – (18,127) – –100 bps 5,356 – 18,127 –

The results above represent financial assets and liabilities that have been prepared on the following basis:

(i) Impact on the profit after tax is the sum of valuation changes on fixed income instruments held in the trading portfolio and earnings movement for all short term interest/profit rate sensitive assets and liabilities (with maturity or re-pricing tenure of up to one year) that is not held in the trading portfolio. Earnings movement for the short term interest/profit rate sensitive assets and liabilities uses a set of risk weights with its respective time band to simulate the 100 bps (2014: 100 bps) interest/profit rate change impact. For assets and liabilities with non-fixed maturity e.g. current and savings accounts, certain assumptions are made to reflect the actual sensitivity behaviour of these interest/profit bearing assets and liabilities.

(ii) Impact on equity represents the changes in fair values of fixed income instruments held in the AFS portfolio arising from the shift in the interest/profit rate. 140 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(c) Market Risk (continued) (ii) Foreign currency sensitivity analysis The foreign currency sensitivity represents the effect of the appreciation or depreciation of the foreign currency rates (mainly consists of USD and SGD) on the consolidated currency position, while other variables remain constant.

Impact on profit after tax Group RM’000

2015 +10% (8,266) –10% 8,266

2014 +5% 11,722 –5% (11,722)

Impact on the profit after tax is estimated on the assumption that foreign exchange move by the same amount and all other variables are held constant and are based on a constant reporting date position.

Note: Based on the market volatility and the decline in MYR against USD by –22.8% in 2015, the foreign exchange sensitivity scenario has been revised to +/– 10% (2014: +/– 5%). 141 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(c) Market Risk (continued) Interest/Profit rate risk The table below summarises the Group’s exposure to interest/profit rate risk. The carrying amount of assets and liabilities (include non-financial instruments) are categorised by the earlier of contractual re-pricing or maturity dates:

Non-trading book

Up to 1 >1-3 >3-6 >6-12 >1-3 Over 3 Non-interest Trading Group month months months months years years sensitive book Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS Cash and short term funds 9,765,030 83,300 5,000 – – – 3,028,931 – 12,882,261 Securities purchased under resale agreements 188,289 – – – – – 91 – 188,380 Deposits and placements with banks and other financial institutions 332,641 452,842 53,970 176,164 356,370 – 4,215 – 1,376,202 Financial assets FVTPL – – – – – – – 1,752,641 1,752,641 Financial investments AFS 1,391,128 2,188,363 1,305,040 861,628 5,560,303 12,474,008 958,326 – 24,738,796 Financial investments HTM 1,460,021 710,726 583,138 1,775,601 4,894,748 11,023,533 84,469# – 20,532,236 Loans, advances and financing – performing 103,946,690 10,163,522 3,261,535 2,503,686 7,764,966 20,456,416 437,200 – 148,534,015 – impaired – – – – – – 1,056,946* – 1,056,946 Clients’ and brokers’ balances 12,111 – – – – – 1,642,102 – 1,654,213 Reinsurance assets – – – – – – 371,238 – 371,238 Other assets – 112 100 – – 3,262 2,474,295 – 2,477,769 Derivative assets – – – – 458 – – 3,101,931 3,102,389 Statutory deposits – – – – – – 5,272,230 – 5,272,230 Tax recoverable – – – – – – 260,965 – 260,965 Deferred tax assets – – – – – – 112,201 – 112,201 Investments in associates and joint ventures – – – – – – 15,764 – 15,764 Property, plant and equipment – – – – – – 1,041,890 – 1,041,890 Goodwill and intangible assets – – – – – – 5,347,531 – 5,347,531

TOTAL ASSETS 117,095,910 13,598,865 5,208,783 5,317,079 18,576,845 43,957,219 22,108,394 4,854,572 230,717,667

# Included impairment loss. * This represents outstanding impaired loans after deducting individual impairment allowance and collective impairment allowance. 142 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(c) Market Risk (continued) Interest/Profit rate risk (continued) The table below summarises the Group’s exposure to interest/profit rate risk. The carrying amount of assets and liabilities (include non-financial instruments) are categorised by the earlier of contractual re-pricing or maturity dates: (continued)

Non-trading book

LIABILITIES Deposits from customers 66,034,678 28,034,573 22,701,553 16,572,527 1,532,748 32,328 23,242,601 – 158,151,008 Deposits and placements of banks and other financial institutions 9,574,721 7,710,847 2,024,189 440,411 604,680 263,289 27,723 – 20,645,860 Obligations on securities sold under repurchase agreements 427,859 2,738,944 1,317,860 390,091 – – 31,460 – 4,906,214 Obligations on securities borrowed – – – – – 12,168 34 – 12,202 Bills and acceptances payable 89,097 35,574 20,001 – – – 481,727 – 626,399 Clients’ and brokers’ balances 1,804 – – – – – 1,346,924 – 1,348,728 General insurance contract liabilities – – – – – – 870,884 – 870,884 Other liabilities – – – – – – 2,395,125 – 2,395,125 Derivative liabilities – – – – 16 655 – 3,089,110 3,089,781 Recourse obligation on loans sold to Cagamas – – – 412,562 966,652 1,725,000 23,442 – 3,127,656 Tax liabilities – – – – – – 37,247 – 37,247 Deferred tax liabilities – – – – – – 11,334 – 11,334 Borrowings 1,858,500 150,273 26,834 69,769 236,143 91,237 4,040 – 2,436,796 Subordinated obligations – – 100,000 249,757 2,994,180 2,499,544 52,305 – 5,895,786 Hybrid Tier-1 Capital Securities – – – – – 593,690 8,166 – 601,856 Senior debt securities – – – – 2,147,911 1,284,167 19,302 – 3,451,380

TOTAL LIABILITIES 77,986,659 38,670,211 26,190,437 18,135,117 8,482,330 6,502,078 28,552,314 3,089,110 207,608,256 Shareholders’ funds – – – – – – 23,084,793 – 23,084,793 NCI – – – – – – 24,618 – 24,618

TOTAL LIABILITIES AND EQUITY 77,986,659 38,670,211 26,190,437 18,135,117 8,482,330 6,502,078 51,661,725 3,089,110 230,717,667

On-balance sheet interest sensitivity gap 39,109,251 (25,071,346) (20,981,654) (12,818,038) 10,094,515 37,455,140 Off-balance sheet interest sensitivity gap (50,588) 13,160 (200,234) 518,370 2,344,821 3,603,864

TOTAL INTEREST SENSITIVITY GAP 39,058,663 (25,058,186) (21,181,888) (12,299,668) 12,439,336 41,059,004 143 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

Non-trading book

Up to 1 >1-3 >3-6 >6-12 >1-3 Over 3 Non-interest Trading Group month months months months years years sensitive book Total 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS Cash and short term funds 13,154,083 – – – – – 3,082,825 – 16,236,908 Securities purchased under resale agreements 491,457 – – – – – 53 – 491,510 Deposits and placements with banks and other financial institutions 260,509 819,903 656,034 140,304 417,494 – 4,344 – 2,298,588 Financial assets FVTPL – – – – – – – 2,930,681 2,930,681 Financial investments AFS 564,513 692,201 702,728 771,679 7,673,679 8,358,023 839,353 – 19,602,176 Financial investments HTM 1,485,251 602,811 1,458,320 683,485 4,369,623 11,794,045 76,296# – 20,469,831 Loans, advances and financing – performing 94,312,072 14,856,357 3,288,538 969,155 6,686,885 19,158,664 295,282 – 139,566,953 – impaired – – – – – – 1,126,050* – 1,126,050 Clients’ and brokers’ balances 36,327 – – – – – 1,488,820 – 1,525,147 Reinsurance assets – – – – – – 332,113 – 332,113 Other assets 19 12 – – – 3,420 1,538,538 – 1,541,989 Derivative assets – – – – – 1,987 – 1,283,243 1,285,230 Statutory deposits – – – – – – 5,421,007 – 5,421,007 Tax recoverable – – – – – – 162,181 – 162,181 Deferred tax assets – – – – – – 38,465 – 38,465 Investments in associates and joint ventures – – – – – – 21,021 – 21,021 Property, plant and equipment – – – – – – 1,030,681 – 1,030,681 Goodwill and intangible assets – – – – – – 5,273,905 – 5,273,905

TOTAL ASSETS 110,304,231 16,971,284 6,105,620 2,564,623 19,147,681 39,316,139 20,730,934 4,213,924 219,354,436

# Included impairment loss. * This represents outstanding impaired loans after deducting individual impairment allowance and collective impairment allowance. 144 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

Non-trading book

LIABILITIES Deposits from customers 67,236,702 25,014,324 20,065,004 20,328,029 788,575 17,629 23,683,730 – 157,133,993 Deposits and placements of banks and other financial institutions 8,263,809 8,099,132 3,563,553 473,597 613,777 274,609 61,141 – 21,349,618 Obligations on securities sold under repurchase agreements 18,910 – – 489,506 – – – – 508,416 Obligations on securities borrowed – – – – 94,123 19,482 175 – 113,780 Bills and acceptances payable 376,535 60,061 – – – – 177,435 – 614,031 Clients’ and brokers’ balances 3,224 – – – – – 1,210,841 – 1,214,065 General insurance contract liabilities – – – – – – 775,699 – 775,699 Other liabilities 109 – – – – 168 1,713,821 – 1,714,098 Derivative liabilities – – – – – – – 1,224,684 1,224,684 Recourse obligation on loans sold to Cagamas – – – – 1,576,631 1,725,000 13,704 – 3,315,335 Tax liabilities – – – – – – 57,321 – 57,321 Deferred tax liabilities – – – – – – 53,041 – 53,041 Borrowings 841,912 787,891 446,678 406,818 227,273 152,972 11,153 – 2,874,697 Subordinated obligations – – 900,000 – 3,343,187 1,800,000 56,215 – 6,099,402 Hybrid Tier-1 Capital Securities – – – – – 593,349 8,166 – 601,515 Senior debt securities – – – – 1,749,215 1,045,721 15,719 – 2,810,655

TOTAL LIABILITIES 76,741,201 33,961,408 24,975,235 21,697,950 8,392,781 5,628,930 27,838,161 1,224,684 200,460,350 Shareholders’ funds – – – – – – 18,794,297 – 18,794,297 NCI – – – – – – 99,789 – 99,789

TOTAL LIABILITIES AND EQUITY 76,741,201 33,961,408 24,975,235 21,697,950 8,392,781 5,628,930 46,732,247 1,224,684 219,354,436

On-balance sheet interest sensitivity gap 33,563,030 (16,990,124) (18,869,615) (19,133,327) 10,754,900 33,687,209 Off-balance sheet interest sensitivity gap (165,072) (546,266) (1,568,547) (27,246) 2,749,159 1,589,535

TOTAL INTEREST SENSITIVITY GAP 33,397,958 (17,536,390) (20,438,162) (19,160,573) 13,504,059 35,276,744 145 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(c) Market Risk (continued) Interest/Profit rate risk (continued) The table below summarises the Company’s exposure to interest/profit rate risk. The carrying amount of assets and liabilities (include non-financial instruments) are categorised by the earlier of contractual re-pricing or maturity dates:

Non-trading book

Up to 1 >1-3 >3-6 >6-12 >1-3 Over 3 Non-interest Trading Company month months months months years years sensitive book Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS Cash and short term funds 2,345,500 – – – – – 3,180 – 2,348,680 Deposits and placements with banks and other financial institutions – 401 454 182 – – 13 – 1,050 Other assets – – – – – – 50 – 50 Amounts due from subsidiaries – – – – – – 27 – 27 Tax recoverable – – – – – – 93,624 – 93,624 Investments in subsidiaries – – – – – – 11,479,799 – 11,479,799 Property, plant and equipment – – – – – – 305 – 305

TOTAL ASSETS 2,345,500 401 454 182 – – 11,576,998 – 13,923,535

Other liabilities – – – – – – 36,864 – 36,864 Amounts due to subsidiaries – – – – – – 1,929 – 1,929 Borrowings 3,099,500 – – – – – 5,074 – 3,104,574

TOTAL LIABILITIES 3,099,500 – – – – – 43,867 – 3,143,367 Total equity – – – – – – 10,780,168 – 10,780,168

TOTAL LIABILITIES AND EQUITY 3,099,500 – – – – – 10,824,035 – 13,923,535

On-balance sheet interest sensitivity gap (754,000) 401 454 182 – – Off-balance sheet interest sensitivity gap – – – – – –

TOTAL INTEREST SENSITIVITY GAP (754,000) 401 454 182 – – 146 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

Non-trading book

Up to 1 >1-3 >3-6 >6-12 >1-3 Over 3 Non-interest Trading Company month months months months years years sensitive book Total 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS Cash and short term funds 24,500 – – – – – 440 – 24,940 Deposits and placements with banks and other financial institutions – 391 438 175 – – 13 – 1,017 Other assets – – – – – – 3,637 – 3,637 Amounts due from subsidiaries – – – – – – 93 – 93 Tax recoverable – – – – – – 94,219 – 94,219 Investments in subsidiaries – – – – – – 11,042,345 – 11,042,345 Property, plant and equipment – – – – – – 322 – 322

TOTAL ASSETS 24,500 391 438 175 – – 11,141,069 – 11,166,573

Other liabilities – – – – – – 12,340 – 12,340 Amounts due to subsidiaries – – – – – – 1,799 – 1,799 Deferred tax liabilities – – – – – – 20 – 20 Borrowings 1,028,000 1,467,000 250,000 350,000 – – 16,433 – 3,111,433

TOTAL LIABILITIES 1,028,000 1,467,000 250,000 350,000 – – 30,592 – 3,125,592 Total equity – – – – – – 8,040,981 – 8,040,981

TOTAL LIABILITIES AND EQUITY 1,028,000 1,467,000 250,000 350,000 – – 8,071,573 – 11,166,573

On-balance sheet interest sensitivity gap (1,003,500) (1,466,609) (249,562) (349,825) – – Off-balance sheet interest sensitivity gap – – – – – –

TOTAL INTEREST SENSITIVITY GAP (1,003,500) (1,466,609) (249,562) (349,825) – – 147 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(d) Liquidity Risk Liquidity obligations arise from withdrawals of deposits, repayments of purchased funds upon maturity, extensions of credit and working capital needs.

The Group has adopted the BNM’s liquidity standard on Liquidity Coverage Ratio, to ensure maintenance of adequate stock of unencumbered high-quality liquid assets to survive the liquidity needs for 30 calendar day under liquidity stress condition. The Group continues to report Net Stable Funding Ratio under the Basel III observation reporting to BNM.

The Group and the Company seek to project, monitor and manage its liquidity needs under normal as well as adverse circumstances.

