Annual Report 2005

AASABIDN OIT EHD MALAYSIA BUILDING SOCIETY BERHAD (9417-K) ANNUAL REPORT 2005

READY TO SERVE 1800 88 4000

ANNUAL REPORT 2005 Cover Rationale Contemporary and artistic, this painting portrays MBSB as a modern and dynamic organisation. The main subject of the abstract painting is on property, to illustrate MBSB’s core business as a property fi nancier. Designed with different hues of blue, the cover effectively utilises MBSB’s corporate colour blue, a colour that signifi es trust, confi dence, wisdom and truth, in line with an image of reliability and reliance.

Ready to Serve Service and how it is delivered in today’s dynamic market place is highly competitive. To serve our customers better, we recognise that service is more than about our own performance, but about providing added value to the lives of our customers. We have in our palette a colourful array of products that cater to our customers’ needs and desires ensured by our commitment to service excellence. CORPORATE INFORMATION 2 DIRECTORS’ PROFILE 3 - 7 SHARIAH COUNCIL PROFILE 8 - 9 NOTICE OF ANNUAL GENERAL MEETING 10 NOTICE OF DIVIDEND ENTITLEMENT AND PAYMENT 11 CHAIRMAN’S STATEMENT 12 - 16 CEO’S MISSION 17 SENIOR MANAGEMENT 18 - 19 Contents CALENDAR OF EVENTS 20 - 21 STATEMENT OF CORPORATE GOVERNANCE 22 - 27

STATEMENT ON INTERNAL CONTROL 28 - 30 REPORT OF THE AUDIT & RISK MANAGEMENT COMMITTEE 31 - 33 FINANCIAL HIGHLIGHTS OF THE COMPANY 34 - 35 ANALYSIS OF SHAREHOLDING 36 - 37 SCHEDULE OF PROPERTIES 38 - 43 BRANCH NETWORK 44 • PROXY FORM

MBSB Annual Report 2005 Corporate Information Chairman YBhg Tan Sri Abdul Halim bin Ali Board of Directors YBhg Datuk Haji A. Rahim bin Abdullah Syed Zaid bin Syed Jaffar Albar Encik Lau Tiang Hua Puan Cindy Tan Ler Chin YBhg Datuk Abdullah bin Haji Kuntom Encik Khalid bin Haji Sufat (appointed with effect from 18 August 2005) Encik Aw Hong Boo (appointed with effect from 10 November 2005) YBhg Datuk Azlan bin Mohd. Zainol (resigned with effect from 1 August 2005) Shariah Council Professor Madya Syed Ghazali Wafa Bin Syed Adwam Wafa Professor Dr. Mohd. Ali bin Haji Baharum Auditors Ustaz Omar bin Johari Ernst & Young Public Accountants

Chief Executive Ofﬁ cer Bankers Encik Ahmad Farid bin Omar Malayan Banking Berhad RHB Bank Berhad Company Secretary Bumiputra-Commerce Bank Berhad Encik Fariz bin Abdul Aziz (LS 0007997) Registered Ofﬁ ce Registrar 11th Floor, Wisma MBSB Symphony Share Registrars Sdn Bhd (378993-D) 48, Jalan Dungun (Formerly known as Malaysian Share Registration Damansara Heights Services Sdn Bhd) 50490 Kuala Lumpur Level 26, Menara Multi-Purpose, Capital Square, Tel : 03-2095 4000 No. 8, Jalan Munshi Abdullah, 50100 Kuala Lumpur. Fax : 03-2095 4260

MBSB Annual Report 2005 Directors’ Proﬁ le

YBhg Tan Sri Abdul Halim bin Ali Chairman

YBhg Tan Sri Abdul Halim bin Ali, aged 62, was appointed Chairman of MBSB on June 22, 2001. Upon graduation from University of Malaya, he joined the Ministry of Foreign Affairs in 1966. After several domestic and foreign postings, he was appointed the Malaysian Deputy Permanent Representative to the United Nations in 1979. He was appointed Ambassador to Vietnam in 1982 and returned to Malaysia in 1985 to be Deputy Secretary General III (Administration) in the Ministry of Foreign Affairs before being appointed Ambassador to Austria. In 1991, he again returned to Malaysia to be Deputy Secretary General I (Political Affairs) in the Ministry of Foreign Affairs and in 1996 he was promoted to Secretary General. In September 1996, he was appointed Chief Secretary to the Government, the highest ranking civil service post in the country and was responsible for overseeing and coordinating the policies of the government and their implementation. He retired in March 2001, at which time he was made Chairman of the Employees Provident Fund, a position he currently holds. He sits on the Board of Directors of Cycle & Carriage Bintang Berhad, Esso Malaysia Berhad, Malakoff Berhad, and LCL Corporation Berhad and the Chairman of the Multimedia Development Corporation.

MBSB Annual Report 2005 7 3 5 1 2 6 4 Directors’ 1. YBhg Datuk Haji A. Rahim bin Abdullah 2. Syed Zaid bin Syed Jaffar Albar Proﬁ le 3. Encik Lau Tiang Hua 4. Puan Cindy Tan Ler Chin 5. YBhg Datuk Abdullah bin Haji Kuntom 6. Encik Khalid bin Haji Sufat 7. Encik Aw Hong Boo

MBSB Annual Report 2005 YBhg Datuk Haji A. Rahim bin Abdullah Syed Zaid bin Syed Jaffar Albar Independent Non-Executive Director Independent Non-Executive Director

YBhg Datuk Haji A. Rahim bin Abdullah, aged 62, Syed Zaid bin Syed Jaafar Albar, aged 51, joined the graduated with a Diploma in Building Design from the Board as an Independent Non-Executive Director on Technical College, Kuala Lumpur, now Universiti Teknologi 14 August 2002. Malaysia (UTM) and obtained his Bachelor of Architecture and Master of Architecture from University of Auckland, He obtained his law degree from the United Kingdom New Zealand. He is an associate member of the New and qualiﬁ ed as a Barrister-at-Law from Lincoln’s Inn. He Zealand Institute of Architects (NZIA) and Malaysian was called to the Malaysian Bar as an advocate and solicitor Institute of Architects (PAM) as well as Director of Badan of the High Court of Malaya in 1980 and has been active in Warisan Malaysia. legal practise ever since.

He was appointed as an Independent Non-Executive Director Presently, Syed Zaid Albar is the managing partner of a of MBSB on 15 July, 2000. Prior to this, he was attached to law ﬁ rm in Kuala Lumpur. He also sits on the Board and Jabatan Kerja Raya (JKR) from 1972 until he retired as Deputy Audit Committees of several other listed companies, namely, Director General in 1998. He was also appointed President of Malaysian Paciﬁ c Industries Berhad, Narra Industries Berhad the Board of Architects Malaysia (BAM) from 1989 to 1998. and Cycle & Carriage Bintang Berhad.

He currently sits on the Board of Directors of Pelangi Berhad, Encik Lau Tiang Hua Plaza Damansara Sdn Bhd and PNB Merdeka Ventures Sdn Independent Non-Executive Director Bhd. besides serving as Property Development Consultant with Golden Hope Development Berhad. Encik Lau Tiang Hua, aged 53, was appointed as an Independent Non-Executive Director on 16 August 2001. He is a member of the Malaysian Institute of Certiﬁ ed Public Accountants (MACPA) and the Malaysian Institute of Accountants.

He began his career with one of the international public accounting ﬁ rms in Malaysia and later rose to the rank of Audit Manager. He was the General Manager of ﬁ nance and administration with a major publishing company in Malaysia before starting his own practice, JB Lau & Associates, Chartered Accountants, in 1985.

He also sits on the Board of Directors of PanGlobal Berhad, Nanyang Press Holdings Berhad and several private limited companies.

MBSB Annual Report 2005 Directors’ Proﬁ le Puan Cindy Tan Ler Chin YBhg Datuk Abdullah bin Haji Kuntom Non-Independent Non-Executive Director Non-Independent Non-Executive Director

Puan Cindy Tan Ler Chin, aged 45, obtained an Honours YBhg Datuk Abdullah bin Haji Kuntom, aged 62, joined Degree in Economics, majoring in Statistics, from University the Board as a Non-Independent Non-Executive Director Kebangsaan Malaysia. In 1991, she obtained a Certifi ed on 26 September 2003. He obtained a Master’s Degree Diploma in Accounting and Finance, accorded by the in Public Policy and Administration from University of Chartered Association of Certifi ed Accountants. Wisconsin, USA in 1979 and also attended a course in Advanced Management Programme at University of Oxford, She began her career with the Employees Provident U.K in 1995. Fund (EPF), Finance and Investment Department in 1984. She is currently the General Manager of the Corporate He began his career with the Johor Civil Service Finance - Investment Division of the EPF. in 1967 and had served with the Ministry of Home Affairs, Ministry of Finance, Syarikat Kemajuan Perumahan Pegawai She was appointed as a Non-Independent Non-Executive Kerajaan Sdn Bhd, Selangor Treasury, Asia Pacifi c Development Director of MBSB on 26 September 2002. She also sits on the Centre and National Registration Department. His last Board of Directors of Sunway Holdings Incorporated Berhad. post was as Senior Deputy Secretary General in the Prime Minister’s Department until his retirement in April 1999. Thereafter he was reemployed with the Ministry of Foreign Affairs for 4 years until April 2003.

MBSB Annual Report 2005 Encik Khalid bin Haji Sufat Encik Aw Hong Boo Independent Non-Executive Director Independent Non-Executive Director

Encik Khalid bin Haji Sufat, aged 50, joined the Board as an Encik Aw Hong Boo, aged 55 was appointed as an Independent Independent Non-Executive Director on 18 August 2005. An Non-Executive Director on 10 November 2005. He is accountant by profession, he is a Fellow of the Chartered a member of The Malaysian Institute of Certifi ed Public Association of Certifi ed Accountants (United Kingdom) and Accountants (MICPA), The Malaysian Institute of Accountants a Member of both The Malaysian Institute of Accountants (MIA) and a Fellow of the Institute of Chartered Accountants (MIA) as well as The Malaysian Institute of Certifi ed Public (England & Wales). Accountants (MICPA). He began his career in 1970 as an Audit Senior in London He has considerable experience in the banking and and later with Ernst & Whinney, an international public fi nance industry having held several senior positions, namely accounting fi rm in Singapore and London. He served RHB Managing Director of Bank Kerjasama Rakyat Malaysia Bank Berhad for 21 years from 1978 to 1999, holding Berhad from June 1998 to June 2000, as General Manager various senior managerial positions in fi nancial management, Consumer Banking of Malayan Banking Berhad in 1994 and as banking, fi nance and leasing. He was the Senior General Executive Director of United Merchant Finance Berhad from Manager of Branch Network and Risk Management before 1995 to 1998. optional retirement in November 1999.

He had also managed two listed companies, namely as He presently sits on the Board of Directors of KP Keningau Executive Director of Tronoh Mines Malaysia Berhad in Berhad and serves as the Financial Advisor to the Quill 2002 and as the Managing Director of Furqan Business Group of Companies. Organisation Berhad in 2003.

He presently sits on the Board of Directors of Binapuri Holdings Berhad, Amtek Holdings Berhad, VTI Vintage Berhad and Syarikat Kayu Wangi Berhad.

MBSB Annual Report 2005 Shariah Council Proﬁ le Professor Madya Syed Ghazali Wafa Professor Dr. Mohd. Ali bin Haji Baharum Bin Syed Adwam Wafa Professor Dr. Mohd. Ali Hj Baharum, the Deputy President Associate Professor Syed Ghazali Wafa bin Syed Adwam of Angkatan Koperasi Kebangsaan Malaysia Berhad was Wafa was formerly the Deputy Dean of Academics born in Alor Setar in the year 1951 and received his early and Student Affairs, Faculty of Business Management, education in Maktab Mahmud, Alor Star, Kedah. He graduated Universiti Kebangsaan Malaysia. He started lecturing in with a Degree B.Is (Hons) in Shariah and Law from UKM in Universiti Kebangsaan Malaysia since 1985. A Diploma holder 1976. He took his Ph.D (Law) at University of Essex in 1986 in Agriculture (UPM), BSc (Finance) and an MBA from U.S., he and obtained his MBA in 1994. He also obtained a Diploma is currently attached to the School of Accounting, Faculty of in Education from UKM and Diploma in Arabic from the Economics and Business, UKM. International University of Africa, Khartoum, Sudan in 1990. In 1995, he opted for early retirement as a lecturer in the Besides conducting courses in Financial Accounting, Law Faculty of UKM. Management Accounting and Auditing, he also lectures the Business From Islamic Perspective course at both An ardent author and has written authoritative books and undergraduate and graduate levels. seminar papers regarding islamic contract law and zakat.

Through the Pusat Zakat Selangor, he participated in efforts He is also directly involved in developing the National Islamic to streamline the method of assessing zakat for businesses. Financial and Banking system. Because of his efforts and His publications and current research area of interest is in contributions, he was appointed the Shariah Advisor of Muamalat, speciﬁ cally relating to contracts and business Bank Negara, Bank Muamalat, Bank Pertanian, Hong Leong mechanisms, cooperatives, zakat accounting for businesses, Bank and several other banks. He was also the Shariah zakat and corporate governance, Baitulmal and Islamic Advisor to Amanah Saham Apex Investment Services Bhd, Financial Institutions. He is currently a Shariah Committee a member of the Maktab Kerjasama Malaysia (MKM), Board member of several cooperatives and also a Council Member Member of Permodalan Risda Bhd and Deputy Chairman of of the Cooperative College of Malaysia. Belia Islam (M) Bhd.

MBSB Annual Report 2005 Ustaz Omar bin Johari

Ustaz Omar Johari, aged 59, is an independent religious scholar and motivator from Muar, Johor. He obtained his degree in Dakwah from the Islamic Call University, Tripoli, Libya.

He has vast experience in the area of management from both the Government and private sector. He was the Ofﬁ cer in Religious Affair in the Prime Minister’s Department from 1974 - 1977 and was a lecturer at the Islamic Faculty in UKM from 1981 - 1984.

He was also the Shariah Advisor for Rashid Hussain Securties from 1983 - 1997, DCB/RHB (1997), Oriental Bank and Amanah Raya Berhad and the Advisor for Islamic Religious Affair for Mc Food Industries Sdn Bhd and Mc Donald Malaysia.

MBSB Annual Report 2005 NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT THE THIRTY SIXTH ANNUAL GENERAL MEETING of the Company will be held at Banquet Hall, First Floor, Kuala Lumpur Golf & Country Club, No.10, Jalan 1/70D, Off Jalan Bukit Kiara, 60000 Kuala Lumpur on Tuesday 23 May 2006 at 12.00 noon for the following purposes: 1. To receive and adopt the Audited Financial Statements of the Company and of the Group for the year ended 31 December 2005 and the Directors’ and Auditors’ Report thereon. Resolution 1 2. To declare a fi rst and fi nal dividend of 2.5% less 28% income tax in respect of the fi nancial year ended 31 December 2005. Resolution 2 3. To approve Directors’ Fees amounting to RM184,000 for the fi nancial year ended 31 December 2005 Resolution 3 4. To re-elect the following who retired in accordance with Article 78 of the Company’s Articles of Association:- (i) Encik Khalid bin Haji Sufat Resolution 4 (ii) Encik Aw Hong Boo Resolution 5 5. To re-elect the following who retired in accordance with Article 86 of the Company’s Articles of Association:- (i) Encik Lau Tiang Hua Resolution 6 (ii) Syed Zaid bin Syed Jaffar Albar Resolution 7 6. To re-appoint Messrs Ernst & Young (AF 0039) as the Company’s Auditors and to authorise the Directors to fi x their remuneration. Resolution 8 7. To transact any other ordinary business for which due notice has been given. Resolution 9 8. SPECIAL BUSINESS: To consider and if thought fi t, to pass the following ordinary resolution: “That subject always to the Companies Act 1965, Articles of Association of the Company, approval from Bursa Malaysia Securities Berhad and Securities Commission, full authority be and is hereby given to the Directors pursuant to Section 132D of the Companies Act 1965 to issue shares of the Company on such terms and conditions and at such times as may be determined by the directors of the Company to be in the interest of the Company. Resolution 10

BY ORDER OF THE BOARD NOTE : A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and, on a poll, to vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy without limitation and the provisions of FARIZ ABDUL AZIZ (LS 0007997) Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. Where a member appoints two proxies, the appointment COMPANY SECRETARY shall be invalid unless he specifi es the proportions of his holding to be represented by each proxy. Kuala Lumpur In the case of a Corporate Body, the proxy appointed must be in accordance with its Memorandum and Articles of Association and the 2 May 2006 instrument appointing a proxy shall be given under the Company’s Common Seal or under the hand of an offi cer or attorney duly authorised. The form of proxy must be deposited at the Registered Offi ce of the Company at 11th Floor, Wisma MBSB, No.48, Jalan Dungun, Damansara Heights, 50490 Kuala Lumpur not less than 48 hours before the time appointed for holding the Meeting

MBSB Annual Report 2005 NOTICE OF DIVIDEND ENTITLEMENT AND PAYMENT

Notice is hereby given that subject to the approval of Members at the Annual General Meeting to be held on 23 May 2006, a fi rst and fi nal dividend of 2.5% less 28% income tax in respect of the fi nancial year ended 31 December 2005, will be paid on 12 June 2006 to Depositors whose names appear in the record of Depositors on 26 May 2006.

A Depositor shall qualify for entitlement to the dividend only in respect of:- a. Shares transferred into the Depositor’s securities account before 4.00 p.m. on 26 May 2006 in respect of transfers; b. Shares deposited into the Depositor’s securities account before 12.30 p.m. on 24 May 2006 in respect of securities exempted from mandatory deposit; and c. Shares bought on Bursa Malaysia Securities Berhad (“the Exchange”) on a cum entitlement basis according to the Rules of the Exchange.

BY ORDER OF THE BOARD FARIZ ABDUL AZIZ (LS 0007997) COMPANY SECRETARY Kuala Lumpur 2 May 2006

NOTE : A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and, on a poll, to vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy without limitation and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. Where a member appoints two proxies, the appointment shall be invalid unless he speciﬁ es the proportions of his holding to be represented by each proxy.

In the case of a Corporate Body, the proxy appointed must be in accordance with its Memorandum and Articles of Association and the instrument appointing a proxy shall be given under the Company’s Common Seal or under the hand of an ofﬁ cer or attorney duly authorised.

The form of proxy must be deposited at the Registered Ofﬁ ce of the Company at 11th Floor, Wisma MBSB, No.48, Jalan Dungun, Damansara Heights, 50490 Kuala Lumpur not less than 48 hours before the time appointed for holding the Meeting. 11

MBSB Annual Report 2005 Chairman’s Statement

“ Our aim of transforming into a customer - centric organisation has raised the bar of performance to deliver excellence beyond expectations.

We have re - emerged to deliver value to our shareholders and customers, and have established elements of strategy to continue our every effort to create added value and thrust for both our shareholders and customers.“ Tan Sri Abdul Halim bin Ali Chairman 12

MBSB Annual Report 2005 CHAIRMAN’S STATEMENT

To our shareholders, On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of Malaysia Building Society Berhad (MBSB) and its Group for the ﬁ nancial year ended 31 December 2005.

OVERALL BUSINESS ENVIRONMENT 2005 The increase in profi t was mainly due to higher interest income resulted from increase in the growth of the loan assets base The Malaysian economy continued its growth trend in 2005 (especially the retail loans) and better funding cost structure due albeit at a lower but more sustainable rate. Eventhough the to increase in deposits resulting in lower bank borrowings that growth momentum was held back in the second half of the year carried higher interest cost. by infl ationary pressures caused by the oil price hike, overall healthy domestic and buoyant external demand pushed Malaysian The increase in recovery from losses on loans and fi nancing economy back on track. Once again the manufacturing and also contributed to the increase in the profi t. The recoveries services sectors continued its trend as key drivers of growth. were substantially attributed by settlement of corporate loans during the year. The recoveries together with retail collection Due to consolidation and restructuring initiatives, Malaysia’s activities have improved the Company and Group’s NPL ratios banking system remained strong. It enjoyed better profi ts with from 40% (2004) to 35% (2005) and 41% (2004) to 34% (2005) improvements in both profi tability and asset quality and reduced respectively. non-performing loans (NPLs) as it was supported by improved loan recovery, superior quality of loan infl ows and favourable However, the growth in profi t was partially set off by higher economic and fi nancial market conditions. operating expenses such as higher staff costs from additional staff recruitment and staff training for the expanding retail The domestic property demand experienced slight decline overall loan business, additional provision for doubtful debts made for due to increasing interest rates despite a promising fi rst half. subsidiaries’ trade receivables and also impairment loss on land Nonetheless the property market still remained strong. There and property. was an increase in demand for property in prime locations. The profi t improvement for 2005 has resulted in a better Group REVIEW OF THE GROUP’S FINANCIAL PERFORMANCE return on equity of 10.3% as compared to previous year 9.3%.

Financial Performance of the Group Property Development Subsidiaries

For 2005, MBSB Group achieved a consolidated proﬁ t after The property development activities of the Company have scaled taxation of RM38.786 million, an increase of 22.2% as compared down substantially over the past few years, which is in line with to the previous year of RM31.750 million. At the Company level, the Group’s policy to refocus on its core mortgage retail business. we also achieved a proﬁ t after taxation of RM39.398 million for In 2005, MBSB had successfully terminated some of the Joint 2005, an increase of 4.5% as compared to RM37.685 million of Venture Arrangements (JVA) either through takeovers by JV the previous year. partners or via settlements by way of foreclosing the properties pledged to MBSB.

MBSB Annual Report 2005 Lending Activities Dividends

Consistent with the primary objective of the Company, retail- In 2005, MBSB paid fi rst and fi nal dividend of 2% less 28% income lending remained its core business activity. To increase market tax which amounted to RM4.865 million for the fi nancial year share and create added value to its services MBSB continued to ended 31 December 2004. Based on MBSB’s current performance, improve and review its product offerings, enhance its features the Board has recommended a fi rst and fi nal dividend of 2.5% and extend special packages for the benefi t of its customers. less 28% income tax amounting to RM6.081 million for the fi nancial year ended 31 December 2005, for the approval of the Despite a challenging year for its core business, the performance Company’s shareholders at this Annual General Meeting. of MBSB had been positive with higher contribution mainly from retail business. The Company continued to undertake measures STRATEGIC INITIATIVES to improve operational effi ciencies and fi nancial performance of its business, and to compete more effectively in the ever-evolving MBSB Branch Transformation business environment. A major initiative that started in 2005 was the roll - out of the As of 31 December 2005, the Company’s retail loan releases had Branch Transformation Project tailored to enhance the delivery grown by RM0.981 billion or 40% and mortgage assets grew by system and customer service in line with the transformation of 17% or RM4.37 billion. MBSB into a customer centric organisation.

Deposit Mobilisation and Savings A positive and professional work culture is imperative for the success of the Branch Transformation to improve the Branch MBSB continued to mobilise ﬁ xed deposits, which form the networks in terms of service level alignment with consumer major source of funds for its operations, with the view to needs. The process will involve changes such as the opening of reduce the cost of borrowing. Strategy adopted was to capture new outlets and relocation of some to more strategic locations, potential depositors with long-term placements combined with enhancing work processes for better service delivery as well as effort to retain existing customer loyalty. To facilitate this, MBSB redeployment and re-training of staff. introduced innovative deposit packages with attractive returns and improved quality of services. As part of MBSB’s new business model, it has started transforming some of its branches into hub service centres to emphasise In addition, following the approval received from the Ministry on sales and services while unveiling the new MBSB banking of Finance to allow Government Agencies and Statutory Bodies concept. to place deposits with MBSB in 2004, an aggressive marketing drive, was undertaken and the result was very encouraging. MBSB continued to expand its high quality service network As at 31 December 2005 deposits grew by RM1.232 billion or through the opening of its 23rd branch in Kota Kinabalu, 57% to RM3.358 billion. With increase in deposits, the bank in September 2005. MBSB will continue with its plan to invest borrowings were reduced by RM407.249 million or 33% to selectively in high growth areas and to acquire high potential RM804.828 million. volume of businesses throughout its networks.

MBSB Annual Report 2005 Product Development Information Technology

MBSB needs to offer more competitive products and services Tapping into the existing infrastructure of the Information in order to remain in a dominant position. We believe that a Technology system, the corporate website was launched in the concerted push towards higher level of service combined with middle of May 2005, to facilitate customers’ quests for information strong products will help MBSB chart new and more challenging on MBSB’s array of products and services available instantly and territories that will steer MBSB to capitalise on a larger market. conveniently.

The second quarter of the year under review saw the launch MBSB’s Information Technology system will continue to be of the Home Improvement Financing and, its Islamic variant, improved to ensure a customer-friendly system to support the the Home Improvement Financing-i products. These products ever-expanding product portfolios. are complementary packages to MBSB’s existing Property Financing-i and specially designed for individuals seeking fi nance OTHER INITIATIVES to renovate, repair or furnish their homes. One of the highlights of the year was the Government’s initiative In complementing the core business activities, MBSB has towards promoting a culture of high performance in Government diversifi ed its product portfolios by moving into fee-based Linked Corporations (GLCs). This involve the implementation of income products and services such as credit cards and legacy Key Performance Indicators and the introduction of Performance management to improve the performance of MBSB. In this Linked Compensation where execution and performance will be connection, MBSB ventured into strategic partnerships with the prevailing theme moving forward. In tandem with this GLC RHB Bank Berhad (RHB), Bank Islam Malaysia Berhad (BIMB) and reform theme, MBSB has embarked on its Corporate Scorecard Amanah Raya Berhad to promote credit card business and will with both quantitative and qualitative targets set for 2006. writing and legacy management with MBSB acting as an agent for these products. Another major initiative undertaken during the year was the development of the Credit Risk Framework Blueprint with Human Capital Development Business Associate Consulting Sdn Bhd. This exercise was undertaken to strengthen the risk management system and Fully aware of the importance of human resource as a vital asset ensure MBSB implements best practices across the whole to the organisation, MBSB has invested signifi cantly in various spectrum of its business as part of its commitment to good programmes to ensure its employees are profi cient and ready corporate governance and compliance. to meet the challenges ahead, towards achieving its mission and vision. MBSB conducted a series of change management Several other proposals are being developed to establish programmes to ensure employees understand the change in collaborations with our strategic partners to exchange knowledge business conditions and the processes taking place, as well as the on best practices and explore new business opportunities. key role they play towards the achievement of corporate goals and aspirations.

