AFFINBANK-Annual-Report-2011.Pdf

Flourishing on a Firm Foundation Annual Report 2011 / Abridged Version OUR VISION A Premier Partner for Financial Growth and Innovative Services.

OUR MISSION To provide innovative financial solutions and services to target customers in order to generate profits and create value for our shareholders and other stakeholders.

In so doing, we provide opportunities for employees to contribute and excel; and be competitive in providing our solutions and services to our valued customers.

We shall conduct our business with integrity and professionalism in compliance with good corporate governance principles and practices.

COVER RATIONALE The cover design features the theme--Flourishing On A Firm Similarly, our expansion is based on an extremely solid Foundation--to emphasize the stability of our organization. foundation. The white expanse on the cover symbolizes our The graphic illustration of a fast-growing tree appears on integrity, while the blue portion represents the bright future the cover, and it is firmly anchored by roots that reach deep that lies ahead of us. down into the ground. TABLE OF CONTENTS

2 Corporate Milestone 4 Corporate Structure 5 Corporate Information 6 Board of Directors 8 Profile of Directors 12 Management Team 14 Management Team Profiles 18 Chairman’s Statement 22 Performance Review 25 Financial Highlights 26 Corporate Diary 28 Statement of Corporate Governance 36 Statement on Internal Control 39 Audit & Examination Committee 41 Network of Branches 46 Notice of Annual General Meeting 47 Financial Statements CORPORATE MILESTONE 1999

5 APRIL 1994 • Signing of MoU between 1992 PAB & BSN Commercial • Emergence of Affin 21 APRIL Bank (M) Berhad. Holdings Berhad as • Became Perwira Affin Bank biggest shareholder of Berhad (PAB) from Perwira PHB. Habib Bank Malaysia Berhad (PHB) since AFFIN Holdings has 100% of PAB. 1975

23 OCTOBER • Incorporation of Perwira Habib Bank Malaysia Berhad (PHB).

2 Annual Report 2011 2006

1 APRIL • Affin Islamic Bank Berhad

2000 (AFFIN ISLAMIC)

2001 commenced its 25 APRIL operations. • Change name of Perwira

JANUARY 2005 Affin Bank Berhad (PAB) to • AFFINBANK commenced Affin Bank Berhad operations with 110 JUNE (AFFINBANK). branches nationwide. • Merger with Affin-ACF 30 AUGUST Finance Berhad. • Merger of PAB & BSN Commercial Bank (M) • Introduction to the new Berhad signed, logo and tagline - ‘Banking paving formation of new Without Barriers’ AFFINBANK.

AFFIN BANK BERHAD (25046-T) 3 CORPORATE STRUCTURE

ABB Trustee Berhad ** 100%

ABB Nominee (Tempatan) Sdn. Bhd. 100%

PAB Properties Sdn Bhd 100%

Affin-ACF Holdings Sdn. Bhd. 100% Affin Recoveries Berhad 100%

Affin-ACF Capital

Sdn. Bhd. # 100% Affin Factors Sdn Bhd

ABB Nominee (Asing) 35.33% Sdn Bhd # LEMBAGA TABUNG ANGKATAN TENTERA AXA Affin Life Insurance 100% Lembaga Tabung Berhad 51% Angkatan Tentera ABB IT & Services Sdn Bhd. # 100%

Affin Futures Sdn. Bhd. # 100% AXA Affin General Insurance *** BSNCB Nominees (Tempatan) Berhad Sdn. Bhd. # 33.6% 100% 20.69% AFFIN-ACF Nominees (Tempatan) Sdn. Bhd. # Boustead Holdings Berhad 100%

Affin Holdings Berhad Affin Bank Berhad Affin Islamic Bank Berhad 100% 100% AFFIN-i Nadayu Sdn. Bhd. ## (formerly known as AFFIN-i Goodyear Sdn Bhd) 50% 23.52% Bank of East Asia Limited* Affin Capital Sdn. Bhd. ABB Venture 100% Capital Sdn Bhd.#1 100%

ABB Asset Management (M) Berhad #1 100%

BSNC Nominees (Tempatan) Sdn. Bhd. #1 Affin-ADB Sdn. Bhd. 100% 100% PAB Property Development OTHERS 20.46% Sdn. Bhd. #1 100%

PAB Property Management Services Sdn. Bhd. #1 100% Affin Money Brokers BSN Merchant Nominees (Asing) Sdn. Bhd. Sdn. Bhd. #1 100% 100% BSN Merchant Nominees (Tempatan) Sdn. Bhd. 100% (strike-off w.e.f. 6.9.2012)

UBB Trustee (Malaysia) Berhad *** 20% Affin Investment Bank # Dormant Berhad Affin Fund Management Berhad # # AFFIN-i Nadayu Sdn Bhd is jointly owned by 100% 100% Affin Islamic Bank Berhad and Jurus Positif Affin Nominees Sdn Bhd with a 50-50 ownership (Tempatan) Sdn. Bhd. 100% ** 80% held by Directors of Affin Bank Berhad in trust for Affin Bank Berhad Affin Nominees (Asing) Sdn. Bhd. *** Associates 100% 1. In members’ voluntary winding-up Classic Precision Sdn. Bhd. 67% Merchant Nominees (Asing) Sdn. Bhd. 1 100% Merchant Nominees (Tempatan) Sdn. Bhd. 1 100% 4 Annual Report 2011 CORPORATE INFORMATION

NAME Mr. Lee Chor Kee (Alternate Director to Mr. Stephen Charles Li) Affin Bank Berhad (Co. No.: 25046-T) (Appointed as Alternate Director w.e.f. 18.4.2011 and resigned as Alternate Director w.e.f. 16.8.2011) DATE OF INCORPORATION Encik Mohd Suffian bin Haji Haron 23 October 1975 (Independent Non-Executive Director)

YBhg. Tan Sri Dato’ Seri Mohamed Jawhar bin Hassan PRINCIPAL ACTIVITIES (Independent Non-Executive Director) Affin Bank Berhad is principally involved in the carrying out of (Appointed as Director w.e.f. 1.11.2011) banking and finance related services. The Bank has seventeen (17) subsidiary companies and three (3) associate companies Managing Director/Chief Executive Officer which are principally engaged in property management YBhg. Dato' Zulkiflee Abbas bin Abdul Hamid services, nominees services, trustees management services and factoring services. SECRETARIES Nimma Safira binti Khalid BOARD OF DIRECTORS Azizah binti Shukor (Resigned as Joint-Company Secretary Chairman w.e.f. 12.1.2012) YBhg. Jen Tan Sri Dato' Seri Ismail bin Hj. Omar (Bersara) (Non-Independent Non-Executive Director) REGISTERED OFFICE Directors 17th Floor, Menara AFFIN, YBhg. Dato’ Zulkiflee Abbas bin Abdul Hamid 80, Jalan Raja Chulan, (Non-Independent Executive Director) 50200 Kuala Lumpur. (Resigned as Director w.e.f. 1.11.2011) Tel.: 03-2055 9000 Fax.: 03-2026 1415

YBhg. Tan Sri Dato’ Lodin bin Wok Kamaruddin (Non-Independent Non-Executive Director) AUTHORISED SHARE CAPITAL No. of shares YM. Dr. Raja Abdul Malek bin Raja Jallaludin 2,000,000,000 (Independent Non-Executive Director) Par value RM1.00 YBhg. Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Total bin Mohd Nor (Bersara) RM2,000,000,000 (Non-Independent Non-Executive Director) (Resigned as Director w.e.f. 30.9.2011)

ISSUED AND PAID-UP SHARE CAPITAL YBhg. Dato Sri Abdul Aziz bin Abdul Rahman (Independent Non-Executive Director) No. of shares 1,439,285,382 Mr. Aubrey Li Kwok-Sing Par value (Non-Independent Non-Executive Director) RM1.00 Total Mr. Brian David Li Man-Bun RM1,439,285,382 (Alternate Director to Mr. Aubrey Li Kwok-Sing) (Resigned as Alternate Director w.e.f. 18.4.2011) SUBSTANTIAL SHAREHOLDER Mr. Gary Cheng Shui Hee No. of shares (Alternate Director to Mr. Aubrey Li Kwok-Sing) Affin Holdings Berhad 1,439,285,382 (Appointed as Alternate Director w.e.f. 18.4.2011)

Mr. Stephen Charles Li EXTERNAL AUDITORS (Non-Independent Non-Executive Director) (Resigned as Director w.e.f. 16.8.2011) PricewaterhouseCoopers (AF 1146)

Mr. Eric Koh Thong Hau (Alternate Director to Mr. Stephen Charles Li) (Resigned as Alternate Director w.e.f. 1.1.2011)

AFFIN BANK BERHAD (25046-T) 5 BOARD OF DIRECTORS

from left to right:

1. YBHG. JEN. TAN SRI DATO’ SERI ISMAIL BIN HAJI 4. YM. DR. RAJA ABDUL MALEK BIN RAJA OMAR (BERSARA) JALLALUDIN Chairman Independent Non-Executive Director Non-Independent Non-Executive Director 5. YBHG. LAKSAMANA MADYA TAN SRI DATO’ SERI 2. YBHG. DATO’ ZULKIFLEE ABBAS BIN ABDUL HAMID AHMAD RAMLI BIN MOHD NOR (BERSARA) Managing Director/ Chief Executive Officer Non-Independent Non-Executive Director

3. YBHG. DATO’ SRI ABDUL AZIZ BIN ABDUL RAHMAN Independent Non-Executive Director

6 Annual Report 2011 from left to right:

6. MR. AUBREY LI KWOK-SING 9. YBHG. TAN SRI DATO’ SERI MOHAMED JAWHAR Non-Independent Non-Executive Director BIN HASSAN Independent Non-Executive Director 7. MR. STEPHEN CHARLES LI Non-Independent Non-Executive Director 10. YBHG. TAN SRI DATO' LODIN BIN WOK KAMARUDDIN 8. EN. MOHD. SUFFIAN BIN HAJI HARON Non-Independent Non-Executive Director Independent Non-Executive Director

AFFIN BANK BERHAD (25046-T) 7 PROFILE OF DIRECTORS

YBHG. JEN. TAN SRI DATO’ SERI ISMAIL BIN HJ. OMAR YBHG. DATO’ ZULKIFLEE ABBAS BIN ABDUL HAMID (BERSARA) Managing Director / Chief Executive Officer Chairman / Non-Independent Non-Executive Director

Jen. Tan Sri Dato' Seri Ismail bin Hj. Omar (Bersara), aged 71, Dato’ Zulkiflee Abbas bin Abdul Hamid aged 55, was appointed was appointed as a Director and Chairman of AFFINBANK on the Managing Director/Chief Executive Officer on 1 April 2009. 21 May 2002. Prior to joining AFFINBANK, Dato’ Zulkiflee Abbas was the Chief He was formerly Chief Defence Forces (CDF) Malaysia from 1995 Credit Officer in one of Malaysia’s leading banks where he also until his retirement in 1998, after 38 years of military service. served in various positions in the bank’s subsidiaries including as He graduated from Royal Military Academy, Sandhurst, United a board member. He graduated with a Master in Business Kingdom in 1961 and subsequently attended professional and Administration from the Southern Illinois University, United States management development courses at several institutions of America. Dato’ Zulkiflee Abbas joined AFFINBANK in March including The Land Forces Command and Staff College, Canada; 2005 as Director, Enterprise Banking. He was later made the the United Nation International Peace Academy, Vienna; the Director of Business in 2007 and subsequently the Executive National Defence College, India and INTAN Malaysia. Director, Banking in 2008 before assuming his current position.

His military service saw Key Command and Staff appointments at Dato’ Zulkiflee Abbas has more than 30 years of extensive all levels of the Armed Forces. As CDF, his responsibilities experience in the banking sector. He posseses the necessary included key roles in Malaysia’s Regional and International knowledge and professional competence in the conduct of the Defence Relations. licensed institution’s business.

Tan Sri was Chairman of Affin Holdings Berhad and Affin-ACF Dato’ Zulkiflee Abbas bin Abdul Hamid attended all Finance from 1999 prior to joining AFFINBANK. He currently holds 17 Board Meetings held during the financial year ended directorships in Affin Islamic Bank Berhad, ABB Trustee, EP 31 December 2011. Engineering Sdn Bhd and Global Medical Alliance Sdn Bhd.

Tan Sri Ismail displays strong board chair leadership as he sets the Board’s tone, direction and culture. Tan Sri Ismail creates the appropriate environment to allow for full engagement by all members of the Board for effective Board discussions and decision making. Tan Sri Ismail possesses a high level of leadership experience to lead effective Board oversight function.

Jen. Tan Sri Ismail bin Hj Omar attended all 17 Board Meetings held during the year ended 31 December 2011.

8 Annual Report 2011 Profile Of Directors (cont’d)

YBHG. TAN SRI DATO' LODIN BIN WOK KAMARUDDIN YM. DR. RAJA ABDUL MALEK BIN RAJA JALLALUDIN Non-Independent Non-Executive Director Independent Non-Executive Director

Tan Sri Dato' Lodin bin Wok Kamaruddin, aged 63, was Dr. Raja Abdul Malek bin Raja Jallaludin, aged 66, was appointed re-appointed to the Board of Directors of AFFINBANK on to the Board of Directors of AFFINBANK on 29 January 1991. 4 October 2010. He was appointed as the Managing Director of Affin Holdings Berhad in February 1991 and redesignated as He graduated as a doctor from the University of Malaya in 1972 Deputy Chairman on 1 July 2008. and, early in his career, worked at the General Hospital, Kuala Lumpur and the Faculty of Medicine, UKM. In late 1975, he went Tan Sri Dato’ Lodin has vast business and management into private medical practice and became a senior partner of experience pursuant to his various positions held in Lembaga Drs. Catterall, Khoo, Raja Malek & Partners until 2003 when he Tabung Angkatan Tentera (“LTAT”) Group of Companies. He is the resigned from the firm. Professionally he is widely experienced and Chief Executive of LTAT and the Deputy Chairman / Group had served in various peer and academic activities. Amongst Managing Director of Boustead Holdings Berhad. Prior to joining others, he had been a clinical tutor in the Faculty of Medicine, LTAT, he was the General Manager of Perbadanan Kemajuan UMMC; been a member of the Ethical Committee of the Malaysian Bukit Fraser for 9 years. Tan Sri Lodin is also the Chairman of Medical Council, MOH; was the Chairman of Council Academy of Boustead Heavy Industries Corporation Berhad, Boustead Naval Family Physicians, Malaysia. Shipyard Sdn Bhd, Boustead Petroleum Marketing Sdn Bhd, Boustead REIT Managers Sdn Bhd, Johan Ceramics Berhad and Dr. Raja Abdul Malek also has vast experience in the 1Malaysia Development Berhad and also sits on the Boards of pharmaceutical world and had actively been involved since 1984. UAC Berhad, The University of Nottingham in Malaysia Sdn Bhd, He had been the Medical Director (Malaysia-Singapore) for Parke Minority Shareholder Watchdog Group, Atlas Hall Sdn Bhd, Affin Davis-Warner Lambert from 1984-2000, and had remained briefly Islamic Bank Berhad, Affin Investment Bank Berhad and AXA so too with Pfizer Malaysia when these two Incorporations Affin Life Insurance Berhad. merged in 2001. In 2003, Dr. Raja Abdul Malek joined HOE/Pharmaceuticals/HOEPharma Holdings Bhd as the Director He graduated from the University of Toledo, Ohio, USA with a of Medical and Scientific Affairs and holds this position to this day. Bachelor of Business Administration and a Master of Business Administration Degree. His other directorship in public and private companies include ABB Trustee Berhad. He is also a member of the Advisory Panel of StemLife Tan Sri Dato’ Lodin attended all 17 Board Meetings held during Berhad and Hartamanis Holding Sdn. Bhd. the financial year ended 31 December 2011 Notwithstanding his tenure of 20 years with AFFINBANK, Dr. Raja Abdul Malek continues to demonstrate independence of judgment and objectivity in both his actions and thoughts.

Dr. Raja Abdul Malek possesses certain personal qualities such as incisiveness which brings diversity and different perspective in Board decision-making that could further balance and strengthen the Board as a whole.

Dr. Raja Abdul Malek bin Raja Jallaludin attended all 17 Board Meetings held during the financial year ended 31 December 2011.

AFFIN BANK BERHAD (25046-T) 9 Profile Of Directors (cont’d)

YBHG. LAKSAMANA MADYA TAN SRI DATO’ SERI AHMAD MR. AUBREY LI KWOK-SING RAMLI BIN MOHD NOR (BERSARA) Non-Independent Non-Executive Director Non-Independent Non-Executive Director

Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor, aged 68, was Mr. Aubrey Li Kwok-Sing, aged 62, was appointed to the appointed to the Board of Directors of AFFINBANK on 21 May 2002. Board of Directors of AFFINBANK on 17 March 2008. He is a He resigned as Director with effect from 30 September 2011. Director of The Bank of East Asia, Limited and Chairman of MCL Partners Limited. Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor sits on the Board of Affin Islamic Bank Berhad. Mr. Aubrey Li possesses extensive experience in investment banking, merchant banking and capital markets. He is also a Tan Sri Dato’ Seri Ahmad Ramli during his tenure attended Director of Café de Coral Holdings Limited, China Everbright all 14 Board Meetings held for the period January to September International Limited, Kunlun Energy Limited, Kowloon 2011. Development Co. Ltd, Pokfulam Development Company Limited, Tai Ping Carpets International Limited, Atlantis Investment Management (Ireland) Limited and Dalton Capital YBHG. DATO' SRI ABDUL AZIZ BIN ABDUL RAHMAN (Guernsey) Limited. Independent Non-Executive Director Mr. Aubrey Li brings in related knowledge and experience in the banking fields, business development and strategy which Dato' Sri Abdul Aziz bin Abdul Rahman, aged 66, was appointed are considered to be a value in achieving AFFINBANK’s to the Board of Directors of AFFINBANK on 28 January 2003. business objectives.

Dato’ Sri Abdul Aziz graduated with a Bachelor of Commerce Mr. Aubrey Li Kwok-Sing attended 6 out of the 17 Board from University of New South Wales, Sydney, Australia. He is Meetings held during the financial year ended 31 December member of the Malaysian Institute of Certified Public Accountants 2011. (MICPA) and the Malaysian Institute of Accountants (MIA). Mr. Aubrey Li’s Alternate Director, Mr Gary Cheng, appointed He has served as Chairman and board member of several with effect from 18 April 2011 and had during his tenure government institutions, agencies and public listed companies, attended 5 out of 10 Board Meetings held for the period April both in Australia and Malaysia. to December 2011.

At the corporate level he was with Price Waterhouse & Co. Sydney, Malaysia Airlines and Managing Director of Bank Rakyat Bhd before venturing into politics and public service as the Pahang State Assemblyman, State Executive Councillor and Deputy Chief Minister of Pahang. He was a Senator of Malaysian Parliament for a maximum period of two (2) terms.

Presently he is a Board member of Affin Islamic Bank Berhad, the International Islamic University Malaysia, University Malaysia Pahang and their associated holding companies.

Dato’ Sri Abdul Aziz’s expertise and knowledge carries across a broad spectrum relating to finance and accounting. His standing in the community contributes effectively to his role as an Independent Director particularly in meeting various stakeholders expectation.

Dato' Sri Abdul Aziz bin Abdul Rahman attended 16 out of 17 Board Meetings held during the financial year ended 31 December 2011.

10 Annual Report 2011 Profile Of Directors (cont’d)

MR. STEPHEN CHARLES LI YBHG. TAN SRI DATO’ SERI MOHAMED JAWHAR Non-Independent Non-Executive Director BIN HASSAN Independent Non-Executive Director

Mr. Stephen Charles Li, aged 52, was appointed to the Board of Tan Sri Dato’ Seri Mohamed Jawhar, aged 68, was appointed as Directors of AFFINBANK on 17 March 2008. Mr. Li is a Director of a Director of AFFINBANK on 1 November 2011. The Bank of East Asia, Limited. He resigned as Director with effect from 16 August 2011. His other positions include: Independent Non-Executive Director, Affin Islamic Bank Berhad; Chairman ISIS Malaysia, Mr. Stephen Charles Li during his tenure attended 5 out of 12 Non-Executive Chairman, New Straits Times Press (Malaysia) Board Meetings held for the period January to August 2011. Berhad; Member of Securities Commission Malaysia; Member, Advisory Board, Malaysian Anti-Corruption Commission; Mr. Stephen Charles Li’s Alternate Director, Mr. Lee Chor Kee, Distinguished Fellow, Institute of Diplomacy and Foreign Relations appointed with effect from 18 April 2011, had during his tenure (IDFR); Board Member, Institute of Advanced Islamic Studies attended 1 out of 6 Board Meetings held for the period April to (IAIS); Chairman, Malaysian National Committee of the Council for August 2011. Mr. Lee resigned as Alternate Director with effect Security Cooperation in the Asia Pacific (CSCAP); and Member, from 16 August 2011. International Advisory Board, East West Center, USA. He is also Expert and Eminent Person for the ASEAN Regional Forum (ARF).

EN. MOHD SUFFIAN BIN HAJI HARON He was also Co-Chair, Network of East Asia Think-tanks (NEAT) Independent Non-Executive Director 2005-2006; Chairman, Malaysian National Committee, Pacific Economic Cooperation Council (PECC) 2006-2010; and Co-Chair, Council for Security Cooperation in the Asia Pacific Encik Mohd Suffian bin Haji Haron aged 66, was appointed to the (CSCSP) 2007-2009. Board of Directors of AFFINBANK on 15 August 2009. He served with the government before he joined ISIS Malaysia as He graduated with a Bachelor of Economics from University of Deputy Director-General in 1990, Director-General in March 1997 and Malaya (1970) and holds a Master of Business Administration was subsequently appointed Chairman and CEO in 2006. He was from University of Oregon in the United States (1976). appointed Chairman ISIS Malaysia on 9 January 2010.

His current directorships in public companies include, Affin Islamic His positions in government included Director-General, Bank Berhad, L.K. & Associates Sdn Bhd, Idaman Pharma Department of National Unity; Under-Secretary, Ministry of Home Manufacturing Sdn Bhd and Pharmaniaga Berhad. Affairs; Director (Analysis) Research Division, Prime Minister’s Department; and Principal Assistant Secretary, National Security Encik Mohd Suffian brings a diverse professional experience to Council. He also served as Counselor in the Malaysian Embassies the Board. His background provides the necessary independence in Indonesia and Thailand. to the Board and add value by drawing on his experience and contributing to the Board’s decision-making process. His appropriate leadership skills and vast experience are useful to the Board to gain a wider and forward looking perspective on Encik Mohd Suffian attended 16 out of the 17 Board Meetings decision making. held in the financial year ended 31 December 2011. Tan Sri Dato’ Seri Jawhar during his tenure attended 1 out of 2 Board Meetings held for the period November to December 2011.