The table below analyses the carrying amount of assets and liabilities (include non-financial instruments) based on the remaining contractual maturity:

Up to 1 1 week to 1 to 3 3 to 6 6 to 12 Over 1 No specific Group week 1 month months months months year maturity Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS Cash and short term funds 11,894,156 988,105 – – – – – 12,882,261 Securities purchased under resale agreements 188,380 – – – – – – 188,380 Deposits and placements with banks and other financial institutions 13,000 319,641 455,133 88,163 143,895 356,370 – 1,376,202 Financial assets FVTPL – 469,296 53,444 50,319 – 556,382 623,200 1,752,641 Financial investments AFS 1,248,566 95,151 2,272,453 1,360,677 862,591 17,896,303 1,003,055 24,738,796 Financial investments HTM 1,119,385 224,837 785,944 627,086 1,781,832 15,993,152 – 20,532,236 Loans, advances and financing 3,819,945 9,412,199 7,180,436 3,857,396 5,528,921 119,792,064 – 149,590,961 Clients’ and brokers’ balances 1,142,772 511,441 – – – – – 1,654,213 Reinsurance assets – – – – 371,238 – – 371,238 Other assets 219,594 222,599 187,889 254,586 274,311 1,076,780 242,010 2,477,769 Derivative assets 22,342 197,857 447,022 363,943 137,845 1,933,380 – 3,102,389 Statutory deposits – – – – – – 5,272,230 5,272,230 Tax recoverable – – – – – – 260,965 260,965 Deferred tax assets – – – – – – 112,201 112,201 Investments in associates and joint ventures – – – – – – 15,764 15,764 Property, plant and equipment – – – – – – 1,041,890 1,041,890 Goodwill and intangible assets – – – – – – 5,347,531 5,347,531

TOTAL ASSETS 19,668,140 12,441,126 11,382,321 6,602,170 9,100,633 157,604,431 13,918,846 230,717,667 148 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(d) Liquidity Risk (continued) The table below analyses the carrying amount of assets and liabilities (include non-financial instruments) based on the remaining contractual maturity: (continued)

Up to 1 1 week to 1 to 3 3 to 6 6 to 12 Over 1 No specific Group week 1 month months months months year maturity Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

LIABILITIES Deposits from customers 53,251,331 35,392,024 28,261,113 22,957,447 16,701,249 1,587,844 – 158,151,008 Deposits and placements of banks and other financial institutions 3,275,755 6,311,793 7,723,976 2,024,791 440,859 868,686 – 20,645,860 Obligations on securities sold under repurchase agreements 180,500 251,222 2,761,996 1,321,911 390,585 – – 4,906,214 Obligations on securities borrowed – – 34 – – 12,168 – 12,202 Bills and acceptances payable 511,290 59,534 35,574 20,001 – – – 626,399 Clients’ and brokers’ balances 755,303 593,425 – – – – – 1,348,728 General insurance contract liabilities – – – – 870,884 – – 870,884 Other liabilities 374,518 798,388 204,114 163,912 151,740 280,186 422,267 2,395,125 Derivative liabilities 82,115 272,908 223,344 308,411 235,659 1,967,344 – 3,089,781 Recourse obligation on loans sold to Cagamas – – 4,825 2,508 412,562 2,707,761 – 3,127,656 Tax liabilities – – – – – – 37,247 37,247 Deferred tax liabilities – – – – – – 11,334 11,334 Borrowings 262,675 1,598,403 151,180 27,389 69,770 327,379 – 2,436,796 Subordinated obligations – 24,061 – 122,412 249,757 5,499,556 – 5,895,786 Hybrid Tier-1 Capital Securities – – – 8,180 – 593,676 – 601,856 Senior debt securities – – – 19,302 – 3,432,078 – 3,451,380

TOTAL LIABILITIES 58,693,487 45,301,758 39,366,156 26,976,264 19,523,065 17,276,678 470,848 207,608,256 Shareholders’ funds – – – – – – 23,084,793 23,084,793 NCI – – – – – – 24,618 24,618

TOTAL LIABILITIES AND EQUITY 58,693,487 45,301,758 39,366,156 26,976,264 19,523,065 17,276,678 23,580,259 230,717,667 149 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(d) Liquidity Risk (continued) The table below analyses the carrying amount of assets and liabilities (include non-financial instruments) based on the remaining contractual maturity: (continued)

Up to 1 1 week to 1 to 3 3 to 6 6 to 12 Over 1 No specific Group week 1 month months months months year maturity Total 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS Cash and short term funds 9,311,595 6,925,313 – – – – – 16,236,908 Securities purchased under resale agreements 491,510 – – – – – – 491,510 Deposits and placements with banks and other financial institutions 26,338 234,171 806,167 644,293 170,124 417,495 – 2,298,588 Financial assets FVTPL – 490,662 454,541 177,308 17,588 1,344,984 445,598 2,930,681 Financial investments AFS 61,063 449,143 748,351 740,184 772,594 15,889,645 941,196 19,602,176 Financial investments HTM 263,891 1,136,044 681,074 1,511,732 684,547 16,192,543 – 20,469,831 Loans, advances and financing 5,019,729 7,739,116 6,508,156 4,289,689 4,517,537 112,618,776 – 140,693,003 Clients’ and brokers’ balances 1,067,603 457,544 – – – – – 1,525,147 Reinsurance assets – – – – 332,113 – – 332,113 Other assets 294,886 89,786 132,071 137,256 88,704 493,781 305,505 1,541,989 Derivative assets 5,098 81,090 57,257 135,911 206,135 799,739 – 1,285,230 Statutory deposits – – – – – – 5,421,007 5,421,007 Tax recoverable – – – – – – 162,181 162,181 Deferred tax assets – – – – – – 38,465 38,465 Investments in associates and joint ventures – – – – – – 21,021 21,021 Property, plant and equipment – – – – – – 1,030,681 1,030,681 Goodwill and intangible assets – – – – – – 5,273,905 5,273,905

TOTAL ASSETS 16,541,713 17,602,869 9,387,617 7,636,373 6,789,342 147,756,963 13,639,559 219,354,436 150 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(d) Liquidity Risk (continued) The table below analyses the carrying amount of assets and liabilities (include non-financial instruments) based on the remaining contractual maturity: (continued)

Up to 1 1 week to 1 to 3 3 to 6 6 to 12 Over 1 No specific Group week 1 month months months months year maturity Total 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

LIABILITIES Deposits from customers 50,669,243 39,607,414 25,252,743 20,789,615 20,019,731 795,247 – 157,133,993 Deposits and placements of banks and other financial institutions 3,163,129 4,977,744 8,239,953 3,603,442 476,964 888,386 – 21,349,618 Obligations on securities sold under repurchase agreements – 18,910 – – 489,506 – – 508,416 Obligations on securities borrowed – – – – – 113,780 – 113,780 Bills and acceptances payable 292,682 261,288 60,061 – – – – 614,031 Clients’ and brokers’ balances 850,813 363,252 – – – – – 1,214,065 General insurance contract liabilities – – – – 775,699 – – 775,699 Other liabilities 106,998 607,380 176,332 90,784 137,085 232,356 363,163 1,714,098 Derivative liabilities 63,499 65,644 150,540 94,361 107,555 743,085 – 1,224,684 Recourse obligation on loans sold to Cagamas – – 2,645 4,825 – 3,307,865 – 3,315,335 Tax liabilities – – – – – – 57,321 57,321 Deferred tax liabilities – – – – – – 53,041 53,041 Borrowings 45,560 858,039 736,718 447,226 406,909 380,245 – 2,874,697 Subordinated obligations – 24,061 – 932,153 – 5,143,188 – 6,099,402 Hybrid Tier-1 Capital Securities – – 7,542 638 – 593,335 – 601,515 Senior debt securities – – – 15,719 – 2,794,936 – 2,810,655

TOTAL LIABILITIES 55,191,924 46,783,732 34,626,534 25,978,763 22,413,449 14,992,423 473,525 200,460,350 Shareholders’ funds – – – – – – 18,794,297 18,794,297 NCI – – – – – – 99,789 99,789

TOTAL LIABILITIES AND EQUITY 55,191,924 46,783,732 34,626,534 25,978,763 22,413,449 14,992,423 19,367,611 219,354,436 151 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(d) Liquidity Risk (continued) The table below analyses the carrying amount of assets and liabilities (include non-financial instruments) based on the remaining contractual maturity: (continued)

Up to 1 1 week to 1 to 3 3 to 6 6 to 12 Over 1 No specific Company week 1 month months months months year maturity Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS Cash and short term funds 2,348,680 – – – – – – 2,348,680 Deposits and placements with banks and other financial institutions – – 402 464 184 – – 1,050 Other assets – – – – – – 50 50 Amounts due from subsidiaries – – – – – – 27 27 Tax recoverable – – – – – – 93,624 93,624 Investments in subsidiaries – – – – – – 11,479,799 11,479,799 Property, plant and equipment – – – – – – 305 305

TOTAL ASSETS 2,348,680 – 402 464 184 – 11,573,805 13,923,535

LIABILITIES Other liabilities – – – – – – 36,864 36,864 Amounts due to subsidiaries – – – – – – 1,929 1,929 Borrowings 50,143 3,054,431 – – – – – 3,104,574

TOTAL LIABILITIES 50,143 3,054,431 – – – – 38,793 3,143,367 Total equity – – – – – – 10,780,168 10,780,168

TOTAL LIABILITIES AND EQUITY 50,143 3,054,431 – – – – 10,818,961 13,923,535 152 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(d) Liquidity Risk (continued) The table below analyses the carrying amount of assets and liabilities (include non-financial instruments) based on the remaining contractual maturity: (continued)

Up to 1 1 week to 1 to 3 3 to 6 6 to 12 Over 1 No specific Company week 1 month months months months year maturity Total 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS Cash and short term funds 24,940 – – – – – – 24,940 Deposits and placements with banks and other financial institutions – – 392 438 187 – – 1,017 Other assets – – – 3,582 – – 55 3,637 Amounts due from subsidiaries – – – – – – 93 93 Tax recoverable – – – – – – 94,219 94,219 Investments in subsidiaries – – – – – – 11,042,345 11,042,345 Property, plant and equipment – – – – – – 322 322

TOTAL ASSETS 24,940 – 392 4,020 187 – 11,137,034 11,166,573

LIABILITIES Other liabilities – – 12,309 – – – 31 12,340 Amounts due to subsidiaries – – – – – – 1,799 1,799 Deferred tax liabilities – – – – – – 20 20 Borrowings – 1,041,942 1,469,399 250,000 350,092 – – 3,111,433

TOTAL LIABILITIES – 1,041,942 1,481,708 250,000 350,092 – 1,850 3,125,592 Total equity – – – – – – 8,040,981 8,040,981

TOTAL LIABILITIES AND EQUITY – 1,041,942 1,481,708 250,000 350,092 – 8,042,831 11,166,573 153 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(d) Liquidity Risk (continued) The following table presents the cash outflows for the Group’s financial liabilities by remaining contractual maturities on an undiscounted basis. The balances in the table below will not agree to the balances reported in the statements of financial position as the table incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments:

Up to 1 to 6 6 to 12 1 to 3 3 to 5 Over 5 Group 1 month months months years years years Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Deposits from customers 88,924,041 51,488,774 17,118,397 1,623,089 36,130 – 159,190,431 Deposits and placements of banks and other financial institutions 9,630,317 10,746,952 458,393 680,172 266,883 – 21,782,717 Obligations on securities sold under repurchase agreements 432,244 4,109,154 390,986 – – – 4,932,384 Obligations on securities borrowed – 131 131 526 526 13,351 14,665 Bills and acceptances payable 626,873 – – – – – 626,873 Clients’ and brokers’ balances 755,303 593,425 – – – – 1,348,728 General insurance contract liabilities – – 183,711 338,429 43,523 7,277 572,940 Other financial liabilities 757,984 603,102 144,777 200,787 43,017 36,339 1,786,006 Derivative liabilities: – Gross settled derivatives: – Inflow (15,091,474) (10,862,035) (4,320,048) (4,286,871) (2,406,584) (320,273) (37,287,285) – Outflow 15,435,112 11,305,864 4,480,490 5,516,968 2,730,756 347,383 39,816,573 – Net settled derivatives 6,415 25,357 20,987 11,842 7,087 8,255 79,943 Recourse obligation on loans sold to Cagamas 23,309 140,014 553,881 987,890 1,805,058 – 3,510,152 Borrowings 1,971,949 72,944 72,514 242,369 92,202 – 2,451,978 Subordinated obligations 49,900 90,063 1,002,993 3,375,985 2,153,227 – 6,672,168 Hybrid Tier-1 Capital Securities – 22,394 22,394 89,575 624,988 – 759,351 Senior debt securities – 54,772 54,772 2,261,185 1,327,825 – 3,698,554

TOTAL FINANCIAL LIABILITIES 103,521,973 68,390,911 20,184,378 11,041,946 6,724,638 92,332 209,956,178 154 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

Up to 1 to 6 6 to 12 1 to 3 3 to 5 Over 5 Group 1 month months months years years years Total 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Deposits from customers 90,474,965 46,538,678 20,475,572 1,316,410 1,975,145 – 160,780,770 Deposits and placements of banks and other financial institutions 8,325,195 11,857,522 495,567 698,686 279,288 – 21,656,258 Obligations on securities sold under repurchase agreements 18,910 – 493,654 – – – 512,564 Obligations on securities borrowed – – – 94,170 8,819 10,792 113,781 Bills and acceptances payable 554,169 60,270 – – – – 614,439 Clients’ and brokers’ balances 1,214,065 – – – – – 1,214,065 General insurance contract liabilities – – 172,788 283,781 55,334 3,057 514,960 Other financial liabilities 703,480 297,005 76,958 173,449 33,563 36,163 1,320,618 Derivative liabilities: – Gross settled derivatives: – Inflow (1,726,940) (5,852,939) (1,496,015) (3,813,679) (2,831,877) (289,164) (16,010,614) – Outflow 1,840,337 6,000,207 1,454,754 4,011,619 2,915,382 243,849 16,466,148 – Net settled derivatives (1,036) 7,831 40,241 (6,393) (26,818) 66 13,891 Recourse obligation on loans sold to Cagamas 23,363 141,401 166,089 1,621,679 1,884,895 – 3,837,427 Borrowings 887,901 1,220,236 417,151 232,503 137,078 17,541 2,912,410 Subordinated obligations 24,950 1,022,709 623,025 3,053,026 1,827,700 308,400 6,859,810 Hybrid Tier-1 Capital Securities – 22,394 22,394 89,575 669,775 – 804,138 Senior debt securities – 44,605 44,605 1,898,260 1,113,733 – 3,101,203

TOTAL FINANCIAL LIABILITIES 102,339,359 61,359,919 22,986,783 9,653,086 8,042,017 330,704 204,711,868 155 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(d) Liquidity Risk (continued) The following table presents the cash outflows for the Company’s financial liabilities by remaining contractual maturities on an undiscounted basis. The balances in the table below will not agree to the balances reported in the statements of financial position as the table incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments.