MBSB Annual Report 2005 CHAIRMAN’S STATEMENT (CONTD.)

CHALLENGES AND OUTLOOK FOR 2006 APPRECIATION

To cope with a more competitive environment, there will be A key contributor to our continued strong performance is renewed focus on expanding the core business segments and the dedication and commitment of the team that forms MBSB. developing new sources of revenue. Continued efforts will be in Their continued determination as well as unwavering loyalty and place to enhance the asset quality position and to control costs. contribution has helped MBSB achieve its growth targets.

The Company had already seen some changes in human assets On behalf of the Board of Directors and shareholders, I wish with the injection of professionals at the management and to express our gratitude to our management team and all our support levels. The new core values introduced and embraced employees for their dedication and diligence, which are vital to by all employees focus on 5 key areas in their daily activities our continued success. involving customers, work integrity, competency, teamwork and innovation of ideas. My fellow Board members join me in expressing our gratitude and appreciation to YBhg Datuk Azlan Zainol for his invaluable We will continue to enhance organisational capability in key service and contribution to the Board as MBSB’s Director, until areas. Concerted efforts are ongoing in leadership developments his resignation in August 2005. At the same time, we welcome to keep pace with the ever changing environment. Performance En Khalid Hj Sufat and Mr Aw Hong Boo as new members at improvement areas tackled include process effi ciencies and cost the Board in August 2005 and November 2005 respectively. take-out. Collectively, they brought with them vast invaluable experience which I am confi dent will greatly benefi t MBSB. This year’s achievements offered MBSB and its Group of Companies the ingredients required to scale new heights in the Last but not least, I would like to thank our customers, clients, coming years. Building on the foundation of a reliable pool of business associates, depositors and shareholders for their trust, human assets, strong integrated risk management practices, good continuous support and confi dence in MBSB. compliance and corporate governance, MBSB is poised to ride the wave of economic optimism to achieve better results in the Thank you. next fi nancial year.

TAN SRI ABDUL HALIM ALI Chairman

Kuala Lumpur 12 April 2006

MBSB Annual Report 2005 “Poised to fulﬁ l our corporate strategies to become a customer - centric organisation and enhance shareholders’ value.

Our energies and resources over the past years were channelled towards positioning ourselves for future success and proﬁ tability of MBSB.” Encik Ahmad Farid Omar Chief Executive Ofﬁ cer

MBSB Annual Report 2005 SENIOR MANAGEMENT Management Statement Enhancing shareholder confi dence as well as maintaining a stable platform is vital for any public listed company. We understand the responsibility entrusted upon us and we share a passion to see MBSB performing to meet its growth expectations. We pledge to improve our image, services and productivity for 2006. Our focus is to achieve effi ciency in our operations, continue to be a customer-centric organisation and pursue business growth to further enhance our revenue. We will play a signifi cant role to drive the business growth by providing the right infrastructure and culture. In our business progression journey, we consolidated our inherent strengths and determination to continue to deliver excellent returns to our customers and shareholders and we are confi dent of continuing the Company’s vision and mission.

MBSB Annual RepoReportrt 2005 From Left to Right: Ariffa Arifﬁ n Md Nordin Abdul Jalil Fatimah Nurhaliza Mohd Hatta Assistant General Manager, Senior Manager, Senior Manager, Corporate Services Treasury Mortgage Sales Marketing & Credit Processing Abd. Rahim Ambak Shamsudin Hj. Md Yusoff Steven Lee Chui Chick General Manager, General Manager, Senior Manager, Credit Management Branch Management & Retail Rehabilitation & Recovery Ibarahim Ishak Norhayati Mohd Daud Zainol Rashid Norddin Senior Manager, Senior Manager, Senior Manager, JV Special Project & Subsidiaries Internal Audit Credit Processing Tang Yow Sai Zaili Ismail Tan Chin Kiat Group Financial Controller, Senior Manager, Assistant General Manager, Finance & Information Technology Corporate Loans Business Development & Marketing Huzaifah Zainuddin Senior Manager, Legal & Secretarial

MBSB Annual Report 2005 Calendar of Events

1) 15 Feb : MBSB Signs Strategic Partnership Agreement with RHB A Strategic Partnership Agreement was signed with RHB Bank to launch the MBSB- RHB Visa Credit Card. The credit card product is MBSB’s ﬁ rst and the signing highlights the co-operation between MBSB and RHB in the area of credit card business.

2) 1 June : Annual General Meeting 2005 1 The Annual General Meeting 2005 was held at Kuala Lumpur Golf and Country Club (KLGCC). The distribution of 2% dividend for the fi scal year 2005 was announced to the shareholders after an absence of six years. MBSB’s 2004 fi nancial results declared the Group’s profi t after tax of RM31.750 million, a signifi cant turnaround from a loss of RM66.752 million in the previous year.

3) 23 July : Annual Dinner The Annual Dinner, at Istana Hotel was held as an appreciation by the Company of its staff. Themed “Crazy Nite”, it was a night fi lled with 6) 30 Sept : Offi cial Inauguration of fun and good humour serving as a platform to Kota Kinabalu Branch establish warmer ties, inculcate team spirit and at the same time encourage the staff to be Kota Kinabalu branch started its operations stimulated and unveiled their creativity. Long on 1 June 2005. With the offi cial inauguration, Service Awards were also presented to loyal Kota Kinabalu branch will be MBSB’s 23rd employees of the Company. branch nationwide network and the fi rst in the state of Sabah. 4) 23 July : Home Improvement Financing Launch 7) 15 Nov : BIMB-MBSB Islamic Credit Card Launch Offi ciated by MBSB’s Chairman YBhg Tan Sri 5 Abdul Halim bin Ali, the Home Improvement The Memorandum of Understanding signing Financing is a complementary package to MBSB’s ceremony at Park Royal Hotel, KL signifi ed the existing Property Financing-i and is specially launch of the Bank Islam-MBSB co-branded designed for individuals looking for fi nances to MasterCard, marking another milestone for renovate, improve or furnish their homes. MBSB. It will complement its conventional MBSB-RHB Visa Credit Card. 5) 23 July : MBSB’s Website Goes Online 8) 30 Nov : MBSB becomes ARB’s The launch of the website is MBSB’s response Corporate Agent to customers’ quests for information that is accessible speedily and conveniently. The MBSB secured its strategic alliance with Amanah website will provide information on all facets Raya Berhad (ARB) via a Memorandum of of MBSB, ranging from corporate and fi nancial Agreement where MBSB will act as a corporate information, products and services offered by agent to sell ARB’s products. As an initial take off, the Group, virtual property shopping, feedback the Company will market ARB’s Will Writing and and enquiries. Legacy Management products.

MBSB Annual Report 2005 3 4

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MBSB Annual Report 2005 STATEMENT OF CORPORATE GOVERNANCE

The Board is committed to ensuring the highest standards of Two (2) new additions to the Board were made during the corporate governance and maintaining the highest level of integrity fi nancial year ended 31 December 2005, in the form of Encik in discharging its responsibilities to protect and enhance Khalid Sufat and Mr Aw Hong Boo who were appointed on shareholders value and the fi nancial performance of Malaysia 18 August 2005 and 10 November 2005 respectively. Both Building Society Berhad. (the “Company”) Encik Khalid and Mr Aw bring with them a wealth of experience and knowledge in the area of banking and fi nance In the area of corporate governance, the year ended 2005 which the Board believes will ultimately enrich the present saw the implementation of the GLC Transformation Program pool of skills and attributes of the Board. The year ended affecting all government linked companies (GLC). The GLC 2005 also saw the resignation of YBhg Datuk Azlan Zainol as Transformation Program, launched during the second half of the a Director of the Company on 1 August 2005. year ended 2005, is an initiative of the Government of Malaysia aimed at driving the development of GLCs by the introduction of With further regard to the above, the number of specifi c guidelines and procedures designed to assist the Board Independent Directors who represents the majority of the of GLCs to achieve a higher standard of management. As the members on the Board not only exceeds the requirement of Company is designated as a GLC, the GLC Transformation Bursa Malaysia Securities Berhad but also contributes Program would necessarily affect the manner in which the towards greater impartiality and objectivity in the Board’s Company is managed in tandem with the prevailing laws, rules decision making process. and guidelines on the management of a listed corporation. Although the said Program has only recently been implemented, The diversity of skills, experiences and knowledge of its the Board believes that the proper implementation of the members in various disciplines and professions allow the guidelines and procedures recommended pursuant to the Board to address and/or to resolve the various issues that said Program would further enhance the manner in which the affects the Company and the Group in an effective and Board governs the management of the Company and the Group effi cient manner. For a brief description of the background in the future. and experience of the Board members, kindly refer to the Directors’ Profi le section of this Report. Having said the above and in compliance with the Listing Requirements of Bursa Malaysia Securities Berhad, the Board The responsibilities of the Board includes the following:- is pleased to make a disclosure to shareholders the manner in which it has applied the principles of good governance and the i) Reviewing and approving the strategic business plan of the extent to which it has complied with the best practices set out in Company and the Group as a whole. the Malaysian Code on Corporate Governance. These principles ii) Overseeing the conduct of the Company and the Group’s and best practices have been applied throughout the year ended business to ascertain its proper management, including 31 December 2005 and are regularly audited and reviewed to setting clear objectives and policies within which senior ensure transparency and accountability. executives are to operate. iii) Identifying and approving policies pertaining to the A. Board of Directors management of all risk categories including but not limited to credit, market, liquidity, operational, legal and Composition of the Board reputational risks. iv) Succession planning, including appointing, training and At the date of this Report, the Board consists of eight (8) fi xing the compensation of and where appropriate, Directors, out of which fi ve (5) are Independent Non- replacing senior management. Executive Directors whilst the remainder are Non– v) Reviewing the adequacy and the integrity of the Company Independent Non-Executive Directors. and the Group’s internal control system and management information system for compliance with applicable laws, regulations, rules, directives and guidelines. vi) Developing and implementing an investor relations programme or shareholders communications policy for the 22 Company.

MBSB Annual Report 2005 vii) Discussing and where appropriate, resolving all matters All Directors have complied with the minimum 50% referred by Management to the Board that affects the interest attendance requirement at Board Meetings during the fi nancial of the Company and the Group. year as stipulated by the Listing Requirements of Bursa Malaysia Securities Berhad. There is a clear division of responsibility between the Chairman and Chief Executive Offi cer to ensure a proper balance of power Supply of Information and authority. Whilst the Chairman leads and guides the Board on all issues presented before them at meetings or at such other The Directors have full and timely access to information forums where the consensus of the Board is required, the Chief concerning the Company and Group. The Directors are provided Executive Offi cer is in charge of the day to day management of with the relevant agenda and Board papers, and suffi cient time the Company and whenever applicable, ensure that all decisions, are given before Board meetings to enable them to obtain directions and/or instructions of the Board are given effect by further explanation and clarifi cation to facilitate informed Management in a timely and effi cient manner. decision-making. Board Meetings In addition, there is a schedule of matters specifi cally reserved for the Board’s decision which includes approval of loans to The Board has at least four (4) regularly scheduled annual the Company’s customers, loan recovery strategies and meetings with additional meetings being convened as and when restructuring schemes, approval of corporate plans and necessary. budgets, material acquisitions and disposal of assets as well The agenda for every Board Meeting, together with as the Company’s fi nancial results. Minutes of meetings of comprehensive Management reports, proposal papers and various committees of the Company are also tabled to the Board supporting documents are furnished to all Directors for their for notation and/or endorsement. perusal well in advance of the Board meeting date, so that the The Board has ready and unrestricted access to all information Directors’ have ample time to review matters to be deliberated within the Company and Group as well as the advice and services at the Board meeting and to facilitate informed decision making of senior management and Company Secretaries in carrying by the Directors. Minutes of every Board meeting are circulated out their duties. The Directors may also seek independent to all Directors for their perusal prior to confi rmation of the professional advice, at the Company’s expense, if and when required. minutes at the following Board meeting. The Board met 7 times during the fi nancial year ended Appointment and Re-election to the Board 31 December 2005. The details of each Director’s attendance are given below:- Appointments to the Board are made based on the recommendation of the Nomination and Remuneration Name of Directors Total Percentage of Meetings Attendance (%) Committee. In accordance with the Company’s Articles of Attended Association, one-third of the members of the Board for the time being shall retire by rotation and offer themselves for YBhg Tan Sri Abdul Halim bin Ali 7/7 100 re-election. YBhg Datuk Azlan bin Mohd Zainol 5/5 100 (Resigned w.e.f 01.08.2005) Director’s Training YBhg Datuk Haji A.Rahim bin Abdullah 7/7 100 Encik Lau Tiang Hua 7/7 100 All Directors are encouraged and have during the year ended 31 December 2005 attended talks, training programs and Syed Zaid bin Syed Jaffar Albar 6/7 86 seminars to update themselves on new developments in the Puan Cindy Tan Ler Chin 5/7 71 business environment. In addition, seminars and conferences YBhg Datuk Abdullah bin Kuntom 7/7 100 organised by the relevant authorities and professional bodies on, Encik Khalid bin Haji Sufat 1/1 100 inter-alia, areas relevant to the Finance’s operations, Directors’ (Appointed w.e.f. 18.08.2005) responsibilities, and corporate governance issues, as well as on Encik Aw Hong Boo – – changes to statutory requirements and regulatory guidelines, are (Appointed w.e.f 10.11.2005) informed to the Directors for their participation. 23

MBSB Annual Report 2005 STATEMENT OF CORPORATE GOVERNANCE (CONTD.)

Board Committee (b) Nomination & Remuneration Committee On 29 April 2005, the Executive Committee of the Board was The principal functions of this Committee is to make formed to tackle all matters in relation to the operations of the recommendations to the Board of candidates for Company and the Group. The establishment of this Committee directorship, reviewing the Board’s composition in terms of led to the dissolution of the Loan Approval Committee as the the mix of responsibilities, skills and experience, roles and responsibilities of the said Committee was taken over recommendation on the appointment and remuneration of by the Executive Committee of the Board in its entirety. Chief Executive Offi cer and key senior management offi cers, as well as assessing the effectiveness of such Pursuant to the above, the Board has established fi ve (5) individuals and their performances. The Committee consists committees at the date of this Report. Each committee has of three (3) Independent Non-Executive Directors. detailed terms of reference regarding its objectives, duties and responsibilities, authority, meeting and membership. These During the year ended 31 December 2005, four (4) committees were established to assist the Board in the meetings were held. The members of the Nomination & execution of their tasks. Notwithstanding the formation of these Remuneration Committee during the year and their committees, the fi nal decision on all matters will ultimately rest attendance at the meeting are as follows: with the entire Board. The following are details of each committee’s responsibilities and the members of each respective committee. Name of Members No of Meetings (a) Audit & Risk Management Committee Attended The principal functions of this Committee is to assist YBhg Datuk A. Rahim bin Abdullah 4/4 the Board in the effective discharge of its fi duciary (Chairman) responsibilities in relation to corporate governance, ensure Encik Lau Tiang Hua 4/4 timely and accurate fi nancial reporting, ensure the proper Syed Zaid bin Syed Jaffar Albar 4/4 implementation of risk management policies and strategies in relation to the Company’s business strategies as well as the (c) Arrears Recovery Committee development of sound internal controls. The Committee consists of three (3) Independent Non-Executive Directors. The principal function of this Committee is to ensure and when required, recommend to the Board, the best strategies During the year ended 31 December 2005, seven (7) to be applied in the recovery of the Company’s Non- meetings were held. The members of the Audit & Risk Performing Loans (NPLs). The Committee consists of two (2) Management Committee during the year and their Independent Non-Executive Directors and one (1) attendance at the meetings are as follows: Non-Independent Non-Executive Director. During the year ended 31 December 2005, nine (9) Name of Members No of Meetings meetings were held. The members of the Arrears Recovery Attended Committee during the year and their attendance at the meetings are as follows: Encik Lau Tiang Hua (Chairman) 7/7 YBhg Datuk A. Rahim bin Abdullah 7/7 Syed Zaid bin Syed Jaffar Albar 6/7 Name of Members No of Meetings Attended Encik Lau Tiang Hua (Chairman) 9/9 Syed Zaid bin Syed Jaffar Albar 9/9 Puan Cindy Tan Ler Chin 9/9 24

MBSB Annual Report 2005 (d) ESOS Committee (f) The Loan Approval Committee

The principal function of this Committee is to administer the This Committee was dissolved on 29 April 2005. Company’s Employees’ Share Option Scheme in accordance with the Scheme’s by-laws. The Committee consists of two The function of this Committee was to exercise powers of (2) Independent Non-Executive Directors and one (1) credit approvals as authorised by the Board. Non-Independent Non-Executive Director. Three (3) meetings were held by the Committee during the No Meetings were held by this Committee during the year year ended 2005 prior to its dissolution. The members of the ended 31 December 2005 as the Committee was not called Loan Approval Committee during the year and their upon to administer any allocation to eligible employees within attendance at the meetings are as follows: the said year. Name of Members No of Meetings Name of Members Attended YBhg Datuk A. Rahim bin Abdullah (Chairman) Syed Zaid bin Syed Jaffar Albar Syed Zaid Bin Syed Jaffar Albar 3/3 Puan Cindy Tan Ler Chin (Chairman) YBhg Datuk Abdullah Kuntom 3/3 (e) Executive Committee of the Board Encik Lau Tiang Hua 3/3 Puan Cindy Tan Ler Chin 3/3 This Committee was established on 29 April 2005. The principal functions of this Committee is to allow the Board to deliberate speciﬁ cally on issues and matters relating to B. Directors’ Remuneration the operational requirements of the Company. Prior to his resignation, YBhg Datuk Azlan Zainol was appointed as the Objective of Directors’ Remuneration Chairman of the Committee. The Chairmanship was then taken over by YBhg Tan Sri Abdul Halim Bin Ali upon the The Company’s remuneration policy for Directors is tailored former Director’s resignation from the Board. at levels that will enable the Company to attract and retain During the year ended 31 December 2005, seven (7) the Directors with relevant experience and expertise needed meetings were held by the Committee. The members of the to assist in managing the Company effectively. Executive Committee during the year and their attendance at the meetings are as follows: Remuneration Package

Name of Members No of Meetings The Remuneration Package are as follows:- attended (a) Directors’ Fee YBhg Tan Sri Abdul Halim bin Ali 6/6 (Chairman) The Directors will each be paid an annual fee, the quantum of which is subject to the approval by the Encik Lau Tiang Hua 1/1 shareholders at a General Meeting. In the event that a (withdrew as member w.e.f 08.06.2005) Director is appointed or resigns during a ﬁ nancial year, Syed Zaid bin Syed Jaffar Albar 6/7 the fee will be pro-rated and apportioned accordingly YBhg Datuk Azlan bin Mohd Zainol 2/2 based on the date of the said Director’s appointment (Chairman. Withdrew as member or resignation. w.e.f 08.06.2005) Puan Cindy Tan Ler Chin 4/7 YBhg Datuk Abdullah bin Haji Kuntom 5/7 Encik Khalid bin Haji Sufat 5/5 25 MBSB Annual Report 2005 STATEMENT OF CORPORATE GOVERNANCE (CONTD.)

(b) Allowance D. Accountability and Audit

The Directors will be paid a meeting allowance for Financial Reporting their attendance at all Meetings of the Board as well as Board Committees. The quantum of the allowance is The Board is required by the Companies Act 1965 to prepare recommended by the Nomination & Remuneration fi nancial statements for each fi nancial year to give a true and Committee for the approval of the Board. fair view of the state of affairs of the Company. (c) Details The Board takes responsibility for presenting a fair assessment of the Company’s operations and fi nancial The details of the remuneration of each Director of the statements released to shareholders. Company who served during the fi nancial year ended 31 December 2005 are set out in page 96 of this The Board is responsible to ensure that the Company keeps Annual Report. proper accounting records, which disclose with reasonable accuracy the fi nancial position of the Company and which C. Shareholders enable them to ensure that the fi nancial statements comply with the Companies Act 1965 and other regulatory Relationship with Shareholders and Investors requirements. The Audit & Risk Management Committee of the Board assists by scrutinising the information to be The Board recognizes the importance of communication disclosed, to ensure accuracy and adequacy. and proper dissemination of information to its shareholders and investors. Through extensive disclosures of appropriate Internal Control and relevant information, the Company and the Group aims to effectively provide shareholders and investors with The Board has the overall responsibility of maintaining a information to fulfi ll transparency and accountability system of internal controls that provides reasonable objectives. In this respect, the Company keeps shareholders assurance of effective and effi cient operations, and informed via announcements and timely release of quarterly compliance with laws and regulations, as well as with internal fi nancial results, press releases, annual reports and circulars procedures and guidelines. The effectiveness of the system to shareholders. of internal controls of the Group is reviewed periodically by the Audit & Risk Management Committee. The review covers Annual General Meeting the fi nancial, operational and compliance controls as well as risk management. The Annual General Meeting of the Company represents the principal forum for dialogue and interaction with all The Statement of Internal Control as set out in this Annual shareholders. Shareholders are given ample time to Report provides an overview of the state of internal controls participate in the question and answer sessions. Any queries within the Group. or concerns relating to the Company may be conveyed to the Company Secretary. Relationship with Auditors The role of the Audit & Risk Management Committee in relation to the internal and external auditors is described in the Audit & Risk Management Committee Report section of the Annual Report. The Board maintains a formal and transparent relationship with its auditors in seeking professional advice and ensuring compliance with the accounting standards in Malaysia.

MBSB Annual Report 2005 Directors’ Responsibility Statement The Directors are required by the Companies Act 1965 to prepare fi nancial statements for the fi nancial year which have been made out in accordance with the applicable approved accounting standards and give a true and fair view of the state of affairs of the Company and the Group at the end of the fi nancial year and of the results and cash fl ows of the Company and the Group for the fi nancial year. In preparing the fi nancial statements, the Directors have used appropriate and relevant accounting policies that are consistently applied and supported by reasonable as well as prudent judgements and estimates, and that all accounting standards which they consider applicable have been followed during the preparation of the fi nancial statements. The Directors are responsible for ensuring that the Company and the Group keep proper accounting records which disclose with reasonable accuracy the fi nancial position of the Group and Company and which enable them to ensure that the fi nancial statements comply with the Companies Act 1965. The Directors have the general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group, to detect and prevent fraud and other irregularities.

E. Statement on Compliance with the Best Practices of the Malaysian Code on Corporate Governance Having reviewed the governance structure and practices of the Company, the Board considers that it has complied with the best practices as set out in the Code as well as the items set out in Part A of Appendix 9C of the Listing Requirements of Bursa Malaysia Securities Berhad in relation to the requirement of a separate disclosure in the Annual Report. This statement is made in accordance with the resolution of the Board of Directors dated 17 March 2006.

MBSB Annual Report 2005 STATEMENT ON INTERNAL CONTROL (SIC)

RESPONSIBILITY • Executive Committee of the Board (EXCO) The Board of Directors (“Board”) acknowledges the On 29 April 2005, the EXCO was established to tackle all responsibility for maintaining a sound system of internal control matters in relation to the operations of the Company and and ensuring its effectiveness. The Board also places importance the Group. The establishment of this Committee led to for risk management practices and corporate governance in the dissolution of the Loan Approval Committee as the roles the Company and its Subsidiaries (“the Group”). The system of and responsibilities of the said Committee were taken internal control includes fi nancial controls, operational effi ciency, over by the EXCO in its entirety. The EXCO comprises effectiveness, systems and process improvements, audit and risk at least three (3) Board members and its principal functions management. These ongoing processes have been in place for are as follows:- the fi nancial year under review. The internal control framework only manages rather than eliminate the risk of failure to achieve • To consider and approve capital expenditure of the business goals. It can only provide a reasonable and not an Company and the Group as referred to it by Management. absolute assurance against material misstatement of management and fi nancial information or against fi nancial losses and fraud. • To deliberate, consider and approve new credit proposals for facility up to its authority limit. The Board also acknowledges that the system of internal control in place for the year is sound and suffi cient to • To consider and approve terms for restructuring of safeguard shareholders’ investments, customers’ interests and non-performing Corporate and Retail loans, etc. the Group’s assets. • To notify the Board of such approvals and to make appropriate recommendations to the Board for KEY INTERNAL CONTROL PROCESSES consideration and approvals of new credit facilities above the EXCO’s authority limit. The process governing the effectiveness and integrity of the system of internal control is through the establishment of the • Arrears Recovery Committee (ARC) following committees: ARC comprises three (3) Independent Non-Executive • Audit & Risk Management Committee (ARMCO) Directors and one (1) Non-Independent Non-Executive Director. ARC’s principal function is to decide on the ARMCO is represented by three (3) Independent restructuring of the non-performing loans of the Group Non-Executive Directors and one (1) Non-Independent and the strategies to be adopted in the recovery process. Non-Executive Director. ARMCO’s principal functions It also monitors the performance of the restructured loans. are as follows: • Key Supervisory Committees • To oversee the fi nancial reporting and internal control system of the Group. MBSB has two (2) key supervisory management committees, which are chaired by the Chief Executive • To oversee the adequacy of risk management processes Offi cer to support and monitor the controls that have been and effectiveness. put in place. • To support and maintain the independence of the internal and external audit functions. • To deliberate and address signifi cant breaches and risks identifi ed.