AFFIN BANK BERHAD (25046-T) 11 MANAGEMENT TEAM MR. TAN KOK TOON MR. TAN Treasury Director, PN. KHATIMAH BINTI MAHADI PN. KHATIMAH Chief Internal Group Auditor MR. EE KOK SIN Chief Financial Officer EN. SHARIFFUDIN BIN MOHAMAD Operations Executive Director, EN. AMIRUDIN BIN ABDUL HALIM Business Banking Director, YBHG. DATO' ZULKIFLEE ABBAS BIN ABDUL HAMID YBHG. DATO' Chief Executive Officer Managing Director/

12 Annual Report 2011 EN. NAZLEE KHALIFAH Chief Corporate Strategist

MR. KASINATHAN T. KASIPILLAI Group Chief Risk Officer

EN. KAMARUL ARIFFIN BIN MOHD. JAMIL Chief Executive Officer, Affin Islamic Bank Berhad

PN. NOR ROZITA NORDIN Chief Human Resource Officer

EN. IDRIS BIN ABD. HAMID AFFIN BANK BERHAD(25046-T) 13 Director, Consumer Banking

YBHG. DATO' MOHAMAD ASLAM KHAN GULAM HASSAN Chief Recovery Specialist MANAGEMENT TEAM PROFILES

YBHG. DATO' ZULKIFLEE ABBAS BIN EN. SHARIFFUDIN MOHAMAD ABDUL HAMID Executive Director, Operations Managing Director/ Chief Executive Officer Shariffudin Mohamad is the Executive Dato’ Zulkiflee Abbas bin Abdul Hamid, 55 EN. KAMARUL ARIFFIN MOHD JAMIL Director, Operations of AFFINBANK. years old, currently holds the position of Chief Executive Officer, Affin Islamic Bank Managing Director/ Chief Executive Officer Berhad He joined AFFINBANK as the Director, of AFFINBANK since 1 April 2009. Operations in August 2007 and was Kamarul Ariffin Mohd Jamil is the Chief appointed to his present position effective He joined AFFINBANK in March 2005 as Executive Officer of Affin Islamic Bank 1 November 2009. Director, Enterprise Banking and later on Berhad (AFFIN ISLAMIC) since 2006. was made Executive Director, Banking While he was the Director, Operations, he before assuming his current position. He joined AFFINBANK in 2003 as Head, was also the Chief Corporate Strategist Corporate Strategy Division and in 2005 and Chief Human Resource Officer. Dato’ Zulkiflee has been in the banking was appointed as Head, Islamic Banking industry for almost 30 years. He started in Division. Currently, he oversees the Operations a local leading bank, working his way up Division encompassing Branch through various ranks and responsibities His appointment to his current position Operations, Information Technology, at home and abroad. He left in 2005 while was in 2006 when AFFIN ISLAMIC was Property and Logistics, Strategic and he was the Chief Credit Officer. incorporated as a wholly-owned Support Services including Customer subsidiary of AFFINBANK. Fulfillment, Legal and Corporate Under his current portfolio, Dato’ Zulkiflee Communications. also holds directorships in Affin Investment Prior to AFFINBANK, Kamarul held various Bank Berhad and Affin Islamic Bank positions in Pengurusan Danaharta He brings with him over two decades of Berhad Nasional Berhad, namely Head of banking experience with a well-known Managing Director's Office and Special international financial institution and its Dato’ Zulkiflee holds a Masters in Business Assistant to Managing Director between acclaimed global outsourcing outfit. Administration from Southern Illinois 1999 to 2003. University, United States of America, the He graduated with a Bachelor in Finance same university of which he obtained his Kamarul graduated from the University of and a Master in Business Administration Bachelor of Science (Marketing). Cambridge in 1992 with a Bachelor of Arts from Southern Illinois University, United (Economics). States of America.

14 Annual Report 2011 Management Team Profiles (cont’d)

EN. AMIRUDIN ABDUL HALIM MR. TAN KOK TOON Director, Business Banking Director, Treasury EN. IDRIS ABD. HAMID Amirudin Abdul Halim joined AFFINBANK Director, Consumer Banking Tan Kok Toon (KT) completed his Bachelor as Director, Business Banking in July of Science (Hons) in Mathematics from 2009. Idris Abd Hamid has over 30 years of Universiti Malaya in 1987. experience in the banking and finance He brings with him over 20 years of industry. His career with AFFINBANK He joined AFFINBANK as Head of banking experience across many fields began in 1994 when he was the General Treasury in October 2004 and is within the industry from credit control, Manager for Affin Finance Berhad and he responsible for managing all aspects of branch operations, business and was later made Deputy Chief Executive Treasury Division across the Group which consumer banking to corporate services. Officer for AFFIN-ACF Finance Berhad includes Affin Islamic Bank Berhad and from 2000 to 2005. Affin Investment Bank Berhad. He is the Amirudin served in several senior current Honorary Secretary, Persatuan capacities during his long-term tenure with Prior to joining AFFINBANK, Idris held Pasaran Kewangan Malaysia (Association a local leading bank and brought various positions at Arab-Malaysian Cambiste Internationale) and the recognition to the bank in 2007 when it Finance (currently known as AmBank) Chairman to its Seminar and Education received The Asian Banker's 'Excellence from 1984 to 1994 as Branch Manager, Committee. in Retail Financial Services for Automobile Assistant Manager Corporate Loans and Lending'. Head of Consumer Loans Division. He Prior to AFFINBANK, KT worked in one of graduated from the University of Northern the largest banks in Malaysia. For more He graduated with a Bachelor of Arts Colorado and Southern Illinois University, than 18 years, he served in various degree in Finance from St. Louis USA with Masters in Business capacities of Treasury operations, such as University, United States of America. Administration and Bachelor of Science in Treasury Manager with the Bank’s New Finance respectively. York branch and as Treasury Business He has attended various programmes by Advisor to turnaround a business project Stamford University, Wharton Business in the Philippines. KT is also the president School, Washington University and Asian of Kelab Sukan dan Rekreasi AFFINBANK. Institute of Management, Philippines.

AFFIN BANK BERHAD (25046-T) 15 Management Team Profiles (cont’d)

MR. EE KOK SIN PN. KHATIMAH MAHADI Chief Financial Officer Group Chief Internal Auditor MR. KASINATHAN T. KASIPILLAI Group Chief Risk Officer Ee Kok Sin began his career in 1982 as a Khatimah Mahadi has 30 years of Trainee Accountant with a firm of experience in Internal Auditing including 23 Kasinathan holds a Masters in Business Chartered Accountants in London. He has years in financial services with Citibank Administration from the University of Bath, extensive experience in auditing, treasury Berhad, a development bank and a UK and is a Certified Risk Professional functions, financial accounting, financial finance company. In addition, she also had awarded by Bank Administration Institute, management and information technology. a stint with a local bank, Lembaga Chicago, USA. He is also an Associate Pasaran dan Perlesenan Getah and Fellow of Institute of Bankers Malaysia. Prior to his appointment at AFFINBANK, Auditing/Consulting Firm Hanafiah, Raslan This is in recognition of his pioneering work he was the General Manager, Finance & & Mohamad. She was also the Director of in developing the Certified Credit Services of Pengurusan Danaharta Compliance and Country Internal Audit Professional (CCP) certification. Nasional Berhad. He is a Fellow Member Head when she was with Citibank Berhad. He continues to serve as an active of the Association of the Chartered member of CCP Examination Committee Certified Accountants (FCCA) and a to this day. He has over 30 years of local member of The Malaysian Institute of and overseas banking experience Certified Public Accountants (MICPA) and particularly in the area of Risk Malaysian Institute of Accountants (MIA). Management. He comes from a foreign bank background having earlier worked in the risk function of that bank in a number of countries including London, Singapore, Hong Kong, Mumbai and Jakarta.

16 Annual Report 2011 Management Team Profiles (cont’d)

YBHG. DATO' MOHAMAD EN. NAZLEE KHALIFAH ASLAM KHAN GULAM HASSAN Chief Corporate Starategist Chief Recovery Specialist Nazlee Khalifah was appointed to the post Dato' Mohamad Aslam Khan holds a PN. NOR ROZITA NORDIN of Chief Corporate Strategist in April 2011. Bachelor's Degree in Business Chief Human Resource Officer Administration with honours. He joined Prior to the appointment, he served as AFFINBANK in 1996 as the General Puan Nor Rozita Nordin was appointed as Head, Business Strategy & Support, Manager of Commercial Banking Division Chief Human Resource Officer of Business Banking since joining the Bank and was later appointed the Head of AFFINBANK on 1 May 2011. in February 2009. Before joining Special Asset Management. He has held AFFINBANK in February 2009, he was various positions domestically and Prior to that, she was the Executive Vice- employed in various capacity in Maybank internationally both in the business and President and Head of Group Human especially in Planning and Strategic business support divisions. Dato' Aslam Resource at EON Bank Group (which Management. He holds a Bachelor of has over 35 years of banking experience. comprises EON Bank Berhad, EONCap Business Administration majoring in Islamic Bank Berhad and MIMB Accounting and Finance from Simon Prior to AFFINBANK, he held various Investment Bank Berhad). Fraser University, Vancouver, Canada. positions at Maybank for 21 years. His last position there was the General Manager of She has more than 28 years of extensive Maybank in New York. He also had a five- working experience in Human Resource year stint with the former Oriental Bank as Development and Customer Relations the General Manager, Enterprise Banking Strategy from various industries (Banking Division. & Finance, Shared Services, Automotive Retail and Manufacturing, Insurance and Healthcare). She has served strategic roles in the areas of Performance and Human Capital Development, Compensation and Benefits, Manpower Planning and Recruitment, Industrial Relations, Employee Engagement, Customer Relationship Management and Analytics, Contact Centre Management and Target Marketing, both in national and multinational corporations.

She holds a Master of Science degree, Bachelor of Science (Education) and Bachelor of Arts (Linguistics) degrees from Southern Illinois University at Carbondale, USA.

AFFIN BANK BERHAD (25046-T) 17 CHAIRMAN’S STATEMENT

Dear Shareholders, On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of Affin Bank Berhad (AFFINBANK) for the financial year ended 31 December 2011.

18 Annual Report 2011 Chairman’s Statement (cont’d)

Despite the challenging market environment in 2011, I am pleased to report that we have chalked up another profitable year, with a profit before taxation and zakat attributable to shareholders that grew impressively by 17.5% to RM613.1 million from RM521.9 million. +17.5%

AFFINBANK’s success can be attributed to the Bank’s transformation effort through Profit Before Taxation & Zakat various activities such as branch expansion, relocation, product innovation, aggressive marketing, prudent lending policies, strong risk management practice and efficient customer services. During the year, we continued to grow organically in Malaysia. We embarked on a reform +14.2% programme by relocating four branches to more vibrant commercial vicinities and opened 6 new branches, which has contributed to the growth and profitability of the Bank. Loan Growth

We also invested on human capital i.e. training and developing of existing staff as well as new recruitment. We introduced new products and campaigns and improved our customer touchpoints to ensure excellent and efficient customer service. At the same time, we continued to improve on our risk management practices to be abreast with the prevailing economic climate.

The Bank’s lending activities remained focused on consumer financing and small medium enterprises. During the year the Bank’s total gross loan grew by 14.2%, with hire purchase, home mortgage segment and SME financing contributing to the growth. This loan growth is equally matched with a strong growth in customer deposits. The Bank recorded an increase of 18.0% in its customer deposit portfolio, which subsequently increased the Bank’s total deposit portfolio from 19.7% in 2010 to 23.5% in 2011.

The Bank’s asset quality remained resilient and is reflected by the lower net impaired loan from 2.02% in 2010 to 1.31% in 2011.

Our strong financial performance has enabled us to recommend a final tax exempt dividend of 5 sen per share for the year under review. Together with the interim single-tier dividend of 7 sen paid on 28 December 2011, the total dividend payout for the 2011 financial year would amount to 12 sen per share or RM172.7 million.

AFFIN BANK BERHAD (25046-T) 19 Chairman’s Statement (cont’d)

As the Bank continues to forge ahead in our business operations and growth, we have not forgotten our role as a corporate citizen. We continued to participate in our +18.0% stakeholders’ activities by sponsoring the annual ‘Hari Pahlawan’ and contributing to the Armed Forces for its ‘Bungkusan Hari Raya’ and its Yayasan Warisan Perajurit to fund its Customer Deposits Growth education activities for the Armed Forces personnel and children. The Bank also took part in a school programme called ‘Young Voices for Conservation’ with TrEES (Treat Every Environment Special Sdn Bhd), a non-government organization. 15 primary and secondary schools within Klang Valley and Putrajaya took part in this unique conservation community programme with the Forestry Department of Selangor and the Selangor Water Management Agency as partners and approved by the Ministry of Education.

The Bank also continued to be the sole official Bank at the 2011 LIMA, held every two years in Langkawi to demonstrate its continuous commitment to its stakeholders and in support of national interest. It also took part in The GLC Open Day which served as an avenue to educate the public on the roles and contributions of government-linked companies (GLC) in the economy.

Looking ahead, the year 2012 is going to be quite challenging for the Malaysian banking industry. Although the prospects for the global economy in the months ahead are uncertain, we remain optimistic about economic prospects in Asia.

Building on the momentum created in 2011, the Bank’s main focus will be to further leverage on its strengths by cross selling and customising products in order to achieve sustainable business growth. The Bank’s business is expected to remain strong despite intense competition amid further liberalisation, consolidation and regulatory changes in year 2012.

The Bank will also continue to seek improvements in our customer services, provide quicker turnaround time via better process efficiency and actively manage our operating costs to maintain profitability. With our strong balance sheet and capital position, the Bank is confident that we will be able to meet all the challenges and opportunities ahead in order to serve and provide continued support to our valued customers.

20 Annual Report 2011 Chairman’s Statement (cont’d)

On behalf of the Board, I would like to thank our shareholders, customers and business partners for their continuing support. My appreciation goes to all staff and management for their dedicated services and for delivering a commendable performance for the current year. Our growth over the past year is a direct result of the dedication, passion and hard work of our people – a team which is now over 3,200 strong. Finally, I wish to thank all my fellow Board Members for their wise counsel and contributions.

Jen Tan Sri Dato’ Seri Ismail bin Hj. Omar (Bersara) Chairman

AFFIN BANK BERHAD (25046-T) 21 PERFORMANCE REVIEW

Affin Bank Berhad (AFFINBANK) reported profit before taxation and zakat of RM613.1 million for the financial year ended 31 December 2011, an increase of 17.5% from RM521.9 million in 2010.

22 Annual Report 2011 Profit after taxation and zakat increased by 15.4% to RM440.0 million for the year ended 31 December 2011, compared with RM381.2 million the year before.

The stronger performance was attributable to the successfulness of its mid to long-term strategies coming to fruition, focusing on organic growth which included marketing expansion activities and human capital development.

Notwithstanding the intense competition in the banking industry and the difficult business environment in 2011, the Bank continuously improvised on its reach and services towards its customers by strengthening its internal and external resources. The Bank had embarked on a reform programme by diagnosing business development difficulties at existing branches and relocating 4 of them to more vibrant commercial vicinities. The relocated branches were Sandakan, Ampang New Village, Johor Bahru and Sungai Petani.

A total of 6 new branches at new growth areas were also opened to improve the Bank’s presence in the market. The new branches are located in Meru, Klang; Gemas; Jitra; Kulim; Prince Commercial Centre, Kuching and Mutiara Rini, Johor. This has ultimately contributed to the overall growth and profitability of the Bank which has a total of 97 branches as of year-end.

The year under review also saw the launch of new products and campaigns including the +15.4% second wave of its highly successful nationwide savings campaign dubbed ‘O.M.G It’s Back!’ that targeted new, existing conventional and Shariah compliant savings, current Profit After Taxation and Zakat and fixed deposit account holders.

The Bank also launched a new insurance product called ‘OMG Home Protector’ which protects the contents of the houses or homes in collaboration with AXA Affin. Similarly, the collaboration also cut across to its hire purchase division when it made public its -10.9% ‘Affin HP Life’, an insurance coverage that not only covers the life of the insurer but that of the remaining outstanding balance of the loan on the insurer’s vehicle. Total Impaired Loans Improved

In addition, AFFINBANK's Islamic banking subsidiary Affin Islamic Bank Berhad had launched its flexible home and business property financing campaign called 'Let's Talk MM'. The financing products offered under this campaign is based on the globally accepted Islamic concept of ‘diminishing partnership’ called Musharakah Mutanaqisah. 2.85%

During the year, the Bank’s net interest income rose by 3.2% to RM774.8 million from Gross Impaired Ratio RM751.0 million recorded in 2010. Islamic banking income increased by 11.9% to RM198.9 million from RM177.8 million the year before.

AFFIN BANK BERHAD (25046-T) 23 Earnings per share increased by 15.5% to 30.6 sen per share from 26.5 sen per share during the year under review. 11.91% During the year, the Bank’s total assets rose by RM7.1 billion to RM49.2 billion, compared with RM42.1 billion in 2010. Risk Weighted Capital Ratio

Deposits from customers increased 18.0% to RM36.5 billion from RM31.0 billion recorded the year before. Of this total, fixed deposits remained as the biggest contributor in the year under review contributing RM22.3 billion, an increase of 11.4% from RM20.0 billion in 2010. 9.78%

Even with the growth in financing, the Bank’s impaired loans continued to improve. Total Core Capital Ratio impaired loan improved 10.9% to RM865.7 million for the year under review, compared with RM971.1 million a year ago due to the Bank’s better credit underwriting standards, asset portfolio and risk management. Gross impaired ratio is at 2.85% as compared to 3.66% in 2010.

Net loans, advances and financing increased by 14.3% to RM29.7 billion from RM26.0 billion the year before, mainly contributed by household loans, followed by real estate, transport, storage and communication.

The Bank is well capitalised with its risk weighted capital ratio at 11.91% and a core capital ratio of 9.78%.

On 19 July 2011, RAM Rating Services Berhad has reaffirmed the Bank's longterm and short-term financial institution ratings, at A1 and P1, respectively, with a stable outlook.

Moving into 2012, the Bank will continue its broad expansion plans and marketing activities abide the uncertainties, globally and within the country. The continued economic crises in Europe and US will affect those in the export industry and the ripple effect will be felt but not significantly. The Economic Transformation Programme (ETP) by the Malaysian Government will ensure the growth of the economy domestically and there will be many opportunities for the small and medium-sized businesses (SMEs) as well as its citizens.

The Bank is confident that it will continue to register growth next year with emphasis on its fee-base income while strengthening its core business areas with more improved and innovative products and services.

24 Annual Report 2011 FINANCIAL HIGHLIGHTS

EARNINGS PER SHARE (EPS) PROFIT BEFORE TAXATION TOTAL ASSETS (Sen) AND ZAKAT (PBT) (RM’billion) (RM’million)

30.6 26.5 22.1 23.0 18.0 613.1 521.9 425.1 454.6 322.0 49.2 42.1 35.6 33.0 31.9

2011 2010 2009 2008 2007 2011 2010 2009 2008 2007 2011 2010 2009 2008 2007

AFFINBANK’s EPS for the financial year AFFINBANK achieved PBT of RM613.1 AFFINBANK’s financial position as at ended 31 December 2011 stood at million, a commendable 17.5% rise for 31 December 2011 continued to 30.6 sen, compared to 26.5 sen the the year ended 31 December 2011, remain strong with total assets of year before. compared to RM521.9 million in 2010. RM49.2 billion, an increase of 17.1% AFFINBANK’s PAT also rose by 15.4% compared with RM42.1 billion as at to RM440.0 million for the year ended 31 December 2010. 31 December 2011.

NET LOANS, ADVANCES & DEPOSITS FROM CUSTOMERS SHAREHOLDERS’ EQUITY FINANCING (RM’billion) (RM’billion) (RM’billion)

29.7 26.0 22.0 19.5 16.8 36.5 31.0 26.4 25.2 23.5 3.6 3.3 3.0 2.7 2.5

2011 2010 2009 2008 2007 2011 2010 2009 2008 2007 2011 2010 2009 2008 2007

AFFINBANK’s net loans, advances and Total deposits increased by 18.0% Total shareholders’ equity of financing grew by 14.3% to RM29.7 year-on-year to RM36.5 billion as at AFFINBANK increased by 8.7% to billion compared with RM26.0 billion in 31 December 2011, in correspondence RM3.6 billion from RM3.3 billion the 2010, as economic activities and to AFFINBANK’s loan growth. year before. demand for credit gathered momentum during the year under review.

AFFIN BANK BERHAD (25046-T) 25 CORPORATE DIARY

AFFINBANK garners a deposit growth of RM1.2 billion for its eight months Oh My Goshh! (O.M.G) deposit savings campaign. Grand Prize Winner Lee Guan Seong takes home AFFINBANK continues to RM500,000 in cash deposit, reward deserving young talents while the second prize of through the AFFINBANK AFFINBANK hosts ‘An Evening RM200,000 cash deposit goes Examination Excellence Award Of Mystique Gold’ as a form of to Chen Bee Kheng and third and Scholarship Programme appreciation towards its top prize winner Chong Chon Yuan 2011 which is well into its valued corporate and 31 May 2011 20 May 2011 receives RM100,000. eighth year. 30 May 2011 consumer clients.

AFFINBANK synergises efforts with the Bank of East Asia (BEA) to add value to customers and clients. Speakers from the Bank of East Asia and experts in the fields of AFFINBANK provides strong business and economy financial support for Treat Every primarily from East Asia touch Affin Banking Group Environment Special Sdn Bhd on topics such as Updates on participates in the Government- (TrEES) Young Voices For the 12th Five-year Plan Linked Companies (GLC) Open Conservation school Conference, Tax Issues in China Day, organized by Khazanah programme and educates and Matters to Observe and Nasional which featured students on financial Understand When Setting Up multiple activities such as 16 June 2011 24-26 June 2011 management and budgeting. June – November 2011 China Enterprises. exhibitions, forums and talks.

26 Annual Report 2011 Ramadhan month. serving overseas,inthespiritof Armed Forces personnel in-kind worthRM100,000tothe tradition tocontributecashand AFFINBANK holdstruetoits Chulan Hotel. held atTheRoyale its firstHariRayaOpenHouse, clients andpeercompaniesat opening itsdoorstocorporate celebrated HariRayaby Affin BankingGroup (ABG)

8 September 2011 9 August 2011 held atMenaraAffin. cause atablooddonationdrive busy schedulestohelpagood take sometimeoutfrom their Blood Centre, AFFINBANKers Partnering withtheNational new laws. Act andtoembracethese AFFINBANKers ontheAntiTrust days toeducateandenlighten conducted overaperiodoftwo Antitrust trainingforstaff is

24 October 2011 14 & 17 August 2011 defense industry. the communitywithin and tostrengthen rapport with commitment toitsstakeholders demonstrate theBank’s the soleofficial bankto AFFINBANK sponsorsLIMAas area. converts from theKlangValley orphans and30newMuslim ‘buka puasa’feastwith108 tradition, AFFINBANKholdsa In keepingwithitsannual AFFIN BANK BERHAD(25046-T) 27

6-10 December 2011 19 August 2011 STATEMENT OF CORPORATE GOVERNANCE

The Board of Directors of AFFINBANK (“Board”) and Management appreciate the importance of adopting high standards of Corporate Governance in all areas of its business towards enhancing business prosperity and corporate accountability with the ultimate objective of safeguarding the interest of shareholder’s value. The Board and Management are fully committed and constantly strive to ensure that the principles of the Malaysian Code on Corporate Governance (“Code”) and Bank Negara Malaysia (BNM) Guidelines on Corporate Governance for Licensed Institutions (Revised BNM/GP1) are adopted and practised throughout the group. This is important so as to ensure that AFFINBANK is managed safely and soundly where risks and business prudence are appropriately balanced so as to maximize shareholder’s return and protect the interests of all stakeholders (it also enables the shareholder of AFFINBANK and the public to access and determine the standards of Corporate Governance). Throughout 2011 and to date, AFFINBANK continues to conduct its business with integrity and exercises a high level of transparency and objectivity.

The Board and Management are fully committed in ensuring employees adhere closely to BNM’s Guidelines (BNM/GP7) on Code of Ethics (“COE”), which aims at instilling the five values namely discipline, integrity, humility, caring and creativity in AFFINBANK and its employees. The Board and Management set high ethical business standards and practices for business conduct and the code of behaviour for employees to adhere to. In addition to the COE, all Directors are also required to observe the Directors’ COE. Responsibility for implementation of these policies and guidelines rests primarily with Management, with oversight by the Audit & Examination Committee. Good Corporate Governance is the foundation of the culture and business practices of AFFINBANK.

The following statements set out the commitment of AFFINBANK in applying good Corporate Governance principles and the extent of compliance with the recommended best practices.

1. Board of Directors The Board is committed in establishing and enhancing shareholder’s value in the long term. The Board is pleased to report that the Board has to its best efforts and knowledge complied with the principles and best practices of the Code throughout the financial year under review.

In 2011, AFFINBANK Board went through some changes in its membership. These changes however, have not affected the Board’s performance. AFFINBANK continues to have a strong and experienced Board, befitting its aspiration to become a mid size Bank of prominence.