Up to 1 to 6 6 to 12 1 to 3 1 month months months years Total Company RM’000 RM’000 RM’000 RM’000 RM’000

2015 Other financial liabilities 36,864 – – – 36,864 Amounts due to subsidiaries 1,929 – – – 1,929 Borrowings 3,110,462 – – – 3,110,462

TOTAL FINANCIAL LIABILITIES 3,149,255 – – – 3,149,255

2014 Other financial liabilities 12,340 – – – 12,340 Amounts due to subsidiaries 1,799 – – – 1,799 Borrowings 1,149,930 1,637,857 358,377 – 3,146,164

TOTAL FINANCIAL LIABILITIES 1,164,069 1,637,857 358,377 – 3,160,303 156 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(d) Liquidity Risk (continued) The following table presents the contractual expiry by maturity of the Group’s commitments and contingencies:

Group

Less than Over 1 year 1 year Total RM’000 RM’000 RM’000

2015 Direct credit substitutes 288,362 2,063,953 2,352,315 Transaction-related contingent items 703,461 4,444,812 5,148,273 Short term self-liquidating trade-related contingencies 725,430 1,115,060 1,840,490 Obligations under underwriting agreements – 76,000 76,000 Lending of banking subsidiaries’ securities or the posting of securities as collateral by banking subsidiaries, including instances where these arise out of repo-style transactions 5,212,499 – 5,212,499 Irrevocable commitments to extend credit 2,903,165 29,517,195 32,420,360 Any commitments that are unconditionally cancelled at any time by the banking subsidiaries without prior notice or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness 413,773 16,444,884 16,858,657

TOTAL COMMITMENTS AND CONTINGENCIES 10,246,690 53,661,904 63,908,594

2014 Direct credit substitutes 617,764 2,041,324 2,659,088 Transaction-related contingent items 719,300 4,109,866 4,829,166 Short term self-liquidating trade-related contingencies 869,837 952,732 1,822,569 Lending of banking subsidiaries’ securities or the posting of securities as collateral by banking subsidiaries, including instances where these arise out of repo-style transactions – 517,610 517,610 Irrevocable commitments to extend credit 2,701,468 30,652,168 33,353,636 Any commitments that are unconditionally cancelled at any time by the banking subsidiaries without prior notice or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness 350,742 14,787,154 15,137,896

TOTAL COMMITMENTS AND CONTINGENCIES 5,259,111 53,060,854 58,319,965

Undrawn loans/financing commitments are recognised at activation stage and include commitments which are unconditionally cancellable by the Group. The Group expects that not all of the contingent liabilities and undrawn loan/financing commitments will be drawn before expiry.

Corporate guarantees granted by the Company for its subsidiaries are as disclosed in Note 45. 157 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(e) Credit Risk (i) Maximum exposure to credit risk The maximum exposure to credit risk at the statements of financial position is the amounts on the statements of financial position as well as off-balance sheet financial instruments, without taking into account of any collateral held or other credit enhancements. For contingent liabilities, the maximum exposure to credit risk is the maximum amount that the Group and the Company would have to pay if the obligations of the instruments issued are called upon. For credit commitments, the maximum exposure to credit risk is the full amount of the undrawn credit facilities granted to customers. The table below shows the maximum exposure to credit risk for the Group and the Company:

Group

2015 2014 RM’000 RM’000

Credit risk exposure relating to on-balance sheet assets: Short term funds (exclude cash in hand) 11,795,427 15,622,004 Securities purchased under resale agreements 188,380 491,510 Deposits and placements with banks and other financial institutions 1,376,202 2,298,588 Financial assets and investments portfolio (exclude shares, unit trust and perpetual notes/sukuk): – FVTPL 1,129,441 2,485,083 – AFS 23,735,741 18,660,981 – HTM 20,532,236 20,469,831 Loans, advances and financing 149,590,961 140,693,003 Clients’ and brokers’ balances 1,654,213 1,525,147 Reinsurance assets 275,023 241,647 Other financial assets 2,101,146 1,412,627 Derivative assets 3,102,389 1,285,230

215,481,159 205,185,651 Credit risk exposure relating to off-balance sheet items: – Commitments and contingencies 63,908,594 58,319,965

Total maximum credit risk exposure 279,389,753 263,505,616 158 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(e) Credit Risk (continued) (i) Maximum exposure to credit risk (continued)

Company

2015 2014 RM’000 RM’000

Credit risk exposure relating to on-balance sheet assets: Short term funds (exclude cash in hand) 2,348,680 24,940 Deposits and placements with banks and other financial institutions 1,050 1,017 Amounts due from subsidiaries 27 93 Other financial assets – 2

Total maximum credit risk exposure 2,349,757 26,052

Corporate guarantees granted by the Company for its subsidiaries are as disclosed in Note 45.

(ii) Collaterals The main types of collaterals obtained by the Group are as follows:

(a) Fixed deposits, Commodity Murabahah Deposit-i, negotiable instrument of deposits, Islamic negotiable instrument of deposits, foreign currency deposits and cash deposits/margins (b) Land and/or buildings (c) Vessels and automobiles (d) Quoted shares, unit trusts, government bonds and securities and private debt securities (e) Other tangible business assets, such as inventory and equipment

The Group also accepts non-tangible securities as support, such as guarantees from individuals, corporates and institutions, bank guarantees, debentures, assignment of contract proceeds, Endowment Life Policies with Cash Surrender Value, which are subject to internal guidelines on eligibility.

The financial effect of collateral (quantification to the extent to which collateral and other credit enhancements mitigate credit risk) held for loans, advances and financing and clients’ and brokers’ balances are 57.8% (2014: 67.1%) and 97.4% (2014: 97.4%) respectively. The financial effect of collateral held for the remaining on-balance sheet assets are insignificant. 159 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(e) Credit Risk (continued) (iii) Credit quality The Group assesses credit quality of loans, advances and financing using internal rating techniques tailored to the various categories of products and counterparties. These techniques have been developed internally and combine statistical analysis with credit officers’ judgement.

Credit quality description is summarised as follows:

Credit Quality Description

– Good Exposures exhibit strong capacity to meet financial commitments with no cause of concern to the Group – Fair Exposures exhibit fairly acceptable capacity to meet financial commitments and may require varying degrees of concern to the Group – No Rating Counterparties which do not satisfy the criteria to be rated based on internal credit grading system

The credit quality of financial assets other than loans, advances and financing are determined based on the ratings of counterparties as defined by Moody’s or equivalent ratings of other international rating agencies as defined below:

– AAA to AA3 – A1 to A3 – Baa1 to Baa3 – P1 to P3

(a) Loans, advances and financing Loans, advances and financing are summarised as follows:

Group

2015 2014 RM’000 RM’000

Neither past due nor impaired 142,015,829 133,058,861 Past due but not impaired 6,518,186 6,508,092 Individually impaired 2,841,211 2,892,367

Gross loans, advances and financing (inclusive of fair value changes arising from fair value hedges) 151,375,226 142,459,320 Less: Individual impairment allowance (593,147) (417,232) Collective impairment allowance (1,191,118) (1,349,085)

Net loans, advances and financing 149,590,961 140,693,003 160 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED) (e) Credit Risk (continued) (iii) Credit quality (continued) (a) Loans, advances and financing (continued) (i) Loans, advances and financing neither past due nor impaired Analysis of loans, advances and financing that are neither past due nor impaired based on the Group’s internal credit grading system is as follows:

Group 2015 2014 RM’000 RM’000

Good 86,222,908 79,968,419 Fair 14,529,369 10,766,194 No Rating 41,263,552 42,324,248

Neither past due nor impaired 142,015,829 133,058,861

Loans, advances and financing classified as non-rated mainly comprise loans/financing under the Standardised Approach for credit risk including financing of Amanah Saham Bumiputera (‘ASB’) units, commercial property financing and personal financing.

(ii) Loans, advances and financing past due but not impaired Analysis of ageing of loans, advances and financing that are past due but not impaired is as follows:

Group 2015 2014 RM’000 RM’000

Past due up to 30 days 2,415,975 2,139,972 Past due 31 to 60 days 2,804,722 3,109,479 Past due 61 to 90 days 1,297,489 1,258,641

Past due but not impaired 6,518,186 6,508,092

(iii) Impaired loans, advances and financing Loans, advances and financing that are individually determined to be impaired are as follows:

Group 2015 2014 RM’000 RM’000

Individually impaired loans 2,841,211 2,892,367 161 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED) (e) Credit Risk (continued) (iii) Credit quality (continued) (b) Short term funds, deposits and placements with banks and other financial institutions, securities purchased under resale agreements, financial assets and investments portfolios, clients’ and brokers’ balances, reinsurance assets, other financial assets and derivative assets are summarised as follows:

Short term funds and deposits and placements with banks Securities and other purchased Financial Financial Clients’ and Other financial under resale Financial investments investments brokers’ Reinsurance financial Derivative institutions agreements assets FVTPL AFS HTM balances assets assets assets Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

2015 Neither past due nor impaired 13,171,629 188,380 1,129,441 23,695,748 20,504,061 1,618,055 275,023 2,094,270 3,102,389 Past due but not impaired – – – – – 26,748 – 3,198 – Impaired – – – 299,308 263,010 33,841 – 18,088 –

13,171,629 188,380 1,129,441 23,995,056 20,767,071 1,678,644 275,023 2,115,556 3,102,389 Less: Impairment losses – – – (259,315) (234,835) (24,431) – (14,410) –

13,171,629 188,380 1,129,441 23,735,741 20,532,236 1,654,213 275,023 2,101,146 3,102,389

2014 Neither past due nor impaired 17,920,592 491,510 2,485,083 18,632,749 20,461,489 1,507,048 241,647 1,406,938 1,285,230 Past due but not impaired – – – – – 12,436 – 5,368 – Impaired – – – 305,837 282,436 48,619 – 6,129 –

17,920,592 491,510 2,485,083 18,938,586 20,743,925 1,568,103 241,647 1,418,435 1,285,230 Less: Impairment losses – – – (277,605) (274,094) (42,956) – (5,808) –

17,920,592 491,510 2,485,083 18,660,981 20,469,831 1,525,147 241,647 1,412,627 1,285,230

The amount of short term funds, deposits and placements with banks and other financial institutions, financial assets and investments portfolios, other financial assets and derivative assets that are past due but not impaired is not material. 162 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

Short term funds and deposits and placements with banks and other Amounts Other financial due from financial institutions subsidiaries assets Company RM’000 RM’000 RM’000

2015 Neither past due nor impaired 2,349,730 27 –

2014 Neither past due nor impaired 25,957 93 2 163 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED) (e) Credit Risk (continued) (iii) Credit quality (continued) (c) Analysis of short term funds, deposits and placements with banks and other financial institutions, securities purchased under resale agreements, financial assets and investments portfolios, clients’ and brokers’ balances, other financial assets and derivative assets that are neither past due nor impaired by rating agency definition are as follows:

Short term funds and deposits and placements with banks Securities and other purchased Financial Financial Financial Clients’ and Other financial under resale assets investments investments brokers’ Reinsurance financial Derivative Group institutions agreements FVTPL AFS HTM balances assets assets assets 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

AAA to AA3 1,049,525 165,153 463,009 9,903,154 4,030,017 – 17,880 1,322,912 836,920 A1 to A3 1,218 – 50,207 3,930,473 306,834 – 211,586 188,146 213,575 Baa1 to Baa3 14,792 – – 1,592,717 163,746 – 1,180 – 95 P1 to P3 3,556,412 23,227 – – – – – 69,377 284 Non-rated including: 8,549,682 – 616,225 8,269,403 16,003,464 1,618,055 44,377 513,835 2,051,515 – Bank Negara Malaysia 6,392,013 – – – – – – – – – Malaysian Government Securities – – 289,533 1,560,326 2,239,247 – – – – – Malaysian Government Investment Issues – – 50,583 2,757,496 5,366,226 – – – – – Other foreign government securities – – 84,207 30,806 – – – – – – Private debt securities – – 8,383 3,271,745 5,149,543 – – – – – Bankers’ acceptances and Islamic accepted notes – – – 58,458 143,389 – – – – – Khazanah bonds – – – 60,365 106,368 – – – – – Negotiable instruments of deposits – – – 349,010 2,222,850 – – – – – Others 2,157,669 – 183,519 181,197 775,841 1,618,055 44,377 513,835 2,051,515

13,171,629 188,380 1,129,441 23,695,747 20,504,061 1,618,055 275,023 2,094,270 3,102,389 164 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

Short term funds and deposits and placements with banks Securities and other purchased Financial Financial Financial Clients’ and Other financial under resale assets investments investments brokers’ Reinsurance financial Derivative Group institutions agreements FVTPL AFS HTM balances assets assets assets 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

AAA to AA3 1,969,053 376,418 855,649 8,098,387 4,689,770 – 1,248 418,992 299,688 A1 to A3 228,081 115,092 37,792 1,891,997 249,957 – 211,090 181,210 166,881 Baa1 to Baa3 – – – 968,642 296,850 – 1,873 – 230 P1 to P3 10,903,971 – 223,860 – – – – 57,931 1,421 Non-rated including: 4,819,487 – 1,367,782 7,673,723 15,224,912 1,507,048 27,436 748,805 817,010 – Bank Negara Malaysia 3,803,056 – – – – – – – – – Malaysian Government Securities – – 557,950 1,168,982 2,343,015 – – – – – Malaysian Government Investment Issues – – 728,287 2,413,705 5,710,589 – – – – – Private debt securities – – 3,841 3,251,465 4,311,169 – – – – – Bankers’ acceptances and Islamic accepted notes – – – 73,627 – – – – – – Khazanah bonds – – – 58,123 101,835 – – – – – Negotiable instruments of deposits – – – 649,516 2,027,550 – – – – – Others 1,016,431 – 77,704 58,305 730,754 1,507,048 27,436 748,805 817,010

17,920,592 491,510 2,485,083 18,632,749 20,461,489 1,507,048 241,647 1,406,938 1,285,230 165 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

Short term funds and deposits and placements with banks and other Amounts Other financial due from financial institutions subsidiaries assets RM’000 RM’000 RM’000

Company

2015 P1 2,349,730 2 – Non-rated – 25 –

2,349,730 27 –

2014 AAA1 to AA3 – 45 – P1 25,957 – – Non-rated – 48 2

25,957 93 2 166 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED) (e) Credit Risk (continued) Credit risk exposure analysed by industry in respect of the Group’s financial assets, including commitments and contingencies, are set out below:

Short term funds and deposits and placements Securities with banks purchased Loans, Clients’ and other under Financial Financial Financial advances and Other Commitments financial resale assets investments investments and brokers’ Reinsurance financial and Group institutions agreements FVTPL~ AFS@ HTM financing# balances^ assets assets* contingencies Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Agriculture, hunting, forestry and fishing – – – 1,594,976 190,896 4,927,939 – – 1,035,652 1,468,188 9,217,651 Mining and quarrying – – – – – 1,867,313 – – – 2,180,300 4,047,613 Manufacturing – – 35,132 283,265 161,883 8,096,399 – – 167,517 10,030,316 18,774,512 Electricity, gas and water – – – 1,378,057 1,214,539 2,236,308 – – 551 592,426 5,421,881 Construction – – – 727,055 630,607 7,206,387 – – 5,146 8,011,968 16,581,163 Real estate – – – 355,024 282,674 5,690,016 – – – 3,008,470 9,336,184 Purchase of landed property – – – – – 9,743,233 – – – 12,742,050 22,485,283 Wholesale & retail trade and restaurant & hotel – – – 20,101 – 7,916,745 – – 9,383 103,358 8,049,587 General commerce – – – 94,178 622,123 2,153,561 – – – 6,404,947 9,274,809 Transport, storage and communication – – 4,748 1,478,708 1,052,193 8,890,038 – – 3,511 1,472,819 12,902,017 Finance, insurance and business services 5,514,814 12,508 556,256 9,892,801 5,422,299 13,600,851 – 275,023 2,973,501 6,286,921 44,534,974 Government and government agencies 7,600,080 175,872 533,305 7,456,063 10,365,852 5,141,425 – – 220,590 52,596 31,545,783 Purchase of securities – – – – – 1,410,255 1,660,867 – – 2,178,308 5,249,430 Purchase of transport vehicles – – – – – 72 – – – 586,071 586,143 Consumption credit – – – – – 2,336,784 – – – 6,434,562 8,771,346 Others 56,735 – – 455,513 589,170 69,564,753 – – 787,684 2,355,294 73,809,149

13,171,629 188,380 1,129,441 23,735,741 20,532,236 150,782,079 1,660,867 275,023 5,203,535 63,908,594 280,587,525