MBSB Annual Report 2005 • Management Committee (MANCO) • Regular and comprehensive management reports to the Board, covering fi nancial performance, which allows for MANCO is the highest authority of reference at effective monitoring of signifi cant variances against budgets Management level where procedural, operational and and plans. The budget is reviewed and updated with personnel issues and matters are deliberated and performance monitored and explanation sought for decided upon. signifi cant differences.

• Asset and Liability Committee (ALCO) • Defi nes delegation of responsibilities to committees of the Board and Management, including fi nancial authority limits, ALCO serves as the primary oversight and decision organisation structures and appropriate authority levels. making body that provides strategic direction for the management of assets and liabilities of the Group which • Regular update of internal policies and procedures to include asset quality, funding portfolio, liquidity and refl ect changing risks or to resolve operational defi ciencies. interest rate exposure. Documentation of key business processes and policies for standardisation of practices and identifi cation of process INTERNAL AUDIT improvement opportunities. Internal Audit Department, reporting to ARMCO, assists • Reports on fi nancial and operating performance are the Board in monitoring and managing business risks and regularly provided to Board to enable them to review the internal controls. The department performs scheduled review Group’s progress. In addition, reports on monitoring of of operations and compliance with policies and procedures compliance such as capital adequacy and other regulatory to assess the effectiveness of internal controls. ARMCO approves requirements are tabled to ARMCO and the Board at their the Internal Audit Plan each year. monthly or periodic meetings. Quarterly fi nancial statements are assessed through ARMCO who then recommends to Regular internal audit visits are systematically arranged over the the Board for adoption. period to oversee compliance with policies and procedures and to assess the integrity of both fi nancial and non-fi nancial informa- • Monitoring of regulatory and statutory compliance through tion provided. The results of each audit are submitted to ARMCO Internal Audit and Risk Management Departments to for attention and signifi cant fi ndings are deliberated upon. The support ARMCO and Board on proper management of minutes of ARMCO meetings are formally tabled to the Board effective corporate governance practices and requirements. for noting, and for action by the Board, where necessary. Follow- up actions were undertaken periodically to ensure full compli- • The Group is keeping abreast of developments and ance. changes in legislation, which may affect the Group’s operations and seek to minimise legal and regulatory risk The scope of Internal Audit covers the audit of MBSB depart- through consultation with internal and external lawyers to ments and branches and is prioritized based on audit risk assess- ensure compliance with all applicable rules and regulations. ments. Internal Audit’s responsibilities include the audit of operations, credit, fi nancial controls, management directives, regulatory compliance and information technologies.

OTHER KEY AREAS OF INTERNAL CONTROL • The Board reviewed and approved business plans within which the business objectives, strategies and targets are articulated. These plans are communicated across the organisation to ensure effective implementation through MANCO and Management meetings. 29 MBSB Annual Report 2005 STATEMENT ON INTERNAL CONTROL (SIC) (CONTD.)

RISK MANAGEMENT • Operational Risk The Board had embarked on an ongoing process to identify, The primary responsibility for managing operational evaluate and manage signifi cant risks that affect the achievement risks rests with the business and support units to re-engineer of the Group’s business objectives. The process includes the and improve the workfl ow processes without compromising review on the adequacy of the present internal control system on risks and controls. The processes are benchmarked, to manage principal risks inherent in all operations of the Group. the roles and responsibilities are clearly defi ned and ARMCO oversees the implementation of the functions of Risk communicated. The process aims to ensure that the risks Management through the Risk Management Department. The associated with new products or services are identifi ed, Department oversees the establishment of Risk Management analysed and managed. Framework and identify and implement action plans to specifi cally address credit risks affecting the Group. MBSB minimises operational risk by putting in place appropriate policies, internal controls and procedures that The Risk Management Framework that is supplemented by a are constantly being reviewed by process-owners. Credit Risk Management Framework, provides for regular review and reporting through ALCO and includes an assessment of risk, Management has exerted continuous effort to identify an evaluation of the effectiveness of the controls in place and the company-wide operational risk and undertake measures to requirements for further controls. mitigate and monitor the identifi ed risks. During the year under review, the following actions were carried out: - • Market Risk • The continued enhancement of the existing fully ALCO reviews the dynamic cash-fl ow projections and the integrated core information system with adequate maturity mismatch analysis on monthly basis to monitor checks and over-riding authorisation to further mitigate liquidity and mismatch of funds in MBSB. ALCO ensures the operational risks. maximisation of interest margin through effective management of funding and liquidity. • Completion of the Credit Risk Management Framework and implementation of a new mortgage credit scorecard. • Credit Risk • The assets and properties of MBSB are protected through For retail credit risk, the application of credit scoring system appropriate insurance coverage. embedded in the computerised banking system serves as a recommendation guide to assist the Management to screen Legal and regulatory risks of its business are actively being through credit applications. managed by MBSB. Legal risk is minimised through consultation with internal and external legal counsels and EXCO has been established for monitoring credit risk the use of industry standard agreements for fi nancial products. exposure and approval of loans through credit risk analysis to ensure good credit within their approval limit. Notwithstanding the above, these internal control measures only manage and do not entirely eliminate the risk of Risk parameters such as single customer limit, maximum internal control. Continuous efforts are undertaken to ensure tenure, acceptable structures and collateral types for standardisation, timeliness and comprehensiveness of accepting credit risk are clearly defi ned and complemented key internal control procedures including authorisation, by policies and processes to ensure that MBSB maintains accountability, monitoring and reconciliation processes. a well diversifi ed and quality credit portfolio. This statement is made in accordance with the resolution of the Board of Directors dated 6 April 2006.

MBSB Annual Report 2005 REPORT OF THE AUDIT & RISK MANAGEMENT COMMITTEE

The Committee Terms of References The Board shall establish an Audit & Risk Management 1. Objectives Committee of at least three (3) directors, a majority of whom are independent, with written terms of reference which deal The primary objectives of the Committee are to: - clearly with its authorities and duties. The Chairman of the Committee should be an independent Non-Executive Director. i) Assist the Board of Directors in fulfi lling its fi duciary responsibilities particularly in the areas of accounting and Meetings management control and fi nancial reporting; The quorum for a meeting shall be two (2) members whereby at least one of the members present must be an Independent Non- ii) Reinforce the independence and objectivity of the Internal Executive Director. The Committee may, as and when considered Audit Department and Risk Management Department; necessary, invite other Board members and request the presence of the Chief Executive Offi cer, Management Team and Internal iii) Acts as a focal point for communication between external Audit & Risk Management Team to attend meetings to brief the auditors, internal auditors, Directors and Management on Committee on activities involving their areas of responsibility. matters concerning accounting, management reporting The presence of external auditors will be requested when required. and internal controls and to provide a forum for discussion, independent of the Management; and The Head of the Internal Audit Department is the Secretary to the Committee. The Secretary shall prepare an agenda, iv) Undertake additional duties as may be deemed which shall be circulated with the relevant papers prior to each appropriate and necessary to assist the Board of meeting, to members of the Committee. The minutes of the Directors in ensuring transparency and proper internal meeting shall be circulated to the Board of Directors. control.

Composition / Attendance 2. Rights Members of the Committee during the ﬁ nancial year ended 31 December 2005 and attendance record of each member are as The Committee shall: - follows: - i) Have authority to investigate any matter within its terms Number of of reference; Composition of Meetings The Committee Attended / ii) Have the resources, which are required to perform Held its duties; Encik Lau Tiang Hua 7/7 iii) Have full and unrestricted access to any information (Chairman / Independent pertaining to the Group; Non-Executive Director) iv) Have direct communication channels with external Y. Bhg Datuk Haji A. Rahim bin Abdullah 7/7 auditors, internal auditors and risk managers; (Member / Independent Non-Executive Director) v) Be able to obtain independent professional or other advices; and Syed Zaid bin Syed Jaafar Albar 6/7 (Member / Independent vi) Be able to convene meetings with external auditors, Non-Executive Director) excluding the attendance of executive members of the Committee, whenever deemed necessary.

MBSB Annual Report 2005 REPORT OF THE AUDIT & RISK MANAGEMENT COMMITTEE (CONTD.)

3. Duties and Responsibilities ix) To review the signifi cant risks identifi ed by the Group and their impact on the operations; The following are the main duties and responsibilities of the Committee: - x) To ensure that the identifi ed risks are monitored and mitigated on an on going basis; i) To review with external auditors, their audit plan, scope and nature of the audit; xi) To ensure risk exposures of the Group are within ii) To review with external auditors, their audit report and parameters set by the Board; audit fi ndings and Management’s response thereto; xii) To review operational policies and processes of the iii) To review the Group’s Quarterly fi nancial reports and Group and to formulate new ones where appropriate the Group’s annual audited fi nancial statements before with a view to improve effi ciency, cost effectiveness submission to the Board of Directors for approval, and control over the resources of the Group; and focusing on: - xiii) To undertake any other activities as delegated by a) Changes in accounting policies and practices, the Board. b) Signifi cant adjustments and issues arising from the audit, Activities c) Signifi cant and unusual events, During the fi nancial year, the Committee had fulfi lled its d) Compliance with applicable approved accounting obligations in accordance with its terms of reference. The standards, and following is a summary of the activities that had been carried out by the Committee: - e) Compliance with Bursa Malaysia Securities Berhad’s listing requirements. i) Reviewed the external auditor’s audit planning memorandum for the year ended 31 December 2005. iv) To review any related party transactions and confl ict of interest situation that may arise within the Group ii) Reviewed the external auditors’ reports in relation to including any transaction, procedures or course of audit and accounting issues arising from their audit works conduct that raise questions on Management’s integrity; and updates of new developments on fi nancial reporting standards. v) To consider the appointment of external auditors, their audit fee and any question of their resignation or dismissal; iii) Reviewed the quarterly and annual fi nancial reports prior to recommending to the Board for approval. vi) To recommend the nomination of a person or persons as external auditors; iv) Reviewed the Internal Audit Department’s resource requirements, annual Internal Audit Plan and Budget vii) To review the adequacy of the scope and resources of and the annual performance assessment of the Internal the Internal Audit Department and that it has the Audit Department. necessary authority to carry out its functions; v) Reviewed internal audit reports, which outlined the audit issues, recommendations and Management’s viii) To review the internal audit programmes and processes, response thereof. Discussed with Management, actions and the fi ndings of the internal audit or investigation taken to improve the systems of internal controls based undertaken and whether appropriate action has been on the Internal Auditors’ recommendations as identifi ed taken on the recommendation of the Internal Audit in the internal audit reports. Department; vi) Reviewed the adequacy and effectiveness of the internal 32 control systems and risk management framework.

MBSB Annual Report 2005 Internal Audit Functions The Internal Audit Department’s principal responsibility is to conduct audits on internal control matters to ensure compliance with the systems and standard operating procedures as laid down by the Group. The main objective of these audits is to provide reasonable assurance to the Board of Directors that the Group operates satisfactorily and effectively. The Internal Audit Department is also responsible for providing comfort that the Group has an adequate and functioning internal control to protect the Group’s investment in information technology and information managed on technology platforms. The audits are carried out based on audit plans, which have been reviewed and approved by the Committee. Unscheduled audits and investigations were also made at the request of the Committee on areas of concern identiﬁ ed by the Committee. The Internal Audit Department forms strategic alliance with Risk Management and Organisation & Methods Departments in reviewing the adequacy and effectiveness of the internal control systems and risk management framework to ensure there is systematic methodology in identifying, assessing and mitigating / controlling all types of risks. The Internal Audit Department maintains a close working relationship with the Committee and this facilitates the fulﬁ lment of the Committee’s responsibility in ensuring good corporate governance practices are observed and ultimately the well-being of the Group.

MBSB Annual Report 2005 FINANCIAL HIGHLIGHTS OF THE COMPANY

RM Million 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Proﬁ t/(Loss) Before Taxation 77.04 49.36 (57.90) (294.31) (18.40) (475.27) (222.13) (59.95) 24.60 28.41 Paid-up Ordinary Share Capital 121.63 337.86 337.86 337.86 337.86 337.86 337.86 337.86 337.86 337.86 Total Reserves 523.60 825.77 756.23 458.28 439.88 (35.39) (257.52) (181.86) (135.94) (101.41) Total Assets 3,264.29 4,772.58 5,016.27 4,532.55 4,400.38 3,989.51 3,760.48 3,693.47 4,293.95 4,914.08

Net Proﬁ t / (Loss) Before Taxation (RM Million) Paid-up Ordinary Share Capital (RM Million)

77.04 337.86 337.86 337.86 337.86 337.86 337.86 337.86 337.86 337.86

49.36

121.63

24.60 28.41

9899 00 01 02 03

96 97 04 05 96 97 98 99 00 01 02 03 04 05 (18.40)

(59.95) (57.90)

(222.13)

(294.31)

(475.27) Total Assets (RM Million) 825.77 5,016.27 Total Reserves (RM Million) 4,914.08 4,772.58 756.23

4,532.55 523.60 4,400.38 4,293.95 458.28 3,989.51 439.88 3,760.48 3,693.47

3,264.29

01 02 03 04 05

96 97 98 99 00 (35.39) 96 97 98 99 00 01 02 03 04 05 (101.41)

(135.94)

(181.86) 34

MBSB Annual Report 2005 (257.52) Sen 1996 1997* 1998 1999 2000 2001 2002 2003 2004 2005

Net Earning / (Loss) - Basic 29 10 (18) (87) (5) (141) (66) (18) 11 12 Gross Dividend 18.0 14.0 4.0 1.5 - - - - 2.0 2.5 Net Assets Backing 354 403 324 236 230 90 24 95 109 119

* Per Ordinary Share, adjusted for the bonus issue in 1997, in sen

Net Earnings / (Loss) - Basic (sen) 18.0 Gross Dividend (sen)

12 14.0 11 10

4.0 2.5 2.0 1.5 - 98 99 00 01 02 03 - - -

96 97 04 05 96 97 98 99 00 01 02 03 04 05 (5)

(18) (18)

(66) 403

(87) 354 324 Net Assets Backing (sen)

236 230 119 109 95 90 (141) 24

96 97 98 99 00 01 02 03 04 05

MBSB Annual Report 2005 ANALYSIS OF SHAREHOLDING As at 31 March 2006

Analysis of Shareholding

Authorised Share Capital : RM 1,800,000,000

Issued and Fully Paid-Up Capital : RM 337,856,727 Ordinary Share RM 165,000,000 Redeemable Convertible Preference Share (RCPS)

Class of Shares : Ordinary Shares of RM1.00 each and Redeemable Convertible Preference Shares of RM1.00 each

Voting Rights : One vote per Ordinary Share The Redeemable Convertible Preference Shares does not carry any right to vote at any general meeting of the Company except for the purpose of reducing the capital, or winding up, or sanctioning a sale for the purpose of the principal undertaking of the Company, alter the Articles of Association of the Company which affects the rights of the shareholders or where proposition to be submitted to the meeting directly affects the rights of the shareholders.

Analysis of Ordinary Shareholding

Size of No. of % of No. of % of Issued Shareholding Shareholders Shareholders Share Share Capital

Less than 100 98 0.64 2,125 0.00 100 - 1,000 9,369 61.34 9,297,572 2.75 1,001 - 10,000 4,986 32.65 18,537,656 5.49 10,001 - 100,000 746 4.88 20,552,781 6.08 100,001 - 1,000,000 72 0.47 39,033,861 11.55 1,000,001 and above 2 0.01 250,432,732 74.12

Total 15,273 100.00 337,856,727 100.00

Substantial Shareholders (As at 31 March 2006)

No. of % of No. of % of Name of Shareholders RCPS RCPS Ordinary Shares Ordinary Shares

EMPLOYEES PROVIDENT FUND BOARD 140,000,000 84.85 212,932,732 63.02 PERMODALAN NASIONAL BERHAD 25,000,000 15.15 37,500,000 11.10

MBSB Annual Report 2005 Thirty Largest Shareholders (As at 31 March 2006)

Name No. of Shares % of Shares 1. EMPLOYEES PROVIDENT FUND BOARD 212,932,732 63.02 2. PERMODALAN NASIONAL BERHAD 37,500,000 11.10 3. AMANAH RAYA NOMINEES (TEMPATAN) SDN BHD 16,868,815 4.99 SKIM AMANAH SAHAM BUMIPUTERA 4. POSEIDON SENDIRIAN BERHAD 3,860,700 1.14 5. MARY YEOW 1,203,100 0.36 6. ONG TONG PHENG @ ENG AH TOON 837,100 0.25 7. MALAYSIA NOMINEES (TEMPATAN) SENDIRIAN BERHAD 820,800 0.24 PLEDGED SECURITIES ACCOUNT FOR DR DEVA DASSAN SOLOMON 8. M & A NOMINEE (ASING) SDN BHD PEDIGREE LIMITED 747,000 0.22 9. UNIVERSITI MALAYA 655,000 0.19 10. ALLIANCEGROUP NOMINEES (TEMPATAN) SDN BHD 533,000 0.16 ALLIANCE CAPITAL ASSET MANAGEMENT SDN BHD FOR YAYASAN SELANGOR (A/C 3) 11. HLB NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR KHOO TEW CHOON 504,000 0.15 12. HASMI BIN HASNAN 425,100 0.13 13. KOH SAY KOK 421,000 0.12 14. PHUA SENG-MIN 410,600 0.12 15. PHUA SENG HUA 410,600 0.12 16. PHUA SENG TIONG 410,600 0.12 17. CHEW POH LIM 400,000 0.12 18. PHUA LEI SIAN @ PHUA LAY SIAN 384,600 0.11 19. CITIGROUP NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR LEE KIM BOON 361,000 0.11 20. YEAP HOOI HOOI 339,000 0.10 21. RHB NOMINEES (TEMPATAN) SDN BHD RHB ASSET MANAGEMENT SDN BHD FOR YAYASAN SELANGOR 330,000 0.10 22. RHB CAPITAL NOMINEES (TEMPATAN) SDN BHD 330,000 0.10 PLEDGED SECURITIES ACCOUNT FOR FONG SILING (CEB) 23. YEAP CHIN LOON 316,000 0.09 24. TA NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR LEONG LAI NGAN 315,000 0.09 25. PHOA LAY KUAN 302,400 0.09 26. ASAS DUNIA BERHAD 281,000 0.08 27. YEAP MONG SIE 270,200 0.08 28. CITIGROUP NOMINEES (ASING) SDN BHD CBNY FOR DFA EMERGING MARKETS FUND 263,000 0.08 29. TANI LIAU KAU @ THE ENG MONG 250,000 0.07 30. LING TOWI SING @ LING CHOOI SIENG 247,300 0.07

Total Shareholding of the Thirty Largest Shareholders 282,929,647 83.74

MBSB Annual Report 2005 SCHEDULE OF PROPERTIES

HELD BY THE COMPANY AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2005

LOCATION TENURE NO OF EXPIRY AREA DESCRIPTION AGE OF NET BOOK YEARS DATE (SQ METRES) BUILDING VALUE (YEARS) (RM’000) P.T 27758 / HS(D) 93832 Freehold – – 57,362.68 Vacant Land NIL 31,999 P.T 27759 / HS(D) 93833 P.T 29301 / HS(D) 95375 Mukim of Sg Buloh, District of Petaling

PTB 19196-19199 Bandar Yahya Leasehold 99 08.03.2091 84,342.80 Vacant Land NIL 61,000 Awal, Johor Bahru, District of Johor Bahru, Johor

Lot 2947 / GM 296 Freehold – – 47,848.81 Vacant Land NIL 8,197 Lot 2948 / Geran 12622 Mukim of Durian Tunggal District of Alor Gajah

Lot 70, Tanjung Kling Freehold – – 83,159.00 Vacant Land NIL 19,800 Section 11, District of Melaka Tengah

Lot 353, PW 7164 Leasehold 99 29.08.2074 7,048.10 Hotel 8 67,925 Kawasan Bandar VIII District of Melaka Tengah The Legacy Melaka

P.T 86, P.T 87, P.T 88, P.T. 89, Leasehold 99 17.10.2099 38,267.00 Vacant Land NIL 17,245 Bandar Bukit Baru, Section IV, District of Melaka Tengah

P.T 84, Bandar Bukit Baru, Freehold – – 18,715.00 Vacant Land NIL 3,465 Section IV, District of Melaka Tengah

Lot 365,366, P.T 100 Freehold – – 13,233.73 Vacant Land NIL 24,000 P.T 465 & 102, Section 1 Town of Bt Feringgi NED, Penang

Lot 1795, 294, 316, 1544, 1545, Freehold – – 93,629.56 Vacant Land NIL 10,000 1631 & 293, Mukim 9, District of Barat Daya, Penang

MBSB Annual Report 2005 HELD BY THE COMPANY AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2005

LOCATION TENURE NO OF EXPIRY AREA DESCRIPTION AGE OF NET BOOK YEARS DATE (SQ METRES) BUILDING VALUE (YEARS) (RM’000)

No 119, Jalan Macalister Freehold Nil Nil 4,486.66 Heritage 96 11,974 Penang Bungalow

Lot 4145, PT 2955 & 2956 Freehold Nil Nil 5,643.91 Vacant Land Nil 1,000 Mukim Pasir Panjang Port Dickson, N. Sembilan

Lot 3673-3675,3677, Freehold Nil Nil 2,463.00 Vacant Land Nil 696 3678,3681, 3682 & 3684 Mukim 12, Taman Pagan Bayan Lepas, Daerah Barat Daya, Penang

Lot 3112,3113,3114, Leasehold 99 14.9.2083 821.91 Vacant Land Nil 113 3115,3116, Rumah Awam Londang, Alor Gajah, Melaka

Unit A1-5-13, A1-5-12, Freehold Nil Nil 836.09 Condominium 2 1,500 A1-6-11, A1-6-12, A1-7-10, A1-8-12, A1-9-5, A1-9-11, A1-10-11, A1-14-9 Apartment, Halaman Kristal Penang

No E17 & E18, Greenhill Resort Leasehold 99 27.10.2038 185.80 Holiday 10 294 Cameron Highlands,Pahang Apartment

No 163, Jalan Siakap Satu Freehold Nil Nil 501.68 Holiday 18 210 Bt 12, Port Dickson Bungalow N.Sembilan

MBSB Annual Report 2005 SCHEDULE OF PROPERTIES (CONTD.)

HELD BY THE COMPANY AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2005

LOCATION TENURE NO OF EXPIRY AREA DESCRIPTION AGE OF NET BOOK YEARS DATE (SQ METRES) BUILDING VALUE (YEARS) (RM’000)

PT 95 & 96, Mukim Freehold Nil Nil 19,692.00 Vacant Land Nil 680 Sg Karang Kuantan Pahang Landheld MBSB

Lot 142, Section 87A Freehold Nil Nil 1,832.00 Residential 19 3,188 Town & District Bungalow Kuala Lumpur

Lot 143, Section 87A Freehold Nil Nil 1,189.00 Residential 19 1,950 Town & District Bungalow Kuala Lumpur

Taman Delima Raya Melaka Freehold Nil Nil 1,923.00 Shopofﬁ ce 6 1,739 Unit 1, 1-1, 1-2, 3-1, 3-2, 9-1 10-1, 10-2, 11-2, 13-02

Taman Delima Raya Melaka, Freehold Nil Nil 2,733.00 Apartment 6 1,995 Unit 1-3A, 1-3B, 2-3A, 2-3B, 3-3A, 3-3B, 4-3B, 5-3A, 5-3B, 6-3B, 10-3B, 11-3B, 1-4A, 1-4B, 3-4A, 3-4B, 4-4B, 5-4A, 5-4B, 6-4A, 6-4B, 9-4A, 9-4B, 10-4B, 11-4A, 11-4B, 13-3A, 13-3B, 13-4A, 13-4B, 15-3A, 15-3B, 15-4A, 15-4B, 14-4A,14-4B Landheld MBSB

MBSB Annual Report 2005 HELD BY THE COMPANY AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2005

LOCATION TENURE NO OF EXPIRY AREA DESCRIPTION AGE OF NET BOOK YEARS DATE (SQ METRES) BUILDING VALUE (YEARS) (RM’000) No. 177, Freehold Nil Nil 167.22 Ofﬁ ce Building 48 62 Jalan Sultan Idris Shah Ipoh, Perak

Unit A-10, B-10, C-10 Freehold Nil Nil 180.97 Ofﬁ ce Building 6 848 (Front & Back), D-10 (Front & Back) Prima Business Centre Cheras, Kuala Lumpur

No. 12,12-1,12-2, Freehold Nil Nil 125.60 Ofﬁ ce Building 8 685 12-3A,12-3B, 12-4A & 12 4B Delima Raya, Bandar Bukit Baru Section III, Melaka

MBSB Annual Report 2005 SCHEDULE OF PROPERTIES (CONTD.)