The Board of AFFINBANK has a balance composition with a strong independent element. It consists of representatives from the private sector with suitable qualifications fulfilling the fit and proper criteria as required by BNM/GP1, a mixture of different skills, competencies, experience and personalities. Directors’ profiles which appear on pages 8 to 11 reflect clearly the depth and diversity in expertise and perspective to lead AFFINBANK as well as allow for an independent and objective analysis of major issues.

Board’s Responsibilities The Board acknowledges their roles and responsibilities for the overall performance of AFFINBANK. These ensure the board functions objectively and effectively.

The Board’s responsibilities remain within the framework of BNM Guidelines and AFFINBANK’s Board Policy Manual. The Board also exercises great care to ensure that high ethical standards are upheld, and that the interests of stakeholders are not compromised. These include responsibility for determining AFFINBANK’s general policies and strategies for the short, medium and long term, approving business plans, including targets and budgets, and approving major strategic decisions. The terms of reference of the Board Committees disclosed on page 39 of this Annual Report provide an outline of its roles and functions.

In carrying out its functions, the Board has delegated specific responsibilities to other Board Committees, which operated under approved terms of reference, to assist the Board in discharging their duties. The Chairmen of the various Committees report on the outcome of their Committee meetings to the Board and any further deliberation is made at Board level, if required. These reports and deliberations are incorporated into the Minutes of the Board meetings. The various Committees are listed below:-

Board Remuneration Committee (“BRC”)

• The BRC is responsible for providing a formal and transparent procedure for developing the remuneration policy for Directors, Managing Director/Chief Executive Officer and key senior management officers and ensuring that compensation is competitive and consistent with AFFINBANK’s culture, objectives and strategies. The Committee obtains advice from experts in compensation and benefits, both internally and externally.

28 Annual Report 2011 Statement Of Corporate Governance (cont’d)

Board Nominating Committee (“BNC”) • The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors and Managing Director/Chief Executive Officer, assessing the effectiveness of individual Director, the Board as a whole and the performance of the Managing Director/Chief Executive Officer and key senior management personnel.

Board Risk Management Committee (“BRMC”) • The BRMC is responsible for overseeing management’s activities in managing credit, market, liquidity, operational, legal and other risks and to ensure that the risk management process is in place and functioning.

Board Loan Review and Recovery Committee (“BLRRC”)

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

Audit & Examination Committee (“AEC”) • The AEC is responsible for providing oversight on reviewing the adequacy and integrity of the internal control systems and oversees the work of the internal and external auditors.

Board Composition and Balance The Board composition is in compliance with the Revised BNM/GP1. The Board consists of seven (7) Non-Executive Directors with one (1) Alternate Director; four (4) are Independent Non-Executive Directors and three (3) are Non-Independent Non-Executive Directors. All Directors met the criteria set by the BNM guidelines.

Board meetings are presided by a Non-Independent Non-Executive Chairman whose role is clearly separated from the role of the Managing Director/Chief Executive Officer. The Chairman is responsible for ensuring the effectiveness and smooth functioning of the Board, the governance structure, independence and inculcate a positive culture in the Board.

The Board comprises Directors who, as a group, provides a mixture of core competencies such as finance, accounting, business, management, marketing, information technology and investment management, which are essential for the effective functioning and discharging of responsibilities by the Board.

The Managing Director/Chief Executive Officer is responsible for the overall day-to-day business affairs of AFFINBANK while providing strong leadership in the implementation of Board decisions.

In 2011, the Board composition has been further strenghtened by having majority Independent Directors. Although all the Directors have an equal responsibility for the Group’s business directions and operations, the role of these Independent Non-Executive Directors are particularly important in ensuring that the strategies proposed by the management are fully discussed and evaluated, having considered the long term interests of AFFINBANK’s objectives. No individual or small group of individuals dominate the Board’s decision making process.

Independence and Conflict of Interest It is the Directors’ responsibility to declare whether they have a potential or actual interest in any transaction of AFFINBANK. Where issues involve conflict of interest, the interested Directors abstained from discussing or voting on the matter.

Appointments and Re-election to the Board In 2011, BNM approved the re-appointment of six (6) Non-Independent Non-Executive Directors and two (2) appointments of Independent Non-Executive Directors. In accordance with the Company’s Memorandum and Articles of Association, one-third (1/3) of the Directors, or, if their number is not three (3) or a multiple of three (3), the number nearest to one-third (1/3), shall retire from office at each Annual General Meeting and they may offer themselves for re-election.

AFFIN BANK BERHAD (25046-T) 29 Statement Of Corporate Governance (cont’d)

Directors’ Training All newly appointed Non-Executive Directors are furnished by AFFINBANK with copies of the BNM Guidelines, the Banking and Financial Institutions Act 1989 and other relevant legislation governing the banking industry to facilitate their understanding of banking business requirements. All Directors have attended various training programmes organised internally as well as externally by the relevant authorities such as BNM, Securities Commission (“SC”) and Companies Commission of Malaysia (“CCM”). In addition, the members of the Board keep abreast with the relevant developments in business, banking and finance industry as well as new regulatory requirements on a continuous basis via various conferences, seminars and training programmes organised within the Group and by other external organizers. The development and training programmes attended by the Directors during the financial year ended 31 December 2011 are set out below.

Director Course Title Trainer/Organiser Date

YBhg. Jen Tan Sri Dato’ 1. Regulator-Industry Bank Negara 7 March 2011 Seri Ismail bin Haji Omar Dialogue Malaysia (Bersara) 2. Economic Outlook Affin Holdings 28 March 2011 and Implication of Berhad Financial and Banking Industries

3. Affin Holdings Berhad Talk Affin Holdings 26 July 2011 “Economic Outlook of Berhad Banking Sector 2012/2013” by Dr Yeah Kim Leng

4. 8th Kuala Lumpur Kuala Lumpur 4 & 5 October 2011 Islamic Finance Islamic Finance Forum 2011 (KLIFF)

5. Towards excellence Affin Holdings 27 October 2011 in Corporate Board Berhad Governance (in relation to Corporate Governance Blueprint 2011)

6. BNM/OMFIF – First Asian Bank Negara 1 November 2011 Central Banks Watchers Malaysia Conference “Asian Perspectives on World Finance”

7. BNM Islamic Finance Bank Negara 16 November 2011 Master Class by Joseph Malaysia DiVanna

30 Annual Report 2011 Statement Of Corporate Governance (cont’d)

Director Course Title Trainer/Organiser Date

YBhg. Dato’ Zulkiflee 1. Regulator-Industry Bank Negara 7 March 2011 Abbas bin Abdul Hamid Dialogue Malaysia (Resigned as Director w.e.f. 1 November 2011) 2. Economic Outlook Affin Holdings 28 March 2011 and Implication of Berhad Financial and Banking Industries

3. 8th Kuala Lumpur Kuala Lumpur 4 & 5 October 2011 Islamic Finance Islamic Finance Forum 2011 (KLIFF)

YM. Dr. Raja Abdul Malek 1. 2011 BNM Governor’s ICLIF (FIDE-BNM) 24 March 2011 bin Raja Jallaludin address on the Malaysian Economic and Panel discussion

2. Economic Outlook and Affin Holdings 28 March 2011 Implication of Berhad Financial and banking Industries

3. Banking Insights Bank Negara 8 & 9 April 2011 (everything you Malaysia wanted to know about (FIDE/ICLIF) banking but didn’t dare ask)

4. Board IT Governance Bank Negara 12 & 13 April 2011 and Risk Management Malaysia (FIDE/ICLIF)

5. The Nomination and BNM (FIDE) 18 & 19 July 2011 Remuneration Committee Programme

6. Towards excellence in Affin Holdings 27 October 2011 Corporate Board of Berhad Governance (in relation to Corporate Governance Blueprint 2011)

YBhg. Laksamana Madya 1. Economic Outlook and Affin Holdings 28 March 2011 Tan Sri Dato’ Seri Implication of Berhad Ahmad Ramli bin Financial and banking Mohd Nor (Bersara) Industries (Resigned as Director w.e.f. 30 September 2011)

AFFIN BANK BERHAD (25046-T) 31 Statement Of Corporate Governance (cont’d)

Director Course Title Trainer/Organiser Date

YBhg. Dato’ Sri 1. Economic Outlook and Affin Holdings 28 March 2011 Abdul Aziz bin Implication of Berhad Abdul Rahman Financial and banking Industries

2. Launch of PIDM Perbadanan 12 May 2011 Annual Report 2010 Insuran Deposit and Annual Dialogue Malaysia

3. Corporate Governance Bursa Malaysia 10 August 2011 Blue Print Berhad

Mr. Aubrey Li 1. Directors Induction Affin Bank Berhad 3 August 2011 Kwok-Sing & Programme Mr Gary Cheng Shui Hee (Alternaten Director to Mr Aubrey Li Kwok-Sing)

Mr. Stephen Charles Li 1. Directors Induction Affin Bank Berhad 3 August 2011 (Resigned as Director w.e.f. Programme 16 August 2011) and Mr. Lee Chor Kee (Alternate Director to Mr. Stephen Charles Li) (Resigned as Alternate Director w.e.f. 16 August 2011)

Encik Suffian bin 1. Economic Outlook and Affin Holdings 28 March 2011 Haji Haron Implication of Berhad Financial and banking Industries

2. Risk Management in Bank Negara 31 June 2011 Islamic Finance Malaysia (FIDE)

3. Basel III: The impact Islamic Banking & 10 & 11 October on Islamic Finance Finance Institute 2011 (Part 2) (IBFIM)

4. Towards excellence in Affin Holdings 27 October 2011 Corporate Board of Berhad Governance (in relation to Corporate Governance Blueprint 2011)

YBhg. Tan Sri Dato’ 1. Economic Outlook and Affin Holdings 28 March 2011 Seri Mohamed Implication of Berhad Jawhar bin Hassan Financial and banking Industries

2. 8th Kuala Lumpur Kuala Lumpur 4 & 5 October 2011 Islamic Finance Islamic Finance Forum 2011 (KLIFF)

32 Annual Report 2011 Statement Of Corporate Governance (cont’d)

Meeting and Supply of Information to the Board Board meetings for each financial year are scheduled in advance before the end of the each financial year to enable the Directors to plan accordingly and fit the year’s Board meetings into their respective schedules.

The Board meets on a scheduled basis at least twelve (12) times a year. Additional meetings are convened when necessary to review progress reports on AFFINBANK’s financial performance, approve strategies, business plans and significant policies as well as to consider business and other proposals which require the Board’s approval. For Financial year ended 31 December 2011, seventeen (17) Board meetings were held. Meetings are usually held at the Bank’s Board Room at 19th Floor, Menara Affin, 80 Jalan Raja Chulan, 50200 Kuala Lumpur.

Board meetings are conducted in accordance to a structured agenda. Board Members are provided with the structured agenda together with the relevant documents and information in a form and of a quality appropriate in advance of each Board meeting. This is to facilitate the Directors to peruse the Board papers and seek clarifications that may require from the Management or the Company Secretary well ahead of the meeting date. Urgent papers may be presented for tabling at the Board meetings under supplemental agenda.

The Board monitors AFFINBANK’s performance by reviewing the monthly Management Report, which provides a comprehensive review and analysis of AFFINBANK’s operational and financial issues. In addition, the Minutes of the various Board Committees and Management Committee meetings and other issues are also tabled and considered by the Board.

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

2. Directors’ Remuneration Composition AFFINBANK acknowledges the importance of attracting and retaining the right calibre of Directors with the necessary skills, qualifications and experience for effective Board oversight of AFFINBANK’s business activities and affairs.

The make-up of the Managing Director/Chief Executive Officer’s remuneration remained unchanged consisting of salary, allowances, bonus and other customary benefits as appropriate. Any salary review, takes into account market rates and the performance of the individual and of AFFINBANK.

Non-executive Directors’ emoluments consist of three components – an annual fee as a Board member, an allowance for attendance of meetings and a committee fee. The Directors’ fees, allowances and committee fees are those recommended by the Board and in line with Affin Holdings group of companies.

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

AFFIN BANK BERHAD (25046-T) 33 Statement Of Corporate Governance (cont’d)

Shareholder AFFINBANK is a wholly owned subsidiary of Affin Holdings Berhad, a company listed on Bursa Malaysia Securities Berhad.

Annual General Meeting (“AGM”) The Annual Report and financial statements for year ended December 2010 were tabled at the 35th AGM on 15 March 2011. Likewise the Annual Report and financial statements for year ended December 2011 will be tabled at the 36th AGM on 21 March 2012.

3. Accountability and Audit Financial Reporting AFFINBANK continues to subscribe to the philosophy of transparent, fair, reliable and easily understandable reporting to stakeholders. The Board upholds its responsibility by regularly providing updates on AFFINBANK’s performance through quarterly announcements, ad hoc press conferences, and briefings to the media throughout 2011.

The Board acknowledges and accepts full responsibility for the financial information contained in this Annual Report and by which means it provides a balanced, clear and meaningful assessment of its financial position and prospects as presented here in this Annual Report and all other reports to the stakeholders, regulatory authorities and public.

Statement of Directors’ Responsibility for Preparing the Financial Statement The Board is confident that the financial statements for the financial year ended 2011 gives a true and fair view of the state of affairs, the results and cash flow of AFFINBANK and the Group for the financial year. The Board also strives to ensure that financial reporting presents a true and fair assessment of AFFINBANK’s position and prospects. There is reasonable assurance that AFFINBANK has maintained proper accounting records used and consistently applied appropriate accounting policies supported by reasonable and prudent judgments and estimates, and prepared the financial statements in accordance to the provision of the Companies Act 1965, approved accounting standards in Malaysia and BNM Guidelines.

All published information on AFFINBANK is available at www.affinbank.com.my.

INTERNAL CONTROL AFFINBANK has a well-established and fully operational risk management and internal control system. The Statement on Internal Control, which is set out in pages 36 through 38 of the Annual Report provides an overview on the risk management process/framework as well as on how the internal control system has been designed to manage risks and avert failures. AFFINBANK continues to enhance its system of internal control and risk management, in order to better quantify its compliance with the Code.

The Board has overall responsibility for maintaining the proper management and protection of AFFINBANK’s interests by ensuring effective implementation of the risk management policy and process, as well as adherence to a sound system of internal control, and by seeking regular assurance on their effectiveness. The Board also recognizes that risks cannot be eliminated completely. As such, the inherent system of internal control is designed to provide a reasonable though not absolute assurance against the risk of material errors, fraud or losses occurring.

The Audit & Examination Committee has an oversight responsibility for the adequacy and integrity of the internal control system. Reliance is placed on the results of independent audits performed primarily by internal auditors, the outcome of statutory audits on financial statements conducted by external auditors and on representations by Management based on their control self- assessment of all areas of their responsibility.

34 Annual Report 2011 Statement Of Corporate Governance (cont’d)

Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to Board members for notation and discussion.

AFFINBANK has an established Internal Audit Division which reports functionally to the Audit & Examination Committee and administratively to the Managing Director/Chief Executive Officer. The division is responsible for conducting independent audits in accordance with the approved 2011 Internal Audit Plan.

RELATIONSHIP WITH AUDITORS A professional and transparent relationship continues to exist between the Board/Audit & Examination Committee and the external auditors. The Audit & Examination Committee is authorized to communicate directly with both the external and internal auditors. A full Audit & Examination Committee report outlining its role in relation to the Auditors is set out in page 39 to 40. In addition, the external auditors meet with the Board at least once a year when the annual audited financial statements are presented to the Board.

ASSURANCE The Board through the Audit & Examination Committee has satisfactorily performed its oversight role in ensuring there is a sound internal control system and regular review on the adequacy and integrity of the system. Assurance on the effectiveness of risk management, control and governance process is obtained from the Management and Auditors (internal and external).

BNM auditors, internal auditors and external auditors conduct independent audits on AFFINBANK’s business operations, support activities and financial records and statements respectively to derive an opinion on the adequacy and integrity of AFFINBANK’s overall internal control framework.

Finally, with the benefit of the above assurances and the external auditor’s comments incorporated in their audit report on the financial statements for the financial year ended December 2011, the Board is able to conclude that AFFINBANK conducts its business prudently and in line with good governance practices.

AFFIN BANK BERHAD (25046-T) 35 STATEMENT ON INTERNAL CONTROL

The Audit & Examination Committee has an oversight responsibility for the adequacy and integrity of the internal control system. Reliance is placed on the results of independent audits performed primarily by Group internal auditors, the outcome of statutory audits on financial statements conducted by external auditors and on representations by Management based on their control self-assessment of all areas of their responsibility.

Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to Board members for notation and discussion.

AFFINBANK has an established Group Internal Audit Division which reports functionally to the Audit Examination Committee and administratively to the Managing Director/Chief Executive Officer. The division is responsible for conducting independent audits in accordance with the approved 2011 Internal Audit Plan.

RELATIONSHIP WITH AUDITORS A professional and transparent relationship continues to exist between the Board/Audit & Examination Committee and the external auditors. The Audit Committee is authorized to communicate directly with both the external and Group internal auditors . A full Audit Committee report outlining its role in relation to the Auditors is set out in page 40. In addition, the external auditors meets with the Board at least once a year when the annual audited financial statements are presented to the Board.

BNM auditors, Group internal auditors and external auditors conduct independent audits on AFFINBANK’s business operations, support activities and financial records and statements respectively to derive an opinion on the adequacy and integrity of AFFINBANK’s overall internal control framework.

Finally, with the benefit of the above assurances and the external auditor’s comments incorporated in their audit report on the financial statements for the financial year ended 31 December 2011, the Board is able to conclude that AFFINBANK conducts its business prudently and in line with good governance practices.

36 Annual Report 2011 Statement On Internal Control (cont’d)

Responsibility The Board acknowledges overall responsibility for AFFINBANK Group’s system of internal controls and its effectiveness. The system of internal controls encompasses controls relating to financial, operational, risk management and compliance with applicable laws, regulations, policies and guidelines.

However, the system of internal controls is designed to manage rather than eliminate the risks of failure to achieve the goals and objectives of the Group. Therefore, it can only provide a reasonable and not absolute assurance against material misstatement of management and financial information, or against financial losses or fraud.

The Board has an established process for identifying, evaluating, managing and reporting on all significant risks that may impact the achievement of business goals and objectives of the Group. The system of internal controls is dynamic and updated from time to time to get the changes in regulatory guidelines and business environment. This process is regularly reviewed by the Board through its Board Risk Management Committee (BRMC) and Audit and Examination Committee (AEC).

The Board is of the view that the system of internal controls in place for the year under review is sound and sufficient to safeguard the investment of the shareholders, the interest of the customers and regulators, and the assets of the Group.

The management assists the Board in implementing the policies approved by the Board, implementing risk and control procedures, and developing, operating and monitoring internal controls to mitigate and control identified risks.

Key Internal Control Processes The key processes put in place to assist the Board in reviewing the adequacy and integrity of the system of internal controls include the following:

* Relevant Board committees are established with specific responsibilities delegated by the Board to deliberate on matters within the respective scope of responsibility. The committees are guided by written terms of reference and their minutes of meetings are tabled to the Board.

* The BRMC assists the Board in its supervisory role concerning the overall management of risk in the Bank. It has responsibility for reviewing and approving all risk management policies and risk management methodologies. BRMC also reviews guidelines and portfolio management reports including risk exposure information.

* The Board Loan Review and Recovery Committee (BLRRC) critically reviews loans and other credit facilities with higher risk implications, after due process of checking, analysis, review and recommendation by Group Risk Management and if found necessary, exercise the power to veto loan applications that have been approved by the Group Management Loan Committee (GMLC). BLRRC also review the non performing loan reports presented by the Management.

* Management Committee (MCM), comprising the senior management team, assists the Board in managing day-to-day operations and ensure its effectiveness. MCM formulates tactical plans and business strategies, monitors the Bank overall performance and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual business plan and budget.

* The Group Management Loan Committee (GMLC) is established within senior management to approve complex and larger loans and workout recovery proposals beyond the delegated authority of the concerned individual senior management personnel of the Bank. The other committees comprising senior management include Asset & Liability Management Committee (ALCO) which manages market and liquidity risks and Group Operational Risk Management Committee (GORMC) which manages operational risk.

AFFIN BANK BERHAD (25046-T) 37 Statement On Internal Control (cont’d)

* A detailed budgeting process is in place with annual business plans and budgets prepared by the business divisions, reviewed by the MCM and approved by the Board. The actual business performances are monitored against the approved targets and budgets of each business division by MCM on a monthly basis.

* The business plan is supported by an annual credit plan, prepared by Group Risk Management and approved by BRMC. The credit plan sets out the prevailing risk appetite and provides credit strategies and lending guidelines for the development and management of new and existing customer relationships.

* Policies and procedures for key processes are documented and regularly updated to ensure relevance and compliance with internal controls, directives, laws and regulations. To enhance risk culture and awareness, road shows are undertaken by Group Risk Management across the Bank.

* Proper guidelines for the hiring and termination of employees, staff training programs and performance appraisals are established and other relevant procedures in place to ensure staff are adequately trained and equipped to carry out their responsibilities competently.

* An integrated risk management framework is in place. The risk management function operates in an independent capacity and is a part of the Bank’s senior management structure which works closely as a team in managing risks to enhance stakeholders’ value. Its responsibilities extend to cover market, liquidity, credit and operational risks. The risk management function reports to BRMC.

38 Annual Report 2011 AUDIT AND EXAMINATION COMMITTEE

TERMS OF REFERENCE OF THE AUDIT AND EXAMINATION COMMITTEE Size and Composition The Committee shall consist of at least three (3) members but not more than five (5) members, appointed by the Board from amongst the non-executive Directors of the Bank.

Meetings Meetings shall be held at a frequency to be decided by the Audit and Examination Committee. At the request of the Group Internal Auditors, the Chairman shall convene a meeting to consider any matters that they may wish to bring to the attention of the Directors or shareholders. A quorum shall consist of at least two (2) members. The Group Chief Internal Auditor shall be the Secretary to the Audit and Examination Committee. YBhg. Tan Sri Dato’ Seri Mohamed Jawhar bin Hassan YBhg. Tan Member Islamic Bank Berhad Affin from Representative YM. Dr. Raja Abdul Malek YM. Dr. bin Raja Jallaludin Member YBhg. Dato’ Sri Abdul Aziz bin Abdul Rahman AEC Chairman

AFFIN BANK BERHAD (25046-T) 39 Audit and Examination Committee

Authority The Committee shall have unlimited access to all records, information and documents relevant to its activities, to the Group Internal Audit and External Auditors and to senior management of the Bank and its subsidiaries. The Group Internal Auditors and External Auditors shall have free access to the Audit and Examination Committee and be allowed to attend and to be heard at the Committee meetings. The Committee is authorised by the Board to obtain outside and independent professional advice as and when it is considered necessary.

Duties and Responsibilities The duties and responsibilities of the Audit and Examination Committee are:

1. To review AFFINBANK’s financial statements and to ensure compliance with disclosure requirements and any adjustments as suggested by the External Auditors, prior to submission to the Board.

2. To review the reports of the Group Internal Auditor, the External Auditors, Bank Negara Malaysia examiners or any other relevant parties and decide on actions to be taken on relevant issues raised in the reports.

3. To review with the External Auditors the scope of their audit plan, the system of internal accounting controls, the audit reports, the assistance given by the management and its staff to the auditors, and any findings and action to be taken.

4. To make recommendation to the Board on the appointment of External Auditors.

5. To review the effectiveness and performance of the Group Internal Audit functions from time to time.

6. To review and approve the annual audit plan and budget for Group Internal Audit, which sets out the audit objectives, auditable areas, scope of coverage, frequency of audit and duration of each audit assignment.

7. To ensure that Group Internal Audit has adequate resources and support services to carry out its functions.

8. To review the overall performance of the Group Chief Internal Auditor, including the remuneration package.

9. To review any significant related party transactions that may arise within the Bank’s group or associate companies and report to the Board any areas of concern.