~ Excludes equity instrument amounting to RM623,200,000. @ Excludes equity instrument amounting to RM1,003,055,000. # Excludes collective impairment allowance amounting to RM1,191,118,000. ^ Excludes collective impairment allowance of RM6,654,000. * Other financial assets include other assets amounting to RM2,101,146,000 and derivative assets amounting to RM3,102,389,000. 167 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

Short term funds and deposits and placements Securities with banks purchased Loans, Clients’ and other under Financial Financial Financial advances and Other Commitments financial resale assets investments investments and brokers’ Reinsurance financial and Group institutions agreements FVTPL~ AFS@ HTM financing# balances^ assets assets* contingencies Total 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Agriculture, hunting, forestry and fishing – – – 1,480,473 191,230 5,152,516 – – 485,640 1,654,640 8,964,499 Mining and quarrying – – – 24,727 – 1,419,460 – – – 1,616,488 3,060,675 Manufacturing – – 40,000 371,016 164,540 8,394,916 – – 46,185 8,663,615 17,680,272 Electricity, gas and water – – 1 1,207,402 1,249,093 2,689,109 – – 230 882,273 6,028,108 Construction – – 49,870 555,492 617,997 6,518,969 – – 16,751 6,653,183 14,412,262 Real estate – – – 335,496 180,570 4,422,784 – – – 2,399,642 7,338,492 Purchase of landed property – – – – – 7,540,954 – – – 13,527,996 21,068,950 Wholesale & retail trade and restaurant & hotel – – – 5,093 – – – – – 211 5,304 General commerce – – – 75,311 599,022 9,150,654 – – 896 5,812,352 15,638,235 Transport, storage and communication – – – 1,110,206 1,062,181 7,943,227 – – 4,277 1,625,052 11,744,943 Finance, insurance and business services 13,958,753 171,030 575,546 9,093,470 5,191,383 14,991,616 – 241,647 1,478,850 5,895,161 51,597,456 Government and government agencies 3,862,822 320,480 1,815,602 4,243,363 10,907,794 7,263,677 – – – 6,623 28,420,361 Purchase of securities – – – 455 – 1,232,727 1,531,289 – – 3,033,897 5,798,368 Purchase of transport vehicles – – – – – 128 – – – 151,950 152,078 Consumption credit – – – – – 2,184,209 – – – 4,558,959 6,743,168 Others 99,017 – 4,064 158,477 306,021 63,137,142 – – 665,028 1,837,923 66,207,672

17,920,592 491,510 2,485,083 18,660,981 20,469,831 142,042,088 1,531,289 241,647 2,697,857 58,319,965 264,860,843

~ Excludes equity instrument amounting to RM445,598,000. @ Excludes equity instrument amounting to RM941,195,000. # Excludes collective impairment allowance amounting to RM1,349,085,000. ^ Excludes collective impairment allowance of RM6,142,000. * Other financial assets include other assets amounting to RM1,412,627,000 and derivative assets amounting to RM1,285,230,000. 168 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED) (e) Credit Risk (continued) Credit risk exposure analysed by industry in respect of the Company’s financial assets, including commitments and contingencies, are set out below:

Short term funds and deposits and placements with banks and other Amounts Other financial due from financial institutions subsidiaries assets Total Company RM’000 RM’000 RM’000 RM’000

2015 Finance, insurance and business services 2,349,730 2 – 2,349,732 Others – 25 – 25

2,349,730 27 – 2,349,757

2014 Finance, insurance and business services 25,957 45 – 26,002 Others – 48 2 50

25,957 93 2 26,052

(f) Offsetting financial assets and financial liabilities The Group reports financial assets and financial liabilities on a net basis on the balance sheet only if there is a legally enforceable right to set off the recognised amounts and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

The following table shows the impact of netting arrangement on:

(i) all financial assets and liabilities that are reported on the balance sheet; and (ii) all derivative financial instruments and reverse repurchase agreement and borrowing arrangements (offsetting arrangement and financial collateral) but do not qualify for netting. 169 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(f) Offsetting financial assets and financial liabilities (continued) The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements:

Net amounts Related amounts not set off Gross of financial in the statements of financial amounts assets position of recognised presented financial in the assets/ statements financial of financial Financial Financial Net liabilities position instruments collateral amount Group RM’000 RM’000 RM’000 RM’000 RM’000

2015 Financial assets Securities purchased under resale agreement 188,380 188,380 (12,202) (1,504) 174,674 Derivative assets 3,102,389 3,102,389 (709,430) (212,356) 2,180,603

Total 3,290,769 3,290,769 (721,632) (213,860) 2,355,277

Financial liabilities Obligations on securities sold under repurchased agreements 4,906,214 4,906,214 (5,053,814) (68,667) (216,267) Obligations on securities borrowed 12,202 12,202 (12,202) – – Derivative liabilities 3,089,781 3,089,781 (709,430) (1,528,728) 851,623

Total 8,008,197 8,008,197 (5,775,446) (1,597,395) 635,356

2014 Financial assets Securities purchased under resale agreement 491,510 491,510 (113,781) – 377,729 Derivative assets 1,285,230 1,285,230 (241,295) (65,350) 978,585

Total 1,776,740 1,776,740 (355,076) (65,350) 1,356,314

Financial liabilities Obligations on securities sold under repurchased agreements 508,416 508,416 (520,484) (17,931) (29,999) Obligations on securities borrowed 113,780 113,780 (113,781) (2,447) (2,448) Derivative liabilities 1,224,684 1,224,684 (241,295) (573,748) 409,641

Total 1,846,880 1,846,880 (875,560) (594,126) 377,194 170 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(g) Fair Value of Financial Instruments The Group analyses its financial instruments measured at fair value into three categories as described below:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are not based on observable market data.

The table below analyses financial instruments carried at fair value analysed by level within the fair value hierarchy:

Group Level 1 Level 2 Level 3 Total 2015 RM’000 RM’000 RM’000 RM’000

Financial assets Financial assets FVTPL: 508,105 1,090,673 153,863 1,752,641 – Money market instruments – 533,305 – 533,305 – Quoted securities 508,105 – – 508,105 – Unquoted securities – 557,368 153,863 711,231

Financial investments AFS: 46,649 23,617,443 1,074,704 24,738,796 – Money market instruments – 7,386,331 – 7,386,331 – Quoted securities 46,649 – 8,399 55,048 – Unquoted securities – 16,231,112 1,066,305 17,297,417

Derivative assets – 3,102,389 – 3,102,389

554,754 27,810,505 1,228,567 29,593,826

Financial liabilities Derivative liabilities 30,036 3,059,745 – 3,089,781 171 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(g) Fair Value of Financial Instruments (continued)

Group Level 1 Level 2 Level 3 Total 2014 RM’000 RM’000 RM’000 RM’000

Financial assets Financial assets FVTPL: 449,439 2,441,242 40,000 2,930,681 – Money market instruments – 1,815,602 – 1,815,602 – Quoted securities 449,439 – – 449,439 – Unquoted securities – 625,640 40,000 665,640

Financial investments AFS: 56,360 18,554,674 991,142 19,602,176 – Money market instruments – 5,772,156 – 5,772,156 – Quoted securities 56,360 – – 56,360 – Unquoted securities – 12,782,518 991,142 13,773,660

Derivative assets – 1,285,230 – 1,285,230

505,799 22,281,146 1,031,142 23,818,087

Financial liabilities Derivative liabilities 13,114 1,211,570 – 1,224,684

There were no transfers between Level 1 and 2 during the financial year.

(i) Qualitative disclosures of valuation techniques

Financial instruments are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted prices is readily available, and the price represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an on-going basis. These would include quoted securities and unit trusts.

Where fair value is determined using unquoted market prices in less active markets or quoted prices for similar assets and liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available, the Group then determines fair value based upon valuation techniques that use market parameters including but not limited to yield curves, volatilities and foreign exchange rates as inputs. The majority of valuation techniques employ only observable market data. These would include certain bonds, government bonds, corporate debt securities and derivatives. 172 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

51 FINANCIAL RISK MANAGEMENT (CONTINUED)

(g) Fair Value of Financial Instruments (continued) (i) Qualitative disclosures of valuation techniques (continued)

Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). This category includes unquoted shares held for socio-economic reasons, non- transferable and non-tradable perpetual notes/sukuk, impaired securities and unquoted corporate loan stocks. Fair values for shares held for socio-economic reasons are based on the net tangible assets of the affected companies. For unquoted corporate loan stocks, discounted cash flow analysis has been performed to determine the recoverability of the instrument.

Reconciliation of fair value measurements in Level 3:

The following represents the changes in Level 3 instruments for the Group:

Financial assets FVTPL Financial investments AFS

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Balance as at the beginning of the financial year 40,000 33,295 991,142 1,062,016 Total net gains recognised in other comprehensive income – – 61,644 72,290 Total net (losses)/gains recognised in income statements (19,868) 9,153 (5,519) 73,940 Purchases 133,731 – 26,724 15,897 Settlements – (2,448) (17,034) (224,446) Disposal – – – (3,459) Transfer to loans and advances – – – (9,877) Exchange differences – – 17,747 4,781

Balance as at the end of the financial year 153,863 40,000 1,074,704 991,142 173 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

52 FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

(a) The fair value of each financial assets and liabilities presented on the statements of financial position of the Group and the Company approximates the carrying amount as at the reporting date, except for the following:

Group Company

Carrying value Fair value Carrying value Fair value RM’000 RM’000 RM’000 RM’000

2015 Financial assets Deposits and placements with banks and other financial institutions 1,376,202 1,387,852 – – Financial investments HTM 20,532,236 20,446,918 – – Loans, advances and financing 149,590,961 150,009,655 – –

Financial liabilities Deposits from customers 158,151,008 158,179,104 – – Deposits and placements of banks and other financial institutions 20,645,860 20,655,716 – – Recourse obligation on loans sold to Cagamas 3,127,656 3,120,839 – – Subordinated obligations 5,895,786 5,928,007 – – Hybrid Tier-1 Capital Securities 601,856 650,915 – – Senior debt securities 3,451,380 3,498,025 – –

2014 Financial assets Deposits and placements with banks and other financial institutions 2,298,588 2,209,141 – – Financial investments HTM 20,469,831 20,281,184 – – Loans, advances and financing 140,693,003 141,008,924 – –

Financial liabilities Deposits from customers 157,133,993 157,143,957 – – Deposits and placements of banks and other financial institutions 21,349,618 21,269,488 – – Recourse obligation on loans sold to Cagamas 3,315,335 3,295,986 – – Subordinated obligations 6,099,402 6,118,716 – – Hybrid Tier-1 Capital Securities 601,515 660,352 – – Senior debt securities 2,810,655 2,882,767 – – 174 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

52 FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED)

(b) The following table analyses within the fair value hierarchy of the Group’s assets and liabilities not measured at fair value at 31 December 2015 but for which fair value is disclosed:

Level 1 Level 2 Level 3 Total Group RM’000 RM’000 RM’000 RM’000

2015 Financial assets Deposits and placements with banks and other financial institutions – 1,387,852 – 1,387,852 Financial investments HTM – 17,646,364 2,800,554 20,446,918 Loans, advances and financing – 150,009,655 – 150,009,655

Financial liabilities Deposits from customers – 158,179,104 – 158,179,104 Deposits and placements of banks and other financial institutions – 20,655,716 – 20,655,716 Recourse obligation on loans sold to Cagamas – 3,120,839 – 3,120,839 Subordinated obligations – 5,928,007 – 5,928,007 Hybrid Tier-1 Capital Securities – 650,915 – 650,915 Senior debt securities – 3,498,025 – 3,498,025

2014 Financial assets Deposits and placements with banks and other financial institutions – 2,209,141 – 2,209,141 Financial investments HTM – 19,282,930 998,254 20,281,184 Loans, advances and financing – 141,008,924 – 141,008,924

Financial liabilities Deposits from customers – 157,143,957 – 157,143,957 Deposits and placements of banks and other financial institutions – 21,269,488 – 21,269,488 Recourse obligation on loans sold to Cagamas – 3,295,986 – 3,295,986 Subordinated obligations – 6,118,716 – 6,118,716 Hybrid Tier-1 Capital Securities – 660,352 – 660,352 Senior debt securities – 2,882,767 – 2,882,767 175 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

52 FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED)

(i) Cash and short term funds and deposits and placements with financial institutions For cash and short term funds and deposits and placements with financial institutions with maturities of less than six months, the carrying value is a reasonable estimate of fair value. For deposits and placements with maturities six months and above, estimated fair value is based on discounted cash flows using prevailing money market interest rates at which similar deposits and placements would be made with financial institutions of similar credit risk and remaining period to maturity.

(ii) Securities purchased under resale agreements The fair values of securities purchased under resale agreements with maturities of less than six months approximate the carrying values. For securities purchased under resale agreements with maturities of six months and above, the estimated fair values are based on discounted cash flows using prevailing market rates for the remaining term to maturity.

(iii) Financial assets FVTPL, financial investments HTM and AFS The estimated fair value for financial assets FVTPL, financial investments HTM and AFS is based on quoted and observable market prices. Where there is no ready market in certain securities, fair values have been assessed by reference to market indicative yield or net tangible asset backing of the investee. Where discounted cash flow technique is used, the estimated future cash flows are discounted using the prevailing market rates for a similar instrument at the date of statements of financial position.

(iv) Loans, advances and financing For floating rate loans, the carrying value is generally a reasonable estimate of fair value.

For fixed rate loans, the fair value is estimated by discounting the estimated future cash flows using the prevailing market rates of loans with similar credit risk and maturities.

The fair values of impaired loans are represented by their carrying value, net of impairment allowance.

(v) Other assets and liabilities The carrying value less any estimated impairment allowance for financial assets and liabilities included in ‘other assets and liabilities’ are assumed to approximate their fair values as these items are not materially sensitive to the shift in market interest rates.

(vi) Deposits from customers For deposits from customers with maturities of less than six months, the carrying amounts are reasonable estimates of their fair values. For deposits with maturities of six months and above, fair values are estimated using discounted cash flows based on prevailing market rates for similar deposits from customers. 176 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

52 FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED)

(vii) Deposits and placements of banks and other financial institutions, obligations on securities sold under repurchase agreements (‘repos’), obligations on securities borrowed and bills and acceptances payable

The estimated fair values of deposits and placements of banks and other financial institutions, repos, obligations on securities borrowed and bills and acceptances payable with maturities of less than six months approximate the carrying values. For the items with maturities of six months and above, the fair values are estimated based on discounted cash flows using prevailing money market interest rates with similar remaining period to maturity.

(viii) Recourse obligation on loans sold to Cagamas For amounts due to Cagamas with maturities of less than one year, the carrying amounts are a reasonable estimate of their fair values. For amounts due to Cagamas with maturities of more than one year, fair value is estimated based on discounted cash flows using prevailing money market interest rates with similar remaining period to maturity.

(ix) Borrowings

For floating rate borrowings, the carrying value is generally a reasonable estimate of fair value.

The estimated fair values of other borrowings with maturities of less than six months approximate the carrying values. For other borrowings with maturities of six months or more, the fair values are estimated based on discounted cash flows using prevailing market rates for borrowings with similar risk profile.

(x) Subordinated obligations The estimated fair value of subordinated obligations is generally based on quoted and observable market prices at the date of statements of financial position.