HELD BY THE COMPANY AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2005 (BRANCHES NETWORK)

LOCATION TENURE NO OF EXPIRY AREA DESCRIPTION AGE OF NET BOOK YEARS DATE (SQ METRES) BUILDING VALUE (YEARS) (RM’000)

No 48 Jalan Dungun Freehold Nil Nil 1,595.28 Ofﬁ ce Building 20 18,074 Damansara Heights Kuala Lumpur

No 13/15, Leboh Ampang Freehold Nil Nil 265.79 Ofﬁ ce Building 48 1,540 Kuala Lumpur

Lot 104,105,106, Freehold Nil Nil 635.00 Ofﬁ ce Building 6 27,092 115 & 118 Section 12 Leboh Ampang Kuala Lumpur

No 3, Jalan 52/16, Leasehold 99 21.9.2058 174.19 Ofﬁ ce Building 25 771 New Town Centre Petaling Jaya, Selangor

No 74, Jalan Kapar Freehold Nil Nil 352.20 Ofﬁ ce Building 34 35 Klang, Selangor

No S-1, Kompleks Negeri Leasehold 99 30.1.2078 223.72 Ofﬁ ce Building 17 550 Jalan Dato’ Bandar Tunggal Seremban, N.Sembilan

Plot 204 & 205 Leasehold 99 19.8.2075 297.28 Ofﬁ ce Building 9 830 Projek Melaka Raya Melaka

MBSB Annual Report 2005 HELD BY THE COMPANY AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2005 (BRANCHES NETWORK) LOCATION TENURE NO OF EXPIRY AREA DESCRIPTION AGE OF NET BOOK YEARS DATE (SQ METRES) BUILDING VALUE (YEARS) (RM’000)

No A157 & A159 Freehold Nil Nil 265.70 Ofﬁ ce Building 10 551 Jalan Tun Ismail Kuantan, Pahang

Lot 1120C & 1120D Leasehold 66 15.2.2061 294.30 Ofﬁ ce Building 23 630 Jalan Padang Garong Kota Bharu, Kelantan

No 1A, Jalan Air Jerneh Freehold Nil Nil 197.00 Ofﬁ ce Building 8 935 Kuala Terengganu, Terengganu

No 114A-C, Jalan Pengkalan Leasehold 99 14.11.2092 130.06 Ofﬁ ce Building 10 347 Susur Kiri, Taman Pekan Baru Sungai Petani, Kedah

No 1578, Jalan Kota Leasehold 60 14.10.2029 120.87 Ofﬁ ce Building 33 316 Alor Setar, Kedah

No 43/47, Jalan Pinang Freehold Nil Nil 163.22 Ofﬁ ce Building 48 5 Pulau Pinang

No 2783, Jalan Chain Freehold Nil Nil 148.65 Ofﬁ ce Building 8 633 Ferry, Taman Inderawasih Prai

No 45, Persiaran Greenhill Freehold Nil Nil 222.96 Ofﬁ ce Building 11 504 Ipoh, Perak

MBSB Annual Report 2005 BRANCH NETWORK

NOTHERN CENTRAL SOUTHERN EAST COAST Alor Setar Leboh Ampang Seremban Kuantan 1578, Jalan Kota, Bangunan MBSB, S-1, Kompleks Negeri, A157 & A159 05000 Alor Setar, Pusat Bandar, Jalan Dato’ Bandar Tunggal, Sri Dagangan, Kedah Darul Aman. 13/15 Leboh Ampang, 70000 Seremban, Jalan Tun Ismail, Tel : 04-731 4655 50100 Kuala Lumpur. Negeri Sembilan 25000 Kuantan, Fax : 04-731 7996 Tel : 03-2031 9599 Darul Khusus Pahang Darul Makmur. Fax : 03-2031 9526 Tel : 06-763 8455 Tel : 09-515 7677 Sungai Petani Fax : 06-763 0701 Fax : 09-514 5060 114, Jalan Pengkalan, Damansara Taman Pekan Baru. Ground Floor, Malacca Kuala Terengganu 08000 Sungai Petani, Wisma MBSB, Plots 203 & 204, 1A, Jalan Air Jernih, Kedah Darul Aman. 48, Jalan Dungun, Projek Melaka Raya, 20300 Kuala Terengganu, Tel : 04-422 9302 Damansara Heights, Jalan Taman, Terengganu Darul Iman. Fax : 04-421 2046 50490 Kuala Lumpur. Off Jalan Bandar Hilir, Tel : 09-622 7844 Tel : 03-2095 4044 75000 Melaka. Fax : 09-622 0744 Bayan Baru Fax : 03-2095 4022 Tel : 06-282 8255 Ground Floor, Fax : 06-284 7270 Kota Bharu 31, Lorong Mayang Pasir 5, Petaling Jaya Ground Floor, 1120-C&D, Taman Sri Tunas, 3, Jalan 52/16, Batu Pahat Jalan Padang Garong, 11950 Bayan Baru, 46200 Petaling Jaya, 37-4, Jalan Rahmat, 15000 Kota Bharu, Penang. Selangor Darul Ehsan. 83000 Batu Pahat, Kelantan Darul Naim. Tel : 04-642 9862 Tel : 03-7956 9200 Johor Darul Takzim. Tel : 09-746 1197 Fax : 04-642 9866 Fax : 03-7956 9627 Tel : 07-431 6614 Fax : 09-748 3940 Fax : 07-431 7382 Penang Klang EAST MALAYSIA 43/47, Jalan Pinang, 74, Jalan Kapar, 41400 Klang, Kluang 10000 Penang. Selangor Darul Ehsan. 6, Lot 9053, Kuching Tel : 04-263 6275 Tel : 03-3342 6822 Jalan Haji Manan, Ground Floor & 1st Floor, Fax : 04-261 6548 Fax : 03-3341 3611 86000 Kluang, Tunku Muhammad Johor Darul Takzim Al Idrus Building, Butterworth Cheras Tel : 07-771 7585 439, Jalan Kulas Utara 1, 2783, Jalan Chain Ferry, 185, Jalan Sarjana, Fax : 07-772 6572 93400 Kuching, Sarawak. Taman Inderawasih, Taman Connaught, Tel : 082-248 240 13600 Prai, 56000 Cheras, Masai Fax : 082-248 611 Penang. Kuala Lumpur 28, Jalan Mawar, Tel : 04-398 0145 Tel : 03-9132 2955 81750 Masai, Kota Kinabalu Fax : 04-398 0898 Fax : 03-9132 2954 Johor Darul Takzim Lot CG. 14, Tel : 07-252 8700 Tingkat Bawah, Block C Ipoh Selayang Fax : 07-252 8703 Bangunan KWSP 45, Persiaran Greenhill, 95, Jalan 2/3A, Karamuasing, 30450 Ipoh, Pusat Bandar Utara, Johor Bahru 88598 Kota Kinabalu, Sabah Perak Darul Ridzuan. 68100 Batu Caves, 1st & 2nd Floor, Tel : 088-231 309 Tel : 05-254 5659 Selangor Darul Ehsan. Bangunan KWSP, Fax : 088-231 315 Fax : 05-254 4748 Tel : 03-6136 8682 Jalan Dato’ Dalam, Fax : 03-6136 8679 80000 Johor Bahru, Johor Darul Takzim Tel : 07-223 8977 44 Fax : 07-224 0143

MBSB Annual Report 2005 DIRECTORS’ REPORT 46 - 48 STATEMENT BY DIRECTORS 49 STATUTORY DECLARATION 49 REPORT OF THE AUDITORS 50 FINANCIAL BALANCE SHEETS 51 - 52 STATEMENTS INCOME STATEMENTS 53 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 54 STATEMENT OF CHANGES IN EQUITY 55 CASH FLOW STATEMENTS 56 - 58 NOTES TO THE FINANCIAL STATEMENTS 59 - 133

MBSB Annual Report 2005 DIRECTORS’ REPORT

The directors have pleasure in presenting their report together with the audited ﬁ nancial statements of the Group and of the Company for the ﬁ nancial year ended 31 December 2005.

PRINCIPAL ACTIVITIES

The principal activities of the Company are the granting of loans on the security of freehold and leasehold properties and provision of retail fi nancing and related services. The principal activities of the subsidiaries are property development, hospitality services, project management, letting of real property and investment holding. There have been no signifi cant changes in the nature of the principal activities during the fi nancial year other than Sigmaprise Sdn. Bhd., having commenced hospitality services.

RESULTS

Group Company RM’000 RM’000

Net proﬁ t for the year 38,786 39,398

There were no material transfers to or from reserves or provisions during the ﬁ nancial year other than as disclosed in the statements of changes in equity. In the opinion of the directors, the results of the operations of the Group and of the Company during the ﬁ nancial year were not substantially affected by any item, transaction or event of a material and unusual nature.

DIVIDENDS The amount of dividends paid by the Company since 31 December 2004 were as follows: RM’000 In respect of the ﬁ nancial year ended 31 December 2004 as reported in the directors’ report of that year:

- Dividend of 4% less 28% taxation on 165,000,000 Redeemable Convertible Preference Shares (“RCPS”) for the period from issue date of the RCPS to 31 December 2003, paid on 28 February 2005 4,752 - Dividend of 4% less 28% taxation on 165,000,000 RCPS for the period from 1 January 2004 to 31 December 2004, paid on 28 February 2005 4,752 - First and fi nal dividend of 2% less 28% taxation on 337,856,727 ordinary shares, declared on 1 June 2005 and paid on 17 June 2005 4,865 14,369 In respect of the fi nancial year ended 31 December 2005: - Dividend of 4% less 28% taxation on 165,000,000 RCPS for the period from 1 January 2005 to 31 December 2005, paid on 28 February 2006 4,752 At the forthcoming Annual General Meeting, a fi rst and fi nal dividend in respect of the fi nancial year ended 31 December 2005, of 2.5% less 28% taxation on 337,856,727 ordinary shares, amounting to a dividend payable of RM6,081,421 (1.8 sen net per ordinary share) will be proposed for shareholders’ approval. The fi nancial statements for the current fi nancial year do not refl ect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in equity as an appropriation of accumulated losses in the fi nancial year ending 31 December 2006. 46

MBSB Annual Report 2005 DIRECTORS The names of the directors of the Company in ofﬁ ce since the date of the last report and at the date of this report are:

YBhg Tan Sri Abdul Halim bin Ali YBhg Datuk Haji A. Rahim bin Abdullah YBhg Datuk Abdullah bin Haji Kuntom Encik Lau Tiang Hua Tuan Syed Zaid bin Syed Jaffar Albar Puan Cindy Tan Ler Chin Encik Khalid bin Haji Sufat (appointed on 18 August 2005) Encik Aw Hong Boo (appointed on 10 November 2005) YBhg Datuk Azlan bin Mohd Zainol (resigned on 1 August 2005)

DIRECTORS’ BENEFITS

Neither at the end of the fi nancial year, nor at any time during that year, did there subsist any arrangement to which the Company or its subsidiaries was a party, whereby the directors might acquire benefi ts by means of the acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the previous fi nancial year, no director has received or become entitled to receive a benefi t (other than benefi ts included in the aggregate amount of emoluments received or due and receivable by the directors as shown in Note 29 to the fi nancial statements or the fi xed salary of a full-time employee of the Company) by reason of a contract made by the Company or a related corporation with any director or with a fi rm of which the director is a member, or with a company in which the director has a substantial fi nancial interest.

DIRECTORS’ INTERESTS None of the directors in offi ce at the end of the fi nancial year had any interest in shares in the Company or its related corporations during the fi nancial year.

EMPLOYEE SHARE OPTION SCHEME

The Malaysia Building Society Berhad Employee Share Option Scheme (“ESOS”) is governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held on 23 June 2003. The ESOS was implemented on 26 September 2003 and is to be in force for a period of 5 years from the date of implementation. The salient features and other terms of the ESOS are disclosed in Note 22(a) to the ﬁ nancial statements. No employees were granted options to subscribe for ordinary shares during the ﬁ nancial year.

MBSB Annual Report 2005 DIRECTORS’ REPORT (CONTD.)

OTHER STATUTORY INFORMATION

(a) Before the balance sheets and income statements of the Group and of the Company were made out, the directors took reasonable steps: (i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satis ﬁ ed themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts; and (ii) to ensure that any current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.

(b) At the date of this report, the directors are not aware of any circumstances which would render: (i) the amount written off for bad debts or the amount of the provision for doubtful debts in the ﬁ nancial statements of the Group and of the Company inadequate to any substantial extent; and (ii) the values attributed to the current assets in the ﬁ nancial statements of the Group and of the Company misleading.

(c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing methods of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. (d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or ﬁ nancial statements of the Group and of the Company which would render any amount stated in the ﬁ nancial statements misleading.

(e) As at the date of this report, there does not exist: (i) any charge on the assets of the Group or of the Company which has arisen since the end of the ﬁ nancial year which secures the liabilities of any other person; or

(ii) any contingent liability of the Group or of the Company which has arisen since the end of the fi nancial year other than those arising in the normal course of business of the Group and of the Company. (f) In the opinion of the directors: (i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the fi nancial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and (ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the fi nancial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the fi nancial year in which this report is made.

SIGNIFICANT EVENT The signiﬁ cant event is as disclosed in Note 37 to the ﬁ nancial statements.

AUDITORS

The auditors, Ernst & Young, have expressed their willingness to continue in ofﬁ ce. Signed on behalf of the Board in accordance with a resolution of the directors.

Tan Sri Abdul Halim bin Ali Lau Tiang Hua Chairman Director

Kuala Lumpur, Malaysia 28 March 2006

MBSB Annual Report 2005 STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965

We, Tan Sri Abdul Halim bin Ali and Lau Tiang Hua, being two of the directors of Malaysia Building Society Berhad, do hereby state that, in the opinion of the directors, the accompanying fi nancial statements set out on pages 51 to 133 are drawn up in accordance with applicable MASB Approved Accounting Standards in Malaysia and the provisions of the Companies Act, 1965 so as to give a true and fair view of the fi nancial position of the Group and of the Company as at 31 December 2005 and of the results and the cash fl ows of the Group and of the Company for the year then ended.

Signed on behalf of the Board in accordance with a resolution of the directors.

Tan Sri Abdul Halim bin Ali Lau Tiang Hua Chairman Director

Kuala Lumpur, Malaysia 28 March 2006

STATUTORY DECLARATION PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965

I, Tang Yow Sai, being the offi cer primarily responsible for the fi nancial management of Malaysia Building Society Berhad, do solemnly and sincerely declare that the accompanying fi nancial statements set out on pages 51 to 133 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, l960.

Subscribed and solemnly declared by the abovenamed Tang Yow Sai at Kuala Lumpur in the Federal Territory on 28 March 2006 Tang Yow Sai

Before me,

MBSB Annual Report 2005 REPORT OF THE AUDITORS TO THE MEMBERS OF MALAYSIA BUILDING SOCIETY BERHAD (Incorporated in Malaysia)

We have audited the fi nancial statements set out on pages 51 to 133. These fi nancial statements are the responsibility of the Company’s directors. It is our responsibility to form an independent opinion, based on our audit, on the fi nancial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report. We conducted our audit in accordance with applicable Approved Standards on Auditing in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fi nancial statements. An audit also includes assessing the accounting principles used and signifi cant estimates made by the directors, as well as evaluating the overall presentation of the fi nancial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion:

(a) the ﬁ nancial statements have been properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable MASB Approved Accounting Standards in Malaysia so as to give a true and fair view of:

(i) the ﬁ nancial position of the Group and of the Company as at 31 December 2005 and of the results and the cash ﬂ ows of the Group and of the Company for the year then ended; and

(ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the ﬁ nancial statements; and

(b) the accounting and other records and the registers required by the Act to be kept by the Company and by its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.

We have considered the fi nancial statements and the auditors’ report thereon of the subsidiary of which we have not acted as auditors, as indicated in Note 10 to the fi nancial statements, being fi nancial statements that have been included in the consolidated fi nancial statements. We are satisfi ed that the fi nancial statements of the subsidiaries that have been consolidated with the fi nancial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated fi nancial statements and we have received satisfactory information and explanations required by us for those purposes. The auditors’ reports on the fi nancial statements of the subsidiaries were not subject to any qualifi cation and in respect of the subsidiaries incorporated in Malaysia, did not include any comment required to be made under Section 174(3) of the Act.

Ernst & Young Wong Kang Hwee AF: 0039 No. 1116/01/08(J) Chartered Accountants Partner

Kuala Lumpur, Malaysia 28 March 2006

MBSB Annual Report 2005 BALANCE SHEETS AS AT 31 DECEMBER 2005

Group Company Note 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

ASSETS Cash and short term funds 3 134,407 200,692 125,806 196,284 Trade receivables 4 26,078 11,498 - - Other receivables 5 111,072 111,062 80,474 71,985 Inventories 6 20,390 28,187 - - Property development costs 11(b) - 4,864 - - Loans, advances and ﬁ nancing 7 4,264,697 3,788,299 4,365,180 3,739,804 Other investments 8 43,598 1,400 43,598 1,400 Loans to subsidiaries 9 - - 139,890 141,234 Investments in subsidiaries 10 - - 74,968 72,316 Land held for property development 11(a) 159,070 237,491 54,545 54,545 Property, plant and equipment 12 140,976 142,280 9,618 6,377 Deferred tax assets 19 20,000 10,000 20,000 10,000 TOTAL ASSETS 4,920,288 4,535,773 4,914,079 4,293,945

LIABILITIES AND SHAREHOLDERS’ EQUITY Bank borrowings 13 804,828 1,212,077 804,828 1,212,077 Deposits from customers 14 3,357,782 2,125,484 3,357,782 2,125,484 Other borrowings 15 250,033 496,037 250,033 496,037 Trade payables 16 15,699 30,141 - - Other payables 17 39,881 237,886 53,146 36,019 Property development costs 11(b) - 460 - - Provision for taxation 18,633 18,633 18,584 18,584 Recourse obligation on loans sold to Cagamas Berhad 18 16,068 17,676 16,068 17,676 Deferred tax liabilities 19 25,890 28,225 - - Redeemable convertible preference shares 20 12,192 21,155 12,192 21,155 Provision for liabilities 21 3,610 6,248 - - TOTAL LIABILITIES 4,544,616 4,194,022 4,512,633 3,927,032

MBSB Annual Report 2005 BALANCE SHEETS AS AT 31 DECEMBER 2005 (CONTD.)

Group Company Note 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Share capital 22 502,856 502,856 502,856 502,856 Share premium 660,922 660,922 660,922 660,922 Capital reserve 17,838 17,838 17,838 17,838 Capital redemption reserve 12,486 12,486 12,486 12,486 Accumulated losses (818,430 ) (852,351 ) (792,656 ) (827,189 ) SHAREHOLDERS’ EQUITY 375,672 341,751 401,446 366,913

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 4,920,288 4,535,773 4,914,079 4,293,945

The accompanying notes form an integral part of the ﬁ nancial statements.

MBSB Annual Report 2005 INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

Group Company Note 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Operating revenue 23 229,452 198,536 213,981 174,615

Interest income 24 196,124 181,525 193,539 167,194 Interest expense 25 (148,897 ) (150,151 ) (133,919 ) (131,336 ) Net interest income 47,227 31,374 59,620 35,858 Net income from Islamic banking operations 41 7,991 2,868 7,991 2,868 55,218 34,242 67,611 38,726 Other operating income 26 21,083 29,038 6,037 18,358 76,301 63,280 73,648 57,084 (Property development costs)/reversal of property development costs 11(b) (2,635 ) 5,750 - - Cost of completed properties sold (5,896 ) (3,555 ) - - Other operating expenses 27 (55,720 ) (41,087 ) (46,962 ) (30,696 ) Operating profi t 12,050 24,388 26,686 26,388 Reversal of/(allowance for) losses on loans and fi nancing 30 13,416 (1,703 ) 1,727 (1,788 ) Profi t before taxation 25,466 22,685 28,413 24,600 Taxation 31 13,320 9,065 10,985 13,085 Net profi t before minority interest 38,786 31,750 39,398 37,685 Minority interest - - - - Net profi t for the year 38,786 31,750 39,398 37,685

Earnings per share (sen)

Basic 32(a) 11.48 9.40 Diluted 32(b) 5.89 4.83

The accompanying notes form an integral part of the ﬁ nancial statements.

MBSB Annual Report 2005 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005

Group <----Share Capital----> <------Non Distributable------>

Capital Redemption Reserve - Redeemable Redeemable Convertible Cumulative Ordinary Preference Share Capital Preference Accumulated Shares Shares Premium Reserve Shares Losses Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2004 337,856 165,000 652,695 17,838 12,486 (884,101 ) 301,774

Reclassiﬁ cation (Note 20) - - 8,227 - - - 8,227 Net proﬁ t for the year - - - - - 31,750 31,750 At 31 December 2004 337,856 165,000 660,922 17,838 12,486 (852,351 ) 341,751

Net proﬁ t for the year - - - - - 38,786 38,786 Dividend - - - - - (4,865 ) (4,865 ) At 31 December 2005 337,856 165,000 660,922 17,838 12,486 (818,430 ) 375,672

Capital redemption reserve arose out of the redemption of redeemable cumulative preference shares and is not distributable as cash dividends.

The accompanying notes form an integral part of the ﬁ nancial statements.

MBSB Annual Report 2005 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005

Company <----Share Capital----> <------Non Distributable------>

At 1 January 2004 337,856 165,000 652,695 17,838 12,486 (864,874 ) 321,001

Reclassifi cation (Note 20) - - 8,227 - - - 8,227 Net profi t for the year - - - - - 37,685 37,685 At 31 December 2004 337,856 165,000 660,922 17,838 12,486 (827,189 ) 366,913 Net profi t for the year - - - - - 39,398 39,398 Dividend - - - - - (4,865 ) (4,865 ) At 31 December 2005 337,856 165,000 660,922 17,838 12,486 (792,656 ) 401,446

Capital reserve arose out of the transfer of the reserves of Malaya Borneo Building Society Limited as at 29 February 1972 to the Company on 1 March 1972 via a Scheme of Arrangement and is not distributable as cash dividends. Capital redemption reserve arose out of the redemption of redeemable cumulative preference shares and is not distributable as cash dividends.

The accompanying notes form an integral part of the ﬁ nancial statements.

MBSB Annual Report 2005 CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 CASH FLOWS FROM OPERATING ACTIVITIES

Profi t before taxation 25,466 22,685 28,413 24,600 Adjustments for: Depreciation 8,353 7,579 1,376 651 Gain on disposal of property, plant and equipment (166 ) (6,053 ) (164 ) (6,053 ) Gain on disposal of land held for property development (1,700 ) (6,900 ) - (6,900 ) Reversal of provision for anticipated losses on projects - (18,203 ) - - Write down of inventories of completed properties 2,031 622 - - Reversal of provision for staff benefi t - (8,658 ) - (8,479 ) Impairment loss on: - investments in unquoted shares 872 - 872 - - land held for property development 1,263 148 - 148 - property, plant and equipment 1,975 - - - Reversal of impairment loss on: - investments in subsidiaries - - (2,652 ) (4,352 ) - land held for property development (694 ) (6,093 ) (694 ) - Provision for doubtful debts of: - amount due from/loans to subsidiaries - - 11,292 1,475 - other receivables 13,296 1,850 1,655 3,887 - trade receivables 1,802 6,047 - - Bad debts written back (1,299 ) - - - Discount received (6,040 ) - - - Allowance for losses on loans and fi nancing, net of reversals (13,416 ) 1,703 (1,727 ) 1,788 Interest/income-in-suspense, net of recoveries and write offs 402,329 381,480 417,050 410,361 Liquidated damages payable 229 3,186 - -

MBSB Annual Report 2005

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 CASH FLOWS FROM OPERATING ACTIVITIES (CONTD.)

Operating proﬁ t before working capital changes 434,301 379,393 455,421 417,126 Increase in loans, advances and ﬁ nancing (1,102,788 ) (932,958 ) (1,118,221 ) (946,212 ) Decrease in inventories 5,766 3,166 - - Decrease/(Increase) in receivables 12,026 12,170 34,659 (1,182 ) Increase in amount due from/to subsidiaries - - (3,949 ) (753 ) (Decrease)/Increase in bank borrowings (407,249 ) 166,005 (407,249 ) 166,005 Increase in deposits from customers 1,232,298 957,417 1,232,298 957,417 Increase/(Decrease) in payables 14,211 (1,512 ) 2,814 9,699 Decrease in provision for liabilities (2,867 ) - - - (Increase)/Decrease in property development costs (5,301 ) 12,283 - - Cash generated from operations 180,397 595,964 195,773 602,100 Taxes refunded/(paid) 985 (296 ) 985 (296 ) Net cash generated from operating activities 181,382 595,668 196,758 601,804

CASH FLOWS FROM INVESTING ACTIVITIES

Land held for property development (70 ) 3,548 - - Purchase of property, plant and equipment (5,282 ) (6,264 ) (875 ) (6,264 ) Proceeds from disposal of property, plant and equipment 166 6,149 164 6,149 Proceeds from disposal of land held for property development 19,500 2,600 - 2,600 Net cash generated from/(used in) investing activities 14,314 6,033 (711 ) 2,485

MBSB Annual Report 2005 CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 (CONTD.)

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of other borrowings (246,004 ) (513,456 ) (246,004 ) (513,456 ) Recourse obligation on loans sold to Cagamas Berhad (1,608 ) (47,228 ) (1,608 ) (47,228 ) Dividends paid - Redeemable Convertible Preference Shares (9,504 ) - (9,504 ) - Dividends paid - ordinary shares (4,865 ) - (4,865 ) - Loans to subsidiaries - - (4,544 ) 5,067 Net cash used in ﬁ nancing activities (261,981 ) (560,684 ) (266,525 ) (555,617 )

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (66,285 ) 41,017 (70,478 ) 48,672 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 200,692 159,675 196,284 147,612 CASH AND CASH EQUIVALENTS AT END OF YEAR 134,407 200,692 125,806 196,284

Cash and cash equivalents comprise:

Cash and short term funds 134,407 200,692 125,806 196,284

The accompanying notes form an integral part of the ﬁ nancial statements.