10. To escalate to the Board via minutes of meetings or special reports on any exception identified.

11. To carry out such other responsibilities as may be delegated by the Board from time to time.

40 Annual Report 2011 NETWORK OF BRANCHES

WILAYAH PERSEKUTUAN 8. Selayang 15. Wisma Pertahanan 81-85, Jalan 2/3A, G.05, Tingkat Bawah, 1. Bangsar Pusat Bandar Utara, Wisma Pertahanan, No. 4 & 6, KM 12, Jalan Ipoh, Kementerian Pertahanan Malaysia, Jalan Telawi 3, 68100 Batu Caves, Jalan Padang Tembak, Bangsar Baru, Kuala Lumpur. 50634 Kuala Lumpur. 59100 Kuala Lumpur. Tel : 03-6137 2053 Tel : 03-2698 7912 Tel : 03-2283 5025 Fax : 03-6138 7122 Fax : 03-2698 6071 Fax : 03-2283 5028 9. Seri Petaling WILAYAH PERSEKUTUAN 2. Bangunan Getah Asli 10-12, Jalan Raden Tengah, PUTRAJAYA Tingkat Bawah, Bandar Baru Seri Petaling, 148, Jalan Ampang, 57000 Kuala Lumpur. 1. Putrajaya 50450 Kuala Lumpur. Tel : 03-9058 5600 Jabatan Akauntan Negara, Tel : 03-2162 8770 Fax : 03-9058 8513 Kompleks Kementerian Kewangan, Fax : 03-2162 8587 No. 1, Persiaran Perdana, 10. Setapak Presint 2, 3. Batu Cantonment 159 & 161, Jalan Genting Kelang, 62594 Putrajaya, No. 840 & 842, P.O.Box 202, Wilayah Persekutuan. Batu 4 3/4, 53300 Setapak, Tel : 03-8888 3814 Jalan Ipoh, Kuala Lumpur. Fax : 03-8889 2082 51200 Kuala Lumpur. Tel : 03-4023 0455 Tel : 03-6258 7370 Fax : 03-4021 3921 Fax : 03-6251 8214 WILAYAH PERSEKUTUAN 11. Taman Maluri LABUAN (OFFSHORE) 4. Central 250 & 252, Jalan Mahkota, Ground & Mezzanine Floor, Taman Maluri, 1. Labuan Offshore Menara Affin, 55100 Kuala Lumpur. Unit 3 (J), Level 3, 80, Jalan Raja Chulan, Tel : 03-9282 7250 Main Office Tower, P.O.Box 12744, Fax : 03-9283 4380 Financial Park Labuan, 50788 Kuala Lumpur. Jalan Merdeka, Tel : 03-2055 2222 12. Taman Midah 87000 Federal Territory Labuan. Fax : 03-2070 7592 38 & 40, Jalan Midah 1, Tel : 087-411 931 Taman Midah, Cheras, Fax : 087-411 973 5. Jalan Bunus 56000 Kuala Lumpur. 133, Jalan Bunus, Tel : 03-9130 0366 SELANGOR Off Jalan Masjid India, Fax : 03-9131 7024 50100 Kuala Lumpur. 1. Ampang Jaya Tel : 03-2693 4686 13. Taman Tun Dr. Ismail No. 11 & 11A, Fax : 03-2691 3207 47 & 49, Jalan Tun Mohd Fuad 3, Jalan Mamanda 7/1, Taman Tun Dr. Ismail, Ampang Point, 6. Jalan Ipoh 60000 Kuala Lumpur. 68000 Ampang, 468-11 & 468-11B, Tel : 03-7727 9080 Selangor. Batu 3, Jalan Ipoh, Fax : 03-7727 9543 Tel : 03-4257 6802 51200 Kuala Lumpur. Fax : 03-4257 8636 Tel : 03-4042 5554 14. Wangsa Maju Fax : 03-4042 4912 No. 2 & 4, Jalan 1/27F, 2. Ampang New Village Kuala Lumpur Sub-Urban Centre, No. 21G & 23G 7. LTAT Wangsa Maju, Jalan Wawasan 2/2 Ground Floor, 53300 Kuala Lumpur. Bandar Baru Ampang Bangunan LTAT, Tel : 03-4143 2814 68000 Ampang, Jalan Bukit Bintang, Fax : 03-4143 3095 Selangor. 55100 Kuala Lumpur. Tel : 03-4296 2311 Tel : 03-2142 6311 Fax : 03-4296 2206 Fax : 03-2148 0586

AFFIN BANK BERHAD (25046-T) 41 Network Of Branches (cont’d)

3. Ara Damansara 9. Klang Utara 16. Sea Park Unit B-G-07 & B-G-08 No. 29 & 31, 20-22, Jalan 21/12, Block B, No. 2 Jalan Tiara 3, Sea Park, Jalan PJU 1A/7A Bandar Baru Klang, 46300 Petaling Jaya, Ara Damansara 41150 Klang, Selangor. 47301 Petaling Jaya, Selangor Selangor. Tel : 03-7875 6514 Tel : 03-7847 3177 Tel : 03-3342 1585 Fax : 03-7876 6020 Fax : 03-7847 2677 Fax : 03-3342 1719 17. Seri Kembangan 4. Bandar Bukit Tinggi, Klang 10. Kompleks PKNS 36, Jalan PSK 3, No 77 & 79, Jalan Batu Nilam 5, Lot G17-20, Pusat Perdagangan Seri Bandar Bukit Tinggi, Ground Floor, Kembangan, 41200 Klang, Selangor. Kompleks PKNS, 43300 Seri Kembangan, Tel : 03-3323 2822 40000 Shah Alam, Selangor. Fax : 03-3323 2858 Selangor. Tel : 03-8945 6429 Tel : 03-5510 5200 Fax : 03-8945 6442 5. Jalan Meru, Klang Fax : 03-5510 8200 No. 40, Pelangi Avenue, 18. Subang Jaya Jalan Kelicap 42A/KU1, 11. Kota Warisan 7 & 9, Jalan SS 15/8A, Klang Bandar Di Raja, No. 48, Jalan Warisan Megah 1/4, 47500 Petaling Jaya, 41050 Klang, 43900 Sepang, Selangor. Selangor. Selangor. Tel : 03-5634 8043 Tel : 03-3341 5237 Tel : 03-8706 6300 Fax : 03-5634 8040 Fax : 03-3341 5427 Fax : 03-8706 6599 19. The Curve 6. Kajang 12. PJ State Lot G32 & 126, 2 & 3, Jalan Saga, No. 38 & 40, Ground & First Floor, Taman Sri Saga, Jalan Yong Shook Lin, The Curve Shopping Complex, Off Jalan Sg. Chua, 46050 Petaling Jaya, Jalan PJU 7/8, 43000 Kajang, Selangor. Mutiara Damansara, Selangor. Tel : 03-7955 0032 47820 Petaling Jaya, Tel : 03-8737 7435 Fax : 03-7954 0012 Selangor. Fax : 03-8737 7433 Tel : 03-7726 7258 13. Port Klang Fax : 03-7727 8912 7. Kepong No. 1, Jalan Berangan, 6, Jalan 54, 42000 Port Klang, 20. UiTM Desa Jaya, Selangor. Universiti Teknologi MARA, 52100 Kepong, Tel : 03-3168 8366 Tingkat 2, Selangor. Fax : 03-3167 2784 Menara UiTM, Tel : 03-6276 4942 40450 Shah Alam, Fax : 03-6276 6375 14. Puchong Selangor. No. 16 & 18, Tel : 03-5519 2377 8. Kinrara Jalan Bandar 3, Fax : 03-5510 5580 No. 1, Jalan TK1/11A, Pusat Bandar Puchong, Taman Kinrara, Section 1, 47100 Puchong, 21. USJ Taipan Batu 7 1/2, Jalan Puchong, Selangor. 8A & 8B, Jalan USJ 10/1J, 47100 Puchong, Tel : 03-5882 2880 47610 UEP Subang Jaya, Selangor. Fax : 03-5882 2881 Petaling Jaya, Tel : 03-8070 3403 Selangor. Fax : 03-8075 8159 15. Rawang Tel : 03-8023 7271 No. 33G & 35G, Fax : 03-8023 9161 Jln 1B, Fortune Avenue, 48000 Rawang, Selangor. Tel : 03-6091 3322 Fax : 03-6091 3344

42 Annual Report 2011 Network Of Branches (cont’d)

NEGERI SEMBILAN JOHOR 8. Mutiara Rini No. 28 & 30 1. Gemas 1. Ayer Hitam Jalan Utama 45 No. 1 & 2, Ground Floor No. 765, Jalan Batu Pahat, Taman Mutiara Rini Laman Niaga Pernama 86100 Ayer Hitam, 81300, Skudai Kem Syed Sirajuddin Johor. Johor. 73400 Gemas Tel : 07-758 1100 Tel : 07-557 0900 Negeri Sembilan Fax : 07-758 1001 Fax : 07-557 1244 Tel : 07-948 3622 Fax : 07-948 5022 2. Batu Pahat 9. Permas Jaya No. 3 & 4, Jalan Merah, 23 & 25, 2. Nilai Taman Bukit Pasir, Jalan Permas 10/2, 5733 & 5734, Jalan TS 2/1, 83000 Batu Pahat, Bandar Baru Permas Jaya, Taman Semarak Phase II, Johor. 81750 Johor Bahru, 71800 Nilai, Tel : 07-433 4210 Johor. Negeri Sembilan. Fax : 07-433 3246 Tel : 07-386 3703 Tel : 06-799 4114 Fax : 07-386 5061 Fax : 06-799 5115 3. Johor Bahru No. 24 & 25 10. Segamat 3. Port Dickson Jalan Kebun Teh 1 No. 1, Ground Floor, 3 & 4, Jalan Mahajaya, Kebun Teh Commercial City Jalan Nagasari 23, P.D. Centre Point, 80250 Johor Bahru Bandar Segamat Baru, 71000 Port Dickson, Johor 85000 Segamat, Johor. Negeri Sembilan. Tel : 07-221 2403 Tel : 07-943 1378 Tel : 06-647 3950 Fax : 07-221 2462 Fax : 07-943 1373 Fax : 06-647 4776 4. Johor Jaya 11. Tampoi 4. Seremban 130 & 132, Jalan Ros Merah 2/17, 49 & 51, No. 175, Jalan Dato' Taman Johor Jaya, Jalan Sri Perkasa 2/1, Bandar Tunggal, 81100 Johor Bahru, Taman Tampoi Utara, 70000 Seremban, Johor. 81200 Tampoi, Johor Bahru, Negeri Sembilan. Tel : 07-351 8602 Johor. Tel : 06-762 9651 Fax : 07-351 4122 Tel : 07-241 4946 Fax : 06-763 6125 Fax : 07-241 4953 5. Kluang MELAKA 503, Jalan Mersing, PERAK 86000 Kluang, 1. Bukit Baru Johor. 1. Ipoh No. 7 & 8, Jalan DR1, Tel : 07-772 4736 No. 1 & 3, Delima Point, Fax : 07-772 4486 Ground & First Floor, Taman Delima Raya, Persiaran Greentown 9, 75150 Melaka. 6. Kulai Greentown Business Centre, Tel : 06-232 1386 13 & 14, Jalan Raya, 30450 Ipoh, Fax : 06-232 1579 Taman Sri Kulai Baru, Batu 21, Perak. 81000 Kulai, Tel : 05-255 0980 2. Melaka Raya Johor. Fax : 05-255 0976 200 & 201, Tel : 07-663 9799 Taman Melaka Raya, Fax : 07-663 9800 2. Ipoh Garden Off Jalan Parameswara, No. 27A-27A1, 75000 Melaka. 7. Muar Jalan Sultan Azlan Shah Utara, Tel : 06-283 5500 1 Jalan Petrie, 31400 Ipoh, Fax : 06-284 6618 84000 Muar, Perak. Johor. Tel : 05-549 7277 Tel : 06-953 2384 Fax : 05-549 7299 Fax : 06-953 3489

AFFIN BANK BERHAD (25046-T) 43 Network Of Branches (cont’d)

3. Lumut 3. Fettes Park KEDAH Tingkat Bawah, 98-G-32, Kompleks Mutiara Armada, Jalan Fettes, 1. Alor Setar Jalan Nakhoda, Prima Tanjung Business Centre, No. 147 & 148, Pengkalan TLDM, Tanjung Tokong, Susuran Sultan Abdul Hamid 8, 32100 Lumut, 11200 Pulau Pinang. Kompleks Sultan Abdul Hamid, Perak. Tel : 04-899 9069 Fasa 2 Persiaran Sultan Tel : 05-683 5051 Fax : 04-899 0767 Abdul Hamid, Fax : 05-683 5579 05050 Alor Setar, 4. Jalan Macalister Kedah. 4. Sitiawan No. 104C, 104D & 104E, Tel : 04-772 1477 No. 11 & 12, Taman Sitiawan 1, Jalan Macalister, Fax : 04-771 4796 Jalan Lumut, 10400 Pulau Pinang. 32000 Sitiawan, Tel : 04-229 1495 2. Kulim Perak. Fax : 04-226 1530 No. 13 & 14, Tel : 05-692 8401 Jalan KLC Satu (1) Fax : 05-691 7339 5. Kepala Batas Kulim Landmark Central, Lot 1317 & 1318, 09000 Kulim, 5. Taiping Lorong Malinja, Kedah Darul Aman No. 40 & 42, Taman Sepakat, Tel : 04-495 5566 Jalan Tupai, Off Jalan Butterworth, Fax : 04-490 4717 34000 Taiping, 13200 Kepala Batas, Perak. Seberang Prai Utara, 3. Langkawi Tel : 05-806 6816 Pulau Pinang. 149-151, Fax : 05-808 0432 Tel : 04-575 1824 Persiaran Bunga Raya, Fax : 04-575 1975 Langkawi Mall, 6. Teluk Intan 07000 Kuah, 11, Medan Sri Intan, 6. Prai Langkawi, Jalan Sekolah, No. 2, Tingkat Kikik 7, Kedah. 36000 Teluk Intan, Taman Inderawasi, Tel : 04-966 4426 Perak. 13600 Pulau Pinang. Fax : 04-966 4717 Tel : 05-621 0130 Tel : 04-399 3900 Fax : 05-621 0128 Fax : 04-397 9243 4. Sungai Petani No. 55, Jalan Perdana Heights, PULAU PINANG 7. Seberang Jaya 2/2 Perdana Heights No. 10, Jalan Todak Satu, 08000 Sungai Petani, Kedah 1. Bayan Baru Pusat Bandar Seberang Jaya, Tel : 04-422 0831 124 & 126, Jalan Mayang Pasir, 13700 Prai, Fax : 04-422 6675 Taman Sri Tunas, Pulau Pinang. 11950 Bayan Baru, Tel : 04-399 5881 Pulau Pinang. Fax : 04-399 2881 TERENGGANU Tel : 04-644 7593 Fax : 04-645 2709 8. Wisma Pelaut 1. Kemaman 1A, Light Street, K711-713, 2. Butterworth Wisma Pelaut, Wisma IKY Naga, 55-57, Jalan Selat, 10200 Pulau Pinang. Jalan Sulaimani, Taman Selat, Tel : 04-263 6633 24000 Kemaman, P.O.Box 165, Fax : 04-261 9801 Terengganu. Off Jalan Bagan Luar, Tel : 09-858 1744 12000 Butterworth, Fax : 09-859 1572 Pulau Pinang. Tel : 04-333 1372 Fax : 04-332 3299

44 Annual Report 2011 Network Of Branches (cont’d)

2. Kemaman Supply Base 4. Temerloh SARAWAK Ground Floor, 9, Ground Floor, Admin Building Block B, Jalan Ahmad Shah, 1. Bintulu Kemaman Supply Base, 28000 Temerloh, Sub Lot 13, 24007 Kemaman, Pahang. Off Lot 3299, Terengganu. Tel : 09-296 8811 Parkcity Commerce Square, Tel : 09-863 1297 Fax : 09-296 8800 97000 Bintulu, Fax : 09-863 1295 Sarawak. PERLIS Tel : 086-314 248 KELANTAN Fax : 086-314 206 1. Kangar 1. Jeli A2, Taman Pengkalan Asam, 2. Kuching No. A1 & A2, Blok A, Jalan Alor Setar-Kangar, Lot 247 & 248, Bandar Baru Bukit Bunga, 01000 Kangar, Section 49, KTLD, 11700 Bukit Bunga, Perlis. Jalan Tuanku Abdul Rahman, Tanah Merah, Tel : 04-977 8669 93100 Kuching, Kelantan. Fax : 04-977 8566 Sarawak Tel : 09-946 8955 Tel : 082-422 909 Fax : 09-946 8954 Fax : 082-257 366 SABAH 2. Kota Bharu 3. Miri 13788H & 3788I, 1. Jalan Gaya, Kota Kinabalu Lot 2387 & 2388, Seksyen 13, No. 86, Block A4, Jalan Sultan Ibrahim, Jalan Gaya, Jalan Boulevard 1A, 15050 Kota Bharu, 88000 Kota Kinabalu, Boulevard Commercial Center, Kelantan. Sabah. KM 3, Jalan Miri-Pujut, Tel : 09-744 5688 Tel : 088-230 213 98000 Miri, Fax : 09-744 2202 Fax : 088-212 476 Sarawak. Tel : 085-437 442 PAHANG 2. Kota Kinabalu Fax : 085-437 297 Lot 19 & 20, Block K, 1. Jengka Sadong Jaya Complex, 4. Prince Commercial Centre Nadi Kota, Jalan Ikan Juara 3, No. 1&2, Jalan Penrissen Batu 7, 26400 Bandar Jengka, Karamunsing, Kota Sentosa, 93250 Kuching, Pahang. 88300 Kota Kinabalu, Sarawak. Tel : 09-466 2233 Sabah. Tel : 082-613 466 Fax : 09-466 2422 Tel : 088-264 410 Fax : 082-612 088 Fax : 088-261 414 2. Kuantan 5. Sibu 1, Jalan Tun Ismail, 3. Sandakan No. 91 & 93, P.O.Box 354, Lot No. 163 & 164, Jalan Kampung Nyabor, 25740 Kuantan, Block 18, Prima Square, 96000 Sibu, Pahang. Batu 4, Jalan Utara, Sarawak. Tel : 09-515 7146 90000 Sandakan, Sabah. Tel : 084-325 926 Fax : 09-513 4027 Tel : 089-224 577 Fax : 084-325 960 Fax : 089-224 566 3. Mentakab 70, Jalan Temerloh, 4. Tawau 28400 Mentakab, TB 281, 282 & 283, Pahang. Jalan Haji Karim, Tel : 09-278 4487 Town Extension II, Fax : 09-277 6654 P.O. Box 630, 91008 Tawau, Sabah. Tel : 089-778 197 Fax : 089-762 199

AFFIN BANK BERHAD (25046-T) 45 NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT THE 36TH ANNUAL GENERAL MEETING OF AFFIN BANK BERHAD WILL BE HELD AT THE BOARD ROOM, 19TH FLOOR, MENARA AFFIN, 80, JALAN RAJA CHULAN, 50200 KUALA LUMPUR ON 21st MARCH 2012 AT 5.30 P.M. FOR THE TRANSACTION OF THE FOLLOWING BUSINESS:-

Agenda:

1. To receive the Statutory Statements of Accounts for the year ended 31 December 2011 together with the Directors' and Auditors' Reports thereon.

2. To declare a final tax exempted dividend of 5 Sen amounting to RM71,964,269.00 for the financial year ended 31 December 2011.

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

(a) YBhg. Dato’ Sri Abdul Aziz bin Abdul Rahman (b) Mr. Aubrey Li Kwok-Sing

4. To re-elect YBhg. Tan Sri Dato’ Seri Mohamed Jawhar bin Hassan who retires in accordance with Article 91(e) of the Company’s Article of Association and who being eligible, offers himself for re-election.

5. To consider and if thought fit, to pass the following resolutions in accordance with Section 129(6) of the Companies Act, 1965:-

(a) “That pursuant to Section 129(6) of the Companies Act, 1965, YBhg. Jen Tan Sri Dato’ Seri Ismail bin Haji Omar (Bersara) be and is hereby re-appointed as Director of the Company to hold office until the next Annual General Meeting”.

6. To appoint Messrs PricewaterhouseCoopers as Auditors for the financial year ending 31 December 2012 and to authorise the Directors to fix their remuneration

7. To approve Directors’ fees and Committees fees for 2011.

8. To transact any other ordinary business.

BY ORDER OF THE BOARD

NIMMA SAFIRA KHALID Secretary

NOTE: A member entitled to attend and vote at the Meeting is entitled to appoint The instrument appointing a proxy and the power of attorney or other a proxy to attend and vote instead of him and the proxy need not be a authority, if any, under which it is signed or a notarially certified copy of member of the Company. such power or authority shall be deposited at the Company’s registered office at the 17th Floor, Menara Affin, 80, Jalan Raja Chulan, 50200 Kuala The instrument appointing a proxy shall be in writing under the hand of the Lumpur, at least forty-eight (48) hours before the time appointed for holding appointor of his attorney duly authorised in writing or, if the appointor is a the Meeting or adjourned Meeting as the case may be otherwise the corporation, either under the seal or in some other manner approved person so named shall not be entitled to vote in respect thereof. by Directors.

46 Annual Report 2011 FINANCIAL STATEMENTS

48 Directors' Report 64 Statements of Financial Position 65 Income Statements 66 Statements of Comprehensive Income 67 Statement of Changes in Equity 69 Statements of Cash Flows 72 Summary of Significant Accounting Policies 90 Notes to the Financial Statements 181 Statement by Directors 181 Statutory Declaration 182 Independent Auditors' Report 184 Basel II Pillar 3 Disclosures DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

The Directors hereby submit their report together with the audited financial statements of the Group and the Bank for the financial year ended 31 December 2011.

PRINCIPAL ACTIVITIES The principal activities of the Bank during the financial year are banking and related financial services. The principal activities of the subsidiaries are Islamic banking business, property management services, nominee and trustee services. Islamic banking business refers generally to the acceptance of deposits and granting of financing under the Shariah principles. There were no significant changes in the nature of these activities during the financial year.

FINANCIAL RESULTS

The Group The Bank RM'000 RM'000

Profit before taxation and zakat 613,065 536,371 Taxation and zakat (173,062) (147,875)

Net profit for the financial year 440,003 388,496

DIVIDENDS The dividends on ordinary shares paid or declared by the Bank since 31 December 2010 were as follows:

In respect of the financial year ended 31 December 2010 as shown in the Directors' report for that financial year:

RM'000

Final tax exempt dividend of 5 sen per share paid on 16 March 2011 71,964

In respect of the financial year ended 31 December 2011 :-

Single-tier interim dividend of 7 sen per share paid on 28 December 2011 100,750

The Directors now recommend the payment of a final tax exempt dividend of 5 sen per share amounting to RM71,964,269 which is subject to the approval of members at the forthcoming Annual General Meeting of the Bank.

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

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

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

48 Annual Report 2011 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

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

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

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

CONTINGENT AND OTHER LIABILITIES At the date of this report there does not exist:

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

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

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

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

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

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

SIGNIFICANT EVENT DURING THE FINANCIAL YEAR There is no significant event during the financial year.

SUBSEQUENT EVENTS The subsequent event to the reporting date is disclosed in Note 45.