(xi) Hybrid Tier-1 Capital Securities The estimated fair value of Hybrid Tier-1 Capital Securities is generally based on quoted and observable market prices at the date of statements of financial position.

(xii) Senior debt securities The estimated fair value of senior debt securities is generally based on quoted and observable market prices at the date of statements of financial position.

(xiii) Credit related commitments and contingencies The net fair value of these items was not calculated as estimated fair values are not readily ascertainable. These financial instruments generally relate to credit risks and attract fees in line with market prices for similar arrangements. They are not presently sold nor traded. The fair value may be represented by the present value of fees expected to be received, less associated costs.

(xiv) Foreign exchange and interest rate related contracts The fair values of foreign exchange and interest rate related contracts are the estimated amounts the Group would receive to sell or pay to transfer the contracts at the date of statements of financial position. 177 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

53 DISCONTINUED OPERATIONS

On 13 April 2015, the Company announced that it proposed to undertake the Proposed Internal Reorganisation, Proposed Distribution and Capital Repayment and Proposed Transfer of Listing Status of the Company, details of which are as disclosed in Note 54(b). The Company is currently in the midst of procuring all relevant approvals required for the Proposals from the relevant parties/regulatory authorities.

54 SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR AND PRIOR FINANCIAL YEAR

Current Year

(a) Internal reorganisation exercise of the entire equity interest in RHB OSK Indochina Securities Limited (‘RHBISL’)

RHB Investment Bank, a wholly-owned subsidiary of the Company, has on 1 October 2014 entered into a share sale agreement with RHB Indochina Bank, a wholly-owned subsidiary of RHB Bank, which in turn is a wholly-owned subsidiary of the Company, for the acquisition of the entire equity interest in RHBISL from RHB Indochina Bank for a consideration of USD12,500,000 (‘Acquisition’).

RHBISL was incorporated in Cambodia and is registered with the Securities and Exchange Commission of Cambodia (‘SECC’) as a licensed security firm undertaking securities underwriting business.

Approvals from BNM, Securities Commission Malaysia (‘SC’), SECC (in principle) and National Bank of Cambodia have been obtained on 25 June 2014, 1 July 2014, 2 March 2015 and 7 May 2015 respectively. The share transfer was effected on 9 December 2015 and the Acquisition was completed on 25 December 2015 upon obtaining formal approval from SECC on the share transfer in RHBISL from RHB Indochina Bank to RHB Investment Bank.

(b) Rights Issue, Proposed Internal Reorganisation, Proposed Distribution and Capital Repayment, Proposed Transfer of Listing Status and Proposed M&A Amendments (collectively referred to as the ‘Proposals’)

RHB Capital had announced that it proposed to undertake the following proposals:

(i) Rights Issue

On 21 December 2015, RHB Capital completed its renounceable rights issue of new ordinary shares of RM1.00 each in RHB Capital (‘RHB Capital Shares’) via the listing of and quotation for 486,193,294 new RHB Capital Shares on the Main Market of Bursa Malaysia Securities Berhad (‘Bursa Securities’), raising proceeds of approximately RM2.343 billion (‘Proceeds’).

The Proceeds shall be utilised to further capitalise RHB Bank and to finance the working capital requirements of RHB Bank and its subsidiaries (‘RHB Bank Group’), only if the relevant approvals for the Proposed Internal Reorganisation are obtained and the Proposed Internal Reorganisation is implemented (‘Capital Injection’).

Prior to the Capital Injection, RHB Bank has undertaken a consolidation of two (2) ordinary shares of RM0.50 each in RHB Bank (‘RHB Bank Shares’) into one (1) ordinary share of RM1.00 each (‘Consolidated RHB Bank Share’). 178 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

54 SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR AND PRIOR FINANCIAL YEAR (CONTINUED)

Current Year (continued)

RHB Capital had announced that it proposed to undertake the following proposals: (continued)

(i) Rights Issue (continued)

Pursuant to the Capital Injection, RHB Bank will be issuing new Consolidated RHB Bank Shares to the Company at an issue price equivalent to the fair market value of RHB Bank Group, which will be determined based on, amongst others, the price- to-book ratio of comparable financial institution groups listed on Bursa Securities.

In the event that the Proposed Internal Reorganisation is not implemented, the Proceeds shall be utilised to repay external bank borrowings of the Company and any surplus thereafter for injection as equity into RHB Bank and/or repayment of borrowings from RHB Bank, if required.

The Rights Issue will enable the Company to raise funds to further strengthen the capital position of RHB Bank, via the Capital Injection, to support the continuous business growth of RHB Bank Group and meeting the requirements of Basel III.

(ii) Proposed Internal Reorganisation

The Proposed Internal Reorganisation will entail the transfer by RHB Capital of its entire equity interests in, or certain assets and liabilities of its subsidiaries to RHB Bank (‘Identified Assets’), after the Rights Issue, for a total indicative consideration of approximately RM3.71 billion (‘Disposal Consideration’). The Disposal Consideration was arrived at based on a ‘willing- buyer, willing-seller’ basis after taking into consideration the audited net assets/net liabilities and/or the audited net book value of the Identified Assets as extracted from the audited financial statements of the respective subsidiaries of RHB Capital as at 31 December 2014.

The Identified Assets shall comprise, amongst others, the entire equity interest in RHB Investment Bank (which shall include its subsidiaries, associates and joint ventures), the entire equity interest in RHB Insurance Berhad and certain assets and liabilities of RHB Hartanah Sdn Bhd, including its subsidiary, RHB Property Management Sdn Bhd. The Identified Assets are not exhaustive and may be varied as the Board may deem fit until completion of the Proposed Internal Reorganisation.

The Disposal Consideration to be received by the Company under the Proposed Internal Reorganisation will be utilised to repay the bank borrowings of the Company as well as to defray expenses relating to the Proposed Internal Reorganisation. Any excess cash after the repayment of all of the Company’s bank borrowings and defrayment of expenses relating to the Proposed Internal Reorganisation and after setting aside adequate cash to defray any expenses of the Company, will be injected into RHB Bank together with the proceeds from the redemption of RHB OSK Rupiah Liquid Fund (collectively referred to as the ‘Excess Cash’) as additional capital, in exchange for new Consolidated RHB Bank Shares, which will be issued at the same issue price as the new Consolidated RHB Bank Shares to be issued to the Company pursuant to the Capital Injection.

The Proposed Internal Reorganisation will be undertaken to streamline the businesses of RHB Capital Group under RHB Bank with the aim to achieve greater tax efficiency in view of the change from the two-tier tax system to a single-tier tax system as well as to position RHB Bank to spearhead the Group’s future growth. 179 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

54 SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR AND PRIOR FINANCIAL YEAR (CONTINUED)

Current Year (continued)

RHB Capital had announced that it proposed to undertake the following proposals: (continued)

(iii) Proposed Distribution and Capital Repayment

The Proposed Distribution and Capital Repayment will entail the distribution of the entire shareholdings of the Company in RHB Bank after the Rights Issue and Proposed Internal Reorganisation to entitled shareholders of the Company whose names appear in the Record of Depositors of RHB Capital on an entitlement date to be determined and announced later upon completion of the Rights Issue and Proposed Internal Reorganisation and the receipt of all relevant approvals for the Proposed Distribution and Capital Repayment (‘Distribution Entitlement Date’). The basis for the Proposed Distribution and Capital Repayment can only be determined later.

The Proposed Distribution and Capital Repayment will be implemented via a reduction of the entire share premium account of the Company and a reduction in the share capital of the Company in accordance with Sections 60(2) and 64 of the Companies Act, 1965, and the remaining balance via a distribution of the Company’s retained earnings. For the purposes of the reduction in the share capital of the Company, the par value of all the existing RHB Capital Shares shall be reduced from RM1.00 to RM0.05.

Upon completion of the Proposed Distribution and Capital Repayment, the existing shareholders of RHB Capital will continue to hold shares in the Company with par value of RM0.05 each, in the proportion of their shareholdings as at the Distribution Entitlement Date. Upon receiving the approval of the shareholders of the Company for the proposed winding up of RHB Capital (‘Proposed Winding Up’) at a separate extraordinary general meeting (‘EGM’) to be convened later, RHB Capital will appoint a liquidator to liquidate the Company and any surplus cash (after the settlement of all liabilities and defrayment of expenses) thereafter will be returned to the shareholders.

RHB Capital will cease to be a shareholder of RHB Bank upon completion of the Proposed Distribution and Capital Repayment. The effective percentage shareholdings of the shareholders of RHB Capital in RHB Bank shall remain unchanged before and after the Proposed Distribution and Capital Repayment.

(iv) Proposed Transfer of Listing Status

Upon completion of the Proposed Distribution and Capital Repayment, RHB Bank will assume the listing status of RHB Capital. RHB Bank will be admitted to the Official List of Bursa Securities in place of RHB Capital with the listing of and quotation for the entire issued and paid-up share capital of RHB Bank on the Main Market of Bursa Securities.

The Proposed Transfer of Listing Status will enable RHB Capital’s shareholders to have a direct participation in the equity and envisaged growth of RHB Bank Group as well as enable RHB Bank Group to gain direct access to the capital markets to raise funds for its continued growth, to gain recognition and corporate stature through its listing status and further enhance its corporate reputation and assist RHB Bank Group in expanding its customer base. 180 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

54 SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR AND PRIOR FINANCIAL YEAR (CONTINUED)

Current Year (continued)

RHB Capital had announced that it proposed to undertake the following proposals: (continued)

(iv) Proposed Transfer of Listing Status (continued)

In addition to the above, RHB Capital also proposes to undertake the Proposed M&A Amendments which entails the consequential amendments to the memorandum and articles of association of the Company to facilitate the Proposed Distribution and Capital Repayment and Proposed Transfer of Listing Status.

The inter-conditionality of the Proposals are as follows:

(i) The Rights Issue is not conditional upon any of the other Proposals.

(ii) The Proposed Internal Reorganisation is conditional upon the Rights Issue but is not conditional upon the Proposed Distribution and Capital Repayment and the Proposed Transfer of Listing Status.

(iii) The Proposed Distribution and Capital Repayment, Proposed Transfer of Listing Status and Proposed M&A Amendments are inter-conditional upon each other and are also conditional upon the Proposed Internal Reorganisation and Rights Issue.

The Proposed Transfer of Listing Status can only be effected after the approval of the shareholders of the Company for the Proposed Winding Up have been obtained at a separate EGM to be convened.

To date, approvals which have been obtained for the Proposals include, amongst others, the following:

(i) Ministry of Finance and/or Bank Negara Malaysia (as the case may be) on 23 July 2015 for the Rights Issue, Proposed Internal Reorganisation and the Proposed Distribution and Capital Repayment under the Financial Services Act, 2013.

(ii) Bursa Securities on 30 July 2015 and 4 September 2015 for the listing of and quotation for the new RHB Capital Shares on the Main Market of Bursa Securities pursuant to the Rights Issue as well as the Proposed Transfer of Listing Status, respectively.

(iii) Shareholders of the Company on 27 August 2015 at the EGM of the Company for the Rights Issue, Proposed Distribution and Capital Repayment, Proposed Transfer of Listing Status and Proposed M&A Amendments.

RHB Capital is currently in the midst of procuring all the other approvals required for the Proposals from the relevant parties/ regulatory authorities. 181 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

54 SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR AND PRIOR FINANCIAL YEAR (CONTINUED)

Current Year (continued)

(c) Proposed Subscription in Digital Financial Lab Limited (‘DFLL’), by RHB Finex and Silverlake International Capital Market Solution Limited (‘Silverlake Capital’)

RHB Finex, a company in which RHB Capital holds a 100% effective equity interest in through its 59.95% direct shareholding and 40.05% indirect shareholding through RHB Investment Bank, which in turn is a wholly-owned subsidiary of RHB Capital, had on 6 August 2015 entered into a subscription agreement (‘Agreement’) with Silverlake Capital, to subscribe for redeemable convertible preference shares of USD1.00 each (‘RCPS’) at par in DFLL.

Pursuant to the Agreement, RHB Finex and Silverlake Capital will each be subscribing for 50% RCPS in DFLL for RM10 million each (‘Proposed Subscription’). The Proposed Subscription by RHB Finex will be funded by its internally generated funds. The RCPS shall rank pari passu with the existing ordinary shares of USD1.00 each (‘Ordinary Shares’) in DFLL in respect with the rights attached to the Ordinary Shares and shall be convertible at any time into Ordinary Shares at no extra cost.

(d) Bancatakaful Service Arrangement between RHB Islamic Bank and Syarikat Takaful Malaysia Berhad (‘STMB’)

RHB Islamic Bank, a wholly-owned subsidiary of RHB Bank, which in turn is a wholly-owned subsidiary of RHB Capital, had on 26 August 2015 entered into an exclusive bancatakaful service arrangement agreement (‘Bancatakaful Service Agreement’) with STMB.

Pursuant to the terms of the Bancatakaful Service Agreement, STMB shall pay RHB Islamic Bank a total service fee of RM110 million and in consideration thereof, RHB Islamic Bank shall commit to a 10-year bancatakaful relationship with STMB to distribute Family and General takaful products developed by STMB.

(e) CTS for Employees

As part of the Group’s rationalisation exercise, the Group has on 30 September 2015 completed the CTS in Malaysia with a total of 1,812 applications accepted and payout amounting to RM308.8 million, as disclosed in Note 37.

This represents 11.8% of the Group’s Malaysian workforce of 15,348 and 13.1% of the Group’s permanent workforce of 13,787 in Malaysia.

Prior Year

(f) Proposed acquisition of PT Bank Mestika Dharma (‘Bank Mestika’)

The Company had on 19 October 2009, entered into the following agreements with PT Mestika Benua Mas (‘Vendor’):

(i) A conditional sale and purchase agreement (‘CSPA’) to acquire 80% of the issued and paid-up share capital in Bank Mestika for a total cash consideration of Rp3,118 billion (approximately RM1,163 million) (‘Proposed Acquisition’); and

(ii) Proposed put and call option for 9% of the issued and paid-up share capital in Bank Mestika (‘Proposed Option’). 182 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

54 SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR AND PRIOR FINANCIAL YEAR (CONTINUED)

Prior Year (continued)

(f) Proposed acquisition of PT Bank Mestika Dharma (‘Bank Mestika’) (continued)

The Company had subsequently assigned all of its rights, titles, interests, benefits and entitlements and novated all of its obligations and liabilities contained in the CSPA, option agreement and escrow agreement pertaining thereto to RHB Venture Capital Sdn Bhd (a wholly-owned subsidiary of the Company), which in turn assigned and novated the same to RHB Bank on 17 December 2010, as the new acquirer for the Proposed Acquisition.

On 13 July 2012, Bank Indonesia issued a new regulation on share ownership in Indonesian commercial banks which stipulates, amongst others, that the maximum limit for shares ownership in a commercial bank by a bank or financial institution shall be 40% of its paid-up capital.

In view of this, RHB Bank had on 30 January 2013 entered into an amended agreement to the CSPA with the Vendor (‘Amended CSPA’) to revise the proposed acquisition from up to 89% of the issued and paid-up share capital in Bank Mestika to 40%, for a total cash consideration of Rp2,066 billion (approximately RM651 million as at 23 January 2013) (‘Revised Purchase Consideration’).

Simultaneously, RHB Bank had on even date entered into an option termination agreement with the Vendor to terminate the original Proposed Option.