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

1. CORPORATE INFORMATION The principal activities of the Company are the granting of loans on the security of freehold and leasehold properties and provision of retail fi nancing and related services. The principal activities of the subsidiaries are property development, hospitality services, project management, letting of real property and investment holding. There have been no signifi cant changes in the nature of the principal activities during the fi nancial year other than Sigmaprise Sdn. Bhd., having commenced hospitality services. The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Board of Bursa Malaysia Securities Berhad. The registered offi ce of the Company is located at 11th Floor, Wisma MBSB, 48 Jalan Dungun, Damansara Heights, 50490 Kuala Lumpur. The holding and ultimate holding body of the Company is the Employees Provident Fund Board, a statutory body established in Malaysia. The number of employees in the Group and in the Company at the end of the fi nancial year were 696 (2004: 519) and 565 (2004: 519) respectively. The fi nancial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 28 March 2006.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation The fi nancial statements of the Group and of the Company have been prepared under the historical cost convention and comply with the provisions of the Companies Act, 1965 and applicable MASB Approved Accounting Standards in Malaysia. The fi nancial statements incorporate those activities relating to Islamic banking operations which have been undertaken by the Group and by the Company. Islamic banking operations refers generally to the acceptance of deposits and granting of fi nancing under the principles of Shariah.

(b) Basis of Consolidation The consolidated fi nancial statements include the fi nancial statements of the Company and all its subsidiaries. Subsidiaries are those entities in which the Group has power to exercise control over the fi nancial and operating policies so as to obtain benefi ts from their activities. Subsidiaries are consolidated using the acquisition method of accounting. Under the acquisition method of accounting, the results of subsidiaries acquired or disposed of during the fi nancial year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. The assets and liabilities of the subsidiaries are measured at their fair values at the date of acquisition. The difference between the cost of an acquisition and the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition is included in the consolidated balance sheet as goodwill or negative goodwill arising on consolidation. 59

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

(b) Basis of Consolidation (Contd.) Intra-group transactions, balances and resulting unrealised gains are eliminated on consolidation and the consolidated fi nancial statements refl ect external transactions only. Unrealised losses are eliminated on consolidation unless costs cannot be recovered. The gain or loss on disposal of a subsidiary company is the difference between net disposal proceeds and the Group’s share of its net assets together with any unamortised balance of goodwill and exchange differences. Minority interests in the consolidated balance sheet consist of the minorities’ share of the fair value of the identifi able assets and liabilities of the acquiree as at acquisition date and the minorities’ share of movements in the acquiree’s equity since then.

Goodwill represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identiﬁ able assets and liabilities of a subsidiary at the date of acquisition. Goodwill is stated at cost less accumulated amortisation and impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(p). Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet.

(d) Investments in Subsidiaries

The Company’s investments in subsidiaries are stated at cost less impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(p). On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is recognised in the income statement.

(e) Interest on Loans, Advances and Financing In respect of end ﬁ nance, interest receivable is computed at monthly rests. Interest debited to the loans account in any month is based on the balance at the end of the previous month, and on loans disbursed during the month, interest is computed from the day of disbursement to the end of the month in which it is made. In the case of bridging and term loans, interest receivable is computed on monthly rests so that interest debited to the bridging and term loans account in any month is based on the balance at the end of the previous month, and on loans disbursed during the month, interest is computed from the day of disbursement to the end of the month in which it is made.

MBSB Annual Report 2005 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

(f) Revenue Recognition Revenue is recognised when it is probable that the economic beneﬁ ts associated with the transaction will ﬂ ow to the enterprise and the amount of the revenue can be measured reliably.

(i) Interest and Financing Income Interest income and income from the Islamic banking operations are recognised on an accrual basis. Where an account is classifi ed as non-performing, interest is suspended with retrospective adjustment made to the date of fi rst default until it is realised on a cash basis. Customers’ accounts are classifi ed as non-performing where repayments are in arrears for six (6) months or more.

(ii) Sale of properties Revenue from sale of properties is accounted for by the stage of completion method as described in Note 2(j).

(iii) Others Loans arrangement fees and commissions and insurance fees are recognised as income based on contractual arrangements. Commitment fees are recognised as income based on time apportionment. Income from project management is recognised as and when the services are rendered. Revenue from rental of hotel rooms, sale of food and beverage, group tours and hotel arrangements, are recognised upon invoice being issued and services rendered. Rental income is recognised on an accrual basis.

(g) Allowance for Bad and Doubtful Debts

Specifi c allowances are made for bad and doubtful debts which have been individually reviewed and specifi cally identifi ed as bad and doubtful. In the case of loans advanced for joint venture developments where the actual moratorium period is six (6) months or more and where the collateral valued on an estimated realisable basis is lower than the principal amount outstanding, specifi c allowances equivalent to the defi cit are made. In addition, a general allowances based on a percentage of loan receivable is also made to cover possible losses which are not specifi cally identifi ed. An uncollectable loan or portion of a loan classifi ed as bad is written off after taking into consideration the realisable value of collateral, if any, by the directors where in the judgement of the management, there is no prospect of recovery.

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

(h) Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(p). Freehold land is not depreciated. Leasehold land is depreciated over the period of the respective leases which range from 73 years to 999 years. Depreciation of other property, plant and equipment is provided for on a straight-line basis to write off the cost of each asset to its residual value over the estimated useful life, at the following annual rates: Buildings 2.5% Building renovation 20.0% Furniture and equipment 20.0% Motor vehicles 20.0% Data processing equipment 20.0% Upon the disposal of an item of property, plant and equipment, the difference between the net disposal proceeds and the net carrying amount is recognised in the income statement. (i) Employee Benefi ts (i) Short term benefi ts Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences. Short term non-accumulating compensated absences such as sick leave are recognised when the absences occur. (ii) Defi ned contribution plans As required by law, companies in Malaysia make contributions to the Employees Provident Fund (“EPF”). In previous fi nancial years, the Group also contributes 4% of gross salary of participating employees to the Malaysia Building Society Berhad Staff Provident Fund (“SPF”). Such contributions are recognised as an expense in the income statement as incurred. In the current fi nancial year, the SPF contributions had been discontinued. (iii) Equity compensation benefi ts The Malaysia Building Society Berhad Employee Share Option Scheme (“ESOS”) allows the Group’s employees (including executive directors) other than subsidiaries which are dormant, to acquire ordinary shares of the Company. No compensation cost or obligation is recognised. When the options are exercised, equity is increased by the amount of the proceeds received. 62

MBSB Annual Report 2005 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

(j) Land Held for Property Development and Property Development Costs

(i) Land held for property development Land held for property development consists of land where no development activities have been carried out or where development activities are not expected to be completed within the normal operating cycle. Such land is stated at cost less any accumulated impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(p). Land held for property development is reclassiﬁ ed as property development costs at the point when development activities have commenced and where it can be demonstrated that the development activities can be completed within the normal operating cycle.

(ii) Property development costs Property development costs comprise all costs that are directly attributable to development activities or that can be allocated on a reasonable basis to such activities. When the fi nancial outcome of a development activity can be reliably estimated, property development revenue and expenses are recognised in the income statement by using the stage of completion method. The stage of completion is determined by the proportion that property development costs incurred for work performed to date bear to the estimated total property development costs. Where the fi nancial outcome of a development activity cannot be reliably estimated, property development revenue is recognised only to the extent of property development costs incurred that is probable will be recoverable, and property development costs on properties sold are recognised as an expense in the period in which they are incurred. Any expected loss on a development project, including costs to be incurred over the defects liability period, is recognised as an expense immediately. Property development costs not recognised as an expense are recognised as an asset, which is measured at the lower of cost and net realisable value. The excess of revenue recognised in the income statement over billings to purchasers is classifi ed as accrued billings within trade receivables and the excess of billings to purchasers over revenue recognised in the income statement is classifi ed as progress billings within trade payables.

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (k) Inventories Inventories of completed properties are stated at the lower of cost (determined on the specifi c identifi cation basis) and net realisable value. Cost include costs of land, construction and appropriate development overheads. Hotel inventories comprising food, beverage and hotel supplies are stated at the lower of cost (determined on the fi rst-in, fi rst-out basis) and net realisable value. Net realisable value represents the estimated selling price less all estimated costs necessary to make the sale.

(l) Provisions for Liabilities Provisions for liabilities are recognised when the Group has a present obligation as a result of a past event and it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to refl ect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditure expected to be required to settle the obligation.

(m) Liabilities

Deposits from customers, bank and ﬁ nancial institutions are stated at placement values. Other liabilities are stated at cost which is the fair value of the consideration to be paid in the future for goods and services received.

(n) Income Tax Income tax on the profi t or loss for the year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profi t for the year and is measured using the tax rates that have been enacted at the balance sheet date. Deferred tax is provided for, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts in the fi nancial statements. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profi t will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax is not recognised if the temporary difference arises from goodwill or negative goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profi t nor taxable profi t. Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised in the income statement, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is recognised directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill or negative goodwill. 64

MBSB Annual Report 2005 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (o) Cash and Cash Equivalents For the purposes of the cash ﬂ ow statements, cash and cash equivalents include cash on hand and at banks, deposits at call and short term highly liquid investments which have an insigniﬁ cant risk of changes in value, net of outstanding bank overdrafts.

(p) Impairment of Assets

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication of impairment. If any such indication exists, impairment is measured by comparing the carrying values of the assets with their recoverable amounts. Recoverable amount is the higher of net selling price and value in use, which is measured by reference to discounted future cash ﬂ ows. An impairment loss is recognised as an expense in the income statement immediately, unless the asset is carried at a revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to the extent of any unutilised previously recognised revaluation surplus for the same asset.

(q) Other Investments Investments other than investments in subsidiaries are stated at cost less impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(p). On disposal of an investment, the difference between net disposal proceeds and its carrying amount is recognised in the income statement.

(r) Trade and Other Receivables Trade and other receivables are carried at anticipated realisable values. Bad debts are written off when identiﬁ ed. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the balance sheet date.

(s) Trade Payables Trade payables are stated at cost which is the fair value of the consideration to be paid in the future for goods and services received.

(t) Interest-Bearing Borrowings Interest-bearing borrowings are recorded at the amount of proceeds received, net of transaction costs. Borrowing costs directly attributable to land held for property development and property development costs are capitalised during the period of active development until they are ready for their intended purpose. All other borrowing costs are recognised as an expense in the income statement in the period in which they are incurred.

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (u) Redeemable Convertible Preference Shares Redeemable Convertible Preference Shares (“RCPS”) are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated based on the present value of the dividend obligations. The difference between the proceeds of issue of the RCPS and the fair value assigned to the liability component, representing the conversion option, is included in equity. The liability component is subsequently stated at cost adjusted for the present value of the dividend obligation when the dividend is paid, until extinguished on conversion or redemption whilst the value of the equity component is not adjusted in subsequent periods.

(v) Equity Instruments

Ordinary shares are classiﬁ ed as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared.

The transaction costs of an equity transaction are accounted for as a deduction from equity, net of tax. Equity transaction costs comprise only those incremental external costs directly attributable to the equity transaction which would otherwise have been avoided.

(w) Financial Instruments

Financial instruments are recognised in the balance sheet when the Group has become a party to the contractual provisions of the instrument. The accounting policies on recognition and measurement of these items are disclosed in their respective accounting policies.

Financial instruments are classifi ed as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends and gains and losses relating to a fi nancial instrument classifi ed as a liability, are reported as expense or income. Distributions to holders of fi nancial instruments classifi ed as equity are recognised directly in equity. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously.

MBSB Annual Report 2005 3. CASH AND SHORT TERM FUNDS

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Cash in hand 804 300 801 296 Cash at banks 15,350 19,080 6,752 14,676 Deposits with: Licensed banks 77,253 - 77,253 - Other ﬁ nancial institutions 41,000 181,312 41,000 181,312 134,407 200,692 125,806 196,284

Included in cash at banks of the Group is an amount of RM5,689,000 (2004: RM2,614,000) held pursuant to Section 7A of the Housing Development (Control and Licensing) Act, 1966 and therefore restricted from use in other operations.

The weighted average effective interest rates of deposits with licensed banks and other ﬁ nancial institutions at the balance sheet date were 3.05% and 2.75% respectively (2004: Nil% and 2.65%).

The average maturities of deposits with licensed banks and other ﬁ nancial institutions as at the end of the ﬁ nancial year were 26 days and 15 days respectively (2004: Nil and 4 days).

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

4. TRADE RECEIVABLES

Group 2005 2004 RM’000 RM’000

Trade receivables 30,896 28,638 Accrued billings in respect of property development costs 8,544 4,125 Amount transferred from property development costs (Note 11(b)) 9,705 -

49,145 32,763 Less: Provision for doubtful debts (23,067 ) (21,265 ) 26,078 11,498

Included in trade receivables are retention sums on contracts amounting to RM448,000 (2004: RM482,000).

Both the accrued billings in respect of property development costs in the current ﬁ nancial year and the amount transferred from property development costs are due from a corporate shareholder of a subsidiary, JKP Sdn. Bhd. (“JKP”) for Phase 1A-1 and 1A-2, Bandar Baru Air Putih, Penang development project (“the Project”). As described in Note 11(b), the transfer was made to reﬂ ect part of the proceeds receivable from JKP pursuant to a Rehabilitation and Project Management Agreement entered into on 31 May 2004.

The Group’s normal trade credit terms range from 7 to 30 (2004: 7 to 30) days. Other credit terms are assessed and approved on a case-by-case basis.

The Group has no signiﬁ cant concentration of credit risk within trade receivables that may arise from exposures to a single debtor or to groups of debtors other than the accrued billings in respect of property development costs and the amount transferred from property development costs which are due from a corporate shareholder of a subsidiary.

MBSB Annual Report 2005 5. OTHER RECEIVABLES

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Unsecured advances for joint ventures in respect of privatisation projects 118,433 106,677 - - Unsecured advances to Employees Provident Fund Board’s projects 16,313 16,426 16,058 16,058 Loan to former investee company 6,261 8,401 6,261 8,401 Loan commitment fees 8,740 8,447 8,740 8,447 Amount due from subsidiaries - - 58,583 44,490 Interest to be waived under a restructuring scheme 40,578 40,578 40,578 40,578 Foreclosed properties 32,323 1,613 32,323 1,613 Proceeds receivable on disposal of land held for property development - 37,900 - 37,900 Sundry receivables 20,464 9,764 18,895 8,403 243,112 229,806 181,438 165,890 Less: Provision for doubtful debts (132,040 ) (118,744 ) (100,964 ) (93,905 ) 111,072 111,062 80,474 71,985

The unsecured advances for joint ventures in respect of privatisation projects relates to monies advanced and interest charged on these advances by a subsidiary of the Company to fund the development of an army camp in Skudai, Johor. This amount is receivable from a joint venture partner, KCSB Konsortium Sdn. Bhd. The unsecured advances to Employees Provident Fund Board relates to payments made on behalf to contractors for property development projects and interest charged on these advances. The loan to former investee company relates to loan granted to a company in which MBSB Development Sdn. Bhd., a subsidiary of the Company, previously had an equity interest. The company had been disposed of in 2003. The loan to former investee company has been fully provided for. The amounts due from subsidiaries are unsecured, bear interest of 3.36% (2004: 3.54%) per annum and have no ﬁ xed terms of repayment.

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

5. OTHER RECEIVABLES (CONTD.)

The amount of interest to be waived under a restructuring scheme of RM40,578,000 (2004: RM40,578,000) relates to interest receivable from a third party borrower which is to be waived. The waiver of the interest is pending the borrower’s adherence to instalment payments of RM25,000,000 by 2006. These instalment payments have not been received at the date of this report. The amount to be waived however, has been fully provided against. Included in sundry receivables of the Group and of the Company are rental deposits paid to ultimate holding body amounting to RM104,000 (2004: RM96,000). The Group has no signiﬁ cant concentration of credit risk within other receivables that may arise from exposures to a single debtor or to groups of debtors other than the unsecured advances for joint ventures in respect of privatisation projects and amounts claimed from the Employees Provident Fund Board.

6. INVENTORIES

Group 2005 2004 RM’000 RM’000

At cost: Hotel inventories 130 - Inventories of completed properties - 4,133

130 4,133 At net realisable value: Inventories of completed properties 20,260 24,054 20,390 28,187

The cost of inventories recognised as an expense was RM5,896,000 (2004: RM3,555,000).

During the ﬁ nancial year, inventories of completed properties were further written down to net realisable value by RM2,031,000 (2004: RM622,000).

MBSB Annual Report 2005 7. LOANS, ADVANCES AND FINANCING

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

End fi nance: Normal housing programme 2,336,186 1,678,224 2,337,939 1,680,347 Low cost housing programme 17,481 23,729 17,481 23,729 Islamic: Property 157,088 47,769 157,088 47,769 Personal 92,247 48,872 92,247 48,872 Bridging and term loans 4,559,335 4,761,029 4,795,795 4,989,596 Staff loans 643 1,246 643 1,246 Gross loans, advances and fi nancing 7,162,980 6,560,869 7,401,193 6,791,559 Interest/income-in-suspense (2,278,737 ) (2,131,408 ) (2,384,539 ) (2,313,641 ) Allowance for bad and doubtful debts and fi nancing: - General (42,912 ) (37,776 ) (42,912 ) (37,776 ) - Specifi c (576,634 ) (603,386 ) (608,562 ) (700,338 ) Net loans, advances and fi nancing 4,264,697 3,788,299 4,365,180 3,739,804

(i) Movements in non-performing loans, advances and ﬁ nancing (including interest and income receivable) are as follows:

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 Non-performing loans (“NPL”) At beginning of year 4,187,453 4,331,010 4,416,020 4,539,736 Classifi ed as non-performing during the year 623,754 549,223 808,964 569,064 Reclassifi ed as performing during the year (254,473 ) (343,721 ) (254,473 ) (343,721 ) Amount recovered (85,915 ) (62,329 ) (85,915 ) (62,329 ) Amount written off (253,348 ) (286,730 ) (430,665 ) (286,730 ) At end of year 4,217,471 4,187,453 4,453,931 4,416,020 Interest/income-in-suspense (2,244,755 ) (2,059,684 ) (2,350,557 ) (2,231,954 ) Specifi c allowance (513,317 ) (562,508 ) (545,245 ) (655,419 ) Net non-performing loans, advances and fi nancing 1,459,399 1,565,261 1,558,129 1,528,647

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

7. LOANS, ADVANCES AND FINANCING (CONTD.)

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 Ratio of net non-performing loans and fi nancing to gross loans and fi nancing less specifi c allowance and interest/income-in-suspense 34% 41% 35% 40%

(ii) Movements in allowance for bad and doubtful debts and interest/income-in-suspense are as follows:

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

General allowance At beginning of year 37,776 32,386 37,776 32,386 Allowance made during the year 5,136 5,390 5,136 5,390 At end of year 42,912 37,776 42,912 37,776

As % of gross loans, advances and ﬁ nancing less speciﬁ c allowance and interest/income-in-suspense 1% 1% 1% 1%

Speciﬁ c allowance At beginning of year 603,386 672,639 700,338 769,506 Allowance made during the year 21,040 12,131 35,529 12,216 Amount recovered (43,320 ) (15,818 ) (43,320 ) (15,818 ) Reclassiﬁ ed to interest/income-in-suspense - (38,523 ) - (38,523 ) Amount written off (4,472 ) (27,043 ) (83,985 ) (27,043 ) At end of year 576,634 603,386 608,562 700,338

Interest/income-in-suspense At beginning of year 2,131,408 2,054,743 2,313,641 2,202,882 Interest suspended during the year 444,924 425,892 459,645 454,773 Reclassiﬁ ed from speciﬁ c allowance - 38,523 - 38,523 Amount recovered (42,595 ) (44,420 ) (42,595 ) (44,420 ) Amount written off (255,000 ) (343,330 ) (346,152 ) (338,117 ) At end of year 2,278,737 2,131,408 2,384,539 2,313,641 72

MBSB Annual Report 2005 7. LOANS, ADVANCES AND FINANCING (CONTD.)

The Group has no signiﬁ cant concentration of credit risk within loans, advances and ﬁ nancing that may arise from exposures to a single debtor or to groups of debtors.

Included in bridging and term loans granted by the Company in respect of joint venture projects are the following non-performing amounts:

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Loans to subsidiaries - - 102,027 233,090 Loans to joint venture partners 315,151 1,387,402 315,151 1,387,402 315,151 1,387,402 417,178 1,620,492

Included in loans, advances and ﬁ nancing of the Group and of the Company in the previous ﬁ nancial year were loan receivables pledged to the Employees Provident Fund Board of RM100,000,000 as security for EPF revolving loans as disclosed in Note 15.

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

8. OTHER INVESTMENTS

Group and Company 2005 2004 RM’000 RM’000

Quoted shares, at cost 1,294 1,294 Quoted warrants, at cost 106 106 Quoted Irredeemable Convertible Unsecured Loan Stock (“ICULS”), at nominal value 8,180 8,180 Unquoted Redeemable Convertible Secured Loans Stock, (“RCSLS”), at nominal value* 43,070 - 52,650 9,580 Less: Accumulated impairment losses (9,052 ) (8,180 ) 43,598 1,400 Market value: Quoted shares 421 1,475 Quoted warrants 73 368 Quoted ICULS 941 2,127 1,435 3,970

* The unquoted Redeemable Convertible Secured Loans Stock (“RCSLS”) was received during the ﬁ nancial year under a settlement agreement with a third party borrower.

9. LOANS TO SUBSIDIARIES Company 2005 2004 RM’000 RM’000 Secured 37,366 36,122 Unsecured 179,058 175,758 216,424 211,880 Less: Provision for doubtful debts (76,534 ) (70,646 ) 139,890 141,234 The loans to subsidiaries have no ﬁ xed terms of repayment.

The secured loans are secured against landed properties with carrying values amounting to RM7,978,000 (2004: RM8,523,000). The weighted average effective annual interest rates of loans to subsidiaries at the balance sheet date were 3.36% (2004: 3.54%) per annum. 74

MBSB Annual Report 2005 10. INVESTMENTS IN SUBSIDIARIES Company 2005 2004 RM’000 RM’000

Unquoted shares at cost 210,803 210,803 Less: Accumulated impairment losses (135,835 ) (138,487 ) 74,968 72,316

Details of the subsidiaries are as follows:

Effective Interest Held (%) Name of Subsidiaries 2005 2004 Principal Activities MBSB Properties Sdn. Bhd. 100 100 Letting of real property MBSB Development Sdn. Bhd. 100 100 Property development Prudent Legacy Sdn. Bhd.* 51 51 Property development Sigmaprise Sdn. Bhd. 100 100 Hospitality services Gadini Sdn. Bhd. 100 100 Property development Ganesha Sdn. Bhd. 100 100 Property development Springtide Sdn. Bhd. 100 100 Property development Trimonds Sdn. Bhd. 100 100 Investment holding MBSB Project Management Sdn. Bhd. 100 100 Ceased operations Supreme Design Sdn. Bhd. 100 100 Ceased operations Deﬁ nite Pure Sdn. Bhd. 100 100 Dormant Malaya Borneo Building 100 100 Dormant Society Limited (MBBS) ** MBSB Land Sdn. Bhd. 100 100 Dormant Longterm Pride Sdn. Bhd. 100 100 Dormant Farawide Sdn. Bhd. 100 100 Dormant Maxroute Sdn. Bhd. 100 100 Dormant Raynergy Sdn. Bhd. 100 100 Dormant Idaman Usahamas Sdn. Bhd. 100 - Dormant

* Effective 26 January 2006, the equity interest of the Group in Prudent Legacy Sdn. Bhd. has increased to 92% ** Audited by a ﬁ rm of auditors other than Ernst & Young

On 27 December 2005, the Group acquired 100% equity interest in Idaman Usahamas Sdn. Bhd., a company incorporated in Malaysia, for a cash consideration of RM2. The operations of Idaman Usahamas Sdn. Bhd. from the date of acquisition to 31 December 2005 had no material effect on the Group’s ﬁ nancial position and results. All the above subsidiaries are incorporated in Malaysia except for MBBS which is incorporated in Singapore. 75

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

11. LAND HELD FOR PROPERTY DEVELOPMENT AND PROPERTY DEVELOPMENT COSTS

(a) Land Held for Property Development

Freehold Leasehold Land Land Total RM’000 RM’000 RM’000 Group

At 31 December 2005:

Cost At 1 January 2005 273,006 100,679 373,685 Addition 70 - 70 Reversal - (2,322 ) (2,322 ) Redemption (97,036 ) (21,982 ) (119,018 ) Disposal (17,800 ) - (17,800 ) At 31 December 2005 158,240 76,375 234,615

Accumulated Impairment Losses At 1 January 2005 109,742 26,452 136,194 Impairment losses for the year 1,040 223 1,263 Reversal of impairment losses for the year (694 ) - (694 ) Redemption (49,918 ) (11,300 ) (61,218 ) At 31 December 2005 60,170 15,375 75,545

Carrying Amount at 31 December 2005 98,070 61,000 159,070

At 31 December 2004:

Cost At 1 January 2004 347,176 100,743 447,919 Reversal (3,484 ) (64 ) (3,548 ) Disposal (70,686 ) - (70,686 ) At 31 December 2004 273,006 100,679 373,685

MBSB Annual Report 2005 11. LAND HELD FOR PROPERTY DEVELOPMENT AND PROPERTY DEVELOPMENT COSTS

(a) Land Held for Property Development (Contd.)