AFFIN BANK BERHAD (25046-T) 49 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

DIRECTORS The Directors of the Bank who have held office during the period since the date of the last report are:

Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) Chairman/Non-Independent Non-Executive

Dato' Zulkiflee Abbas bin Abdul Hamid (Managing Director/Chief Executive Officer) Non-Independent Executive Director (Resigned as Director w.e.f 1 November 2011)

Tan Sri Dato' Lodin bin Wok Kamaruddin Non-Independent Non-Executive Director

Dr Raja Abdul Malek bin Raja Jallaludin Independent Non-Executive Director

Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) Non-Independent Non-Executive Director (Resigned as Director w.e.f 30 September 2011)

Dato' Sri Abdul Aziz bin Abdul Rahman Independent Non-Executive Director

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

Mr Brian Li Man-Bun Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing) (Resigned as Alternate Director w.e.f 18 April 2011)

Mr Gary Cheng Shui Hee Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing) (Appointed as Alternate Director w.e.f 18 April 2011)

Mr Stephen Charles Li Non-Independent Non-Executive Director (Resigned as Director w.e.f 16 August 2011)

Mr Eric Koh Thong Hau Non-Independent Non-Executive Director (Alternate Director to Mr Stephen Charles Li) (Resigned as Alternate Director w.e.f 1 January 2011)

Mr Lee Chor Kee Non-Independent Non-Executive Director (Alternate Director to Mr Stephen Charles Li) (Appointed as Alternate Director w.e.f 18 April 2011 and resigned as Alternate Director w.e.f 16 August 2011)

En. Mohd Suffian bin Haji Haron Independent Non-Executive Director

Tan Sri Dato' Seri Mohamed Jawhar Independent Non-Executive Director (Appointed as Director w.e.f 1 November 2011)

50 Annual Report 2011 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

RESPONSIBILITY STATEMENT BY BOARD OF DIRECTORS In the course of preparing the annual financial statements of the Group and of the Bank, the directors are collectively responsible in ensuring that these financial statements are drawn up in accordance with MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities, Bank Negara Malaysia Guidelines and the provisions of the Companies Act, 1965.

It is the responsibility of the directors to ensure that the financial reporting of the Group and of the Bank present a true and fair view of the state of affairs of the Group and of the Bank as at 31 December 2011 and of the financial results and cash flows of the Group and of the Bank for the financial year then ended.

The financial statements are prepared on the going concern basis and the directors have ensured that proper accounting records are kept, applied the appropriate accounting policies on a consistent basis and made accounting estimates that are reasonable and fair so as to enable the preparation of the financial statements of the Group and of the Bank with reasonable accuracy.

The directors have also taken the necessary steps to ensure that appropriate systems are in place for the assets of the Group and of the Bank to be properly safeguarded for the prevention and detection of fraud and other irregularities. The systems, by their nature, can only provide reasonable and not absolute assurance against material misstatements, whether due to fraud or error.

The Statement by Directors pursuant to Section 169 of the Companies Act, 1965 is set out on page 181 of the financial statements.

DIRECTORS' INTERESTS According to the register of Directors' shareholdings, the interest of Directors in office at the end of the financial year in shares, warrants and options of related companies are as follows:

Ordinary shares of RM1 each

As at As at 1.1.2011 Bought Sold 31.12.2011

AFFIN Holdings Berhad Tan Sri Dato' Lodin bin Wok Kamaruddin *808,714 - - *808,714

Boustead Heavy Industries Corporation Berhad Tan Sri Dato' Lodin bin Wok Kamaruddin 2,000,000 - - 2,000,000

Boustead Petroleum Sdn Berhad Tan Sri Dato' Lodin bin Wok Kamaruddin 5,916,465 - - 5,916,465

Al-Hadharah Boustead REIT Tan Sri Dato' Lodin bin Wok Kamaruddin 250,000 - - 250,000

Pharmaniaga Berhad Tan Sri Dato' Lodin bin Wok Kamaruddin - 3,184,538^ - 3,184,538

* Shares held in trust by nominee company ^ Acquisition of shares arising from Boustead Holdings Berhad ('BHB') Dividend in Specie of RM452,273 and subscription of entitlement of Restricted Offer of RM1,083,814 on 28 October 2011 and 28 December 2011 respectively. On 29 December 2011, shares acquired under BHB Divestment 2 of RM1,648,351.

AFFIN BANK BERHAD (25046-T) 51 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

DIRECTORS' INTERESTS (continued)

Ordinary shares of RM10 each; RM5 uncalled

As at As at 1.1.2011 Bought Transfer 31.12.2011

ABB Trustee Berhad *** Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) 20,000 - - 20,000 Dr Raja Abdul Malek bin Raja Jallaludin 20,000 - - 20,000

*** Shares held in trust for the Bank

Ordinary shares of 50 sen each

As at As at 1.1.2011 Bought Sold 31.12.2011

Boustead Holdings Berhad Tan Sri Dato' Lodin bin Wok Kamaruddin 26,122,599 - 111,000 26,011,599

Redeemable preference shares of RM1 each

As at As at 1.1.2011 Bought Sold 31.12.2011

Boustead Petroleum Sdn Berhad Tan Sri Dato' Lodin bin Wok Kamaruddin 50 - - 50

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

DIRECTORS' BENEFITS During and at the end of the financial year, no other arrangements subsisted to which the Bank or any of its subsidiaries is a party with the object or objects of enabling Directors of the Bank or any of its subsidiaries to acquire benefits by means of the acquisition of shares in, or debenture of, the Bank or any other body corporate, except for the share options granted to directors of the Bank by AFFIN Holdings Berhad, Boustead Holdings Berhad and Lembaga Tabung Angkatan Tentera.

Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive a benefit (other than the fees and other emoluments shown in the Note 31 to the financial statements) by reason of a contract made by the Bank or by a related corporation with the Director or with a firm of which he is a member or with a company in which he has a substantial financial interest.

52 Annual Report 2011 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

CORPORATE GOVERNANCE The Board of Directors is committed to ensure the highest standards of corporate governance throughout the organisation with the objectives of safeguarding the interests of all stakeholders and enhancing the shareholders' value and financial performance of the Bank. The Board considers that it has applied the Best Practices as set out in the Malaysian Code of Corporate Governance throughout the financial year. The Bank is also required to comply with BNM's Guidelines on Directorship in the banking institutions ('BNM/GP1').

(i) Board of Directors Responsibility and Oversight The Board of Directors The direction and control of the Bank rest firmly with the Board as it effectively assumes the overall responsibility for corporate governance, strategic direction, formulation of policies and overseeing the investments and operations of the Bank. The Board exercises independent oversight on the management and bears the overall accountability for the performance of the Bank and compliance with the principle of good governance.

There is a clear division of responsibility between the Chairman and the Managing Director/Chief Executive Officer to ensure that there is a balance of power and authority. The Board is responsible for reviewing and approving the longer-term strategic plans of the Bank as well as the business strategies. It is also responsible for identifying the principal risks and implementation of appropriate systems to manage those risks as well as reviewing the adequacy and integrity of the Bank's internal control systems, management information systems, including systems for compliance with applicable laws, regulations and guidelines.

Whilst, the Management Committee, headed by the Managing Director/Chief Executive Officer, is responsible for the implementation of the strategies and internal control as well as monitoring performance. The Committee is also a forum to deliberate issues pertaining to the Bank's business, strategic initiatives, risk management, manpower development, supporting technology platform and business processes.

The Board Meetings The Board meets on a monthly basis, to review the Bank's financial and business performance, to oversee the conduct of the Bank's business as well as to ensure that adequate internal control systems are in place. The Board met 17 times during the financial year.

Board Balance The Board of Directors comprises of seven Non-Executive Directors and one alternate Non-Executive Director. There are four Independent Non-Executive Directors and three Non-Independent Non-Executive Directors. The Board of Directors meetings are presided by a Non-Independent Non-Executive Chairman whose role is clearly separated from the role of the Managing Director/Chief Executive Officer.

In 2011, the Bank continues to have a strong and experienced Board, befitting its aspiration to become a mid size Bank of prominence. It consists of representatives from the private sector with suitable qualifications and experience in relevant areas particularly in banking.

AFFIN BANK BERHAD (25046-T) 53 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

CORPORATE GOVERNANCE (continued) (i) Board of Directors Responsibility and Oversight (continued) Board Balance (continued) The composition of the Board and the number of meetings attended by each director are as follows:

Directors Total Meetings Attended

Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) 17 / 17 Chairman / Non-Independent Non-Executive Director

Dato' Zulkiflee Abbas bin Abdul Hamid 15 / 15 Managing Director/Chief Executive Officer Non-Independent Executive Director (Resigned as Director w.e.f 1 November 2011)

Tan Sri Dato' Lodin bin Wok Kamaruddin 17 / 17 Non-Independent Non-Executive Director

Dr Raja Abdul Malek bin Raja Jallaludin 17 / 17 Independent Non-Executive Director

Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 14 / 14 Non-Independent Non-Executive Director (Resigned as Director w.e.f 30 September 2011)

Dato' Sri Abdul Aziz bin Abdul Rahman 16 / 17 Independent Non-Executive Director

Mr Aubrey Li Kwok-Sing 6 / 17 Non-Independent Non-Executive Director

Mr Brian Li Man-Bun 0 / 7 Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing) (Resigned as Alternate Director w.e.f 18 April 2011)

Mr Gary Cheng Shui Hee 5 / 10 Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing) (Appointed as Alternate Director w.e.f 18 April 2011)

Mr Stephen Charles Li 6 / 12 Non-Independent Non-Executive Director (Resigned as Director w.e.f 16 August 2011)

Mr Eric Koh Thong Hau 0 / 0 Non-Independent Non-Executive Director (Alternate Director to Mr Stephen Charles Li) (Resigned as Alternate Director w.e.f 1 January 2011)

Mr Lee Chor Kee 1 / 5 Non-Independent Non-Executive Director (Alternate Director to Mr Stephen Charles Li) (Appointed as Alternate Director w.e.f 18 April 2011 and resigned as Alternate Director w.e.f 16 August 2011)

54 Annual Report 2011 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

CORPORATE GOVERNANCE (continued) (i) Board of Directors Responsibility and Oversight (continued) Board Balance (continued)

Directors Total Meetings Attended

En. Mohd Suffian bin Haji Haron 16 / 17 Independent Non-Executive Director

Tan Sri Dato' Seri Mohamed Jawhar 2 / 3 * Independent Non-Executive Director (* Attended AFFIN Bank's Special Board Meeting by invitation on 12 May 2011) (Appointed as Director w.e.f 1 November 2011)

Board Committees Nomination Committee Nominating Committee was established to provide a formal and transparent procedure for the appointment of Directors and Managing Director/Chief Executive Officer. The committee also assesses the effectiveness of the Board as a whole, contribution of each Director, contribution of the Board's various committees and the performance of Managing Director/Chief Executive Officer and key senior management officers.

During the financial year ended 31 December 2011, a total of 5 meetings were held. The Nominating Committee comprises the following members and the details of attendance of each member at the Nominating Committee meetings held during the financial year are as follows:

Members Total Meetings Attended

En. Mohd Suffian bin Haji Haron 5 / 5 Chairman/Independent Non-Executive Director

Dato' Zulkiflee Abbas bin Abdul Hamid 4 / 4 Member/Non-Independent Executive Director (Resigned as Director w.e.f 1 November 2011)

Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 3 / 3 Member/Non-Independent Non-Executive Director (Resigned as Director w.e.f 30 September 2011)

Dato' Sri Abdul Aziz bin Abdul Rahman 4 / 5 Member/Independent Non-Executive Director

Dr Raja Abdul Malek bin Raja Jallaludin 5 / 5 Member/Independent Non-Executive Director

AFFIN BANK BERHAD (25046-T) 55 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

CORPORATE GOVERNANCE (continued) (i) Board of Directors Responsibility and Oversight (continued) Board Committees (continued) Remuneration Committee Remuneration Committee was established to evaluate and recommend a framework of remuneration for Directors, the Chief Executive Officer and key senior management officers that is competitive and consistent with the Bank's culture, objectives and strategy.

During the financial year ended 31 December 2011, a total of 6 meetings were held. The Remuneration Committee comprises the following members and the details of attendance of each member at the Remuneration Committee meetings held during the financial year are as follows:

Members Total Meetings Attended

Dr Raja Abdul Malek bin Raja Jallaludin 6 / 6 Chairman/Independent Non-Executive Director

Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 4 / 4 Member/Non-Independent Non-Executive Director (Resigned as Director w.e.f 30 September 2011)

En. Mohd Suffian bin Haji Haron 6 / 6 Member/Independent Non-Executive Director

Tan Sri Dato' Seri Mohamed Jawhar 1 / 1* Member/Independent Non-Executive Director (*Attended AFFIN Bank's Special Board Remuneration meeting by invitation on 22 April 2011) (Appointed as Director w.e.f 1 November 2011)

Shariah Committee The Bank's business activities are subject to Shariah compliance and conformation by the Shariah Committee. The Shariah Committee is formed as legislated under Section 3(5)(b) of the Islamic Banking Act, 1983 and as per Shariah Governance Framework for Islamic Financial Institutions.

The duties and responsibility of the Shariah Committee are as follows:

• To advise the Board on Shariah matters in order to ensure that the business operations of the Bank comply with the Shariah principles at all times;

• To endorse and validate relevant documentations of the Bank's products to ensure that the products comply with Shariah principles; and

• To advise the Bank on matters to be referred to the Shariah Advisory Council.

56 Annual Report 2011 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

CORPORATE GOVERNANCE (continued) (i) Board of Directors Responsibility and Oversight (continued) Board Committees (continued) Shariah Committee (continued) The Shariah Committee was established in December 1995. During the year, a total of 8 meetings were held. The Shariah Committee comprises the following members and the details of attendance of each member at the Shariah Committee meetings held are as follows:

Members Total Meetings Attended

Associate Professor Dr. Asyraf Wajdi bin Dato' Dusuki 8 / 8 Chairman

Associate Professor Dr. Said Bouheraoua 8 / 8 Member

Associate Professor Dr. Md Khalil bin Ruslan 6 / 6 Member (Resigned as member w.e.f 1 October 2011)

Assistant Professor Dr. Ahmad Azam bin Othman 2 / 2 Member (Appointed as member w.e.f 1 October 2011)

Dr. Yasmin Hanani binti Mohd Safian 1 / 2 Member (Appointed as member w.e.f 1 October 2011)

Dr. Zulkifli bin Hasan 2 / 2 Member (Appointed as member w.e.f 1 October 2011)

(ii) Risk Management The Risk Management function, operating in an independent capacity, is part of the Bank's senior management structure which works closely as a team in managing risks to enhance stakeholders' value.

The Risk Management function provides support to the Board Risk Management Committee ('BRMC'). Committees namely Board Loan Recovery Committee ('BLRC'), Management Loan Committee ('MLC'), Asset and Liability Management Committee ('ALCO') and Operational Risk Management Committee assist the BRMC in managing credit, liquidity and operational risk respectively.

Responsibilities of these committees include:

• risk identification • risk assessment and measurement • risk control and migration • risk monitoring

AFFIN BANK BERHAD (25046-T) 57 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

CORPORATE GOVERNANCE (continued) (ii) Risk Management (continued) Board Risk Management Committee ('BRMC') The main function of Board Risk Management Committee is to assist the Board in its supervisory role in the management of risk in the Bank. It has responsibility for approving and reviewing the credit risk strategy, credit risk framework and credit policies of the Bank.

BRMC was established to provide oversight and management of all risks in the Bank. The Committee also ensures that the procedures and framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively. The Bank's risk management framework is set out in Note 38 to the financial statements.

The BRMC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31 December 2011, a total of 4 meetings were held. The BRMC comprises the following members and details of attendance of each member at the BRMC meetings held during the financial year are as follows:

Members Total Meetings Attended

Dato' Sri Abdul Aziz bin Abdul Rahman 4 / 4 Chairman/Independent Non-Executive Director

Dr Raja Abdul Malek bin Raja Jallaludin 3 / 4 Member/Independent Non-Executive Director

En. Mohd Suffian bin Haji Haron 3 / 4 Member/Independent Non-Executive Director (Representative from AFFIN Islamic Bank Berhad)

Board Loan Review and Recovery Committee ('BLRC') Board Loan Review Committee critically reviews loans and other credit facilities with higher risk implications, after due process of checking, analysis, review and recommendation by the Credit Risk Management function, and if found necessary, exercise the power to veto loan applications that have been accepted by the Management Loan Committee. The Committee is also responsible to review on the impaired loans presented by Management.

The BLRC meeting for the Bank were jointly held with AFFIN Islamic Bank and during the financial year ended 31 December 2011, a total of 14 meetings were held. The BLRC comprises the following members and details of attendance of each member at the BLRC meetings held during the financial year are as follows:

Members Total Meetings Attended

Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) 14 / 14 Chairman/Non-Independent Non-Executive Director

Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 14 / 14 Member/Non-Independent Non-Executive Director (Resigned as Director w.e.f 30 September 2011) (Represent AFFIN Islamic Bank Berhad w.e.f 6 October 2011)

En. Mohd Suffian bin Haji Haron 14 / 14 Member/Independent Non-Executive Director (Represent AFFIN Islamic Bank Berhad w.e.f 1 January 2011 to 8 September 2011)

58 Annual Report 2011 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

CORPORATE GOVERNANCE (continued) (ii) Risk Management (continued) Management Loan Committee ('MLC') Management Loan Committee approves complex and larger loans and workout/recovery proposals beyond the delegated authority of the concerned individual senior management personnel of the Bank.

Individual approvers For the delegated authority, a dual sign-off approval system is in place, independent of business imperatives.

Asset and Liability Management Committee ('ALCO') ALCO's responsibilities include:

• Managing the asset and liability of the Bank through coordination of the Bank's overall planning process including strategic planning, budgeting and asset and liability management process; • Directing the Bank's overall acquisition and allocation of funds; • Prudently managing the Bank's interest rate exposure; • Determine the overall Balance Sheet strategy and ensuring policy compliance; • Determined the type and scope of derivative activities, approve individual derivative transactions as well as control over the level of exposure in derivatives; • Reviewing market risks in the Bank's trading portfolios; • Managing the effective usage of economic and regulatory capital throughout the organisation; • Reviewing and recommending the capital plan for approval; • Approving capital management standards and policies, capital raising and repayment transactions; • Reviewing quarterly capital adequacy monitoring reports; and • Reviewing and approving key assumptions inherent in economic capital modeling and stress/scenario tests.

Operational Risk Management Committee Responsibilities of these committees include:

• To evaluate operational risks issues on escalating importance/strategic risk exposure; • To review and recommend on broad operational risks management policies best practices for adoption by the Bank's operating units; • To review the effectiveness of broad internal controls and making recommendation on changes if necessary; • To review/approve recommendation on operational risk management groups section up to address specific issue; • To take the lead in inculcating an operational risks awareness culture; • To approve operational risk management methodologies/measurements tools; and • To review and approve the strategic operational risk management initiatives/plans and to endorse for BRMC's approval if necessary.

AFFIN BANK BERHAD (25046-T) 59 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

CORPORATE GOVERNANCE (continued) (iii) Internal Audit and Internal Control Activities In accordance with Bank Negara Malaysia's GP10 guidelines, the Group Internal Audit Division ('GIA') conducts continuous reviews on auditable areas within the Bank. The continuous reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance to the audit plan approved by the Audit and Examination Committee ('AEC'). The risk highlighted on the respective auditable areas as well as recommendation made by the GIA are addressed at AEC and Management meetings on bi-monthly basis. The AEC also conduct annual reviews on the adequacy of internal audit function, scope of work, resources and budget of GIA.

At present, GIA consists of Operational Audit, IS Audit, Credit Review, Investigation and Compliance. Audit activities include these key components:

• Conduct audit on all auditable entities (Head Office, branches and subsidiaries) processes, services, products, system and provide an independent assessment to the Board of Directors, AEC and Management that appropriate control environment is maintained with clear authority and responsibility with sufficient staff and resources to carry out control responsibilities.

• Perform risk assessments to identify risk and evaluate actions taken to provide reasonable assurance that procedures and controls exist to contain those risks.

• Maintain strong control activities including documented processes and system incorporating adequate controls to produce accurate financial data and provide for the safeguarding of assets, and a documented review of reported results.

• Ensure effective information flows and communication, including:

- training and the dissemination of standards and requirements; - an information system to produce and convey complete, accurate and timely data including financial data; - the upward communication of trends, developments and emerging issues.

• Monitor controls, including procedures to verify that controls are in place and functioning, follow up on corrective action on control finding until its full resolution.

Based on GIA's review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an opinion on the effectiveness of internal controls maintained by each entity.

The AEC comprises members of the Bank's Board of Directors whose primary function is to assist the Board of Directors in its supervision over:

• The reliability and integrity of accounting policies and financial reporting and disclosure practices,

• The provision of advice to the Board with regards to the financial statements and business risks to enable the Board to fulfill its fiduciary duties and obligations, and

• The establishment and maintenance of processes to ensure that they:

- are in compliance with all applicable laws, regulations and company policies; and - have adequately addressed the risk relating to internal controls and system, management of inherent and business risks, and ensuring that the assets are properly managed and safeguarded.

The AEC is made up of at least three but not more than five members appointed by the Board of Directors from among its non- executive directors.

60 Annual Report 2011 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

CORPORATE GOVERNANCE (continued) (iii) Internal Audit and Internal Control Activities (continued) The AEC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31 December 2011, a total of 10 meetings were held. The Audit and Examination Committee comprises the following members and details of attendance of each member at the Audit and Examination Committee meetings held during the financial year are as follows:

Members Total Meetings Attended

Dato' Sri Abdul Aziz bin Abdul Rahman 10 / 10 Chairman/Independent Non-Executive Director

Dr Raja Abdul Malek bin Raja Jallaludin 10 / 10 Member/Independent Non-Executive Director

Tan Sri Dato' Seri Mohamed Jawhar 10 / 10 Member/Independent Non-Executive Director (Representative from AFFIN Islamic Bank Berhad)

(iv) Management Reports Before each Board meeting, Directors are provided with a complete set of board papers itemised in the agenda for Board's review/approval and/or notation.

The Board monitors the Bank's performance by reviewing the monthly Management Report, which provides a comprehensive review and analysis of the Bank's operations and financial issues. In addition, the minutes of the Board Committees and Management Committees meetings and other issues are also tabled and considered by the Board.

Procedures are in place for Directors to seek both independent professional advice at the Bank's expense and the advice and services of the Company Secretary in order to fulfil their duties and specific responsibilities.

BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 Notwithstanding the intense competition in the banking industry and the difficult business environment in 2011, the Bank made continuous efforts to build on its core business and internal resource capability. In terms of profitability, the Bank’s performance has become more resilient as it continued to strengthen its funding structure, liquidity position and capitalisation level. One of the Bank’s main emphasis was also on expansion. The Bank embarked on a rebuilding programme by diagnosing business development problems at existing branches and relocating a number of branches to more vibrant commercial vicinities. New branches were also opened to improve the Bank’s presence in the market. This has ultimately contributed to the overall growth and profitability of the Bank.

The Bank was able to ensure sustainable business growth through:

• Aggressive branch expansion and relocation programs which optimised branch networks further develop the deposits business sector especially the retail segment • Human capital restructuring and development • Product innovations and campaigns • Improving customer touchpoints to ensure excellent & efficient customer service • Continuous improvement on risk management practices to be abreast with prevailing economic climate.

The Bank’s lending activities remained focused on consumer financing and small medium enterprises ('SME'). During the year the Bank’s total gross loan grew by 14.19% with hire purchase and home mortgage segment and SME financing increasing by 65.8%. This loan growth is equally matched with a strong growth in customer deposits. The Bank recorded an increase of 12.6% in its customer deposits portfolio (excluding NID), increasing its consumer deposits base from 19.7% in 2010 to 23.5% in 2011.

AFFIN BANK BERHAD (25046-T) 61 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011(continued) The Group’s asset quality remained resilient despite a more stringent classification of impaired loans under FRS139. The strong asset quality is reflected by the lower net impaired loan from 2.02% in 2010 to 1.31% in 2011.

Overall for 2011, the Group’s success can be attributed to the Group’s transformation effort through various activities such as branch expansion, relocation, product innovation, aggressive marketing, prudent lending policies, strong risk management practice and efficient customer services.

BUSINESS OUTLOOK FOR 2012 Building on the momentum created in 2011, the Bank’s main focus will be to further leverage on AFFIN Banking Group ('ABG') strengths by cross selling and customising products in order to achieve sustainable business growth. The Group’s business is expected to remain strong despite intense competition amid further liberalisation, consolidation and regulatory changes in year 2012.