In view that the approval from Otoritas Jasa Keuangan (Financial Services Authority of Indonesia) for the Proposed Acquisition has not been obtained on 30 June 2014 and therefore the conditions precedent of the Amended CSPA have not been satisfied, the parties to the Amended CSPA have decided not to extend the Conditional Period. Accordingly, the Amended CSPA lapsed on even date and terminated in accordance with the terms of the Amended CSPA, and the initial deposits paid has been refunded to the Company.

(g) Disposal of entire equity interest in RD RHB OSK Indonesia Dynamic Resources Plus Fund

On 7 February 2014, RHB Investment Bank disposed the entire equity interest in RD RHB OSK Indonesia Dynamic Resources Plus Fund for a cash consideration of RM6.5 million.

(h) Disposal of equity interest in iFast-OSK Sdn Bhd (‘iFast-OSK’)

RHB Investment Bank had on 7 March 2014 entered into a sale and purchase agreement to dispose its entire 34.88% equity interest in iFast-OSK for a cash consideration of RM9.07 million. The disposal was completed on 18 July 2014.

The effects of the disposal on the financial position of the Group in 2014 were as follows:

RM’000

Proceeds from disposal 9,070 Equity attributable to net assets (868)

Gain on disposal of an associate 8,202 183 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

54 SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR AND PRIOR FINANCIAL YEAR (CONTINUED)

Prior Year (continued)

(i) Acquisition of remaining 49% equity interest in RHB Securities Singapore

On 15 December 2014, RHB Investment Bank completed the acquisition of the remaining 36,750,000 ordinary shares of SGD1.00 each or 49% in RHB Securities Singapore from Deustche Asia Pacific Holdings Pte Ltd (‘DAPH’) for a total consideration of SGD123.5 million (equivalent to RM329.2 million). Subsequently, RHB Securities Singapore became a wholly-owned subsidiary of RHB Investment Bank, which in turn is a wholly-owned subsidiary of the Company.

The difference between the fair value of the consideration paid and the relevant share of the carrying value of net assets of RM190.5 million was disclosed in the consolidated statements of changes in equity.

The financial position of RHB Securities Singapore as at the date of acquisition was as follows:

RM’000

Carrying value of net assets 388,871 Carrying value of additional interests acquired 190,547

The following summarised the effects of the change in the Group’s ownership interests in RHB Securities Singapore on the equity attributable to owners of the Group arising from the above acquisition. The difference between the purchase consideration and the additional interests acquired has been recognised to retained earnings:

RM’000

Consideration paid for the 49% acquisition from NCI 329,210 Decrease in equity attributable to NCI (190,547)

Decrease in equity attributable to equity holders of the Group 138,663 184 RHB Capital Berhad Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

55 DETERMINATION OF REALISED AND UNREALISED PROFITS OR LOSSES IN THE CONTEXT OF DISCLOSURES PURSUANT TO BURSA SECURITIES LISTING REQUIREMENTS

The following analysis of realised and unrealised profits or losses of the Group and the Company is prepared in accordance with Guidance on Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Securities Listing Requirements, as issued by the Malaysian Institute of Accountants.

The breakdown of retained profits of the Group and the Company is as follows:

Group

Realised Unrealised profits/(losses) profits Total RM'000 RM'000 RM'000

2015 Operating subsidiaries 9,178,355 145,976 9,324,331 Dormant subsidiaries* (7,874,716) – (7,874,716)

Total retained profits of the Group 1,303,639 145,976 1,449,615

Total share of retained profits from associates and joint ventures 3,735 – 3,735

1,307,374 145,976 1,453,350

Less: Consolidation adjustments 6,107,232

Total Group retained profits 7,560,582

2014 Operating subsidiaries 7,411,253 1,311,014 8,722,267 Dormant subsidiaries* (7,875,504) – (7,875,504)

Total (accumulated losses)/retained profits of the Group (464,251) 1,311,014 846,763

Total share of retained profits from associates and joint ventures 3,436 – 3,436

(460,815) 1,311,014 850,199

Less: Consolidation adjustments 6,089,630

Total Group retained profits 6,939,829

* The realised losses relate mainly to dormant subsidiaries which are currently in the process of being liquidated. 185 NOTES TO THE FINANCIAL STATEMENTS (continued) for the financial year ended 31 December 2015

55 DETERMINATION OF REALISED AND UNREALISED PROFITS OR LOSSES IN THE CONTEXT OF DISCLOSURES PURSUANT TO BURSA SECURITIES LISTING REQUIREMENTS (CONTINUED)

Company

2015 2014 RM'000 RM'000

Retained profits 711,909 415,481 Unrealised loss – (20)

Total Company retained profits 711,909 415,461

The disclosure of realised and unrealised profits or losses above is solely for compliance with the directive issued by the Bursa Securities and should not be used for any other purpose.

On 20 December 2010, the Malaysian Institute of Accountants issued Guidance on Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Securities Listing Requirements. Accordingly, the Group views translation gains or losses on monetary items as realised as it is incurred in the ordinary course of business.

The disclosure above does not affect or alter the existing divisible profit rule in Malaysia. Likewise, this shall not be applied to address or interpret any legal matters regarding the availability of profit for distribution to shareholders. Listed corporations are required to observe the existing requirements in the Malaysian legal framework in dealing with matters related to distribution of profits to shareholders. 186 RHB Capital Berhad Annual Report 2015 STATEMENT BY DIRECTORS pursuant to Section 169 (15) of the Companies Act, 1965

We, Dato’ Mohamed Khadar Merican and Dato’ Khairussaleh Ramli, being two of the Directors of RHB Capital Berhad state that, in the opinion of the Directors, the accompanying financial statements set out on pages 8 to 185 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Company as at 31 December 2015 and of the results and cash flows of the Group and of the Company for the financial year ended 31 December 2015 in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the provisions of the Companies Act, 1965.

Signed on behalf of the Board in accordance with a resolution of the Board of Directors.

DATO’ MOHAMED KHADAR MERICAN DATO’ KHAIRUSSALEH RAMLI Chairman Group Managing Director

Kuala Lumpur 29 February 2016

STATUTORY DECLARATION pursuant to Section 169 (16) of the Companies Act, 1965

I, Yap Choi Foong, being the Officer primarily responsible for the financial management of RHB Capital Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 8 to 185 are, in my opinion correct and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

YAP CHOI FOONG

Subscribed and solemnly declared by the abovenamed Yap Choi Foong at Kuala Lumpur in Malaysia on 29 February 2016.

COMMISSIONER FOR OATHS Kuala Lumpur 29 February 2016 187 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF RHB CAPITAL BERHAD (Incorporated in Malaysia) (Company No. 312952-H)

REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of RHB Capital Berhad on pages 8 to 183, which comprise the statements of financial position as at 31 December 2015 of the Group and the Company, and the income statements, statements of comprehensive income, changes in equity and cash flow of the Group and the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on notes 1 to 54.

Directors’ Responsibility for the Financial Statements The Directors of the Company are responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The Directors are also responsible for such internal control as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Group and of the Company as of 31 December 2015 and of their financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

Emphasis of Matter We draw attention to Note 1 Basis of Preparation of the financial statements in the Summary of Significant Accounting Policies to the financial statements, which refer to the Proposed Winding Up of the Company, subject to approval from the Company’s shareholders subsequent to the financial year. These financial statements have therefore been prepared using a liquidation basis of accounting. Our opinion is not qualified in respect of this matter. 188 RHB Capital Berhad Annual Report 2015 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF RHB CAPITAL BERHAD (continued) (Incorporated in Malaysia) (Company No. 312952-H)

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.

(b) We have considered the financial statements and the auditors’ reports of all the subsidiaries of which we have not acted as auditors, which are indicated in Note 15 to the financial statements.

(c) We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company’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.

(d) 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 REPORTING RESPONSIBILITIES

The supplementary information set out in Note 55 on pages 184 and 185 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The Directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants (“MIA Guidance”) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad.

OTHER MATTERS

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

PRICEWATERHOUSECOOPERS NG YEE LING (No. AF: 1146) (No. 3032/01/17 (J)) Chartered Accountants Chartered Accountant

Kuala Lumpur 29 February 2016

FINANCIAL REPORT 2015

www.rhbgroup.com

RHB Capital Berhad (312952-H) Level 9, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur Tel : 603-9285 2233 Fax : 603-9281 9314 www.rhbgroup.com

RHB Capital Berhad (312952-H) Level 9, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur Tel : 603-9285 2233 Fax : 603-9281 9314 02 Facts at a Glance 08 Chairman’s Statement 24 Our Marketplace 04 RHB’s Aspirations: Vision, 12 Corporate Governance 28 Our Workplace Aspirations and Shared Values 14 Corporate Responsibility 32 Our Environment 05 Who We Are Focus Areas: 4 Key CR Pillars 36 Awards & Recognition 06 Where We Are 16 Our Community

ABOUT THIS REPORT

This report details RHB Banking Group's current Corporate Responsibility ("CR") practices in line with its CR philosophy.

The information contained in this report aims to keep the public abreast with the Group's CR initiatives in line with its goal of achieving sustainability. The report also serves to inform the public that RHB is a company that cares for the wellbeing of its stakeholders and the environment, and thus adopts sustainability initiatives and measures as a vital component of its operations.

Most importantly, this report underscores our commitment to growing profitability in a responsible manner, balancing our commercial interests with those of our stakeholders. SUSTAINABILITY REPORT 2015

OUR COMMUNITY 16

OUR ENVIRONMENT

www.rhbgroup.com

V FACTS AT A GLANCE

C O M M U N I T Y M A R K E T P L A C E W O R K P L A C E E N V I R O N M E N T

02 SPELLING COMPETITION

SIR (MALAYSIA) NSC (SINGAPORE) 51,982 5,654 PARTICIPANTS PARTICIPANTS 2008 – 2015 2012 – 2015

MIGHTY MINDS STUDENTS EDUCATION ENRICHMENT DEVELOPMENT LEADERSHIP PROGRAMME 49,118 BENEFITTED STATISTIC 1,350 SECONDARY SCHOOL 2012-2015 2009-2015 STUDENTS

REUNITING FAMILIES – CHILD SAFETY CAMPAIGN CHILD SAFETY CAMPAIGN SINCE 2007 DISTRIBUTED DISTRIBUTED 360,000 50,000 SAFETY TIPS BOOKLETS CHILD ID KITS

03 RHB Capital Berhad Sustainability Report 2015 RHB’S ASPIRATIONS

BY 2020... V I S I O N TO BE A LEADING MULTINATIONAL FINANCIAL SERVICES GROUP

ASPIRATIONS

STRONG MARKET NEXT GENERATION LEADERSHIP IN MALAYSIA CUSTOMER CENTRIC BANK across targeted products and delivering innovative and personalised segments customer offerings

TOP 3 IN MALAYSIA/ REGIONAL POWERHOUSE PROMINENT EMPLOYER TOP 8 IN ASEAN IN ASEAN+ 20% profit contribution OF CHOICE within the region by performance from international operations

04 SHARED VALUES

P R I D E

PROFESSIONAL RESPECT INTEGRITY DYNAMIC EXCELLENCE We are committed to We are courteous, We are honest, We are proactive, We will continuously maintain a high level humble and we show ethical and we responsive and achieve high of proficiency, empathy to everyone uphold a high forward thinking standards of competency and through our actions standard of performance and reliability in and interaction governance service deliverables all that we do WHO WE ARE • Fourth largest fully integrated financial services group in Malaysia.

• Our business pillars are: • The Group’s main subsidiaries are: – Group Retail Banking – RHB Bank Berhad – Group Business & Transaction Banking – RHB Investment Bank Berhad – Group Corporate and Investment Banking – RHB Islamic Bank Berhad – Group Shariah Business – RHB Insurance Berhad – Group Treasury and Global Markets – RHB Asset Management Sdn Bhd – Group Insurance – Group International Business

05 RHB Capital Berhad Sustainability Report 2015

C O M M U N I T Y

M A R K E T P L A C E

W O R K P L A C E

E N V I R O N M E N T WHERE WE ARE in our Corporate Responsibility journey

06 In 2010, the RHB Banking Group embarked on its Corporate Responsibility (“CR”) journey, grounded on the firm belief that responsible corporate practices play a vital role in anchoring the Group’s sustainability agenda.

The Group has since adopted a CR philosophy which guides us in operating sustainably while positively impacting our shareholders, customers and business partners; aims to empower the community at large; and promotes the spirit of volunteerism as we seek to nurture positive values among our employees and society as a whole.

In line with this philosophy, we have launched a systematic approach to undertaking our CR activities, streamlining each activity under the four pillars of Community, Workplace, Marketplace and Environment. We believe this is vital in ensuring a holistic, wholesome and sustainable way of doing business. At the same time, we also endeavour to go above and beyond what is expected of us as a responsible corporate citizen and strive to contribute to the wellbeing of our stakeholders in any area we are able to.

In the past five years, our CR activities have grown to become a great source of pride for the Group. Among efforts we have found especially rewarding include our Community activities centred on the education and welfare of children - From our flagship RHB-New Straits Times Spell-It-Right Challenge which we commenced even before embarking on our formal journey in CR to our various initiatives focused on child safety which we implement with partners including the Royal Malaysian Police.

We have also strengthened our internal policies and processes, aimed towards promoting integrity, transparency and accountability, as we seek to improve the sustainability of our Marketplace. We will continue to nurture and groom our employees with programmes to build capabilities and competencies among the Malaysian workforce.

In recent years, we have embarked on various initiatives to contribute towards a balanced ecosystem.

As we remain committed to exercising exemplary corporate conduct to ensure a sustainable future, we established the RHB Foundation towards the end of 2015 to continue and expand on our CR journey.

07 RHB Capital Berhad Sustainability Report 2015 RHB FOR YOU CHAIRMAN’S STATEMENT

IT IS MY PLEASURE TO PRESENT TO YOU THE RHB BANKING GROUP’S SUSTAINABILITY REPORT 2015, WHICH HIGHLIGHTS OUR COMMITMENT TO GROWING PROFITABLY IN A RESPONSIBLE MANNER.

Dear Shareholders, Empowering Communities SOUND CORPORATE RESPONSIBILITY Our aspiration to become a leading multinational In serving our community, last year we continued financial services group moves a step forward as to focus on enriching and empowering children we continue on our transformation journey. I am with skills and knowledge to unlock their PRACTICES delighted to report that our efforts have resulted potential. AND in many tangible positive outcomes. In 2015, we continued on this strong trajectory of our Our flagship programmes, mainly the RHB-NST existing initiatives and other activities in line Spell-It-Right Challenge, the RHB-The Star Mighty VALUES with our pillars of Our Community, Our Minds National Challenge and the Students ARE INGRAINED WITHIN Workplace, Our Marketplace and Our Educational Enrichment Development Leadership OUR PEOPLE AND Environment. Programme, continued to challenge and BUSINESS PRACTICES encourage students to pursue knowledge beyond In line with our corporate responsibility the schoolroom. commitment, our people and our business continue to exemplify sound corporate values Our efforts to protect children and reunite them and practices. with their families continue through our Missing Children – Reuniting Families programme. As It is my pleasure to present to you the RHB part of our on-going activities, Child Safety Road REMAIN FOCUSED ON Banking Group’s Sustainability Report 2015, shows and Safety Booklets are disseminated to which highlights our commitment to growing schoolchildren and the public at large. profitably in a responsible manner. We endeavour ADHERING to remain focused on adhering to the highest I am pleased to note that in tandem with our TO THE standards of corporate governance, transparency regional footprint, RHB Banking Group’s community- and sustainability reporting. building efforts go beyond our local borders and have yielded positive outcomes. In 2015 we HIGHEST organised the inaugural RHB Cambodia Junior Football Cup following the success of the Little STANDARDS OF CORPORATE Kicks Big Difference football clinic we introduced GOVERNANCE, in Cambodia the previous year. We hope that TRANSPARENCY AND activities such as these will empower children from SUSTAINABILITY REPORTING under-served communities to rise above their circumstances by embedding confidence, hope and pride through sports and sportsmanship.