Freehold Leasehold Land Land Total RM’000 RM’000 RM’000

Accumulated Impairment Losses At 1 January 2004 150,164 29,061 179,225 Impairment losses for the year 148 - 148 Reversal of impairment losses for the year (3,484 ) (2,609 ) (6,093 ) Disposal (37,086 ) - (37,086 ) At 31 December 2004 109,742 26,452 136,194

Carrying Amount at 31 December 2004 163,264 74,227 237,491

Freehold Leasehold Land Land Total RM’000 RM’000 RM’000 Company

At 31 December 2005:

Cost At 1 January 2005 110,940 - 110,940 Reversal (694 ) - (694 ) At 31 December 2005 110,246 - 110,246

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

11. LAND HELD FOR PROPERTY DEVELOPMENT AND PROPERTY DEVELOPMENT COSTS (CONTD.)

(a) Land Held for Property Development (Contd.)

Freehold Leasehold Land Land Total RM’000 RM’000 RM’000

Accumulated Impairment Losses At 1 January 2005 56,395 - 56,395 Reversal of impairment losses for the year (694 ) - (694 ) At 31 December 2005 55,701 - 55,701

Carrying Amount at 31 December 2005 54,545 - 54,545

At 31 December 2004:

Cost At 1 January 2004 181,626 - 181,626 Disposal (70,686 ) - (70,686 ) At 31 December 2004 110,940 - 110,940

Accumulated Impairment Losses At 1 January 2004 93,333 - 93,333 Impairment losses for the year 148 - 148 Disposal (37,086 ) - (37,086 ) At 31 December 2004 56,395 - 56,395

Carrying Amount at 31 December 2004 54,545 - 54,545

Included in land held for property development of the Group is a property with carrying value of RM24,000,000 (2004: RM24,000,000) on which a Development Agreement had been signed with a third party. As a consideration for granting development rights on this land, the Group will receive 48 units of service apartments upon completion of the development.

MBSB Annual Report 2005 11. LAND HELD FOR PROPERTY DEVELOPMENT AND PROPERTY DEVELOPMENT COSTS (CONTD.)

(a) Land Held for Property Development (Contd.)

The reversal of the cost of freehold land during the ﬁ nancial year is due to discount received from an architect for consultancy fees which were previously capitalised.

As described in Note 37, land held for property development with a carrying amount of RM57,800,000 were redeemed during the ﬁ nancial year under the Settlement Agreement between the Company and a former corporate shareholder of a subsidiary, Grand Chart Sdn. Bhd.

On 27 May 2004, Springtide Sdn. Bhd., a subsidiary of the Company, entered into Sale and Purchase Agreement with a third party to dispose of a freehold land for a cash consideration of RM19,500,000. The sale was completed during the current ﬁ nancial year with the receipt of the balance of the purchase price, resulting in a gain on disposal of RM1,700,000.

Included in land held for property development are the following carrying values in respect of:

Group and Company 2005 2004 RM’000 RM’000

Title registered under the name of a subsidiary 8,500 8,500 Pending transfer of title from a third party 680 680

9,180 9,180

(b) Property Development Costs

Group 2005 2004 RM’000 RM’000 Property development costs at 1 January: Freehold land 7,940 7,940 Development costs 64,777 64,607 72,717 72,547

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

11. LAND HELD FOR PROPERTY DEVELOPMENT AND PROPERTY DEVELOPMENT COSTS (CONTD.)

(b) Property Development Costs (Contd.)

Group 2005 2004 RM’000 RM’000 Costs incurred during the year: Development costs 8,208 785

Costs recognised in income statement: At 1 January (68,313 ) (74,063 ) (Recognised)/reversed during the year (2,635 ) 5,750 At 31 December (70,948 ) (68,313 )

Transfers:

To inventories of completed properties - (615 ) To trade receivables (Note 4) (9,705 ) - To trade payables (272 ) - (9,977 ) (615 )

Property development costs at 31 December - 4,404

Presented as follows: Property development costs - asset - 4,864 Property development costs - liability - (460 ) - 4,404

Included in property development costs of the Group incurred during the fi nancial year are interest expense of RM6,449,000 (2004: RM654,000). The freehold land of the Group are registered under the names of the respective joint venture partners. On 31 May 2004, a subsidiary of the Company, Prudent Legacy Sdn. Bhd. (“PLSB”) entered into a Rehabilitation and Project Management Agreement (“the Agreement”) with JKP Sdn. Bhd. (“JKP”), a corporate shareholder of the PLSB, for the Rehabilitation of Phase 1A-1 and 1A-2, Bandar Baru Air Putih, Penang development project (“the Project”). As the Project has been completed during the current fi nancial year, the directors are of the opinion that the signifi cant risk and rewards of ownership of the property development costs have been transferred to JKP. As a result, property development costs were transferred to trade receivables to refl ect part of the proceeds receivable from JKP pursuant to 80 the Agreement.

MBSB Annual Report 2005 12. PROPERTY, PLANT AND EQUIPMENT

Group Long Short term term Furniture Data Freehold leasehold leasehold Building and Motor processing land land land Buildings renovation equipment vehicles equipment Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 2005 25,510 11,400 318 163,582 8,052 17,007 669 17,648 244,186 Additions - - - 3,742 2,041 1,630 383 1,228 9,024 Disposals - - - - - (111 ) (387 ) (294 ) (792 ) At 31 December 2005 25,510 11,400 318 167,324 10,093 18,526 665 18,582 252,418

Accumulated Depreciation and Impairment Losses

At 1 January 2005: Accumulated depreciation - 693 106 28,837 8,033 14,618 669 12,088 65,044 Accumulated impairment losses 3,567 - - 33,295 - - - - 36,862 3,567 693 106 62,132 8,033 14,618 669 12,088 101,906

Depreciation charge for the year - 150 15 4,430 123 2,283 66 1,286 8,353 Impairment losses 404 143 - 1,428 - - - - 1,975 Disposals - - - - - (111) (387) (294) (792) At 31 December 2005 3,971 986 121 67,990 8,156 16,790 348 13,080 111,442

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

12. PROPERTY, PLANT AND EQUIPMENT (CONTD.)

Analysed as: Accumulated depreciation - 843 121 33,267 8,156 16,790 348 13,080 72,605 Accumulated impairment losses 3,971 143 - 34,723 - - - - 38,837 3,971 986 121 67,990 8,156 16,790 348 13,080 111,442

Net Book Value At 31 December 2005 21,539 10,414 197 99,334 1,937 1,736 317 5,502 140,976

At 31 December 2004 21,943 10,707 212 101,450 19 2,389 - 5,560 142,280

Details at 1 January 2004 Cost 25,531 11,400 318 163,610 8,184 16,807 673 11,667 238,190 Accumulated depreciation - 543 91 24,436 7,964 12,493 618 11,492 57,637 Accumulated impairment losses 3,567 - - 33,295 - - - - 36,862

Depreciation charge for 2004 - 150 15 4,423 135 2,208 52 596 7,579

MBSB Annual Report 2005 12. PROPERTY, PLANT AND EQUIPMENT (CONTD.)

Company

Furniture Data Freehold Building and Motor processing land Buildings renovation equipment vehicles equipment Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 2005 162 511 2,373 5,541 434 17,022 26,043 Additions - 3,742 137 83 377 278 4,617 Disposals - - - (87 ) (387 ) (294 ) (768 ) At 31 December 2005 162 4,253 2,510 5,537 424 17,006 29,892

Accumulated Depreciation and Impairment Losses

At 1 January 2005: Accumulated depreciation - 135 2,371 5,258 410 11,470 19,644 Accumulated impairment losses - 22 - - - - 22 - 157 2,371 5,258 410 11,470 19,666 Depreciation charge for the year - 19 14 79 39 1,225 1,376 Disposals - - - (87 ) (387 ) (294 ) (768 ) At 31 December 2005 - 176 2,385 5,250 62 12,401 20,274

Analysed as:

Accumulated depreciation - 154 2,385 5,250 62 12,401 20,252 Accumulated impairment losses - 22 - - - - 22 - 176 2,385 5,250 62 12,401 20,274

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

12. PROPERTY, PLANT AND EQUIPMENT (CONTD.)

Company Furniture Data Freehold Building and Motor processing land Buildings renovation equipment vehicles equipment Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Net Book Value At 31 December 2005 162 4,077 125 287 362 4,605 9,618

At 31 December 2004 162 354 2 283 24 5,552 6,377

Details at 1 January 2004 Cost 183 539 2,505 5,341 438 11,041 20,047 Accumulated depreciation - 145 2,417 5,282 403 10,918 19,165 Accumulated impairment losses - 22 - - - - 22

Depreciation charge for 2004 - 12 20 59 8 552 651

The additions to buildings of the Group and of the Company during the ﬁ nancial year with a net book value of RM3,742,000 were received pursuant to a settlement agreement with a former joint venture partner.

Included in freehold land and buildings are the net book value of properties which are:

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 Pending subdivision of titles 16,008 21,375 294 303 Charged to the ultimate holding body for loans which had been fully settled 41,566 26,734 188 235 The cost of property, plant and equipment which have been fully depreciated but still in use are as follows: Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 Building renovation 7,985 7,907 2,370 2,370 Furniture and equipment 16,544 5,944 5,139 5,195 Motor vehicles 248 532 8 395 Data processing equipment 11,331 11,426 10,721 10,883 36,108 25,809 18,238 18,843 84

MBSB Annual Report 2005 13. BANK BORROWINGS

Bank borrowings are unsecured and interest charged on these borrowings is based on the lenders’ cost of funds plus 0.50% to 0.75% (2004: cost of funds plus 0.50% to 1.00%). The interest charged on these borrowings during the year ranged from 3.35% to 4.30% (2004: 3.83% to 4.30%) per annum. The bank borrowings are due within one year.

14. DEPOSITS FROM CUSTOMERS Group and Company 2005 2004 RM’000 RM’000

Savings 2,364 503 Fixed deposits 3,355,418 2,124,981 3,357,782 2,125,484

By type of customer:

Government and statutory bodies 739,143 509,126 Business enterprises 2,083,704 1,250,972 Individuals 528,479 359,731 Others 6,456 5,655 3,357,782 2,125,484 15. OTHER BORROWINGS Group and Company 2005 2004 RM’000 RM’000 Short Term Borrowings Secured: EPF revolving loans - 100,177 Bank Negara Malaysia loans - 6,119 Special housing loans - 8,600 Debenture loans 50,033 364,619 50,033 479,515

Long Term Borrowings Secured: Bank Negara Malaysia loans - 5,322 Special housing loans - 11,200 Debenture loans 200,000 - 200,000 16,522 85

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

15. OTHER BORROWINGS (CONTD.)

Group and Company 2005 2004 RM’000 RM’000 Total Borrowings EPF revolving loans - 100,177 Bank Negara Malaysia loans - 11,441 Special housing loans - 19,800 Debenture loans 250,033 364,619 250,033 496,037 Maturity of borrowings: Within one year 50,033 479,515 One year to three years 100,000 16,522 Three years to ﬁ ve years 100,000 - 250,033 496,037

The weighted average effective annual interest rates of borrowings at the balance sheet date were as follows: Group and Company 2005 2004 % % EPF revolving loans - 3.80 Bank Negara Malaysia loans - 3.44 Special housing loans - 3.98 Debenture loans 4.43 3.98

The EPF revolving loans in the previous fi nancial year were secured by loans receivables with carrying value of RM100 million. These loans had been fully repaid in the current fi nancial year. Bank Negara Malaysia loans were used to fi nance the Low Cost Housing Finance Programme. In the previous fi nancial year, these loans were secured by assets arising from the said Programme with a carrying value of RM19,609,000. These loans were fully repaid in the current fi nancial year. Special housing loans were from the Employees Provident Fund Board for the purpose of fi nancing the Low Cost Housing Finance Programme and were secured by a guarantee issued by the Federal Government of Malaysia. These loans had been fully repaid in the current fi nancial year. The debenture loans are provided by the Employees Provident Fund Board. These debenture loans are secured by way of a fi rst fl oating charge on the Company’s assets except for assets arising from the Low Cost Housing Finance Programme and the Public Low Cost Housing Programme. These loans which were repayable on 31 December 2005 have been rescheduled and will be progressively repaid over a further 5 year period. 86

MBSB Annual Report 2005 16. TRADE PAYABLES

Included in trade payables of the Group are retention sums on contracts amounting to RM61,000 (2004: RM2,043,000).

The normal trade credit terms granted to the Group range from 30 to 60 (2004: 30 to 60) days.

17. OTHER PAYABLES Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Due to a former corporate shareholder of a subsidiary - 196,755 - - Consultants’ and contractors’ fee payable 628 9,906 583 8,521 Due to subsidiaries - - 17,907 2,359 Deposit for disposal of freehold properties 520 - - - Deposit for disposal of land held for property development - 3,900 - - Finance cost payable- Redeemable Convertible Preference Shares 733 753 733 753 Others 38,000 26,572 33,923 24,386 39,881 237,886 53,146 36,019

As described in Note 37, the amount due to a former corporate shareholder of a subsidiary of the Company, Grand Chart Sdn. Bhd.(“GCSB”) was fully settled during the current ﬁ nancial year under the Settlement Agreement between the Company and GCSB. As a result, there was a gain on principal and interest waived of RM159,955,000.

The amounts due to subsidiaries are unsecured, interest-free and have no ﬁ xed terms of repayment.

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

18. RECOURSE OBLIGATION ON LOANS SOLD TO CAGAMAS BERHAD

Group and Company 2005 2004 RM’000 RM’000

Maturing within 12 months 1,664 1,608 Maturing after 12 months 14,404 16,068 16,068 17,676

These amounts relate to proceeds received from conventional housing loans sold to Cagamas Berhad with recourse to the Company. Under the agreement, the Company undertakes to administer the loans on behalf of Cagamas Berhad and to buy back any loans which are regarded as defective based on pre-determined criteria. These loans are repayable as follows:

Group and Company 2005 2004 RM’000 RM’000

2005 - 1,608 2006 1,664 1,664 2007 1,723 1,723 2008 12,681 12,681 16,068 17,676

MBSB Annual Report 2005 19. DEFERRED TAXATION Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

At 1 January 18,225 27,586 (10,000 ) - Recognised in the income statement (Note 31) (12,335 ) (9,361 ) (10,000 ) (10,000 ) At 31 December 5,890 18,225 (20,000 ) (10,000 )

Presented after appropriate offsetting as follows: Deferred tax assets (20,000 ) (10,000 ) (20,000 ) (10,000 ) Deferred tax liabilities 25,890 28,225 - - 5,890 18,225 (20,000) (10,000)

Deferred tax assets of the Group and of the Company relates to deferred tax on unused tax losses. During the ﬁ nancial year, after taking into consideration the improvement in the Company’s performance, the directors resolved to recognise additional deferred tax assets in relation to unused tax losses to the extent of the taxable proﬁ ts expected to be realised in the foreseeable future. Deferred tax liabilities of the Group relates to deferred tax on fair value adjustment of freehold and leasehold land. Deferred tax assets of the Group and of the Company amounting to RM223,775,000 (2004: RM240,389,000) and RM192,081,000 (2004: RM217,118,000) respectively have not been recognised in respect of the following items:

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Unused tax losses 127,632 132,551 79,356 93,730 Provision for doubtful debts 43,585 47,921 71,825 73,594 Impairment losses on land held for property development 20,244 21,013 15,596 15,791 Impairment losses on inventories of completed properties 1,926 1,357 - - Interest-in-suspense 13,380 23,067 22,433 30,885 Unabsorbed capital allowances 8,559 7,069 - - Provision for anticipated losses on projects 272 - - - Property, plant and equipment 2,390 3,172 (1,214) (828) Others 5,787 4,239 4,085 3,946 223,775 240,389 192,081 217,118

The unused tax losses and unabsorbed capital allowances are available indeﬁ nitely for offset against future taxable proﬁ ts of the Company and subsidiaries in which those items arose. 89

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

20. REDEEMABLE CONVERTIBLE PREFERENCE SHARES

Group and Company 2005 2004 RM’000 RM’000

Liability component at 1 January 21,155 29,382 Reclassiﬁ cation to share premium - (8,227 ) Finance cost payable 753 - Over-accrual of ﬁ nance cost in prior years (212 ) - Dividends paid during the year (9,504 ) - Liability component at 31 December 12,192 21,155

The proceeds received from the issue of the RCPS have been split between the liability component and the equity component. The fair value of the liability component is estimated based on the present value of the dividend obligations whilst the equity component represents the fair value of the conversion option. The salient features of the RCPS are as follows:

(a) Redemption : the RCPS is redeemable at the discretion of the Company at RM2 per RCPS at any time during the tenure of the RCPS but excluding the maturity date.

(b) Conversion rights : the registered holders of the RCPS will have the option at any time during conversion period to convert the RCPS at the conversion rate into new ordinary shares of RM1 each in the Company.

(d) Conversion period : period commencing from third anniversary of the issue date of the RCPS but excluding the maturity date provided the market price of the Company’s shares does not exceed RM1.20 for a consecutive period of 90 market days before the date of the conversion notice.

(e) Maturity date : on the ﬁ fth anniversary from the date of issue of the RCPS. (f) All remaining RCPS will be automatically converted into new ordinary shares of the Company within thirty days commencing immediately after maturity date.

(g) The RCPS carries a fi xed cumulative dividend. Dividend is payable subject to the availability of distributable profi ts. The dividend is payable as follows: - A dividend of 4% on the par value of RCPS for the period from 1 January 2005 to 31 December 2007, payable in arrears on 28 February after each fi nancial year. - No dividend is payable for the period from 1 January 2008 to the maturity date. - No dividend is payable for any RCPS already redeemed or converted during the preceding twelve months period.

(h) The new ordinary shares to be allotted and issued upon conversion of the RCPS will rank pari passu in all respects with the existing ordinary shares of the Company except that they shall not be entitled to any dividends, rights, allotments and/or other distribution, the entitlement date of which precedes the allotment date of the new ordinary shares. 90

MBSB Annual Report 2005 21. PROVISION FOR LIABILITIES

Liquidated Damages Group 2005 2004 RM’000 RM’000

At 1 January 6,248 3,062 Additional provision during the year 229 3,186 Payments made during the year (2,867 ) - At 31 December 3,610 6,248

At 31 December 2005: Current 3,610 6,248

Provision for liquidated damages is in respect of projects undertaken by certain subsidiaries. The provision is recognised for expected liquidated damages claims based on the terms of the applicable sale and purchase agreements.

22. SHARE CAPITAL

Number of Shares of RM1 Each Amount 2005 2004 2005 2004 ’000 ’000 RM’000 RM’000 Authorised: - Ordinary Shares At 1 January/31 December 1,000,000 1,000,000 1,000,000 1,000,000

- Redeemable Cumulative Preference Shares At 1 January/31 December 300,000 300,000 300,000 300,000

- Redeemable Convertible Preference Shares At 1 January/31 December 500,000 500,000 500,000 500,000

1,800,000 1,800,000 1,800,000 1,800,000

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

22. SHARE CAPITAL (CONTD.)

Number of Shares of RM1 Each Amount 2005 2004 2005 2004 ’000 ’000 RM’000 RM’000 Issued and fully paid: - Ordinary Shares At 1 January/31 December 337,856 337,856 337,856 337,856

- Redeemable Convertible Preference Shares (equity component) At 1 January/31 December 165,000 165,000 165,000 165,000

502,856 502,856 502,856 502,856

(a) The Malaysia Building Society Berhad Employee Share Option Scheme (“ESOS”) is governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held on 23 June 2003. The ESOS was implemented on 26 September 2003 and is to be in force for a period of 5 years from date of implementation. The salient features of the ESOS are as follows: (i) Eligible persons are employees of the Group (including executive directors) who is on the payroll of the Group other than a subsidiary which is dormant. (ii) The total number of shares to be issued under the ESOS shall not exceed in aggregate 10% of the issued share capital of the Company at any point of time during the tenure of the ESOS. (iii) The option price for each share shall be the average of the mean market quotation of the shares of the Company in the daily offi cial list issued by Bursa Malaysia Securities Berhad for the fi ve trading days preceding the date of offer, or the par value of the shares of the Company of RM1, whichever is higher. (iv) The actual number of new shares which may be offered to an eligible employee shall be at the discretion of the Option Committee and, subject to any adjustments that may be made under Clause 15 of the by-laws, shall not be less than 200 shares but not more than maximum allowable allocation and shall always be in multiple of 200 shares. (v) An option granted under the ESOS shall be capable of being exercised by the grantee by notice in writing to the Company commencing from the date of the offer but before the expiry of fi ve years from 26 September 2003 in respect of all or any part of the Company’s shares comprised in the option, such part in multiples of 200 shares. Any partial exercise of an option shall not preclude the grantee from exercising the option in respect of the balance of the Company’s shares comprised in the option. (vi) All new ordinary shares issued upon exercise of the options granted under the ESOS will rank pari passu in all respects with the existing ordinary shares of the Company other than as may be specifi ed in a resolution approving the distribution of dividends prior to their exercise dates. (vii) The persons to whom the options have been granted have no right to participate by virtue of the options in any share issue of any other company. 92

MBSB Annual Report 2005 22. SHARE CAPITAL (CONTD.)

The terms of share options outstanding as at the end of the ﬁ nancial year are as follows:

Grant Expiry Exercise At 1 At 31 date date price January Granted Exercised Lapsed December RM ’000 ’000 ’000 ’000 ’000 2005 26 September 25 September 2003 2008 1.00 27,379 - - (4,808) 22,571

2004 26 September 25 September 2003 2008 1.00 32,193 - - (4,814) 27,379

Number of share options vested:

2005 2004 RM’000 RM’000

At 1 January 27,379 32,193 At 31 December 22,571 27,379

23. OPERATING REVENUE

Operating revenue of the Company comprises gross interest income (after deducting net interest suspended), fee and commission income and other income derived from granting of loans, including Islamic banking operations. Operating revenue of the Group comprises all types of revenue derived from the business of granting of loans, property development, property management, letting of real property and hospitality services.

24. INTEREST INCOME Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Interest income 598,453 562,997 610,589 577,547 Less: Interest suspended (402,329 ) (381,472 ) (417,050 ) (410,353 ) 196,124 181,525 193,539 167,194

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

25. INTEREST EXPENSE

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Bank borrowings 35,953 46,140 35,953 46,140 Other borrowings 34,920 49,857 19,942 31,042 Deposits from customers 76,656 51,822 76,656 51,822 Loans sold to Cagamas Berhad 635 1,834 635 1,834 Finance cost- Redeemable Convertible Preference Shares 733 498 733 498 148,897 150,151 133,919 131,336

26. OTHER OPERATING INCOME

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Other operating revenue: Rental income 1,004 6,466 5 - Sale of properties 5,896 3,555 - - Sale revenue from hospitality services 903 - - - Property development revenue 5,088 (410 ) - - Loan commitment fees 293 322 293 322 Loan agency fees 257 278 257 278 Others 4,853 2,934 4,611 2,955 Other operating income: Gain on disposal of land held for property development 1,700 6,900 - 6,900 Gain on disposal of property, plant and equipment 166 6,053 164 6,053 Others 923 2,940 707 1,850 21,083 29,038 6,037 18,358

MBSB Annual Report 2005 27. OTHER OPERATING EXPENSES

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Personnel expenses (Note 28) 21,914 9,144 21,816 9,186 Establishment related expenses 11,596 10,624 7,141 7,816 Promotion and marketing related expenses 211 132 211 132 General administrative 21,999 21,187 17,794 13,562

55,720 41,087 46,962 30,696

Included in other operating expenses are the following: Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 Auditors’ remuneration: Statutory audits 108 92 81 65 Other services 10 23 10 23 Depreciation 8,353 7,579 1,376 651 Directors’ remuneration (Note 29) 241 128 241 128 Impairment loss on: - other investments 872 - 872 - - land held for property development 1,263 148 - 148 - property, plant and equipment 1,975 - - - Liquidated damages payable 229 3,186 - - Discount received (6,040 ) - - - Provision for doubtful debts of: - amount due from subsidiaries - - 5,404 1,183 - loans to subsidiaries - - 5,888 292 - other receivables 13,296 1,850 1,655 3,887 - trade receivables 1,802 6,047 - - Bad debts written off 152 - - - Bad debts written back (1,299 ) - - - Rental of buildings 653 729 5,905 6,369 Reversal of impairment loss on: - investments in subsidiaries - - (2,652 ) (4,352 ) - land held for property development (694 ) (6,093 ) (694 ) - Write down of inventories of completed properties 2,031 622 - -

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

28. PERSONNEL EXPENSES

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Wages and salaries 13,692 12,288 13,623 12,176 Social security costs 188 152 188 150 Pension costs: - Employees Provident Fund 2,050 1,766 2,021 1,753 - other deﬁ ned contribution plan 288 347 288 342 Reversal of provision for staff beneﬁ t - (8,658) - (8,479) Voluntary Separation Scheme 1,827 - 1,827 - Other staff related expenses 3,869 3,249 3,869 3,244 21,914 9,144 21,816 9,186

29. DIRECTORS’ REMUNERATION

Group and Company 2005 2004 RM’000 RM’000

Directors of the Company Non-Executive: Fees 168 66 Other emoluments 73 62 Total 241 128

The number of directors of the Company whose total remuneration during the ﬁ nancial year fell within the following band is as follows:

Number of Directors 2005 2004 Non-executive directors: Below RM50,000 8 7

MBSB Annual Report 2005 30. ALLOWANCE FOR LOSSES ON LOANS AND FINANCING

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Allowance for bad and doubtful debts on loans and fi nancing (a) Specifi c allowance - Made in the fi nancial year 21,040 12,131 35,529 12,216 - Written back (43,320) (15,818) (43,320) (15,818) - Settlement costs 396 - 396 - (b) General allowance - Made during the fi nancial year 5,136 5,390 5,136 5,390

Bad debts on loans and ﬁ nancing - Written off 532 - 532 -

Loss on termination of a joint venture agreement * 2,800 - - - (13,416) 1,703 (1,727) 1,788

* As described in Note 37, based on the Rescission Agreement and Settlement Agreement (“the Agreements”) entered into between the Company and two of its subsidiaries with Grand Chart Sdn. Bhd.(“GCSB”), a former corporate shareholder of a subsidiary of the Company, all parties to the Agreements had agreed to a mutual termination of the Joint Venture Agreement (“JVA”) and Supplemental JVA dated 3 May 1996 and 25 January 1999 respectively and a full and ﬁ nal settlement sum of RM55,000,000 for the amount owing by/(to) GCSB. The result of this termination on the income statement of the Group is as follows:-

Group 2005 RM’000

Gain on principal and interest waived 159,955 Bad debts written off on settlement of loan (162,755) Loss on termination of a joint venture agreement (2,800)

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

31. TAXATION

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Income tax: Overprovided in prior years (985 ) - (985 ) (3,381 ) Real Property Gains Tax - 296 - 296 (985 ) 296 (985 ) (3,085 ) Deferred tax (Note 19): Relating to origination and reversal of temporary differences 2,803 - 5,138 - Recognised during the year (15,138 ) (9,361 ) (15,138 ) (10,000 ) (12,335 ) (9,361 ) (10,000 ) (10,000 )

(13,320 ) (9,065 ) (10,985 ) (13,085 )

Income tax is calculated at the Malaysian statutory tax rate of 28% (2004: 28%) of the estimated assessable proﬁ t for the year.