For Consumer Banking, the Bank will continue to aggressively market for consumer deposit through campaigns as well as new product launches targeting selective clientele. On a broader perspective, the Bank will look at how it grows its loans and advances by digging deeper into identifying market segments and enhancing existing clientele portfolios. Focus will be on cost capital and growing SME loans as well as pushing its fee income base.

RATING BY EXTERNAL AGENCIES The Bank has been rated by the following external rating agency:

Name of rating agency: RATING AGENCY MALAYSIA BERHAD Date of rating: 19 July 2011 Rating classifications:

- Long term: A1 - Short term: P1

RAM has reaffirmed the Bank's long-term and short-term financial institution ratings, at A1 and P1, respectively, with a stable outlook.

'A' rating is defined by RAM as being able to offer adequate safety for timely payment of interest and principal, and has adequate credit profile but possess one or more problem areas, giving rise to the possibility of future riskiness. Entities rated in this category have generally performed at industry average and are considered to be more vulnerable to changes in economic condition than those rated in the higher categories. The subscript 1 in this category indicates as higher end of its generic rating in the A category. A P1 rating is defined by RAM as obligations which are supported by superior ability with regards to timely payment of obligations.

ZAKAT The Bank's subsidiary, AFFIN Islamic Bank Berhad ('AFFIN Islamic') is obliged to pay zakat to comply with the principles of shariah. AFFIN Islamic does not pay zakat on behalf of the shareholders or depositors.

62 Annual Report 2011 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

HOLDING COMPANY AND ULTIMATE HOLDING CORPORATE BODY The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan Tentera Act, 1973.

AUDITORS The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.

In accordance with resolution of the Board of Directors dated 28 February 2012.

JEN TAN SRI DATO' SERI ISMAIL BIN HAJI OMAR (BERSARA) Chairman

EN. MOHD SUFFIAN BIN HAJI HARON Director

AFFIN BANK BERHAD (25046-T) 63 STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2011

The Group The Bank 2011 2010 2011 2010 Note RM'000 RM'000 RM'000 RM'000

ASSETS Cash and short-term funds 2 9,879,366 8,640,457 5,527,439 6,108,452 Deposits and placements with banks and other financial institutions 3 486,694 192,522 1,098,988 564,917 Financial assets held-for-trading 4 149,832 149,945 149,832 149,945 Financial investments available-for-sale 5 6,698,418 5,804,417 5,214,533 4,455,472 Financial investments held-to-maturity 6 521,105 432,537 521,105 432,537 Loans, advances and financing 7 29,692,266 25,974,847 25,318,061 22,419,251 Other assets 8 166,543 186,461 116,690 184,582 Derivative financial assets 9 49,901 54,981 49,901 54,981 Tax recoverable 3,430 49,930 - 46,072 Deferred tax assets 10 - 4,291 - - Statutory deposits with Bank Negara Malaysia 11 1,268,650 245,130 1,108,650 245,130 Investment in subsidiaries 12 - - 287,389 287,429 Investment in jointly controlled entity 13 290 500 - - Amount due from subsidiaries 14 - - 356,897 185,271 Amount due from jointly controlled entity 2,745 2,745 - - Property and equipment 15 172,830 170,722 164,034 162,760 Intangible assets 16 156,133 154,436 156,771 156,868

TOTAL ASSETS 49,248,203 42,063,921 40,070,290 35,453,667

LIABILITIES AND EQUITY Deposits from customers 17 36,547,444 30,982,407 29,072,424 25,432,075 Deposits and placements of banks and other financial institutions 18 7,526,912 6,619,735 6,043,837 5,749,003 Bills and acceptances payable 82,059 110,161 82,059 110,161 Recourse obligation on loans sold to Cagamas Berhad 19 428,459 288,891 428,459 288,891 Other liabilities 20 326,735 353,892 309,134 317,002 Derivative financial liabilities 21 97,399 70,195 97,399 70,195 Provision for taxation 16,242 22 16,212 - Amount due to subsidiaries 22 - - 48,307 47,926 Deferred tax liabilities 10 20,118 24,932 19,211 24,932 Subordinated term loan 23 601,850 300,682 601,850 300,682

TOTAL LIABILITIES 45,647,218 38,750,917 36,718,892 32,340,867

Share capital 24 1,439,285 1,439,285 1,439,285 1,439,285 Reserves 25 2,161,700 1,873,719 1,912,113 1,673,515

TOTAL EQUITY 3,600,985 3,313,004 3,351,398 3,112,800

TOTAL LIABILITIES AND EQUITY 49,248,203 42,063,921 40,070,290 35,453,667

COMMITMENTS AND CONTINGENCIES 37 19,919,985 18,844,780 18,030,311 16,821,892

The accounting policies on pages 72 to 89 and the notes on pages 90 to 180 form an integral part of these financial statements.

64 Annual Report 2011 INCOME STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

The Group The Bank 2011 2010 2011 2010 Note RM'000 RM'000 RM'000 RM'000

Interest income 26 1,795,662 1,511,835 1,816,728 1,523,568 Interest expense 27 (1,020,847) (760,848) (1,020,882) (760,881)

Net interest income 774,815 750,987 795,846 762,687 Islamic Banking income 28 198,933 177,783 - -

973,748 928,770 795,846 762,687 Other operating income 29 186,884 227,351 185,407 226,904

Net income 1,160,632 1,156,121 981,253 989,591 Other operating expense 30 (533,713) (530,911) (442,001) (440,145)

Operating profit before allowances 626,919 625,210 539,252 549,446 Allowances for losses on loans, advances and financing 32 (12,699) (95,394) (1,936) (66,740) Impairment losses on securities (945) (7,912) (945) (7,912)

613,275 521,904 536,371 474,794 Share of joint venture's results (210) - - -

Profit before taxation and zakat 613,065 521,904 536,371 474,794 Taxation 34 (167,570) (136,041) (147,875) (128,089) Zakat (5,492) (4,626) - -

Net profit after taxation and zakat 440,003 381,237 388,496 346,705

Attributable to: Equity holders of the Bank 440,003 381,237 388,496 346,705

Earnings per share (sen) - Basic/fully diluted 35 30.6 26.5 27.0 24.1

The accounting policies on pages 72 to 89 and the notes on pages 90 to 180 form an integral part of these financial statements.

AFFIN BANK BERHAD (25046-T) 65 STATEMENTS OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

The Group The Bank 2011 2010 2011 2010 Note RM'000 RM'000 RM'000 RM'000

Profit after taxation and zakat 440,003 381,237 388,496 346,705

Other comprehensive income: Net fair value change in financial investments available-for-sale 27,622 16,474 30,420 11,334 Deferred tax on financial investments available-for-sale 10 (6,930) (4,115) (7,604) (2,834)

Other comprehensive income for the financial year, net of tax 20,692 12,359 22,816 8,500

Total comprehensive income for the financial year 460,695 393,596 411,312 355,205

Attributable to equity holders of the Bank: - Total comprehensive income 460,695 393,596 411,312 355,205

The accounting policies on pages 72 to 89 and the notes on pages 90 to 180 form an integral part of these financial statements.

66 Annual Report 2011 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

Attributable to Equity Holders of the Bank

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

At 1 January 2011 1,439,285 408,389 888,910 54,249 522,171 3,313,004 Comprehensive income: Net profit for the financial year - - - - 440,003 440,003 Other comprehensive income - - - 20,692 - 20,692

Total comprehensive income - - - 20,692 440,003 460,695

Dividend paid (Note 36) ----(172,714) (172,714) Transfer to statutory reserves - - 122,134 - (122,134) -

At 31 December 2011 1,439,285 408,389 1,011,044 74,941 667,326 3,600,985

At 1 January 2010 1,439,285 408,389 789,221 41,890 351,596 3,030,381 Comprehensive income: Net profit for the financial year - - - - 381,237 381,237 Other comprehensive income - - - 12,359 - 12,359

Total comprehensive income - - - 12,359 381,237 393,596

Dividend paid (Note 36) - - - - (110,973) (110,973) Transfer to statutory reserves - - 99,689 - (99,689) -

At 31 December 2010 1,439,285 408,389 888,910 54,249 522,171 3,313,004

AFFIN BANK BERHAD (25046-T) 67 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

Non-distributable Distributable

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

At 1 January 2011 1,439,285 408,389 807,500 45,795 411,831 3,112,800 Comprehensive income: Net profit for the financial year - - - - 388,496 388,496 Other comprehensive income - - - 22,816 - 22,816

Total comprehensive income - - - 22,816 388,496 411,312

Dividend paid (Note 36) - - - - (172,714) (172,714) Transfer to statutory reserves - - 97,124 - (97,124) -

At 31 December 2011 1,439,285 408,389 904,624 68,611 530,489 3,351,398

At 1 January 2010 1,439,285 408,389 720,824 37,295 262,775 2,868,568 Comprehensive income: Net profit for the financial year - - - - 346,705 346,705 Other comprehensive income - - - 8,500 - 8,500

Total comprehensive income - - - 8,500 346,705 355,205

Dividend paid (Note 36) - - - - (110,973) (110,973) Transfer to statutory reserves - - 86,676 - (86,676) -

At 31 December 2010 1,439,285 408,389 807,500 45,795 411,831 3,112,800

The accounting policies on pages 72 to 89 and the notes on pages 90 to 180 form an integral part of these financial statements.

68 Annual Report 2011 STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation and zakat 613,065 521,904 536,371 474,794 Adjustments for items not involving the movement of cash and cash equivalents:

Interest income: - financial assets held-for-trading (50) (311) (50) (311) - financial investments available-for-sale (141,979) (116,495) (141,830) (116,347) - financial investments held-to-maturity (23,276) (15,522) (23,229) (15,522) Dividend income: - financial investments available-for-sale (23) (8) (23) (8) - financial investments held-to-maturity (9,705) (2,901) (9,705) (2,901) Amortisation of premium less accretion of discount - financial investments available-for-sale (20,568) (30,938) (20,568) (30,938) - financial investments held-to-maturity (901) (664) (901) (664) Gain on sale: - financial assets held-for-trading (546) (1,217) (546) (1,217) - financial investments available-for-sale (24,102) (23,733) (24,102) (23,635) - financial investments held-to-maturity (2,546) (2,053) (2,378) (2,053) Unrealised loss/(gain) on revaluation - financial assets held-for-trading 9 (137) 9 (137) - derivatives 13,230 (6,303) 13,230 (6,303) - foreign exchange 17,878 9,549 17,878 9,549 Allowance for impairment loss - financial investments available-for-sale 945 4,012 945 4,012 - financial investments held-to-maturity - 3,900 - 3,900 Depreciation of property and equipment 18,872 20,071 17,853 19,297 Property and equipment written-off 423 514 414 513 Foreclosed properties - diminution in value 2,542 2,440 2,332 2,422 Gain on sale of property and equipment (23) (219) (23) (219) Amortisation of intangible assets 9,366 16,474 8,836 15,658 Loss/(gain) on sale of foreclosed properties 272 (6,330) 272 (6,330) Net individual impairment 103,338 177,354 99,682 161,938 Net collective impairment 67,662 (3,044) 59,788 (16,409) Bad debt and financing written-off 15,956 15,810 15,791 15,628 Litigation loss arising from loans 40,000 78,000 40,000 78,000 Interest expense - subordinated term loan 19,884 10,633 19,884 10,633 Subsidiary - diminution in value - - 40 - Share of joint venture's results 210 - - -

Operating profit before changes in working capital 699,933 650,786 609,970 573,350

AFFIN BANK BERHAD (25046-T) 69 STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

CASH FLOWS FROM OPERATING ACTIVITIES (continued)

(Increase)/decrease in operating assets:

Deposits and placements with banks and other financial institutions (294,172) (49,393) (534,071) 62,189 Financial assets held-for-trading 650 1,609 650 1,609 Interest income from financial assets held-for-trading 50 311 50 311 Foreign exchange transaction 35,547 (48,511) 36,381 (48,921) Loans, advances and financing (3,904,375) (4,148,877) (3,074,071) (3,450,614) Other assets (132,364) 167,702 (84,208) 142,513 Derivative financial instruments 32,284 (2,982) 32,284 (2,982) Statutory deposits with Bank Negara Malaysia (1,023,520) (25,530) (863,520) (25,530) Amount due from subsidiaries - - (171,245) 46,210 Amount due from jointly controlled entity - (1,688) - -

Increase/(decrease) in operating liabilities:

Deposits from customers 5,565,037 4,449,487 3,640,349 3,534,208 Deposits and placements of banks and other financial institutions 907,177 1,584,726 294,834 1,216,567 Bills and acceptances payable (28,102) 15,896 (28,102) 15,896 Recourse obligation on loans sold to Cagamas Berhad 139,568 (10,943) 139,568 (10,943) Other liablilities (66,342) (33,551) (46,765) (51,542)

Cash generated from operations 1,931,371 2,549,042 (47,896) 2,002,321 Tax paid (113,437) (138,418) (100,020) (118,028) Zakat paid (5,203) (3,493) - -

Net cash generated from/(used in) operating activities 1,812,731 2,407,131 (147,916) 1,884,293

70 Annual Report 2011 STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

CASH FLOWS FROM INVESTING ACTIVITIES

Interest received: - financial investments available-for-sale 141,979 116,495 141,830 116,347 - financial investments held-to-maturity 23,276 15,522 23,229 15,522 Dividend income: - financial investments available-for-sale 23 8 23 8 - financial investments held-to-maturity 9,705 2,901 9,705 2,901 Redemption of financial investments held-to-maturity net of purchase (85,121) 22,946 (85,289) 22,946 Net (purchase)/sale of financial investments available-for-sale (822,654) 14,528 (684,914) (37,701) Proceeds from disposal of - property and equipment 2,166 2,480 2,166 2,480 - foreclosed properties 118,687 24,941 118,687 24,941 Purchase of property and equipment (32,893) (9,608) (28,828) (9,482) Purchase of intangible assets (1,718) (1,043) (1,599) (1,043)

Net cash (used in)/generated from investing activities (646,550) 189,170 (504,990) 136,919

CASH FLOWS FROM FINANCING ACTIVITIES

Interest payment on subordinated term loan (18,716) (10,495) (18,716) (10,495) Increase in subordinated term loan 300,000 - 300,000 - Payment of dividend (172,714) (110,973) (172,714) (110,973)

Net cash generated from/(used in) financing activities 108,570 (121,468) 108,570 (121,468)

Net increase/(decrease) in cash and cash equivalents 1,274,751 2,474,833 (544,336) 1,899,744 Net (decrease)/increase in foreign exchange (35,842) 27,843 (36,677) 28,252 Cash and cash equivalents at beginning of the financial year 8,640,457 6,137,781 6,108,452 4,180,456

CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR (Note 2) 9,879,366 8,640,457 5,527,439 6,108,452

The accounting policies on pages 72 to 89 and the notes on pages 90 to 180 form an integral part of these financial statements.

AFFIN BANK BERHAD (25046-T) 71 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. These policies have been consistently applied to all the financial years presented, unless otherwise stated.

(A) BASIS OF PREPARATION The financial statements of the Group and the Bank have been prepared in accordance with Malaysian Accounting Standards Board ('MASB') Approved Accounting Standards in Malaysia for Entities Other Than Private Entities, Bank Negara Malaysia ('BNM') Guidelines and the provisions of the Companies Act, 1965. The financial statements incorporate those activities relating to Islamic banking business which have been undertaken by AFFIN Islamic Bank Berhad, a wholly owned subsidiary of the Bank. Islamic banking business refers generally to the acceptance of deposits and granting of financing under the Shariah principles.

The financial statements of the Group and the Bank have been prepared under the historical cost convention, unless otherwise indicated in this summary of significant accounting policies.

The preparation of financial statements in conformity with MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities and BNM Guidelines requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. It also requires Directors to exercise judgment in the process of applying the Bank's accounting policies. Although these estimates are based on the Directors' best knowledge of current events and actions, actual results may differ.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 44.

Standards, amendments to published standards and interpretations that are applicable to the Group and are effective The new accounting standards, amendments and improvements to published standards and interpretations that are effective for the Group and the Bank’s financial year beginning on or after 1 January 2011 are as follows:

• Revised FRS 1 “First-time adoption of financial reporting standards”

• Revised FRS 3 "Business combinations"

• Revised FRS 127 "Consolidated and separate financial statements"

• Amendment to FRS 7 "Financial instruments: Disclosures - improving disclosures about financial instruments"

• Amendments to FRS 1 "First-time adoption of financial reporting standards"

• Amendment to FRS 132 "Financial instruments: Presentation – Classification of rights issues"

• IC Interpretation 4 "Determining whether an arrangement contains a lease"

• IC Interpretation 17 "Distribution of non-cash assets to owners"

• Improvements to FRSs (2010)

The adoption of the above revised accounting standards, amendments and improvements to the published standards and interpretations did not have any significant impact to the results of the Group and the Bank.

72 Annual Report 2011 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(A) BASIS OF PREPARATION (continued) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group but not yet effective The Group and the Bank will apply the new standards, amendments to standards and interpretations in the following period:

(i) Financial year beginning on/after 1 January 2012

In the next financial year, the Group will be adopting the new IFRS-compliant framework, Malaysian Financial Reporting Standards ('MFRS'). MFRS 1 "First-time adoption of MFRS" provides for certain optional exemptions and certain mandatory exceptions for first-time MFRS adopters.

• MFRS 139 "Financial instruments: recognition and measurement" - Bank Negara Malaysia has removed the transitional provision for banking institutions on loan impairment assessment and provisioning to comply with the MFRS 139 requirements

• The revised MFRS 124 "Related party disclosures" (effective from 1 January 2012) removes the exemption to disclose transactions between government-related entities and the government, and all other government-related entities. The following new disclosures are now required for government related entities:

- the name of the government and the nature of their relationship; - the nature and amount of each individually significant transactions; and - the extent of any collectively significant transactions, qualitatively or quantitatively.

• IC Interpretation 19 "Extinguishing financial liabilities with equity instruments" (effective from 1 July 2011) provides clarification when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial liability fully or partially. A gain or loss, being the difference between the carrying value of the financial liability and the fair value of the equity instruments issued, shall be recognised in income statement. Entities are no longer permitted to reclassify the carrying value of the existing financial liability into equity with no gain or loss recognised in income statement.

(ii) Financial year beginning on/after 1 January 2013

• MFRS 9 "Financial instruments - classification and measurement of financial assets and financial liabilities" (effective from 1 January 2015) replaces the multiple classification and measurement models in MFRS 139 with a single model that has only two classification categories: amortised cost and fair value. The basis of classification depends on the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.

The accounting and presentation for financial liabilities and for de-recognising financial instruments has been relocated from MFRS 139, without change, except for financial liabilities that are designated at fair value through profit or loss ('FVTPL'). Entities with financial liabilities designated at FVTPL recognise changes in the fair value due to changes in the liability’s credit risk directly in other comprehensive income ('OCI'). There is no subsequent recycling of the amounts in OCI to profit or loss, but accumulated gains or losses may be transferred within equity.

The guidance in MFRS 139 on impairment of financial assets and hedge accounting continues to apply.

AFFIN BANK BERHAD (25046-T) 73 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(A) BASIS OF PREPARATION (continued) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group but not yet effective (continued) (ii) Financial year beginning on/after 1 January 2013 (continued)

• MFRS 10 "Consolidated financial statements" (effective from 1 January 2013) changes the definition of control. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. It establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and sets out the accounting requirements for the preparation of consolidated financial statements. It replaces all the guidance on control and consolidation in MFRS 127 "Consolidated and separate financial statements" and IC Interpretation 112 "Consolidation – special purpose entities".

• MFRS 11 "Joint arrangements" (effective from 1 January 2013) requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement, rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed.

• MFRS 12 "Disclosures of interests in other entities" (effective from 1 January 2013) sets out the required disclosures for entities reporting under the two new standards, MFRS 10 and MFRS 11, and replaces the disclosure requirements currently found in MFRS 128 "Investments in associates". It requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities.

• MFRS 13 "Fair value measurement" (effective from 1 January 2013) aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across MFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards. The enhanced disclosure requirements are similar to those in MFRS 7 "Financial instruments: Disclosures", but apply to all assets and liabilities measured at fair value, not just financial ones.

• The revised MFRS 127 "Separate financial statements" (effective from 1 January 2013) includes the provisions on separate financial statements that are left after the control provisions of MFRS 127 have been included in the new MFRS 10.

• The revised MFRS 128 "Investments in associates and joint ventures" (effective from 1 January 2013) includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of MFRS 11.

• Amendment to MFRS 7 "Financial instruments: Disclosures on transfers of financial assets" (effective from 1 July 2011) promotes transparency in the reporting of transfer transactions and improve users’ understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entity’s financial position, particularly those involving securitisation of financial assets.

• Amendment to MFRS 101 "Financial statement presentation" (effective from 1 July 2012) requires entities to separate items presented in 'other comprehensive income' ('OCI') in the statement of comprehensive income into two groups, based on whether or not they may be recycled to income statement in the future. The amendments do not address which items are presented in OCI.

The Group and the Bank will apply these standards when effective.

74 Annual Report 2011 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(B) ECONOMIC ENTITIES IN THE GROUP The consolidated financial statements include the financial statements of the Bank, subsidiaries and a jointly controlled entity, made up to the end of the financial year.

Subsidiaries Subsidiaries are all those corporations or other entities over which the Group has power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are consolidated using the acquisition method of accounting except for certain business combinations which were accounted for using the predecessor basis of accounting as follows:

• subsidiaries that were consolidated prior to 1 April 2002 in accordance with Malaysian Accounting Standard 2 "Accounting for Acquisitions and Mergers", the generally accepted accounting principles prevailing at that time

• business combinations consolidated on/after 1 April 2002 but with agreement dates before 1 January 2006 that meet the conditions of a merger as set out in MASB 21 "Business Combinations"

• internal group reorganisations, as defined in MASB 21, consolidated on/after 1 April 2002 but with agreement dates before 1 January 2006 where:

- the ultimate shareholders remain the same, and the rights of each such shareholder, relative to the others, are unchanged; and - the minorities' share of net assets of the Group is not altered by the transfer

• combinations involving entities or businesses under common control with agreement dates on/after 1 January 2006.

The Group has taken advantage of the transitional provision provided by MASB 21, FRS 3 and FRS 3 (revised) to apply these Standards prospectively. Accordingly, business combinations entered into prior to the respective effective dates have not been restated to comply with these Standards.

Under the acquisition method of accounting, subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases.

The consideration transferred for acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

In a business combination achieved in stages, the previously held equity interest in the acquiree is re-measured at its acquisition date fair value and the resulting gain or loss is recognised in income statement.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the gain is recognised in income statement. Refer to accounting policy Note (C) on goodwill.

AFFIN BANK BERHAD (25046-T) 75 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(B) ECONOMIC ENTITIES IN THE GROUP (continued) Subsidiaries (continued) Change in accounting policy The Group has changed its accounting policy on business combinations when it adopted the revised FRS 3 "Business combinations" and FRS 127 "Consolidated and separate financial statements".

Previously, contingent consideration in a business combination was recognised when it is probable that payment will be made. Acquisition-related costs were included as part of the cost of business combination. Any adjustment to the fair values of the subsidiary’s identifiable assets, liabilities and contingent liabilities relating to previously held interests of the Group was accounted for as a revaluation.

The Group has applied the new policies prospectively to transactions occurring on or after 1 January 2011. As a consequence, no adjustments were necessary to any of the amounts previously recognised in the financial statements.

The adoption of the new policies has no impact on the results of the Group as there is no business combination during the year.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary, to ensure consistency with the policies adopted by the Group.

The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the Group’s share of its net assets as of the date of disposal including the cumulative amount of any exchange differences that relate to the subsidiary is recognised in the consolidated income statement.

Changes in ownership interests When the Group ceases to have control or joint control, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in income statement. This fair value is its fair value on initial recognition as a financial asset in accordance with FRS 139. Any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities.