09 RHB Capital Berhad Sustainability Report 2015

Enriching Our People I am happy to note that the Group’s outstanding workforce continues to receive local and international recognition. Last year we received awards that acknowledge our continuous efforts in nurturing our talent to become one of Asia’s most successful banks. Five different awards in the area of human resources were won. These included HR Asia’s Best Employers To Work For in Asia 2015 (Malaysian Chapter), Asia Corporate Excellence & Sustainability Awards 2015 – Top Companies to Work for 2015, Graduan Malaysia’s Most Preferred Employer Named by Talents, Best Employer Brand Award by Employer Branding Institute, and Malaysia’s 100 Leading Employer’s by GTI Media.

We also continued to strengthen our values by reinforcing RHB’s CLIP-R proposition based on our customer-centric core values – PRIDE (Professional, Respect, Integrity, Dynamic and Excellence). The RHB CLIP-R (RHB Cares, RHB Leads, RHB Inspires, RHB Progresses and RHB Rewards) outlines our pledge to strengthen the employer brand and to nurture our talents.

Fortifying Our Marketplace In adhering to the highest standards of corporate governance, transparency, and sustainability, we employ stringent internal control and risk management measures. The policies as outlined in our annual report aim to protect our reputation and our customers’ interests. We continue to create awareness on fraud by leveraging on social media and digital platforms.

Protecting Our Environment The importance of preserving and protecting our environment is something close to our hearts. To this end, we endeavour to implement “green solutions” in a bid to minimise our carbon footprint. We also support companies that undertake green projects as part of our sustainability agenda.

In line with our preservation efforts and to promote an appreciation for nature, we have expanded our Trail Experience (“TrEx”) programme with the hope of embedding environmental awareness among members of the public and our employees.

10 WE THEREFORE The RHB Foundation RHB Banking Group has played an active role in PLEDGE TO community initiatives since 2007. In December 2015, we established the RHB Foundation. This CONTINUE PLACING foundation will act as our platform to further our reach and positively impact communities where SUSTAINABILITY AT RHB has a presence. THE FOREFRONT OF A Board of Trustees has been appointed, OUR OPERATIONS, comprising Tan Sri Dato’ Dr Yahya Awang, our Group Managing Director, Dato’ Khairussaleh AND HOPE THIS Ramli and Norazzah Sulaiman, our Group Chief Marketing and Communications Officer. We are SUSTAINABILITY confident that RHB Foundation will continue to spur change and drive progress in the community REPORT WILL SHED in which we operate. LIGHT ON OUR COMMITMENT TO THIS PLEDGE.

Dato’ Mohamed Khadar Merican Non-Independent Non-Executive Chairman

Building a Sustainable Future As one of Malaysia’s more established financial groups with presence across the region, we recognise the need to operate in a sustainable manner. We therefore pledge to continue placing sustainability at the forefront of our operations, and hope this Sustainability Report will shed light on our commitment to this pledge.

11 RHB Capital Berhad Sustainability Report 2015 CORPORATE GOVERNANCE

RHB Banking Group’s corporate governance function ensures our activities In implementing this structure, we ensure that the Group promotes high achieve a balance between contributing to shareholder value and creating standards of governance and integrity, transparency, accountability and responsible social and environmental outcomes to inculcate sustainable responsibilities of our shareholders, Board and Board Committees, Senior business practices across our operations. Management, external and internal auditors as well as other Independent Control Functions. These activities adhere to our Governance Model, which clearly defines our organisational structure with robust internal control and risk management mechanisms.

SHRHRS Approve the Appointment

Accountable to

BR RCRS Recommends R R Appoints the Appointment

Delegates Reports to

BR CS

BR BR BR SC RS BR R BR RS CR CH BR RR C C C C C C C

Compliance, Internal Audit Risk Management

R SR CR CS Accountable to Group Compliance, Group Internal Audit, Group Risk & Credit Management

GOVERNANCE MODEL

12 A Culture of Compliance Benchmarking our Corporate Governance Performance Our Corporate Governance values are In 2015, the Group received the “Top 10 Corporate Governance Disclosure Merit Recognition Award” demonstrated through an organisational culture from the Minority Shareholder Watchdog Group (MSWG) following annual assessment against the which embraces professional business ethics and MSWG-Association of Southeast Asian Nations (MSWG-ASEAN) Corporate Governance Transparency compliance with internal and external legal and Index 2015 - The Malaysian Chapter. regulatory requirements. From the Group’s Board of Directors, Senior Management, and employees, Ranked among the top six out of 870 Malaysian Public Listed Companies (PLCs) in terms of quality this culture of compliance is anchored on our disclosures and scope of corporate governance practised, this marks the first time the Group achieved core shared values as follows: this milestone and bears testament to our continuous efforts to strengthen Corporate Governance within our organisation. The ranking is calculated based on a scorecard methodology of the • PROFESSIONAL Organisation for Economic Co-operation and Development’s (OECD) Principles of Corporate Governance. We are committed to maintain a high level of proficiency, competency and reliability In addition to this, a similar methodology which assesses good governance and transparency in all that we do. practices, and is peer-reviewed within ASEAN countries, also named RHB Capital a “Top 50 ASEAN PLC” among the region’s publicly listed companies. • RESPECT We are courteous, humble and we show Reinforcing Sustainability through Governance empathy to everyone through our actions and interactions. Aside from our Corporate Governance activities overseeing our business operations, the Group also plans to further strengthen our governance practices with the establishment of the RHB Foundation, • INTEGRITY led by a Board of Trustees. We are honest, ethical and we uphold a high standard of governance. The Board of Trustees will set the Group’s CR priorities and goals, track our progress in implementing CR initiatives, advise on key CR strategic issues, provide input on possible risks and opportunities • DYNAMIC and recommend emerging and critical sustainability issues. We are proactive, responsive and forward The Board of Trustees will also be served by a Company Secretary, as well as a Finance function to thinking. manage the financial aspects of the Foundation, ensure compliance with internal financial and accounting policies and procedures, prepare information for the annual external audit and record all • EXCELLENCE of the Foundation’s financial transactions. We will continuously achieve high standards of performance and service deliverables. Additionally, a Working Group will be established to manage and execute projects, expand areas of influence, ensure responsible reporting, engage with stakeholders, implement sustainable development and address cross-company CR issues. The Working Group will comprise representatives from each serviceable area as depicted below:

01 02 03 04 05 06

Governance Community & Environmental Employee Human Supply & Financial Marketplace Relations Affairs Well-being Resources Chain Accountability

The Foundation will act as a platform for the Group’s CR initiatives, which includes current and future philanthropic and charitable activities, as we strive to achieve sustainable growth and long-term shareholder value creation while supporting the needs of our community and the environment.

13 t

RHB Capital Berhad Sustainability Report 2015 CORPORATE RESPONSIBILITY FOCUS AREAS

AS A LEADING MULTINATIONAL FINANCIAL SERVICES GROUP, RHB BANKING GROUP AIMS TO DELIVER BALANCED GROWTH TO OUR SHAREHOLDERS IN A RESPONSIBLE MANNER BY EMBEDDING CORPORATE RESPONSIBILITY (“CR”) PRACTICES THROUGHOUT OUR ACTIVITIES.

Our CR practices are based on the following philosophy:

• To operate sustainably, while ensuring that our initiatives produce a positive impact on shareholders, customers, and business partners; • To empower the community at large; and • To promote the spirit of volunteerism, thereby instilling positive values among the RHB Banking Group’s employees and society as a whole.

14 FOUR KEY CR PILLARS

COMMUNITY MARKETPLACE WORKPLACE ENVIRONMENT

RHB Banking Group’s CR initiatives are anchored on the four pillars of Community, Marketplace, Workplace and Environment which we believe are integral to a holistic and sustainable way of doing business.

15 OUR COMMUNITY

QUICK INFO

LITTLE KICKS RHB HALF RHB HUMANITARIAN BIG DIFFERENCE MARATHON FUND

Raised RM127,620 200 8,500 and benefitted more than children from 16 primary schools participants since 2013 12,000 students

RHB Capital Berhad Sustainability Report 2015

WE ARE DEEPLY COMMITTED TO ENRICH COMMUNITIES WE SERVE BY FOCUSSING ON EMPOWERING THEM WITH THE SKILLS AND KNOWLEDGE TO UNLOCK THEIR POTENTIAL...

Developing Sustainable Communities As one of Malaysia’s leading financial institutions with a regional footprint, we are deeply committed to enriching communities we serve in the long-term by positively impacting their lives. In doing so, much of our activities is focused on empowering our communities with the skills and knowledge to unlock their potential.

To this end, our efforts in community development focus on the development and welfare of children.

Capacity building Children are the bedrock of our future. In recognising that education is key to their development, RHB Banking Group’s key objective is to equip children with skills, capabilities and the competencies needed to face the future with vigour and confidence. This is undertaken through programmes such as the RHB-NST National Spell-It-Right Challenge, the RHB-The Star Mighty Minds National Challenge, and the Students Educational Enrichment Development Leadership Camp.

These programmes challenge and encourage students to pursue knowledge beyond the schoolroom, while promoting character-building.

18 Inculcating English Proficiency

The Spell-It-Right (“SIR”) Challenge is a nationwide The success of the SIR programme has also been spelling competition that is open to primary and extended beyond Malaysia with the debut of the secondary school students in Malaysia. The programme, National Spelling Championship, jointly organised which has been jointly organised with the New Straits by the Group and the Singapore Press Holdings Times Press (Malaysia) Bhd since 2008, is aimed at Ltd. Grounded by the same objectives as the SIR promoting better usage of the English language, and supported by Singapore’s Ministry of instilling good reading habits and improving students’ Education, the NSC has seen an 18% increase in language proficiency, whilst boosting their confidence. primary school participants since 2014 with 1,654 participants compared to 1,400 in the SIR has seen encouraging growth in participation preceding year. since its launch, and in 2015, recorded a 38% increase in participation to 16,982 from 12,280 participants During the year under review, we also organised the previous year. the inaugural RHB Spelling Masters in which the top 10 spellers from Malaysia’s SIR faced the top Endorsed by the Ministry of Education, SIR challenges 10 spellers from Singapore’s NSC in a friendly children to expand their vocabulary beyond the competition held in November 2015. confines of their day-to-day textbooks. To date, the participants of SIR have been exposed to more than Through the NSC, we have also promoted the 60,000 words of Latin, medieval, and modern origins. learning of English in Singapore in a fun and interactive way by distributing School Time Scrapbooks to students. In 2015, 15 non-profit organisations in Singapore received a total of 2,000 School Time Scrapbooks to be distributed to their beneficiaries.

19 RHB Capital Berhad Sustainability Report 2015

Sparking Young Minds The development of young talents is crucial for Our Mighty Minds National Challenge (“MM”) is economic growth. The Group has thus introduced a general knowledge and science-based challenge the Students Educational Enrichment for secondary school students in Malaysia. This Development (SEED) Leadership Programme to programme aims to increase students’ knowledge nurture the nation’s future leaders. on current affairs, sports, world events, history, and geography by encouraging them to read The three-day, two-night leadership programme more than just their textbooks and to build aims to develop teenagers into the leaders of self-confidence by polishing their presentation tomorrow through activities that engage their skills. Students are also exposed to Innovation, minds and bodies in a balanced and holistic way. Creative and Business Acumen Skills (“ICBAS”). Under the programme, participants are provided the opportunity to meet RHB senior leaders and The MM Challenge has been jointly organised receive life journey tips from them. Students also with Star Publication (Malaysia) Bhd since 2009 undergo character-building activities and return and is endorsed by the Ministry of Education as with an enhanced level of self-esteem, confidence well as the Ministry of Science, Technology, and and exhibit positive competitive spirit. Innovation. Since its establishment in 2012, the SEED To date, we have seen 10,249 students from 928 programme has benefitted 1,350 secondary schools nationwide participate in this programme. school students. In 2015, we incorporated digital elements and used technology to enhance the students’ presentation skills and their thinking process.

Grooming Future Leaders Initiatives For Capacity Building

MIGHTY MINDS SPELL-IT-RIGHT CHALLENGE (SIR) NATIONAL CHALLENGE 51,982 49,118

STUDENTS EDUCATION NATIONAL SPELLING ENRICHMENT DEVELOPMENT CHAMPIONSHIP (NSC) LEADERSHIP PROGRAMME 5,654 1,350

20 Education on Healthy Living RHB endeavours to be a steward of holistic living by promoting a healthier lifestyle and encouraging the spirit of sportsmanship. Our efforts include promoting healthy lifestyle among our communities by creating awareness on the responsibility to make smart health choices through physical activities and sports.

Keeping our Children Safe The safety of children remains crucial to our agenda of ensuring the well-being of our communities. We believe that prevention is key in inculcating a secure environment for children. Hence we have implemented a number of educational and awareness initiatives to ensure all stakeholders, especially children, remain Child Safety Awareness Campaign well-informed on staying safe. With families making up the heart of our communities, we also Through a partnership with Star Publication strive to keep family units whole by aiding (Malaysia) Berhad since 2013, the Group has search efforts for missing children. also published articles on child safety measures in a bid to instil awareness on child safety amongst students, parents, teachers and Child Safety Initiatives members of the public. Leveraging Star Publication’s readership of 1.4 million daily, Working with the Royal Malaysian Police, these articles target to engage, educate and activities under this initiative include Child Safety create awareness on issues of child abuse, Programmes. Aimed at promoting crime awareness criminal activities, negligence and cyber crimes. and empowering young children to protect themselves and speak out on crimes committed against them, we have conducted the roadshows Reaching Out With ASTRO in 22 primary schools, engaging 20,000 children In an effort to increase awareness on child since 2013. safety, since 2013 we have worked with ASTRO to broadcast our Reach Out TV capsules which These Child Safety roadshows are an expansion feature safety tips on various topics over a of our efforts to promote the safety of children 20-minutes segment in both English and Bahasa through the distribution of Safety Booklets and Malaysia. Child I.D. Kits, introduced in 2007 and 2012, respectively. To date, we have distributed more Through this medium, we have been able to than 360,000 Safety Booklets and approximately reach out to ASTRO’s 11 million subscribers, of 50,000 Child I.D. Kits. which some 5.6 million have viewed these TV capsules. The Ministry of Education also helps to Collectively, these activities provide children distribute these capsules to primary schools. with vital tips on how to protect themselves against potential dangers and the importance of reporting to relevant adults. With more children spending their time in the digital sphere, we have also introduced education on cyber bullying, cyber stalking and cyber crimes.

21 RHB Capital Berhad Sustainability Report 2015

Missing Children Alerts Effort In addition to our child safety efforts, the Group has put in place Standard Operating Procedures to promptly mobilise our resources should that safety be compromised.

In the unfortunate event that a child goes missing, we assist the police and parents/guardians with alternative channels of communication to raise the alarm and help search efforts.