MBSB Annual Report 2005 31. TAXATION (CONTD.)

A reconciliation of income tax expense applicable to proﬁ t before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company is as follows: 2005 2004 Group RM’000 RM’000

Proﬁ t before taxation 25,466 22,685

Taxation at Malaysian statutory tax rate of 28% (2004: 28%) 7,130 6,352 Effect of income not subject to tax (13,655 ) (12,904 ) Effect of expenses not deductible for tax purposes 13,139 12,686 Effect of utilisation of previously unrecognised tax losses and unabsorbed capital allowances (619 ) (12,893 ) Recognition of deferred tax assets not previously recognised (15,138 ) (10,000 ) Reversal of deferred tax assets not previously recognised (857 ) - Deferred tax assets not recognised during the year - 6,759 Real Property Gains Tax - 296 Overprovision of tax expense in prior years (985 ) - Overprovision of deferred tax liabilities in prior years (2,557 ) - Recognition of deferred tax on fair value adjustment upon consolidation 222 639 Tax income for the year (13,320 ) (9,065 )

2005 2004 Company RM’000 RM’000

Proﬁ t before taxation 28,413 24,600

Taxation at Malaysian statutory tax rate of 28% (2004: 28%) 7,956 6,888 Effect of income not subject to tax (743 ) (4,858 ) Effect of expenses not deductible for tax purposes 7,824 7,661 Effect of utilisation of previously unrecognised tax losses and unabsorbed capital allowances - (11,025 ) Recognition of deferred tax assets not previously recognised (15,138 ) (10,000 ) Reversal of deferred tax assets not previously recognised (9,899 ) - Deferred tax assets not recognised during the year - 1,334 Real Property Gains Tax - 296 Overprovision of tax expense in prior years (985 ) (3,381 ) Tax income for the year (10,985 ) (13,085 )

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

31. TAXATION (CONTD.)

Tax savings during the ﬁ nancial year arising from: Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Utilisation of current year tax losses 41 37 - - Utilisation of tax losses carried forward 4,979 11,380 4,367 9,778

32. EARNINGS PER SHARE

(a) Basic

Basic earnings per share is calculated by dividing the net proﬁ t for the year by the weighted average number of ordinary shares in issue during the ﬁ nancial year.

2005 2004

Net proﬁ t for the year (RM’000) 38,786 31,750 Weighted average number of ordinary shares in issue (’000) 337,856 337,856 Basic earnings per share (sen) 11.48 9.40

(b) Diluted

For the purpose of calculating diluted earnings per share, the net proﬁ t for the year and the weighted average number of ordinary shares in issue during the ﬁ nancial year have been adjusted for the dilutive effects of all potential ordinary shares, i.e. Redeemable Convertible Preference Shares (“RCPS”) and Employee Share Option Scheme (“ESOS”).

2005 2004 RM’000 RM’000

Net profi t for the year (RM’000) 38,786 31,750 After-tax effect of fi nance cost on RCPS 527 498 Adjusted net profi t for the year 39,313 32,248

100

MBSB Annual Report 2005 32. EARNINGS PER SHARE (CONTD.)

(b) Diluted (Contd.)

2005 2004 RM’000 RM’000

Weighted average number of ordinary shares in issue 337,856 337,856 Effect of dilution: RCPS 330,000 330,000 ESOS * * Adjusted weighted average number of ordinary shares in issue 667,856 667,856

Diluted earnings per share (sen) 5.89 4.83

* For the current ﬁ nancial year, the ESOS’ exercise price is above the average market price of the Company’s shares. Therefore, the assumed conversion of the ESOS is not included in the computation of diluted earnings per share as the assumed conversion is considered anti-dilutive.

33. DIVIDENDS Net Dividends Amount per Ordinary Share 2005 2004 2005 2004 RM’000 RM’000 Sen Sen

Final 2% less 28% taxation, on 337,856,727 ordinary shares, declared on 1 June 2005 and paid on 17 June 2005 - 4,865 - 1.4

2.5% less 28% taxation, on 337,856,727 ordinary shares 6,081 - 1.8 - 6,081 4,865 1.8 1.4

At the forthcoming Annual General Meeting, a fi rst and fi nal dividend in respect of the fi nancial year ended 31 December 2005, of 2.5% less 28% taxation on 337,856,727 ordinary shares, amounting to a dividend payable of RM6,081,421 (1.8 sen net per ordinary share) will be proposed for shareholders’ approval. The fi nancial statements for the current fi nancial year do not refl ect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in equity as an appropriation of accumulated losses in the fi nancial year ending 31 December 2006.

101

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

34. SIGNIFICANT RELATED PARTY TRANSACTION/BALANCES

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000

Transactions/balances with Employees Provident Fund Board, the ultimate holding body:

Expenses/(income)

Interest on loans 13,661 30,925 13,661 30,925 Rental paid 290 361 290 361 Agency fees received (26 ) (33 ) (26 ) (33 )

Balances Note

Debenture loans 15 250,033 364,619 250,033 364,619 EPF revolving loans 15 - 100,177 - 100,177 Special housing loans 15 - 19,800 - 19,800 Other receivables 5 16,313 16,426 16,058 16,058

Transactions/balances with subsidiaries:

(Income)/expenses

Interest received on loans/advances - - (19,969 ) (43,498 ) Interest received on loans for joint venture projects - - (3,054 ) (4,346 ) Rental paid - - 5,241 5,640

Transactions/balances with subsidiaries:

Balances Note

Loans to subsidiaries 9 - - 216,424 211,880 Bridging and term loans 7 - - 245,464 228,284 Amount due from 5 - - 58,583 44,490 Amount due to 17 - - 17,907 2,359 End ﬁ nance loans 7 - - 2,107 2,395

The directors are of the opinion that all the transactions/balances above have been entered into in the normal course of business and have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties.

102

MBSB Annual Report 2005 35. COMMITMENTS AND CONTINGENCIES

Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 (i) Operational Commitments

Loan commitments not provided for in the ﬁ nancial statements: End ﬁ nance 814,376 702,143 814,376 702,143 Islamic 68,828 65,156 68,828 65,156 Bridging and term loans 1,094,137 1,038,075 1,094,137 1,038,075 1,977,341 1,805,374 1,977,341 1,805,374 Property development: Approved and contracted for 437,836 535,079 - -

Total 2,415,177 2,340,453 1,977,341 1,805,374

(ii) Capital Commitments

Property, plant and equipment: Approved and contracted for 530 1,201 530 1,201 Approved but not contracted for 4,834 12,562 4,834 12,562 5,364 13,763 5,364 13,763 (iii) Contingencies

Fully secured: Financial guarantee to secure payments by a borrower 22,000 - 22,000 -

Partly Secured: Obligation to secure performance by third parties 285,911 296,000 285,911 296,000 307,911 296,000 307,911 296,000

The fully secured contingency is secured by way of a fi xed charge over the borrower’s development project, and a debenture creating a fi xed and fl oating charge over the entire assets of the borrower. The partly secured contingencies are secured by 2 pieces of land which had been provided as collateral for loans granted to third parties. The excess of the security value over the net loans amount to RM51,977,000 (2004: RM53,703,000).

103

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

36. CONTINGENT LIABILITIES (UNSECURED)

(i) In two (2) civil suits brought against the Company, a contractor appointed by one of the Company’s borrowers is claiming damages amounting to RM2.54 million for an alleged breach of contract. The suits were ﬁ led in the High Court at Kuala Lumpur as well as in the High Court at Kota Bahru. The contractor’s application for Summary Judgment has been dismissed by the Court. Both suits have since been consolidated and will be heard in the High Court at Kuala Lumpur. The matter is now ﬁ xed for Trial from 29 May to 2 June 2006 and from 19 November to 23 November 2006.

(ii) Upon default by a borrower, the Company has proceeded with foreclosure proceedings to foreclose the property provided by a third party chargor as security for the facilities granted to the borrower. In turn the third party chargor has proceeded with a legal suit against the Company for an alleged breach of the terms relating to the Charge. The matter was mentioned on 20 March 2006 and further fi xed for decision on 25 June 2006. In respect of the foreclosure proceedings, the Company has to date obtained an Order for Sale. An Auction was held on 28 October 2003 but was aborted by the Land Offi ce as there were no bidders. The owner has fi led a motion in Court to set aside the Order for Sale. The motion was subsequently dismissed by the Court on 22 April 2004. The Land Offi ce had fi xed a date on 28 February 2006 to auction the property which was again called off as there were no bidders. The Land Offi ce has yet to fi x a fresh auction date with respect to this matter.

(iii) In a civil suit brought against the Company, a borrower is claiming damages amounting to RM134.4 million as a result of the Company’s failure to perform its obligations under a Loan Agreement. This matter is now ﬁ xed for Trial from 3 to 7 April 2006.

(iv) Upon the winding up of an unrelated company, the creditor of the said unrelated company has named a subsidiary of the Company (“the Company’s subsidiary”) as well as 3 other defendants as co-conspirators in a scheme to sell off a major asset of the unrelated company and thereafter allowing the said unrelated company to be wound up in order to defeat the said creditor’s claim for payment from the unrelated company amounting to RM4.8 million for goods sold and delivered. In the said suit, the creditor claims that by virtue of such conspiracy all the defendants including the Company’s subsidiary are deemed to be constructive trustees of the creditor and are either jointly or severally liable to account to the said creditor for the amount of RM4.8 million. The Company’s subsidiary had fi led an Application to Strike Out the creditor’s suit. The said Application was dismissed by High Court on 1 December 2005. The Company’s subsidiary has to date fi led a Notice of Appeal to the Court of Appeal against the said decision. The Case Management for this matter has been fi xed by Court on 25 April 2006. (v) A borrower of the Company has instituted a civil suit against the Company and its subsidiary for an alleged breach of the terms of a Joint Venture Agreement entered into by the borrower, the Company and the said subsidiary. The borrower has sought for judgement in the sum of RM52.007 million being loss of profi ts from the project contemplated under Joint Venture Agreement, the sum of RM0.015 million being part payment for the purchase of several parcels of project land and the sum of RM4.391 million being the compensation paid by the State Government directly to the Company for the acquisition of a portion of the project land, damages for losses suffered by the Plaintiff as a result of claims made by third parties, consultants and contractors involved in the Joint Venture Project, damages for loss of reputation, interests and costs.

104

MBSB Annual Report 2005 36. CONTINGENT LIABILITIES (UNSECURED) (CONTD.)

(v) The Company and its subsidiary have fi led their Defences on 5 August 2004. The Company has further fi led an Application to Strike Out the borrower’s suit against the Company. The Courts had on 28 September 2005 struck out the Borrower’s suit against the Company. However, the Borrower still has an existing suit against the Company’s subsidiary. The Borrower has yet to take any further steps in relation to the proceedings against the Company’s subsidiary since the fi ling of the said Company’s subsidiary’s defense. (vi) A borrower of the Company has instituted a civil suit against the Company and its subsidiary for an alleged breach of the terms of an undated Joint Venture Agreement entered into by the borrower, the Company and the said subsidiary. As against the Company, the borrower has sought for damages to be assessed by the Court, a true account status of the loan, a change in the interest rate in accordance with the rate that is at par with the interest rate imposed in the fi nancial market, interest and cost. As against the Company’s subsidiary, the borrower has sought for damages to be assessed by the Court, specifi c performance to compel the Company’s subsidiary to complete the development project mentioned in the said suit within a reasonable time, specifi c performance to compel the Company’s subsidiary to ensure premium payments are made to the authorities for the conditions for the use of the project land mentioned in the said suit is converted buildings for the purpose of housing, interest and costs. Both the Company and its subsidiary have entered their appearance in Court on 25 January 2005 and 26 January 2005 respectively. The Company and its subsidiary have both fi led their Defenses on 18 April 2005. The Borrower has yet to take any further steps in relation to the proceedings since the fi ling of the said Defenses. The Company has to date fi led an application to strike out the borrower’s claim. The hearing date of the said application is fi xed on 4 April 2006. (vii) A former borrower of the Company has instituted a civil suit against the Company for an alleged breach of an agreement to grant loan facilities to the former Borrower for their commercial development project. The Company had terminated the said facilities due to the former Borrower’s breach of the said agreement and had thereafter sold the loan asset to Pengurusan Danaharta Nasional Berhad. Notwithstanding the same, the former Borrower now alleges that the Company had failed to fully disburse the said facilities pursuant to the terms of the Facility Agreement. As such, the former Borrower has sought for damages amounting to RM18.011million as at 31 July 2002, interest on a monthly rest basis at the rate of 2% per annum above Malayan Banking Berhad’s Base Lending Rate on the sum of RM18.011million from 1 August 2002 until the date of full settlement, penalty interest of 1% per annum on the sum of RM18.011million from 1 August 2002 until the date of full settlement with regard to the liabilities incurred by the former Borrower in relation to the said commercial development project or in the alternative to the abovementioned reliefs, damages amounting to RM18.240million being the total development expenditure incurred by the former Borrower, damages amounting to RM43.311million for loss of profi t or alternatively damages to be assessed by the Court as well as costs. The Company has fi led its appearance in Court on 26 July 2005 and had on 5 September 2005 served and fi led their Defense against the former Borrower. The former Borrower has yet to take any further steps in relation to the proceedings since the fi ling of the Company’s Defense. The directors after obtaining advice from the Company’s solictors, are of the opinion that the Company has reasonably good cases in respect of all the claims against the Company and as such, no provision has been made in the fi nancial statements.

105

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

37. SIGNIFICANT EVENT

On 25 May 2005, the Company and two of its subsidiaries, MBSB Development Sdn. Bhd.(“MDSB”) and Prudent Legacy Sdn. Bhd.(“PLSB”), entered into a Rescission Agreement with Grand Chart Sdn. Bhd. (“GCSB”), a former corporate shareholder of PLSB, for the mutual termination of the Joint Venture Agreement (“JVA”) and supplemental JVA dated 3 May 1996 and 25 January 1999 respectively. On the same date, the Company entered into a Settlement Agreement with GCSB for the full and ﬁ nal settlement sum of RM55,000,000 for the amount owing by GCSB to MBSB. The salient terms, inter-alia, of the Rescission Agreement and Settlement Agreement (“the Agreements”) are as follows: (a) all Parties to the Agreements shall be deemed to have discharged all agreements, convenants, stipulations and obligations in respect of the JVAs whereupon none of the Parties to the Agreements shall have any claims arising against each other; (b) in consideration of the payment of the full and ﬁ nal settlement sum of RM55,000,000, GCSB shall redeem the land held for property development of PLSB;

(c) Upon the ﬁ nal payment of RM55,000,000, GCSB shall cease to be a corporate shareholder of PLSB by transferring 102,500 ordinary shares of RM1.00 each representing 41% of the entire paid up issued share capital of PLSB to MDSB for a total consideration of RM1.00; and (d) Upon the ﬁ nal payment of RM55,000,000, the remaining principal and interest amount due to GCSB of RM159,955,000 and the net carrying value of loans receivable from GCSB of RM162,755,000 will be waived.

On 23 December 2005, the balance of the full and ﬁ nal settlement sum of RM55,000,000 had been received by the Company, resulting in the following effects on the ﬁ nancial statements of the Group:

(i) Gain on principal and interest waived of the amount due to GCSB of RM159,955,000 and bad debts written off of the term loans granted to GCSB of RM162,755,000, resulting in a net loss on termination of a joint venture agreement of RM2,800,000 (Note 30).

106

MBSB Annual Report 2005 38. FINANCIAL INSTRUMENTS

(a) Financial Risk Management Objectives and Policies

The risks identifi ed by the Group are categorised as market, credit, operational and strategic risks. The market risk includes the interest rate and liquidity risks. The credit risk addresses credit factors such as credit limit, collateral and valuation of assets and classifi cation by default. The operational risk encompasses the legal, human resource, information technology and reputational risks. The Board of Malaysia Building Society Berhad (“MBSB”) through the Audit & Risk Management Committee (ARMCO) ensures that suffi cient control is in place to identify and minimise fi nancial risks and policies are adhered. The manuals of all divisions, departments and branches are to be regularly reviewed and adhered to by all business and supervisory units to ensure processes of risk identifi cation, quantifi cation, mitigation and reporting of risk based capital exposure of the Group are addressed and in place. (b) Operational Risk

Operational risk is the risk of potential loss due to failures or inadequacies of internal operating procedures resulting in inefﬁ ciency, reduction in productivity and increase in operating cost. Employees’ risk will also impact the operational risk subject to quality and skills of the employees in addressing the various risks. Three supervisory management committees, namely Management Committee (MANCO), Asset and Liability Committee (ALCO) and Credit Committee, monitor the compliance of the Group’s policies on the operational risk arising from any failure in the internal operation process. The internal operation process is currently being reviewed.

Market risk is the risk of potential loss as a result of changes in the intrinsic value of fi nancial instruments caused by the movement in market variables such as interest rates, equity prices and other related macro economic factors that will eventually affect the profi tability and liquidity gap monitoring of sources and uses of funds. The ALCO supervises the market risk exposure by monitoring the fl uctuations in net interest income or investment value from the impact in market risk factors affecting the Company.

(i) Interest Rate Risk Interest rate risk is the risk of potential earnings movement arising from movements in interest rates. The Company’s existing policy on interest rate risk is to maximise Net Interest Income (NII) to be derived, increase in Net Interest Margin (NIM) and to minimise their volatility impact to the Company’s assets and liabilities.

(ii) Liquidity Risk

Liquidity risk is the risk of potential losses as a result of mismatch exposure in the maturity of funding of the Group that could be affected by interest rate risk and adverse cash ﬂ ow position of the Group. The policy on managing liquidity risk exposure arising from cash ﬂ ow obligations are as follows: - To ensure maximisation of earnings while maintaining adequate liquidity to meet expected and potential (unexpected funding) needs.

- To match cash inﬂ ows and outﬂ ows within MBSB’s natural market for loans and deposits. 107

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

38. FINANCIAL INSTRUMENTS (CONTD.)

(d) Credit Risk

Credit risk is the risk of loss due to credit assessment and valuation and inability of borrowers to perform their contractual obligations to the Company. The Group mitigates the credit risk arising from credit and investment portfolio by ensuring that the credit exposures are subjected to approved counterparty limits (including single customer limit) and terms and conditions for granting of facilities such as borrower’s credit worthiness, structure of lending facility, interest rate pricing and overall viability of the credit exposure. The credit risk process incorporates compliance to the Company’s policies and guidelines and credit procedures in order to improve efﬁ ciency in the processing of credit assessment and market risk impact, monitoring the quality of the Company’s loan portfolio through the establishment of an appropriate credit risk environment and maintaining the appropriate credit administration and management of credit risk as well as independent credit risk monitoring. The Board of Malaysia Building Society Berhad (“MBSB”) through the EXCO Committee ensures that sufﬁ cient control is in place to identify and minimise credit risks and policies are adhered.

108

MBSB Annual Report 2005 38. FINANCIAL INSTRUMENTS (CONTD.)

(e) Fair Values

The carrying amount and estimated fair values of ﬁ nancial instruments of the Group and of the Company as at the ﬁ nancial year end are as follows:

2005 Group Company Carrying Fair Carrying Fair Note Amount Value Amount Value RM’000 RM’000 RM’000 RM’000

Financial Assets Cash and short term funds 3 134,407 134,407 125,806 125,806 Trade receivables 4 26,078 26,078 - - Other receivables (excluding amount due from subsidiaries) 5 111,029 111,029 49,970 49,970 Amount due from subsidiaries 5 - - 30,504 * Loans, advances and ﬁ nancing 7 4,264,697 4,221,620 4,365,180 4,322,103 Other investments 8 43,598 36,589 43,598 36,589 Loans to subsidiaries 9 - - 139,890 *

Financial Liabilities Bank borrowings 13 804,828 804,828 804,828 804,828 Deposits from customers 14 3,357,782 3,354,516 3,357,782 3,354,516 Other borrowings 15 250,033 250,033 250,033 250,033 Trade payables 16 15,699 15,699 - - Other payables (excluding amount due to subsidiaries) 17 39,881 39,881 35,239 35,239 Amount due to subsidiaries 17 - - 17,907 * Recourse obligation on loans sold to Cagamas Berhad 18 16,068 16,068 16,068 16,068 Redeemable convertible preference shares 20 12,192 12,680 12,192 12,680

109

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

38. FINANCIAL INSTRUMENTS (CONTD.)

(e) Fair Values (Contd.)

2004 Group Company Carrying Fair Carrying Fair Note Amount Value Amount Value RM’000 RM’000 RM’000 RM’000

Financial Assets Cash and short term funds 3 200,692 200,692 196,284 196,284 Trade receivables 4 11,498 11,498 - - Other receivables (excluding amount due from subsidiaries) 5 111,062 111,062 50,168 50,168 Amount due from subsidiaries 5 - - 21,817 * Loans, advances and ﬁ nancing 7 3,788,299 3,788,299 3,739,804 3,739,804 Other investments 8 1,400 3,970 1,400 3,970 Loans to subsidiaries 9 - - 141,234 *

Financial Liabilities Bank borrowings 13 1,212,077 1,212,077 1,212,077 1,212,077 Deposits from customers 14 2,125,484 2,125,015 2,125,484 2,125,015 Other borrowings 15 496,037 496,037 496,037 496,037 Trade payables 16 30,141 30,141 - - Other payables (excluding amount due to subsidiaries) 17 237,886 237,886 33,660 33,660 Amount due to subsidiaries 17 - - 2,359 * Recourse obligation on loans sold to Cagamas Berhad 18 17,676 17,676 17,676 17,676 Redeemable convertible preference shares 20 21,155 22,691 21,155 22,691

* It is not practical to estimate the fair values of amounts due from/to subsidiaries due principally to no ﬁ xed repayment terms entered into by the parties involved and without incurring excessive costs.

110

MBSB Annual Report 2005 38. FINANCIAL INSTRUMENTS (CONTD.)

(e) Fair Values (Contd.) The following methods and assumptions are used to estimate the fair values of the following classes of ﬁ nancial instruments:

(i) Cash and short term funds, Trade and Other receivables/payables and Deposits maturing within 12 months

The carrying amounts approximate fair values due to the relatively short term maturity of these ﬁ nancial instruments.

(ii) Loans, advances and ﬁ nancing, Bank borrowings, Deposits maturing after 12 months, Other borrowings, Recourse obligation on loans sold to Cagamas Berhad

The fair value of ﬂ oating rate loans receivable/payable is estimated to approximate their carrying value.

The fair value of ﬁ xed rate loans receivables/borrowings/deposits is estimated using discounted cash ﬂ ow analysis, based on current incremental lending/borrowing/deposit rates for similar types of lending/borrowing/deposit arrangements.

(iii) Other investments

The fair values of quoted investments are determined by reference to stock exchange quoted market bid prices at the close of the business on the balance sheet date.

The fair value of unquoted investments is estimated by discounting the expected future cash ﬂ ows using the current interest rates for instruments with similar risk proﬁ les.

(iv) Redeemable convertible preference shares

The fair value of redeemable convertible preference shares is estimated using discounted cash ﬂ ow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements.

111

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

39. INTEREST RATE RISK

The table below summarises the Group’s and the Company’s exposure to interest rate risk. The table indicates effective average interest rates at the balance sheet date and the periods in which the ﬁ nancial instruments reprice or mature, whichever is earlier.