Change in accounting policy The Group has changed its accounting policy prospectively for transactions occurring on or after 1 January 2011 for transactions involving the loss of control or joint control when it adopted the revised FRS 127 "Consolidated and Separate Financial Statements". The revisions to FRS 127 contained consequential amendments to FRS 131 "Interests in Joint Ventures".

Previously when the Group ceased to have control or joint control over an entity, the carrying amount of the investment at the date control or joint control ceased became its cost on initial measurement as a financial asset in accordance with FRS 139.

The adoption of the new policy has no impact on the results of the Group as there is no transactions involving the loss of control or joint control during the year.

76 Annual Report 2011 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(B) ECONOMIC ENTITIES IN THE GROUP (continued) Jointly controlled entity Jointly controlled entities are corporations, partnerships or other entities over which there is contractually agreed sharing of control by the Group with one or more parties where the strategic financial and operating decisions relating to the entities require unanimous consent of the parties sharing control.

Investment in jointly controlled entities are accounted for in the consolidated financial statements using the equity method of accounting and are initially recognised at cost. The Group's investment in jointly controlled entities includes goodwill identified on acquisition, net of any accumulated impairment loss.

The Group's share of the post-acquisition profits or losses of the jointly controlled entities are recognised in the income statement, and its share of the post-acquisition movements in reserves are recognised in other comprehensive income. The cummulative post-acquisition movements are adjusted against the carrying amount of the investment.

When the Group's share of losses in a jointly controlled entities equals or exceeds its interest in the jointly controlled entity, including any other unsecured receivables, the Group's interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the jointly controlled entity.

Unrealised gains on transactions between the Group and its jointly controlled entity are eliminated to the extent of the Group's interest in the jointly controlled entity; unrealised losses are also eliminated unless the transaction provides evidence on impairment of the asset transferred. Where neccessary, adjustments have been made to the financial statements of jointly controlled entities to ensure consistency of accounting policies with those of the Group.

Investment in subsidiaries and jointly controlled entity In the Bank's separate financial statements, the investment in subsidiaries and jointly controlled entity is stated at cost less accumulated impairment losses. At each reporting date, the Bank assesses whether there is any indication of impairment. If such indication exist, an analysis is performed to assess whether the carrying amount of the investment is fully recoverable. A write- down is made if the carrying amount exceeds the recoverable amount. Any subsequent increase in recoverable amount is recognised in the income statement (refer to accounting policy D for impairment of non-financial assets).

On disposal of investment in subsidiaries and jointly controlled entity, the difference between disposal proceed and the carrying amounts of the investments are recognised in profit or loss.

(C) INTANGIBLE ASSET Goodwill Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets at the date of acquisition.

Goodwill on acquisition of subsidiaries are included in the statement of financial position as intangible assets. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicated that the goodwill may be impaired. The amount retained in the consolidated financial statements is stated at cost less accumulated impairment losses. Impairment losses on goodwill (inclusive of impairment losses recognised in a previous interim period) are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units ('CGU') for the purpose of impairment testing. The allocation is made to those CGUs that are expected to benefit from the synergies of the business combination in which goodwill arose identified according to operating segment.

AFFIN BANK BERHAD (25046-T) 77 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(C) INTANGIBLE ASSET (continued) Computer software Acquired computer software are capitalised on the basis of the cost incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (five years). Computer software classified as intangible asset are stated at cost less accumulated amortisation and accumulated impairment losses, if any.

Costs associated with developing or maintaining computer software programmes are recognised as an expense when incurred. Costs that are directly associated with identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include software development employee costs and appropriate portion of relevant overhead.

(D) IMPAIRMENT OF NON-FINANCIAL ASSETS Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the assets's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged to the revaluation surplus. Any subsequent increase in recoverable amount is recognised in the income statement unless it reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus.

(E) RECOGNITION OF INTEREST / FINANCING INCOME Financial assets classified as held-to-maturity and loans and receivables are measured at amortised cost using effective interest method. Interest income is recognised using effective interest rates ('EIR'), which is the rate that exactly discounts estimated future cash receipts through the expected life of the loan or, when appropriate, a shorter period to the net carrying amount of the loan.

When a loan is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired financing is recognised using the original effective interest rate.

Islamic financing income is recognised on an accrual basis in accordance with the Shariah principles and Guidelines on Financial Reporting for Licensed Islamic Banks ('BNM/GP8-i'). Al-Ijarah Thumma Al-Bai' ('AITAB') financing income recognised using the effective income rates method over the lease terms, whilst Al-Bai' Bithaman Ajil ('BBA'), Al-Murabahah, Al-Istisna' and Bai'-Inah financing income is recognised on a monthly basis over the period of the financing contracts, based on an agreed profit at the inception of such contracts.

Interest income from securities portfolio is recognised on an accrual basis using the effective interest method. The interest income includes coupons earned/accrued and accretion/amortisation of discount/premium on these securities.

78 Annual Report 2011 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(F) RECOGNITION OF FEES, OTHER INCOME AND INTEREST EXPENSE Loan arrangement fees and commissions are recognised as income when all conditions precedent are fulfilled.

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

Dividends from subsidiaries are recognised when the shareholders' right to receive payment is established.

Dividends from securities portfolio are recognised when received.

Fees and other profit from Islamic banking business are recognised on an accrual basis in accordance with the principles of Shariah.

Interest expense and attributable profit payable on deposits and borrowings are recognised on an accrual basis.

(G) FINANCIAL ASSETS All financial assets which include derivative financial instruments have to be recognised in the statement of financial position and measured in accordance with their assigned category.

The Group and the Bank allocates financial assets to the following FRS 139 categories: loans, advances and financing; financial assets at fair value through profit or loss, financial investments available-for-sale; and financial investments held-to-maturity. Management determines the classification of its financial instruments at initial recognition.

Loans, advances and financing Loans, advances and financing are non-derivative financial assets with fixed or determinable payments that are not quoted in active market.

Loans, advances and financing are initially recognised at fair value which is the cash consideration to originate or purchase the loan including any transaction costs and measured subsequently at amortised cost using the effective interest rate method, less impairment allowance.

An uncollectible loan, advance and financing or portion of a loan, advance and financing classified as bad is written off after taking into consideration the realisable value of collateral, if any, when in the judgement of the management, there is no prospect of recovery.

At each reporting date, the Group and the Bank assess whether there is objective evidence that a loan or group of loans is impaired. A loan or a group of loans is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the loan or group of loans that can be reliably estimated.

The criteria that the Group and the Bank use to determine that there is objective evidence of an impairment loss include among others:

• past due contractual payments; • significant financial difficulties of borrower; • probability of bankruptcy or other financial re-organisation; • default of related borrower.

AFFIN BANK BERHAD (25046-T) 79 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(G) FINANCIAL ASSETS (continued) Loans, advances and financing (continued) The estimated period between a loss occurring and its identification for credit cards is six months and for all other loans are twelve months.

The Group and the Bank first assess whether objective evidence of impairment exists individually for loans that are individually significant, and individually or collectively for loans that are not individually significant. If the Group and the Bank determine that no objective evidence of impairment exists for an individually assessed loan, whether significant or not, it includes the loan in a group of loans with similar credit risk characteristics and collectively assesses them for impairment. Loans that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. Loans that are individually assessed for impairment and for which no impairment loss is required (over collateralised loans) are collectively assessed as a separate segment.

The amount of the loss is measured as the difference between the loan’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the loan’s original effective interest rate. The carrying amount of the loan is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

The calculation of the present value of the estimated future cash flows of a collateralised loan reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such loans by being indicative of the borrowers’ ability to pay all amounts due according to the contractual terms of the loans being evaluated.

Future cash flows in a group of loans that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the loans in the Bank and historical loss experience for loans with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of loans should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Group and the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group and the Bank to reduce any differences between loss estimates and actual loss experience.

The collective assessment is also subject to the transitional arrangement prescribed in BNM's guidelines on Classification and Impairment Provisions for Loans/Financing issued on 17 December 2010.

80 Annual Report 2011 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(G) FINANCIAL ASSETS (continued) Financial assets at fair value through profit or loss This category comprises two sub-categories: financial assets classified as held-for-trading and financial assets designated by the Group and the Bank as at fair value through profit or loss upon initial recognition.

A financial asset is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-fortrading unless they are designated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as 'Derivative financial assets' when their fair values are positive. Financial assets held-for-trading consist of debt instruments, including money- market paper, traded corporate and bank loans, and equity instruments, as well as financial assets with embedded derivatives. They are recognised in the statement of financial position as 'Financial assets held-for-trading'.

Financial instruments included in this category are recognised intially at fair value; transaction costs are taken directly to the income statement. Gains and lossess arising from changes in fair value are included directly in the income statement.

The Group and the Bank may designate certain financial assets upon initial recognition as at fair value through profit or loss (fair value option). This designation cannot subsequently be changed. The fair value option is only applied when the following conditions are met:

• the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise or • the financial assets are part of a portfolio of financial instruments which is risk managed and reported to senior management on a fair value basis or • the financial assets consists of debt host and an embedded derivatives that must be separated.

Financial assets for which the fair value option is applied are recognised in the statement of financial position as 'Financial assets designated at fair value'. Fair value changes relating to financial assets designated at fair value through profit or loss are recognised in the income statement.

The Group and the Bank may choose to reclassify a non-derivative financial assets held-for-trading out of this category where:

• in rare circumstances, it is no longer held for the purpose of selling or repurchasing in the near term or • it is no longer held for purpose of trading, it would have met the definition of a loan and receivable on initial classification and the Group and the Bank have the intention and ability to hold it for the foreseeable future or until maturity.

Financial investments available-for-sale Financial investments available-for-sale are non-derivative financial assets that are either designated in this category or not classified as held-for-trading or held-to-maturity investments.

Investments in equity instruments where there is no quoted market price in an active market and whose fair value cannot be reliably measured, will be stated at cost.

Any gains or losses arising from the change in fair value adjustments are recognised directly in statement of comprehensive income except for impairment losses and foreign exchange gains or losses. When the financial asset is derecognised, the cumulative gains or loss previously recognised in statement of comprehensive income shall be transferred to the income statement.

A financial investments available-for-sale that would have met the definition of loans and receivables may only be transferred from the available-for-sale classification where the Group and the Bank have the intention and the ability to hold the asset for the foreseeable future or until maturity.

AFFIN BANK BERHAD (25046-T) 81 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(G) FINANCIAL ASSETS (continued) Financial investments available-for-sale (continued) Impairment of financial investments available-for-sale is assessed when there is an objective evidence of impairment. Cumulative unrealised losses that had been recognised directly in equity shall be removed and recognised in income statement even though the securities have not been derecognised. Impairment loss in addition to the above unrealised losses is also recognised in the income statement. Subsequent reversal of impairment on debt instrument in the income statement is allowed when the decrease in impairment can be related objectively to an event occuring after the impairment was recognised.

In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment resulting in the recognition of an impairment loss. Impairment losses recognised in the income statement on equity instruments shall not be reversed.

Financial investments held-to-maturity Financial investments held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group and the Bank have the positive intention and ability to hold to maturity.

Financial investments held-to-maturity are measured at amortised cost using the effective interest method. Gains or losses are recognised in income statement when the securities are derecognised or impaired and through the amortisation process.

If, as a result of a change in intention or ability, it is no longer appropriate to calssify a financial investment as held-to-maturity, the Group and the Bank shall reclassify the investment as available-for-sale and remeasured at fair value, and the difference between its carrying amount and fair value shall be recognised in other comprehensive income, except for impairment losses and foreign exchange gains and losses.

Any sale or reclassification of a significant amount of financial investments held-to-maturity before maturity during the current financial year or last two preceding financial years will “taint” the entire category and result in the remaining financial investments held-to-maturity being reclassified to available-for-sale except for sales or reclassification that:

• are so close to maturity or call date that changes in the market rate of interest would not have significant effect on the financial asset's fair value; • occur after the Group and the Bank have collected substantially all of the financial asset's original principal; or • are attributable to an isolated event that is beyond the Group and the Bank's control are non-recurring and could not have been reasonably anticipated by the Group and the Bank.

Impairment of financial investments held-to-maturity is assessed when there is an objective evidence of impairment. The impairment loss is measured as the difference between the financial investments' carrying amount and the present value of estimated future cash flows discounted at the financial investments' original effective interest rate. Subsequent reversal of impairment is allowed in the event of an objective decrease in impairment. Recognition of impairment losses and its reversal is made through the income statement.

Recognition The Group and the Bank use trade date accounting for regular way contracts when recording financial asset transactions. Financial assets that are transferred to a third party but do not qualify for derecognition are presented in the statement of financial position as 'Assets pledged as collateral', if the transferee has the right to sell or repledge them.

De-recognition Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risk and rewards have not been transferred, the Group and the Bank tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent the de-recognition).

82 Annual Report 2011 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(H) FINANCIAL LIABILITIES All financial liabilities which include derivative financial instruments have to be recognised in the statement of financial position and measured in accordance with their assigned category.

The Group and the Bank's holding in financial liabilities are in financial liabilities at fair value through profit or loss (including financial liabilities held-for-trading and those that designated at fair value) and financial liabilities at amortised cost. Financial liabilities are derecognised when extinguished.

Financial liabilities at fair value through profit or loss This category comprises two sub-categories: financial liabilities classified as held-for-trading, and financial liabilities designated by the Group and the Bank as at fair value through profit or loss upon initial recognition.

A financial liability is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless they are designated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as 'Derivative financial liabilities' when their fair values are negative.

Gains and losses arising from changes in fair value of financial liabilities classified held-for-trading are included in the income statement.

Other liabilities measured at amortised cost Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are measured at amortised cost. All the financial liabilities of the Group and the Bank are measured at amortised cost.

De-recognition Financial liabilities are de-recognised when they have been redeemed or otherwise extinguished.

(I) OFFSETTING FINANCIAL INSTRUMENTS Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets and settle the liability simultaneously.

(J) PROPERTY AND EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

AFFIN BANK BERHAD (25046-T) 83 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(J) PROPERTY AND EQUIPMENT AND DEPRECIATION (continued)

Freehold land is not depreciated as it has an infinite life. Other property and equipment are depreciated on the straight line basis to write off the cost of the assets or their revalued amounts, to their residual values over their estimated useful lives, summarised as follows:

Buildings 50 years Leasehold buildings Over the remaining lease period Renovation and leasehold premises 5 years or the period of the lease whichever is greater Office equipment and furniture 10 years Computer equipment and software 5 years Motor vehicles 5 years

Depreciation on capital work-in-progress commences when the assets are ready for their intended use.

Residual value and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date.

At each reporting date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of the asset is recoverable. A write down is made if the carrying amount exceeds the recoverable amount. Any subsequent increase in the recoverable amount is recognised in the income statement (refer to accounting policy D on impairment of non-financial assets).

Gains and losses on disposal are determined by comparing proceeds with carrying amount and are recognised within other operating income in the income statement.

(K) LEASES Accounting by lessee Finance leases Leases of property and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments.

Each lease payment is allocated between the liability and finance charges so as to achieve a periodic constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance charge is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property and equipment acquired under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.

Initial direct costs incurred by the Group in negotiating and arranging finance leases are added to the carrying amount of the leased assets and recognised as an expense in income statement over the lease term on the same basis as the lease expense.

84 Annual Report 2011 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(K) LEASES (continued) Accounting by lessee (continued) Operating leases Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on the straight line basis over the lease period.

Initial direct costs incurred by the Group in negotiating and arranging operating leases are recognised in income statement when incurred.

Accounting by lessor Finance leases When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method so as to reflect a constant periodic rate of return.

Operating leases When assets are leased out under an operating lease, the asset is included in the statement of financial position based on the nature of the asset. Lease income is recognised over the term of the lease on a straight-line basis.

(L) FOREIGN CURRENCY TRANSLATIONS Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Ringgit Malaysia, which is the Group and the Bank’s functional and presentation currency.

Transactions and balances Foreign currency transactions are translated into the functional currency using the exchanges rate prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

Changes in the fair value of monetary financial assets denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the financial asset and other changes in the carrying amount of the financial asset. Translation differences related to changes in the amortised cost are recognised in income statement, and other changes in the carrying amount are recognised in other comprehensive income.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit and loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the fair value reserve in other comprehensive income.

AFFIN BANK BERHAD (25046-T) 85 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(M) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING Derivatives are initially recognised at fair values on the date on which derivative contracts are entered into and are subsequently remeasured at their fair values. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. All derivatives are carried as assets when fair values are positive and as liabilities when fair values are negative.

The best evidence of fair value of a derivative at initial recognition is the transaction price (i.e the fair value of the consideration given or received) unless fair value of the instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Group and the Bank recognise profits immediately.

The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge); or (2) hedges of highly probable future cash flows attributable to a recognised asset or liability, or a forecasted transaction (cash flow hedge). Hedge accounting is used for designated derivatives in this way provided certain criterias are met.

The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and an on-going basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged assets or liabilities that are attributable to the hedged risk.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used, is amortised to income statement over the period to maturity. The adjustment to the carrying amount of a hedged equity security remains in retained earnings until the disposal of the equity security.

Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income. The gain and loss relating to the ineffective portion is recognised immediately in the income statement.

Amounts accumulated in other comprehensive income are recycled to the income statement in the periods in which the hedged item will affect income statement (for example, when the forecast sale that is hedged take place).

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing at that time remains in other comprehensive income and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cummulative gain or loss that was reported in other comprehensive income is immediately transferred to the income statement.

Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement.

Gains and losses on interest rate swaps, futures, forward and option contracts that qualify as hedges are deferred and amortised over the life of hedged assets or liabilities as adjustments to interest income or interest expense. Gains and losses on interest rate swaps, futures, forward and option contracts that do not qualify as hedges are recognised in the current financial year using the mark-to-market method and are included in the income statement.

86 Annual Report 2011 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(N) CURRENT AND DEFERRED INCOME TAXES Current tax The tax expense for the period comprises current and deferred tax. Tax is recognised in income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period where the Group’s subsidiaries and branch operate and generate taxable income.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. This liability is measured using the single best estimate of the most likely outcome.

Deferred tax Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unused tax losses can be utilised.

Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the end of the reporting date and are expected to apply when the related deferred tax assets is realised or the deferred tax liability is settled.

Deferred tax is recognised on temporary differences arising on investment in subsidiaries and jointly controlled entity except where the timing of the reversal of the temporary difference can be controlled by the Group and it is possible that the temporary difference will not reverse in the foreseeable future.

Deferred and income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on net basis.

(O) ZAKAT Zakat represents business zakat payable by the Group to comply with the principles of Shariah and as approved by the Shariah Committee. The Bank's subsidiary, AFFIN Islamic Bank Berhad only pays zakat on its business and does not pay zakat on behalf of depositors or shareholders. Zakat provision is calculated based on 2.5% of the net asset method.

(P) CASH AND CASH EQUIVALENTS Cash and cash equivalents consists of cash in hand, bank balances and deposits and placements maturing within one month which are held for the purpose of meeting short term commitments and are readily convertible to cash without significant risk of changes in value.

(Q) FORECLOSED PROPERTIES Foreclosed properties are stated at the lower of cost and net realisable value.

AFFIN BANK BERHAD (25046-T) 87 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(R) CONTINGENT LIABILITIES AND CONTINGENT ASSETS The Group and the Bank does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is possible obligation that arises from past events whose existence will be confirmed by the occurrence or non- occurrence of one or more uncertain future events beyond the control of the Group and the Bank or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably. However, contingent liabilities do not include financial guarantee contracts.

A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non- occurrence of one or more uncertain future events beyond the control of the Group and the Bank. The Group and the Bank does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain.

(S) BILLS AND ACCEPTANCES PAYABLE Bills and acceptances payable represent the Bank's own bills and acceptances rediscounted and outstanding in the market.

(T) OTHER PROVISIONS Provisions are recognised by the Group and the Bank when all of the following conditions have been met:

• the Group and the Bank has a present legal or constructive obligation as a result of past events; • it is probable that an outflow of resources to settle the obligation will be required; and • a reliable estimate of the amount of obligation can be made.

Where the Group and the Bank expect a provision to be reimbursed (for example, under an insurance contract), the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance cost expense.

(U) EMPLOYEE BENEFITS Short term employee benefits Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group.

88 Annual Report 2011 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

(U) EMPLOYEE BENEFITS (continued) Defined contribution plan The defined contribution plan is a pension plan under which the Group pays fixed contributions to the National Pension Scheme, the Employees' Provident Fund ('EPF') and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.

The Group's contribution to defined contribution plans are charged to the income statement in the period to which they relate. Once the contributions have been paid, the Group has no further payment obligations.

Termination benefits Termination benefits are payable whenever an employee's employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without any possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.

(V) FINANCIAL GUARANTEE CONTRACT Financial guarantee contracts are contracts that require the Group or Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The fair value of a financial guarantee at the time of signature is zero because all guarantees are agreed on arm’s length terms and the value of the premium agreed corresponds to the value of the guarantee obligation. No receivable for the future premiums is recognised.

The liability is subsequently recognised at the higher of the amount determined in accordance with FRS 137 "Provisions, contingent liabilities and contingent assets" and the amount initially recognised less cumulative amortisation, where appropriate.

The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

Where financial guarantees in relation to loans or payables of subsidiaries are provided by the Group for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of investment in subsidiaries.

AFFIN BANK BERHAD (25046-T) 89 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

1 GENERAL INFORMATION The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the Bank's subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been no significant changes in these principal activities during the financial year.

The number of employees in the Group and the Bank as at 31 December 2011 was 3,293 (2010: 3,113) and 3,095 (2010: 2,933) employees respectively.

The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan Tentera Act, 1973.

The Bank is a limited liability company, incorporated and domiciled in Malaysia.

2 CASH AND SHORT-TERM FUNDS

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Cash and bank balances with banks and other financial institutions 172,014 172,530 168,388 169,157 Money at call and deposit placements maturing within one month 9,707,352 8,467,927 5,359,051 5,939,295

9,879,366 8,640,457 5,527,439 6,108,452

3 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Licensed banks 156,235 15,681 768,529 388,076 Licensed investment banks 330,459 176,841 330,459 176,841

486,694 192,522 1,098,988 564,917

4 FINANCIAL ASSETS HELD-FOR-TRADING

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000 At fair value Bank Negara Malaysia Monetary Notes 149,832 99,853 149,832 99,853 Negotiable Instruments of Deposit - 50,092 - 50,092

149,832 149,945 149,832 149,945

90 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

5 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

At fair value Malaysian Government treasury bills 39,421 166,566 39,421 137,730 Malaysian Government securities 430,728 763,701 430,728 763,701 Malaysian Government investment issues 2,611,724 1,410,778 1,915,445 674,170 BNM Sukuk - 32,017 - - Bank Negara Malaysia Monetary Notes 174,620 1,006,592 24,949 849,557 Negotiable Instruments of Deposit and Islamic Debt Certificates 802,322 141,072 802,322 141,072 Bankers' acceptances and Islamic accepted bills - 556,994 - 556,994 Khazanah bonds 14,262 13,250 - -

4,073,077 4,090,970 3,212,865 3,123,224 Quoted securities: Shares in Malaysia 33,585 51,375 23,230 40,920 Private debt securities in Malaysia 2,167 2,167 2,167 2,167

Unquoted securities: Shares in Malaysia 105,902 93,173 105,833 93,101 Private debt securities - in Malaysia 1,935,129 1,266,117 1,315,135 899,797 - outside Malaysia 576,894 340,620 576,894 329,523

6,726,754 5,844,422 5,236,124 4,488,732 Allowance for impairment of securities (28,336) (40,005) (21,591) (33,260)

6,698,418 5,804,417 5,214,533 4,455,472

6 FINANCIAL INVESTMENTS HELD-TO-MATURITY

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

At amortised cost Quoted securities: Private debt securities in Malaysia 34,623 38,123 34,623 38,123

Unquoted securities: Private debt securities in Malaysia 574,066 482,166 574,066 481,998

608,689 520,289 608,689 520,121 Allowance for impairment of securities (87,584) (87,752) (87,584) (87,584)

521,105 432,537 521,105 432,537

AFFIN BANK BERHAD (25046-T) 91 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

7 LOANS, ADVANCES AND FINANCING

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

(i) By type

Overdrafts 1,856,907 1,971,364 1,649,343 1,747,438 Term loans/financing - Housing loans/financing 4,544,089 3,885,327 3,273,275 2,831,771 - Hire purchase receivables 8,869,439 7,835,986 7,637,022 6,774,821 - Syndicated financing 1,409,858 1,371,964 1,265,396 1,254,969 - Other term loans/financing 9,980,935 7,784,898 8,633,582 6,850,106 Bills receivables 42,928 39,077 42,534 37,688 Trust receipts 374,449 266,050 340,869 222,092 Claims on customers under acceptances credits 694,365 659,074 602,521 601,137 Staff loans/financing (of which RM Nil to Directors) 147,691 151,146 138,821 143,110 Credit/charge cards 93,116 101,682 93,116 101,682 Revolving credits 2,286,027 2,476,644 2,153,483 2,334,181 Factoring 12,318 3,185 12,318 3,185

Gross loans, advances and financing 30,312,122 26,546,397 25,842,280 22,902,180 Less: Allowance for impairment - Individual (168,257) (175,849) (133,329) (139,709) - Collective (451,599) (395,701) (390,890) (343,220)

Total net loans, advances and financing 29,692,266 25,974,847 25,318,061 22,419,251

- Included in term loans are housing loans sold to Cagamas Berhad with recourse amounting to RM428,459,000 (2010: RM288,891,000).