Together with the Ministry of Women, Family, and Community Development, we have initiated the following efforts to aid families in locating their loved ones:

• Placing advertisements on the missing child in The Star newspaper • Distributing leaflets about the child at all RHB Bank branches • Displaying the pictures of the missing child on all RHB Bank branches LCD screens and ATMs for 30 days • Immediately uploading details of the missing child on social media • Adhering to a strict Standard Operating Procedure from the moment a missing child alert is received

Impact to date Initiatives For Education in Safety

CHILD SAFETY REACHING OUT ROADSHOW WITH ASTRO 360,000 AVERAGE OF BOOKLETS & 5.6 MILLION 50,000 ASTRO CHANNELS VIEWERS STAR READERSHIP IN CONJUNCTION CHILD ID KITS WITH CHILD SAFETY CAMPAIGN 1.4 MILLION DAILY

22 Little Kicks Big Difference WE RAISED RM127,620 FOR THE RHB Following encouraging support and participation from local communities and the government for HUMANITARIAN FUND AND PROVIDED the Little Kicks Big Difference football clinic introduced in Cambodia in 2014, we organised MORE THAN 12,000 STUDENTS FROM the RHB Cambodia Junior Football Cup in June 2015. Supported by the Football Federation of Cambodia and Nagaworld FC, 200 children from OVER 70 SCHOOLS SUPPLIES NEEDED 16 primary schools participated in the football tournament. FOR THE NEW SCHOOL YEAR.

The event aims to empower and inspire children to overcome life’s challenges by nurturing confidence, hope and pride through sports and community based activities. We hope to provide an avenue for children in Cambodia to participate in healthy activities such as football.

Community in Need

Following the floods that affected Kelantan, Terengganu and Pahang earlier in 2015, our employees participated in two missions to help with relief and clean- up work in Kota Bharu, Pasir Mas and Kuala Krai. We also raised RM127,620 under the RHB Humanitarian Fund and provided more than 12,000 students from over 70 schools supplies needed for the new school year. This included uniforms, shoes, socks, school bags and stationery. Contributions in kind such as milk powder, baby diapers, bread, biscuits, canned food, bottled water, blankets, towels and cooking oil were also collected and distributed to those affected by the floods.

23 OUR MARKETPLACE

QUICK INFO

PRODUCT CUSTOMER SERVICE DIALOGUE DISCLOSURE SHEETS SERVICE CHARTER PROGRAMME

Details of products’ benefits and Ensures customers’ expectations Staff members and customers obligations for customers’ are met and enjoy seamless engagement to obtain feedback knowledge and convenience banking experience and to discuss improvements

RHB Capital Berhad Sustainability Report 2015

As one of the largest banking groups in Malaysia, RHB stands committed to exercising responsible behaviour in our Marketplace. Guided by our philosophy of integrity, transparency and accountability, we endeavour to ensure that the sustainable growth of our Marketplace is rooted in corporate governance and risk management best practices throughout our organisation.

In 2015, we continued to ensure adherence to our in-house policies and procedures such as Group Code of Ethics, Group Whistle-blower Policy, Group Anti-Money Laundering Policy, Group Chinese Wall and Insider Trading Policy and Declaration of Connected Party to safeguard against unethical business practices that could impact our business and operations. These proven internal control measures were designed to mitigate any abuse of power, position and interest within the Group.

The following table details our key governance and compliance policies:

Articulates the standards of conduct and behaviour that should be adopted by GROUP CODE employees when dealing in such situations where public trust and confidence 01 OF ETHICS might be compromised or a law might be violated.

GROUP WHISTLE Encourages employees to raise concerns regarding malpractices or 02 BLOWER POLICY misdeeds without fear of retaliation or discrimination.

Drawn up to comply with the Anti-Money Laundering/Counter Financing of Terrorism Act (“AML/CFT”) and BNM’s Sector 1 Standards. 03 GROUP AML POLICY Defines the policies to be adopted to prevent the Group from being used by money launderers and terrorist financiers to further their illicit business.

Establishes procedures to control the flow of confidential or material non-public GROUP CHINESE WALL and price sensitive information within the Group to avoid the risk of possible 04 & INSIDER TRADING breach of the insider trading provisions under the Capital Market Services Act and to protect client confidentiality.

Articulates the process for directors and connected staff to declare or update details DECLARATION OF of their close relatives and interested entities so that any credit transactions with 05 CONNECTED PARTY connected parties shall be conducted on an arms’ length basis.

Deals with the reporting and review process for RPTs under the Bursa Malaysia POLICY ON RELATED PARTY Listing Requirements which should be conducted on an arms’ length basis. 06 TRANSACTIONS (“RPT”) Note: RPT means a transaction entered into by RHB Capital or its subsidiaries which involves the interest (direct or indirect) if a related party.

GIFTS & HOSPITALITY Sets the standards of conduct on the giving and acceptance 07 GUIDELINES of gifts and hospitality.

This year’s review of Our Marketplace activities and policies hopes to provide stakeholders with an insight into RHB’s efforts to strengthen our position as a regional financial services provider. The initiatives allowed us to alleviate any potential risks be it financial, regulatory or consumer risks.

26 Engaging with our Stakeholders By leveraging on social media and digital platforms, we are able to reach our customers in a faster and more efficient way. Through this medium, we proactively sought to enhance fraud awareness within our customer base as well as our organisation. Updates on new products and services, investment tips, fraud and cyber-crimes were easily and quickly conveyed.

In line with our sustainability goals of being responsible and transparent, we provide Product Disclosure Sheets to detail our products’ benefits and any obligations that the customer might have to fulfil should they decide to subscribe to it. Information on the products and services are deemed transparent and unambiguous.

These policies coupled with our activities to increase financial literacy within our organisation and customers is part of our aspirations to be a next generation customer-centric bank that offers simple, fast and seamless banking solutions. These goals are embedded in our IGNITE 2017 transformation initiatives which aim to re-assert RHB’s standing in Malaysia and regionally by BY LEVERAGING ON SOCIAL MEDIA AND 2020. DIGITAL PLATFORMS, WE WERE ABLE TO Providing a Simple, Fast and Seamless Banking REACH OUR CUSTOMERS IN A FASTER AND Experience To achieve our ambitions of being the preferred MORE EFFICIENT WAY. bank for Malaysians, we are committed to providing a simple, fast and seamless banking experience for our customers. Our Customer Service Charter ensures that we meet our customers’ expectations and that they enjoy a seamless banking experience with us. We also pledge to protect our customers’ information from being misused through the Personal Data Protection Act 2010 (“PDPA”) which was enforced starting 2013.

To further enhance the banking experience, we introduced measures to simplify the banking processes by reducing the turn-around time for opening an account, from 35 minutes to 10 minutes. Furthermore, our staff are required to be more attentive with customers. Through our Service Dialogue Programme, staff members engage with customers to obtain feedback and to discuss any improvements they would like to see in the bank branches.

27 OUR WORKPLACE

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STRONG ALLOCATED RECEIVED WORKFORCE BUDGET FIVE 16,117 of more than AWARDS RM40MIL in the area employees for development training of human resources

RHB Capital Berhad Sustainability Report 2015

TO STRENGTHEN OUR EMPLOYER BRAND AND INCREASE TALENT RETENTION AND ATTRACTION, “THE RHB CULTURE” HANDBOOK WAS LAUNCHED. IT COVERS THE FUNDAMENTALS OF HUMAN RESOURCES; TALENT MANAGEMENT CYCLE, PRIDE CORE VALUES AND OUR RHB EMPLOYEE VALUE PROPOSITION, KNOWN AS THE RHB CLIP-R STATEMENT.

As we advance our journey to become a leading regional financial services group, we continue to nurture and groom talented individuals who make up our 16,117 strong workforce.

We recognise the importance of managing our talents and putting in place an effective succession planning programme to ensure a smooth and sustainable future for the company. Our efforts have been recognised through five different awards that we received last year in the area of human resources. These included:

• HR Asia’s Best Employers To Work for in Asia 2015 (Malaysian Chapter) • Asia Corporate Excellence & Sustainability Awards 2015 – Top Companies to Work for 2015 • Graduan Malaysia’s Most Preferred Employers Named By Talents • Best Employer Brand Award by Employer Branding Institute • Malaysia’s 100 Leading Employer’s by GTI Media

30 Becoming an Employer of Choice programme spread over six months. This programme is packed with pre-course work, In 2015, we intensified our efforts to strengthen workshops and action learning projects and was our employer brand and increase talent retention crafted for high potential talents. and attraction by launching “The RHB Culture” handbook, the first from our Delivering High Last year, 91% of our employees attended some Performance Book Series. The handbook covers form of development training concentrating on the fundamentals of human resources, leadership, technical expertise or functional surrounding the Talent Management Cycle, our development, to which we allocated a budget of PRIDE core values and our RHB Employee Value more than RM40 million. We also established Proposition, known as the RHB CLIP-R Statement. and put into practice the revised Core & The RHB CLIP-R statement is rooted in the five Leadership Competency Dictionary, as well as pillars of RHB Cares, RHB Leads, RHB Inspires, drafted a comprehensive assessment system for RHB Progresses and RHB Rewards. Sales by appraising proficiency levels and cluster competencies. The RHB Culture handbook was distributed to all our employees in the various countries we operate in, and was also translated to Bahasa A Culture of Excellence Malaysia to ensure we engaged all groups of our employees. We believe that communication is key in improving not only our customer service but to enhance productivity within the organisation. In Nurturing Budding Talent line with this, we rolled out the Group Management Committee Roadshows to all regions In 2015, we focused on the continued learning in Malaysia to increase interaction and boost and development of our workforce by engagement with employees on the ground. implementing the Accelerated Development Plan (“ADP”) for those who have been successfully identified as potential successors and high- Healthy Body, Healthy Mind potential talents. We also introduced new leadership development programmes in In keeping with other aspects of our sustainability collaboration with the Australian Institute of pillars, particularly Our Environment, we Management West Australia (AIMWA). This established the Healthiest Sector Recognition included the Core Leadership Development award in November 2015 following the launch of Programme and the Accelerated Leadership the ‘Jom Sihat’ campaign in April. These initiatives Development Programme – Leap 2. are aimed at promoting a healthier and more balanced lifestyle amongst our employees, As part of our efforts to recognise budding talent resulted in other activities such as the RHB and those who go the extra mile in the workplace, Staircase Day, Fun Ride with GMD and the we also held the inaugural RHB GMD Awards in Occupational Safety and Health & Wellness Day. 2015. The RHB GMD Awards looks to recognise and reward those who have made significant In recognising the need to care for the wellbeing contributions in the area of social responsibility, of our employees, we also introduced an employee customer experience and business excellence. perks application called PerkSense. PerkSense The award will be held on a quarterly basis, with offers employees access to multiple discounts and the first held in the fourth quarter of 2015. freebies from top-notch merchants as an extension of the employees total rewards system. To further fortify our efforts of developing future leaders for the Group, we executed a new Following our inaugural Centennial Run held in leadership development programme for a select Kuala Lumpur and Penang in 2013, we introduced group of employees in collaboration with AIMWA the RHB Half Marathon in 2015. The family- called the Core Leadership Development oriented run featured exciting activities such as a Programme. Meanwhile, the RHB Accelerated 3km Family Fun Run and a Best Costume category Leadership Development Programme, in to create meaningful family bonding sessions for partnership with the Creative Centre of those with young children. To date, 8,500 people Leadership (“CCL”), is an intensive learning have participated in this event.

31 OUR ENVIRONMENT

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4 APRIL 2015 APPROXIMATELY 31 OCTOBER 2015 RHB launched TrEx at 1,000 RHB TrEx Broga BROGA HILL visitors per weekend CHALLENGE

RHB Capital Berhad Sustainability Report 2015

RHB remains devoted to the protection and preservation of the environment through its investment in the Trail Experience (TrEx), an environmental-themed initiative intended to inculcate environmental awareness among the urban population.

In 2014, we undertook the adoption of Broga Hill, a popular hiking site situated on the border of Selangor and Negeri Sembilan. The restorative works on the trail included refilling hollow ground on the trail with soil, carving out sustainable steps that are safe for visitors, and installing ropes for climbing through steep routes.

In March 2015, RHB officially launched the TrEx at Broga Hill. The conservation efforts executed through TrEx saw an exponential rise in the number of visitors to the trail with approximately 1,000 visitors per weekend as compared to only 300 per weekend in previous years. Moreover, frequent visitors and hikers noticed the marked improvements made on the site and the safety measures we had installed.

To add further excitement for Broga Hill enthusiasts, we organised the inaugural RHB TrEx Broga Challenge on 31 October 2015 in conjunction with Minggu Alam Sekitar Malaysia 2015, in collaboration with the Department of Environment, Ministry of Natural Resources and Environment.

Moving forward, RHB is committed to carry out the TrEx programme in a new location in the Klang Valley region as soon as it receives approval from the relevant authorities.

RHB HAS BEEN AN ACTIVE PARTICIPANT OF THE ANNUAL EARTH HOUR CAMPAIGN. DURING THE EVENT, LIGHTS AT OUR BUILDINGS SUCH AS RHB CENTRE AT JALAN TUN RAZAK, KUALA LUMPUR ARE SWITCHED OFF, WHILE OUR STAFF ARE ALSO ENCOURAGED TO TAKE PART IN THE SYMBOLIC LIGHTS-OUT INITIATIVE IN THEIR OWN HOMES.

34 Supporting Earth Hour RHB has been an active participant of the annual Earth Hour campaign, a global initiative which sees participants switching off the electricity on an appointed day at a specific hour in solidarity of the planet’s welfare. During the event, lights at our buildings such as our RHB Centre at Jalan Tun Razak, Kuala Lumpur are switched off, while our staff are also encouraged to take part in the symbolic lights-out initiative in their own homes.

Promoting Sustainable Financing RHB is proud to institute a sustainable financing agenda in support of environmentally-friendly activities. In line with this, we also offer our support to companies which undertake green projects as we seek to encourage sustainable practices.

35 RHB Capital Berhad Sustainability Report 2015

THE GOLDEN GLOBE TIGERS SUMMIT AWARDS AWARDS Malaysia Best Employer ASEAN CORPORATE Brand Award GOVERNANCE AWARDS TOP50 ASEAN Public Listed Companies

HR ASIA’S BEST COMPANIES TO WORK FOR IN ASIA 2015 Malaysian Chapter

36 AND RECOGNITION

MSWG–ASEAN CORPORATE GOVERNANCE HR ASIA’S TRANSPARENCY INDEX BESTCOMPANIES 2015 TO WORK FOR IN ASIA Merit Award for Corporate 2015 Governance Malaysian Chapter Disclosure

GRADUAN’S MALAYSIA’S 100 MALAYSIA’S MOST LEADING GRADUATE EMPLOYER PREFERRED EMPLOYERS NAMED BY TALENTS

UNIVERSUM’S MALAYSIA’S MOST BUSINESS/COMMERCE ATTRACTIVE EMPLOYERS STUDENTS 2015

37 ACKNOWLEDGEMENT

The Group would like to express our sincere gratitude to our partners, employees and all others involved in executing our sustainability initiatives.

We also extend our heartfelt appreciation to the communities who have allowed us into their lives, and who have provided us with a sense of purpose in what we do. It is our hope that the Communities that we have impacted have found our initiatives as meaningful and rewarding as we have. This page has been intentionally left blank This page has been intentionally left blank

www.rhbgroup.com

RHB Capital Berhad (312952-H) Level 9, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur Tel : 603-9285 2233 Fax : 603-9281 9314