Group Average 2005 Non- interest Up to 1 >1-3 >3-12 >1-5 Over 5 interest rate month months months years years sensitive Total % per RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 annum

Assets Cash and short term funds 98,053 20,000 200 - - 16,154 134,407 2.86 Trade receivables - - - - - 26,078 26,078 - Other receivables - - - - - 111,072 111,072 - Loans, advances and ﬁ nancing - performing 429,568 48,507 206,224 918,084 1,202,915 - 2,805,298 6.84 - non-performing - - - - - 1,459,399 1,459,399 - Other investments - - - - 43,070 528 43,598 2.00 Other assets - - - - - 340,436 340,436 - Total assets 527,621 68,507 206,424 918,084 1,245,985 1,953,667 4,920,288

112

MBSB Annual Report 2005 39. INTEREST RATE RISK (CONTD.)

Group Average 2005 (Contd.) Non- interest Up to 1 >1-3 >3-12 >1-5 Over 5 interest rate month months months years years sensitive Total % per RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 annum

Liabilities (contd.) Redeemable convertible - 4,223 - 7,969 - - 12,192 4.00 preference shares Other liabilities - - - - - 48,133 48,133 - Total liabilities 487,380 1,755,276 1,387,460 810,787 - 103,713 4,544,616 Shareholders’ equity - - - - - 375,672 375,672 - Total liabilities and shareholders’ equity 487,380 1,755,276 1,387,460 810,787 - 479,385 4,920,288

On-balance sheet interest sensitivity gap 40,241 (1,686,769 ) (1,181,036 ) 107,297 1,245,985 1,474,282 - Off-balance sheet interest sensitivity gap ------Total interest sensitivity gap 40,241 (1,686,769 ) (1,181,036 ) 107,297 1,245,985 1,474,282 -

113

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

39. INTEREST RATE RISK (CONTD.)

Group Average 2004 Non- interest Up to 1 >1-3 >3-12 >1-5 Over 5 interest rate month months months years years sensitive Total % per RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 annum

Assets Cash and short term funds 181,312 - - - - 19,380 200,692 2.65 Trade receivables - - - - - 11,498 11,498 - Other receivables - - - - - 111,062 111,062 - Loans, advances and ﬁ nancing - performing 386,400 620 53,176 174,388 1,608,454 - 2,223,038 8.16 - non-performing - - - - - 1,565,261 1,565,261 - Other assets - - - - - 424,222 424,222 - Total assets 567,712 620 53,176 174,388 1,608,454 2,131,423 4,535,773

Liabilities Bank borrowings 421,553 740,377 50,147 - - - 1,212,077 3.97 Deposits from customers 859,150 448,359 629,854 188,100 21 - 2,125,484 3.40 Other borrowings 560 17,870 461,085 16,522 - - 496,037 3.94 Trade payables - - - - - 30,141 30,141 - Other payables 196,755 - - - - 41,131 237,886 10.16 Recourse obligation on loans sold to Cagamas Berhad 187 265 1,156 16,068 - - 17,676 3.75 Redeemable convertible preference shares - 8,963 - 12,192 - - 21,155 4.00 Other liabilities - - - - - 53,566 53,566 -

114

MBSB Annual Report 2005 39. INTEREST RATE RISK (CONTD.)

Group Average 2004 (Contd.) Non- interest Up to 1 >1-3 >3-12 >1-5 Over 5 interest rate month months months years years sensitive Total % per RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 annum

Total liabilities 1,478,205 1,215,834 1,142,242 232,882 21 124,838 4,194,022 Shareholders’ equity - - - - - 341,751 341,751 - Total liabilities and shareholders’ equity 1,478,205 1,215,834 1,142,242 232,882 21 466,589 4,535,773

On-balance sheet interest sensitivity gap (910,493 ) (1,215,214 ) (1,089,066 ) (58,494 ) 1,608,433 1,664,834 - Off-balance sheet interest sensitivity gap ------Total interest sensitivity gap (910,493 ) (1,215,214 ) (1,089,066 ) (58,494 ) 1,608,433 1,664,834 -

115

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

39. INTEREST RATE RISK (CONTD.)

Company Average 2005 Non- interest Up to 1 >1-3 >3-12 >1-5 Over 5 interest rate month months months years years sensitive Total % per RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 annum Assets Cash and short term funds 98,053 20,000 200 - - 7,553 125,806 2.86 Other receivables (excluding amount due from subsidiaries) - - - - - 49,970 49,970 - Amount due from subsidiaries - - - - 30,504 - 30,504 3.25 Loans, advances and ﬁ nancing - performing 429,568 48,507 206,224 918,804 1,204,668 - 2,807,051 6.84 - non-performing - - - - - 1,558,129 1,558,129 - Other investment - - - - 43,070 528 43,598 2.00 Loan to subsidiaries - - - - 139,890 - 139,890 3.36 Other assets - - - - - 159,131 159,131 - Total assets 527,621 68,507 206,424 918,084 1,418,132 1,775,311 4,914,079

Liabilities Bank borrowings 463,268 341,560 - - - - 804,828 3.46 Deposits from customers 19,722 1,400,780 1,348,250 589,030 - - 3,357,782 3.34 Other borrowings 4,200 8,333 37,500 200,000 - - 250,033 4.43 Other payables - - - - - 53,146 53,146 - Recourse obligation on loans sold to Cagamas Berhad 190 380 1,710 13,788 - - 16,068 3.75 Redeemable convertible preference shares - 4,223 - 7,969 - - 12,912 4.00 Other liabilities - - - - - 18,584 18,584 - Total liabilities 487,380 1,755,276 1,387,460 810,787 - 71,730 4,512,633 Shareholders’ equity - - - - - 401,446 401,446 - Total liabilities and shareholders’ equity 487,380 1,755,276 1,387,460 810,787 - 473,176 4,914,079

116

MBSB Annual Report 2005 39. INTEREST RATE RISK (CONTD.)

Company Average 2005 (cont’d) Non- interest Up to 1 >1-3 >3-12 >1-5 Over 5 interest rate month months months years years sensitive Total % per RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 annum

On-balance sheet interest sensitivity gap 40,241 (1,686,769 ) (1,181,036 ) 107,297 1,418,132 1,302,135 - Off-balance sheet interest sensitivity gap ------Total interest sensitivity gap 40,241 (1,686,769 ) (1,181,036 ) 107,297 1,418,132 1,302,135 -

117

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

39. INTEREST RATE RISK (CONTD.)

Company Average 2004 Non- interest Up to 1 >1-3 >3-12 >1-5 Over 5 interest rate month months months years years sensitive Total % per RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 annum

Assets Cash and short term funds 181,312 - - - - 14,972 196,284 2.65 Other receivables (excluding amount due from subsidiaries) - - - - - 50,168 50,168 - Amount due from subsidiaries - - - - 21,817 - 21,817 3.54 Loans, advances and ﬁ nancing - performing 386,400 620 53,176 174,388 1,596,573 - 2,211,157 8.56 - non-performing - - - - - 1,528,647 1,528,647 - Loans to subsidiaries - - - - 141,234 - 141,234 3.54 Other assets - - - - - 144,638 144,638 -

Total assets 567,712 620 53,176 174,388 1,759,624 1,738,425 4,293,945

118

MBSB Annual Report 2005 39. INTEREST RATE RISK (CONTD.)

Company Average 2005 (Contd.) Non- interest Up to 1 >1-3 >3-12 >1-5 Over 5 interest rate month months months years years sensitive Total % per RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 annum

Liabilities (Contd.) Redeemable convertible preference shares - 8,963 - 12,192 - - 21,155 4.00 Other liabilities - - - - - 18,584 18,584 - Total liabilities 1,281,450 1,215,834 1,142,242 232,882 21 54,603 3,927,032 Shareholders’ equity - - - - - 366,913 366,913 - Total liabilities and shareholders’ equity 1,281,450 1,215,834 1,142,242 232,882 21 421,516 4,293,945

On-balance sheet interest sensitivity gap (713,738 ) (1,215,214 ) (1,089,066 ) (58,494 ) 1,759,603 1,316,909 - Off-balance sheet interest sensitivity gap ------Total interest sensitivity gap (713,738 ) (1,215,214 ) (1,089,066 ) (58,494 ) 1,759,603 1,316,909 -

40. SEGMENT INFORMATION (a) Business Segments: The Group is organised into four major business segments: (i) Financing - the granting of loans on the security of freehold and leasehold properties and provision of retail ﬁ nancing and related services;

(ii) Property development - the development of residential and commercial properties;

(iii) Letting of real property - the letting of ofﬁ ce buildings; and (iv) Hospitality services - the letting of hotel rooms, sale of food and beverage and other related income. Other business segment include project management and investment holding, none of which are of a sufﬁ cient size to be reported separately. The directors are of the opinion that all inter-segment transaction have been entered into in the normal course of business and have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties. 119

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

40. SEGMENT INFORMATION (CONTD.)

Property Letting of Financing Development Real Property 2005 2004 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

REVENUE AND EXPENSES Revenue External sales 199,118 165,891 10,984 3,145 999 6,466 Inter-segment sales 14,863 8,724 - - 5,241 5,640 Total revenue

Result

Segment results 28,413 24,600 145,579 (23,616) (15,609) (14,138) Taxation Proﬁ t after taxation Minority interest Net proﬁ t for the year

ASSETS

Segment assets 4,914,079 4,293,945 114,064 169,308 74,118 150,700 Unallocated corporate assets Consolidated total assets

120

MBSB Annual Report 2005 40. SEGMENT INFORMATION (CONTD.)

Hospitality Services Others Eliminations Consolidated 2005 2004 2005 2004 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

903 - - (21) 17,448 23,055 229,452 198,536 - - - - (20,104) (14,364) - - 229,452 198,536

(1,941) - (139) (133) (130,837) 35,972 25,466 22,685 13,320 9,065 38,786 31,750 - - 38,786 31,750

73,708 - 395 396 (256,279) (78,828) 4,920,085 4,535,521 203 252 4,920,288 4,535,773

121

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

40. SEGMENT INFORMATION (CONTD.)

Property Letting of Financing Development Real Property 2005 2004 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

LIABILITIES Segment liabilities 4,512,633 3,908,448 309,065 512,493 132,814 215,374 Unallocated corporate liabilities Consolidated total liabilities

Other Information

Capital expenditure 4,617 6,264 - - 1 - Depreciation 1,376 651 6 147 2,595 6,553 Impairment loss on: - other investments 872 ------land held for property development - 148 70 - - - - property, plant and equipment - - - - 1,975 - Reversal of impairment loss on: - investments in subsidiaries (2,652) (4,352) - - - - - land held for property development (694) - - (1,205) - - Non-cash expenses other than depreciation, amortisation and impairment losses 428,270 409,032 4,819 (10,368) 573 5,978

(b) Geographical Segments:

Segmental reporting is not analysed by geographical locations as the Group’s activities are pre-dominantly in Malaysia.

122

MBSB Annual Report 2005 Hospitality Services Others Eliminations Consolidated 2005 2004 2005 2004 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

97,081 - 1,992 1,823 (528,052) (474,044) 4,525,533 4,164,094

19,083 29,928 4,544,616 4,194,022

4,451 - - - - - 9,069 6,264 4,148 - - - 228 228 8,353 7,579

------872 - - - - - 1,193 - 1,263 148 ------1,975 -

- - - - 2,652 4,352 - -

- - - - - (4,888) (694) (6,093)

- - - - (27,391) (36,615) 406,271 368,027

123

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

41. THE OPERATIONS OF ISLAMIC BANKING BALANCE SHEET AS AT 31 DECEMBER 2005 Group and Company 2005 2004 Note RM’000 RM’000 ASSETS

Cash and short term funds (a) 63,441 21,347 Financing, advances and other loans (b) 246,076 95,665 Other receivables (c) 24,043 282 TOTAL ASSETS 333,560 117,294

LIABILITIES

Deposits from customers (d) 316,028 84,250 Other payables (e) 9,359 28,733 Provision for taxation 1,573 - TOTAL LIABILITIES 326,960 112,983 Islamic banking fund 4,000 4,000 Retained proﬁ ts 2,600 311 6,600 4,311

TOTAL LIABILITIES AND ISLAMIC BANKING FUND 333,560 117,294

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 Group and Company 2005 2004 Note RM’000 RM’000 Income derived from investment of general investment deposits and islamic banking capital funds (f) 15,280 3,866 Income attributable to depositors (7,289 ) (998 ) Net income from fi nancing operations 7,991 2,868 Other operating income 1,268 420 Other operating expenses (g) (3,640 ) (1,456 ) Allowance for losses on advances and fi nancing (1,757 ) (968 ) Profi t before taxation and zakat 3,862 864 Taxation and zakat (i) (1,573 ) (497 ) Profi t after taxation and zakat 2,289 367 124

MBSB Annual Report 2005 41. THE OPERATIONS OF ISLAMIC BANKING (CONTD.) STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005

Group and Company (Accumulated Islamic Losses)/ Banking Retained Fund Proﬁ ts Total RM’000 RM’000 RM’000

At 1 January 2004 4,000 (56) 3,944 Proﬁ t after taxation and zakat - 367 367 At 31 December 2004 4,000 311 4,311

At 1 January 2005 4,000 311 4,311 Proﬁ t after taxation and zakat - 2,289 2,289

At 31 December 2005 4,000 2,600 6,600

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005

Group and Company 2005 2004 RM’000 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES Profi t before taxation and zakat 3,862 864 Adjustments for: Income-in-suspense 527 8 Allowance for losses on advances and fi nancing 1,757 968 Operating profi t before working capital changes 6,146 1,840 Increase in fi nancing, advances and other loans (152,695) (96,641) Increase in other receivables (23,761) (282) Increase in deposits from customers 231,778 78,600 (Decrease)/Increase in other payables (19,374) 28,141 Cash generated from operations, representing net cash generated from operating activities 42,094 11,658

Net increase in cash and short term funds 42,094 11,658 Cash and short term funds at beginning of ﬁ nancial year 21,347 9,689 Cash and short term funds at end of ﬁ nancial year 63,441 21,347 125

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

41. THE OPERATIONS OF ISLAMIC BANKING (CONTD.)

(a) CASH AND SHORT TERM FUNDS Group and Company 2005 2004 RM’000 RM’000 Cash at banks 225 1,345 Deposits with: Licensed banks 22,216 - Other fi nancial institutions 41,000 20,002 63,441 21,347 The weighted average effective yield rates of deposits with licensed banks and other fi nancial institutions at the balance sheet date were 2.95% and 2.75% respectively (2004: Nil% and 2.60%) . The average maturities of deposits with licensed banks and other fi nancial institutions as at the end of the fi nancial year were 30 days and 15 days respectively (2004: Nil and 4 days).

(b) FINANCING, ADVANCES AND OTHER LOANS Group and Company 2005 2004 RM’000 RM’000 (i) By type:

Term fi nancing Property fi nancing 369,070 121,148 Personal fi nancing 126,682 70,725 Staff fi nancing 1,703 2,050 Less: Unearned income (248,119) (97,282) 249,336 96,641 Income-in-suspense (535) (8) Allowance for bad and doubtful fi nancing: - General (2,487) (968) - Specifi c (238) - Net fi nancing, advances and other loans 246,076 95,665

(ii) By contract: Bai Bithaman Ajil (deferred payment sale) 154,977 47,283 Bai Al-Inah (cost-plus) 91,099 48,382 246,076 95,665 126

MBSB Annual Report 2005 41. THE OPERATIONS OF ISLAMIC BANKING (CONTD.)

(b) FINANCING, ADVANCES AND OTHER LOANS (Contd.) Group and Company 2005 2004 RM’000 RM’000 (iii) Movements in non-performing ﬁ nancing, advances and other loans (including income receivable)

Non-performing loans (“NPL”) At beginning of year 425 - Classiﬁ ed as non-performing during the year 11,614 425 At end of year 12,039 425

Speciﬁ c provision (238) - Income-in-suspense (535) (8) Net non-performing loans, advances and ﬁ nancing 11,266 417

Ratio of net non-performing loans and ﬁ nancing to gross loans and ﬁ nancing less income-in-suspense 5% 0%

(iv) Movements in allowance for bad and doubtful debts and income-in-suspense are as follows:

General allowance At beginning of year 968 - Allowance made during the year 1,519 968 At end of year 2,487 968

As % of gross loans, advances and ﬁ nancing less speciﬁ c allowance and interest-in-suspense 1% 1%

Speciﬁ c Allowance At beginning of year - - Allowance made during the year 238 - At end of year 238 -

Income-in-suspense At beginning of year 8 - Income suspended during the year 527 8 At end of year 535 8

127

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

41. THE OPERATIONS OF ISLAMIC BANKING (CONTD.)

Due from Head Ofﬁ ce 23,931 - Others 112 282 24,043 282 (d) DEPOSITS FROM CUSTOMERS

Group and Company 2005 2004 RM’000 RM’000 (i) By type of deposit:

Al-Wadiah Savings account 1,245 450 Mudharabah Fund 314,783 83,800 316,028 84,250

(ii) By type of customer:

Business enterprises 312,576 83,623 Individuals 3,452 627 316,028 84,250

(e) OTHER PAYABLES Group and Company 2005 2004 RM’000 RM’000

Proﬁ t payable 1,058 159 Due to Head Ofﬁ ce - 24,688 Others 8,301 3,886 9,359 28,733

128

MBSB Annual Report 2005 41. THE OPERATIONS OF ISLAMIC BANKING (CONTD.)

(f) INCOME DERIVED FROM INVESTMENT OF GENERAL INVESTMENT DEPOSITS AND ISLAMIC BANKING CAPITAL FUNDS Group and Company 2005 2004 RM’000 RM’000

Financing, advances and other loans 14,215 3,596 Deposits with ﬁ nancial institutions 1,592 278 15,807 3,874 Less: Income suspended (527) (8) 15,280 3,866

(g) OTHER OPERATING EXPENSES Group and Company 2005 2004 RM’000 RM’000

Personnel expenses (Note 41(h)) 243 94 Promotion and marketing related expenses 48 20 General administrative expenses 3,349 1,342 3,640 1,456

(h) PERSONNEL EXPENSES Group and Company 2005 2004 RM’000 RM’000

Wages and salaries 211 83 Social security costs 4 1 Pension costs - Employees Provident Fund 28 10 243 94

The number of employees of the Islamic Banking operations in the Group and in the Company at the end of the ﬁ nancial year were 16 (2004: 2).

129

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

41. THE OPERATIONS OF ISLAMIC BANKING (CONTD.)

(i) TAXATION

Income tax is calculated at the Malaysian statutory tax rate of 28% (2004: 28%) of the estimated assessable proﬁ t for the year.

A reconciliation of the income tax expense applicable to proﬁ t before taxation and zakat at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company is as follows:

Group and Company 2005 2004 RM’000 RM’000

Proﬁ t before taxation and zakat 3,862 864

Taxation at Malaysian statutory tax rate of 28% (2004: 28%) 1,081 242 Effect of utilisation of previously unrecognised tax losses - (16) Deferred tax assets not recognised during the year 492 271 Tax expense for the year 1,573 497

Deffered tax assets amounting to RM763,000 (2004:RM271,000) have not been recognised in respect of the folowing items:

Group and Company 2005 2004 RM’000 RM’000

Provision for doubtful debts 763 271

130

MBSB Annual Report 2005 42. THE OPERATIONS OF ISLAMIC BANKING (CONTD.)

(i) YIELD/PROFIT RATE RISK

The table below summarises the Group’s and the Company’s exposure to yield/profi t rate risk for the Islamic banking operations. The table indicates effective average yield/profi t rates at the balance sheet date and the periods in which the fi nancial instruments either reprice or mature, whichever is earlier.

Group and Company Average 2005 Non-yield/ yield/proﬁ t Up to 1 >1-3 >3-12 >1-5 Over 5 proﬁ t rate rate month months months years years sensitive Total % per RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 annum

Assets

Cash and short term funds 43,016 20,000 200 - - 225 63,441 2.83 Financing, advances and other loans - performing 2,775 5,548 24,932 99,608 101,947 - 234,810 6.26 - non-performing - - - - - 11,266 11,266 - Other receivables - - - - - 24,043 24,043 - Total assets 45,791 25,548 25,132 99,608 101,947 35,534 333,560

Liabilities

Deposits from customers 80,486 155,343 80,086 93 20 - 316,028 3.32 Other liabilities - - - - - 10,932 10,932 - Total liabilities 80,486 155,343 80,086 93 20 10,932 326,960 Equity - - - - - 6,600 6,600 Total liabilities and equity 80,486 155,343 80,086 93 20 17,532 333,560

131

MBSB Annual Report 2005 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2005

42. THE OPERATIONS OF ISLAMIC BANKING (CONTD.)

(i) YIELD/PROFIT RATE RISK (Contd.)

Group and Company Average 2005 (cont’d) Non-yield/ yield/proﬁ t Up to 1 >1-3 >3-12 >1-5 Over 5 proﬁ t rate rate month months months years years sensitive Total % per RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 annum

On-balance sheet yield/profi t sensitivity gap (34,695 ) (129,795 ) (54,954 ) 99,515 101,927 18,002 - Off-balance sheet yield/profi t sensitivity gap ------Total yield/profi t sensitivity gap (34,695 ) (129,795 ) (54,954 ) 99,515 101,927 18,002 -

132

MBSB Annual Report 2005 42. THE OPERATIONS OF ISLAMIC BANKING (CONTD.)

(i) YIELD/PROFIT RATE RISK (Contd.)

Group and Company Average 2004 Non-yield/ yield/proﬁ t Up to 1 >1-3 >3-12 >1-5 Over 5 proﬁ t rate rate month months months years years sensitive Total % per RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 annum Assets

Cash and short term funds 20,002 - - - - 1,345 21,347 2.60 Financing, advances and other loans - performing - - 11 3,119 92,118 - 95,248 6.37 - non-performing - - - - - 417 417 - Other receivables - - - - - 282 282 - Total assets 20,002 - 11 3,119 92,118 2,044 117,294

Liabilities

Deposits from customers 48,758 1,107 27,820 6,545 20 - 84,250 2.79 Other liabilities - - - - - 28,733 28,733 - Total liabilities 48,758 1,107 27,820 6,545 20 28,733 112,983 Equity - - - - - 4,311 4,311 - Total liabilities and equity 48,758 1,107 27,820 6,545 20 33,044 117,294

On-balance sheet yield/profi t sensitivity gap (28,756 ) (1,107 ) (27,809 ) (3,426 ) 92,098 (31,000 ) - Off-balance sheet yield/profi t sensitivity gap ------Total yield/profi t sensitivity gap (28,756 ) (1,107 ) (27,809 ) (3,426 ) 92,098 (31,000 ) -

43. CURRENCY

All amounts are stated in Ringgit Malaysia. 133 MBSB Annual Report 2005 This page is intentionally left blank. 134

MBSB Annual Report 2005 PROXY FORM MALAYSIA BUILDING SOCIETY BERHAD (9417-K) (Incorporated in Malaysia) I/We of being a member/members of MALAYSIA BUILDING SOCIETY BERHAD hereby appoint of or failing him of or failing him, the Chairman of the Meeting as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at Banquet Hall, First Floor, Kuala Lumpur Golf & Country Club, No. 10, Jalan 1/70D, off Jalan Bukit Kiara, 60000 Kuala Lumpur on Tuesday, 23 May 2006 at 12.00 noon and at any adjournment thereof. My/Our proxy to vote as indicated hereunder. NO. RESOLUTIONS FOR AGAINST 1. To receive and adopt the Audited Statement of Accounts of the Company and of the Group for the year ended 31 December 2005 and the Directors’ and Auditors’ Report thereon. Resolution 1

2. To declare a fi rst and fi nal dividend of 2.5% Less 28% income tax in respect of the fi nancial year ended 31 December 2005. Resolution 2

3. To approve Directors’ Fees amounting to RM184,000 for the year ended 31 December 2005. Resolution 3

4. To re-elect the following Directors who retire in accordance with Article 78 of the Company’s Articles of Association:- i) Encik Khalid bin Haji Sufat Resolution 4 ii) Encik Aw Hong Boo Resolution 5

5. To re-elect the following Directors who retire in accordance with Article 86 of the Company’s Articles of Association:-

i) Encik Lau Tiang Hua Resolution 6 ii) Syed Zaid bin Syed Jaffar Albar Resolution 7 6. To re-appoint Messrs Ernst & Young (AF 0039) as the Company’s Auditors and to authorise the Directors to ﬁ x their remunerations. Resolution 8

7. To transact any other ordinary business for which due notice has been given. Resolution 9

8. SPECIAL BUSINESS: To consider and if thought ﬁ t to pass the following ordinary resolution: “That subject always to the Companies Act 1965, Articles of Association of the Company, approval from Bursa Malaysia Securities Berhad and the Securities Commission, full authority be and is hereby given to the directors pursuant to Section 132D of the Companies Act 1965 to issue shares of the Company on such terms and conditions and at such times as may be determined by the directors of the Company to be in the interest of the Company.” Resolution 10 Number of Shares Held

Date : ______Signed ______in the presence of:______

NOTES:- 1. This proxy form duly signed and sealed, must be deposited at the Registered Offi ce of the Company, 11th Floor, Wisma MBSB, 48 Jalan Dungun, Damansara Heights, 50490 Kuala Lumpur, not less than 48 hours before the time fi xed for holding the meeting. 2. If you wish to appoint a proxy, please insert the full name of the proxy (in block letters) in the space provided. A proxy need not be a member of the Company. Where a member appoints two proxies, the appointments shall be invalid unless he specifi es the proportions of his holding to be represented by each proxy. 3. In case of a corporation, the instrument appointing the proxy must be under seal or under the hand of an offi cer or attorney duly authorised. 4 Unless voting instructions are indicated in the spaces provided above, the proxy may vote or abstain as he/she thinks fi t.