- Included in Group's other term loan/financing as at reporting date is RM23.3 million (2010: RM13.5 million) of term financing disbursed by AFFIN Islamic Bank Bhd to jointly controlled entity, AFFIN-i Goodyear Sdn Bhd.

(ii) By maturity structure

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Maturing within one year 5,745,936 6,552,073 5,128,886 5,989,754 One year to three years 3,738,038 2,748,818 3,511,510 2,581,046 Three years to five years 5,386,223 4,411,920 4,689,710 3,906,606 Over five years 15,441,925 12,833,586 12,512,174 10,424,774

30,312,122 26,546,397 25,842,280 22,902,180

92 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

7 LOANS, ADVANCES AND FINANCING (continued)

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

(iii) By type of customer

Domestic banking Institutions 949 - 949 - Domestic non-banking institutions - Stockbroking companies - 270 - 270 - Others 2,078,889 2,146,330 1,771,630 1,724,629 Domestic business enterprises - Small medium enterprises 7,573,762 6,789,502 6,989,064 6,311,415 - Others 7,257,740 5,785,703 6,409,423 5,265,662 Government and statutory bodies 65,487 75,394 49,642 75,394 Individuals 12,908,539 11,473,630 10,438,005 9,369,378 Other domestic entities 164,857 45,584 47,337 43,749 Foreign entities 261,899 229,984 136,230 111,683

30,312,122 26,546,397 25,842,280 22,902,180

(iv) By interest/profit rate sensitivity

Fixed rate - Housing loans/financing 283,990 286,138 191,221 183,375 - Hire purchase receivables 8,869,438 7,834,034 7,637,022 6,773,029 - Other fixed rate loans/financing 4,482,642 3,934,311 3,887,802 3,400,299 Variable rate - BLR plus 11,271,790 10,210,602 9,225,843 8,596,943 - Cost plus 5,404,262 4,281,312 4,900,392 3,948,534

30,312,122 26,546,397 25,842,280 22,902,180

(v) By economic sectors

Primary agriculture 489,126 482,204 402,511 385,200 Mining and quarrying 431,334 373,899 431,167 373,664 Manufacturing 2,272,033 1,790,610 2,051,720 1,660,682 Electricity, gas and water supply 160,641 194,137 159,825 193,273 Construction 2,433,031 2,367,389 2,108,657 2,027,689 Real estate 3,000,445 2,328,423 2,557,560 2,283,744 Wholesale & retail trade and restaurants & hotels 1,436,865 1,213,751 1,392,540 1,164,859 Transport, storage and communication 1,582,862 921,590 1,572,087 915,146 Finance, insurance and business services 4,266,707 4,396,591 3,833,101 3,809,129 Education, health and others 1,146,839 855,655 734,469 584,559 Household 13,039,953 11,579,272 10,549,125 9,461,991 Others 52,286 42,876 49,518 42,244

30,312,122 26,546,397 25,842,280 22,902,180

AFFIN BANK BERHAD (25046-T) 93 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

7 LOANS, ADVANCES AND FINANCING (continued)

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

(vi) By economic purpose

Purchase of securities 131,246 268,145 131,165 254,706 Purchase of transport vehicles 9,112,854 7,869,187 7,880,728 6,807,263 Purchase of landed property of which: - Residential 4,632,718 3,982,258 3,258,417 2,913,043 - Non-residential 3,791,366 2,637,636 3,042,970 2,211,785 Fixed assets other than land and building 326,549 339,184 276,513 329,088 Personal use 819,498 721,877 780,772 689,560 Credit card 93,116 101,682 93,116 101,682 Consumer durable 958 1,067 932 1,033 Construction 1,594,137 772,577 1,444,217 648,490 Merger and acquisition 98,651 4,867 98,651 4,867 Working capital 9,489,000 9,635,096 8,618,767 8,739,309 Others 222,029 212,821 216,032 201,354

30,312,122 26,546,397 25,842,280 22,902,180

(vii) By geographical distribution

Perlis 56,604 27,648 53,590 25,762 Kedah 942,274 902,980 728,495 691,342 Pulau Pinang 1,525,797 1,271,331 1,424,482 1,176,306 Perak 917,610 853,633 719,023 689,294 Selangor 9,330,844 7,602,382 7,858,891 6,423,997 Wilayah Persekutuan 8,886,609 8,720,586 7,675,315 7,876,473 Negeri Sembilan 753,916 721,564 683,030 660,393 Melaka 696,178 663,856 656,132 623,077 Johor 2,631,232 2,027,324 2,456,572 1,889,371 Pahang 633,914 623,000 378,967 368,284 Terengganu 580,189 567,382 252,758 277,903 Kelantan 268,161 256,176 58,223 58,335 Sarawak 1,011,152 732,788 985,563 707,464 Sabah 1,272,938 1,173,362 1,211,948 1,137,077 Labuan 262,731 277,901 262,722 277,889 Outside Malaysia 541,973 124,484 436,569 19,213

30,312,122 26,546,397 25,842,280 22,902,180

94 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

7 LOANS, ADVANCES AND FINANCING (continued)

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

(viii) Movements of impaired loans At beginning of the financial year 971,123 1,039,783 818,522 908,943 Classified as impaired 535,462 689,486 422,487 596,797 Reclassified as non-impaired (343,790) (313,791) (273,189) (271,704) Amount recovered (185,271) (221,338) (165,246) (198,624) Amount written-off (111,862) (223,017) (109,256) (216,890)

At end of the financial year 865,662 971,123 693,318 818,522

Ratio of gross impaired loans, advances and financing to gross loans, advances and financing 2.85% 3.66% 2.68% 3.57%

(ix) Movements in allowance for impairment on loans, advances and financing Individual impairment At beginning of the financial year 175,849 175,953 139,709 152,725 Provision for loan impairment 116,909 198,023 111,880 172,716 Amount recovered (13,571) (20,669) (12,198) (10,778) Amount written-off (96,224) (170,906) (93,889) (169,730) Unwinding of discount of allowance (14,706) (6,552) (12,173) (5,224)

At end of the financial year 168,257 175,849 133,329 139,709

Collective impairment At beginning of the financial year 395,701 449,893 343,220 405,968 Provision for loan impairment/(recovered) 67,662 (3,044) 59,788 (16,409) Amount written-off (12,118) (49,850) (12,118) (46,339) Exchange differences 354 (1,298) - -

At end of the financial year 451,599 395,701 390,890 343,220

(x) Impaired loans by economic sectors Primary agriculture 7,855 11,937 7,810 11,874 Mining and quarrying - 50 - - Manufacturing 48,663 99,831 28,197 78,707 Electricity, gas and water supply 1,928 2,360 1,662 2,066 Construction 189,515 252,660 121,609 175,208 Real estate 4,159 8,263 4,159 8,263 Wholesale & retail trade and restaurants & hotels 34,519 48,103 32,299 45,555 Transport, storage and communication 5,086 4,633 5,086 4,633 Finance, insurance and business services 51,926 15,108 23,537 14,469 Education, health and others 8,547 8,301 8,510 8,301 Household 509,810 519,877 456,892 469,446 Others 3,654 - 3,557 -

865,662 971,123 693,318 818,522

AFFIN BANK BERHAD (25046-T) 95 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

7 LOANS, ADVANCES AND FINANCING (continued)

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

(xi) Impaired loans by economic purpose

Purchase of securities 2,721 2,741 2,721 2,741 Purchase of transport vehicles 106,606 81,586 95,291 73,743 Purchase of landed property of which: - Residential 382,814 407,763 340,922 365,321 - Non-residential 34,354 44,744 33,850 44,119 Fixed assets other than land and building 17,758 3,633 17,758 3,185 Personal use 12,699 16,373 8,611 16,170 Credit card 499 636 499 636 Consumer durable 33 34 33 34 Construction 63,547 63,407 57 1,694 Working capital 243,112 349,989 192,157 310,666 Others 1,519 217 1,419 213

865,662 971,123 693,318 818,522

(xii) Impaired loans by geographical distribution

Perlis 332 840 332 840 Kedah 24,835 40,612 23,834 39,228 Pulau Pinang 25,585 30,120 23,774 27,892 Perak 23,884 16,202 21,332 14,559 Selangor 407,273 426,852 360,343 382,454 Wilayah Persekutuan 122,787 185,642 110,570 173,975 Negeri Sembilan 39,790 37,483 37,609 35,466 Melaka 16,229 15,854 16,033 15,356 Johor 65,744 88,097 62,945 85,252 Pahang 11,840 17,013 8,122 13,368 Terengganu 5,776 8,009 3,156 6,529 Kelantan 7,193 6,171 2,707 3,011 Sarawak 7,694 6,614 7,456 6,387 Sabah 15,533 14,387 15,090 14,160 Labuan 15 45 15 45 Outside Malaysia 91,152 77,182 - -

865,662 971,123 693,318 818,522

96 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

8 OTHER ASSETS

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Other debtors, deposits and prepayments 21,421 21,623 20,923 20,222 Clearing accounts 104,755 4,160 56,775 4,077 Foreclosed properties (a) 40,337 160,648 38,962 160,253 Others 30 30 30 30

166,543 186,461 116,690 184,582

(a) Foreclosed properties

At beginning of the financial year 160,648 180,329 160,253 179,916 Amount arising during the financial year 1,190 1,370 - 1,370 Disposal during the financial year (118,959) (18,611) (118,959) (18,611)

42,879 163,088 41,294 162,675 Foreclosed properties - diminution in value (2,542) (2,440) (2,332) (2,422)

At end of the financial year 40,337 160,648 38,962 160,253

9 DERIVATIVE FINANCIAL ASSETS

The Group and The Bank The Group and The Bank 2011 2010 Contract/ Contract/ notional notional amount Assets amount Assets RM'000 RM'000 RM'000 RM'000

At fair value Foreign exchange derivatives: Currency forwards 246,307 2,433 240,549 2,381 Cross currency swaps 879,504 16,097 1,347,158 35,206

Interest rate derivatives: Interest rate swap 444,560 31,371 576,120 17,394

1,570,371 49,901 2,163,827 54,981

AFFIN BANK BERHAD (25046-T) 97 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

10 DEFERRED TAX ASSETS / (LIABILITIES) Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts determined after appropriate offsetting, are shown in the statement of financial position:

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Deferred tax assets: - to be recovered after more than 12 months - 5,221 - - - to be recovered within 12 months - (930) - -

- 4,291 - -

Deferred tax liabilities: - to be recovered after more than 12 months (6,099) (2,876) (5,263) (2,876) - to be recovered within 12 months (14,019) (22,056) (13,948) (22,056)

(20,118) (24,932) (19,211) (24,932)

At beginning of the financial year (20,641) 33,665 (24,932) 35,121

(Charged)/credited to income statement (Note 34) 7,453 (50,191) 13,325 (57,219)

- property and equipment (73) 913 (36) 844 - intangible assets (424) 2,908 24 3,092 - general allowance on bad and doubtful debts - (83,767) - (72,750) - collective allowances (transitional provision) for bad and doubtful financing (6,785) 6,785 (267) 267 - revaluation gain on forex - 13,507 - 11,879 - revaluation gain on derivatives - 2,929 - 2,929 - others 14,735 6,534 13,604 (3,480)

Charged to equity (6,930) (4,115) (7,604) (2,834)

At end of the financial year (20,118) (20,641) (19,211) (24,932)

98 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

10 DEFERRED TAX ASSETS / (LIABILITIES) (continued) The movements in deferred tax assets and liabilities during the financial year are as follows:

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Subject to income tax Deferred tax assets (before offsetting) Collective allowances (transitional provision) for bad and doubtful financing - 6,785 - 267 Others 14,747 12 13,616 12

14,747 6,797 13,616 279 Offsetting (14,747) (2,506) (13,616) (279)

Deferred tax assets (after offsetting) - 4,291 - -

Deferred tax liabilities (before offsetting) Property and equipment (5,413) (5,340) (5,095) (5,059) Intangible assets (5,676) (5,252) (4,862) (4,886) AFS revaluation reserves (23,776) (16,846) (22,870) (15,266)

(34,865) (27,438) (32,827) (25,211) Offsetting 14,747 2,506 13,616 279

Deferred tax liabilities (after offsetting) (20,118) (24,932) (19,211) (24,932)

The amount of unused tax losses for which no deferred tax asset is recognised in the statement of financial position are as follows:

Tax losses 103,871 105,260 - -

11 STATUTORY DEPOSIT WITH BANK NEGARA MALAYSIA A non-interest bearing statutory deposit is maintained with Bank Negara Malaysia in compliance with requirements of Section 26(2)(c) of the Central Bank of Malaysia Act 2009, the amounts of which is determined at a set percentages of total eligible liabilities.

AFFIN BANK BERHAD (25046-T) 99 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

12 INVESTMENT IN SUBSIDIARIES

The Bank 2011 2010 RM'000 RM'000

Unquoted shares, at cost 319,557 319,557 Less: Allowance for impairment losses (32,168) (32,128)

287,389 287,429

The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows:

Percentage of equity held 2011 2010 Name Principal Activities % %

AFFIN Islamic Bank Bhd Islamic banking business 100 100 PAB Properties Sdn Bhd Property management services 100 100 ABB Nominee (Tempatan) Sdn Bhd Share nominee services 100 100 ABB Nominee (Asing) Sdn Bhd Share nominee services 100 100 ABB Trustee Berhad* Trustee management services 100 100 AFFIN Factors Sdn Bhd Dormant 100 100 AFFIN Futures Sdn Bhd Dormant 100 100 PAB Property Management Services Sdn Bhd Dormant 100 100 PAB Property Development Sdn Bhd Dormant 100 100 ABB Venture Capital Sdn Bhd Dormant 100 100 ABB IT & Services Sdn Bhd Dormant 100 100 BSNCB Nominees (Tempatan) Sdn Bhd Dormant 100 100 BSNC Nominees (Tempatan) Sdn Bhd Dormant 100 100 ABB Asset Management (M) Bhd Dormant 100 100 AFFIN Recoveries Bhd Dormant 100 100 BSN Merchant Nominees (Tempatan) Sdn Bhd Dormant 100 100 BSN Merchant Nominees (Asing) Sdn Bhd Dormant 100 100 AFFIN-ACF Nominees (Tempatan) Sdn Bhd Dormant 100 100

* 80% held by Directors of the Bank, in trust for the Bank.

100 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

13 INVESTMENT IN JOINTLY CONTROLLED ENTITY

The Group 2011 2010 RM'000 RM'000

Unquoted shares at cost 500 500 Group's share of post acquisition retained losses (210) -

290 500

The Group did not account for the share of post acquisition retained losses in 2010 as it is immaterial and has not commenced the development of land.

The summarised financial information of jointly controlled entity are as follows:

Revenue 10 2 Loss after tax (420) (89) Total assets 31,711 21,518 Total liabilities 31,132 20,619

The jointly controlled entity was incorporated on 1 April 2008 and the details are as follows:

Issued and Percentage of paid up equity held Name Principal activities share capital 2011 2010 RM'000 % %

AFFIN-i Goodyear Sdn Bhd Land development project 1,000 50 50

On 1 April 2008, AFFIN Islamic Bank Berhad and Jurus Positif Sdn Bhd, a subsidiary of Mutiara Goodyear Development Berhad, entered into a joint venture agreement under the Shariah principles ('Musharakah Agreement') to develop a land into a housing scheme at Bukit Gambir, Pulau Pinang.

The agreement also includes an arrangement where Jurus Positif Sdn Bhd may acquire the Bank's shares upon the completion of the project at a mutually agreed price, unless if both shareholders decide to continue the joint venture for subsequent projects.

Major strategic operation and financial decisions relating to the activities of AFFIN-i Goodyear Sdn Bhd requires unanimous consent by both joint venture parties. The Group's interest in AFFIN-i Goodyear Sdn Bhd has been treated as investment in jointly controlled entity, which has been accounted for in the consolidated financial statements using the equity method of accounting.

14 AMOUNT DUE FROM SUBSIDIARIES

The Bank 2011 2010 RM'000 RM'000

Advances to a subsidiary 355,535 183,541 Other receivables 1,362 1,730

356,897 185,271

The advances of RM355,535,000 (2010: RM183,541,000) to subsidiary is unsecured, bear interest at 3.02% per annum (2010: 2.62%) and have no fixed terms of repayment.

AFFIN BANK BERHAD (25046-T) 101 Capital and and Motor work-in Office Computer equipment equipment on on - - - - (1,347) (1,276) (2,304) - - (4,927) - (2,304) (1,276) (1,347) - - - Leasehold land Buildings Buildings - - - - - 11,252 4,882 4,889 412 11,458 32,893 11,458 412 4,889 4,882 11,252 ------217 1,039 607 - (11,210) (9,347) (11,210) - 607 1,039 - - 217 - (1,536) (4,504) - (12) - 19,793 13,273 - 1,811 (2,210) 83,152 (183) 1,332 33,904 2,765 18,872 - 53,693 209,723 (799) - 112 1,789 347 6,884 (542) 3,059 535 120 - 6,026 (1,113) - - - - (1,181) - - - 21,582 - 1,923 13,266 88,056 1,452 35,667 3,100 57,509 222,555 - land or more 50 years land land Renovation furniture software vehicles progress Total (1,476) - - (1,198) - (805) (188) - (12) - (3,679) (12) - (188) (1,198) (805) - - (1,476) - - 22,811 12,862 22,811 5,380 32,013 89,069 105,357 54,448 395,385 67,617 3,963 1,865 24,287 12,862 5,380 33,211 89,069 96,040 49,991 380,445 64,425 3,563 1,617 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Freehold 50 years Less than freehold leasehold and impairment losses The Group 2011 Cost At 1 January 2011 Additions Disposals Write-off Reclassification At 31 December 2011 Accumulated depreciation At 1 January 2011 Charge for the financial year Disposal Write-off At 31 December 2011 Net book value as at 31 December 2011 22,811 10,939 3,928 18,747 67,487 17,301 18,781 10,108 863 1,865 172,830 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 15 AND PROPERTY EQUIPMENT

102 Annual Report 2011 (728) (2,989) - - Capital (317) (317) - - - (4,089) (4,089) - and Motor work-in - (47) (37) and Office Computer equipment equipment - (154) (137) - - - 5 (5)- - - on (74) (480) on (89) (269) - - (17) (314) (57) (608) Leasehold land Buildings Buildings - - - - - (52) (1,648) (554) (14) - (2,268) - (14) (554) (1,648) - - - - (104) (52) - - - - 53 87 (36) - - - - - 1,653 1,358 2,601 437 3,559 9,608 3,559 437 2,601 1,358 - 1,653 ------(36) (1,511) (484) (14) - (2,045) - (14) (484) (1,511) - - - (36) ------1,757 111 1,227 - 12,810 122 1,811 18,078 552 1,332 77,314 1,789 13,273 32,369 19,793 6,011 46,091 83,152 2,779 3,078 33,904 8,091 - 53,693 192,425 317 2,765 - - 20,071 209,723 land or more 50 years land land Renovation furniture software vehicles progress Total 25,087 13,470 5,694 33,480 89,549 94,540 50,241 62,414 3,457 2,251 380,183 24,287 12,862 5,380 33,211 89,069 96,040 49,991 64,425 3,563 1,617 380,445 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Freehold 50 years Less than freehold leasehold and impairment losses Write-off Write-off Reclassification Disposals (800) The Group 2010 Cost At 1 January 2010 Additions Write-off Write-off Charge for the financial year Disposal - Transfer to intangible assets (Note 16) Transfer At 31 December 2010 Reclassification At 31 December 2010 Net book value as at 31 December 2010 24,287 11,051 4,048 19,938 69,276 12,888 16,087 10,732 798 1,617 170,722 Accumulated depreciation Accumulated depreciation At 1 January 2010 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 15AND EQUIPMENT (continued) PROPERTY

AFFIN BANK BERHAD (25046-T) 103 Capital and and Motor work-in Office Computer equipment equipment on on Leasehold land Buildings Buildings - - - - - 10,391 4,396 4,386 412 9,243 28,828 9,243 (4,884) 412 4,386 - 4,396 (2,264) 10,391 - - (1,273) - (1,347) ------207 1,035 607 - (8,995) (7,146) (8,995) - 607 1,035 - - 207 - (1,536) (4,470) - (12) - 19,309 - 1,593 12,384 (2,179) (183) 81,328 1,332 33,457 - 2,501 (799) - 103 17,853 52,505 1,771 204,409 (542) - 6,486 120 502 256 2,907 (1,110) 5,708 - - - - (1,181) ------(2) - (2) 21,080 - 1,696 12,344 - - 85,834 1,452 35,069 2,745 56,034 216,254 - land or more 50 years land land Renovation furniture software vehicles progress Total (1,476) - - (1,198) (805)- (1,476) - (3,679) - (12) - (188) - 21,290 10,972 5,380 31,575 88,161 93,648 48,830 367,169 62,595 3,101 1,617 19,814 10,97230,377 5,380 88,161 102,094 52,800 380,288 65,324 3,501 1,865 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Freehold 50 years Less than freehold leasehold and impairment losses The Bank 2011 Cost At 1 January 2011 Additions Disposals Write-off Reclassification At 31 December 2011 Accumulated depreciation At 1 January 2011 Charge for the financial year Disposal Write-off Reclassification At 31 December 2011 Net book value as at 31 December 2011 19,814 9,276 3,928 18,033 67,081 16,260 17,731 9,290 756 1,865 164,034 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 15AND EQUIPMENT (continued) PROPERTY

104 Annual Report 2011 (728) (2,989) - - Capital (317) (317) - - (2,538) (2,538) - - and Motor work-in - (47) (37) and Office Computer equipment equipment - (154) (137) - on (74) (480) on (89) (269) ------(3) (102) - - (105) - - - (102) - (3) (17) (314) (57) (608) Leasehold land Buildings Buildings - - - - - 1,647 1,338 2,501 437 3,559 9,482 3,559 437 2,501 1,338 - 1,647 - - - (105) - - - - - 54 87 (36) ------(52) (1,648) (550) (14) - (2,264) - (14) (550) (1,648) - - - (52) - - - - (2) - 4 - (6) - - 1,547 103 1,227 - 11,954 122 1,593 17,612 519 1,332 75,760 1,771 12,384 32,023 19,309 5,741 45,156 81,328 2,606 2,978 33,457 7,837 - 52,505 187,885 226 2,501 - - 19,297 204,409 - - - - - (36) (1,511) (482) (14) - (2,043) - (14) (482) (1,511) - - - (36) land or more 50 years land land Renovation furniture software vehicles progress Total 22,090 11,580 5,694 31,844 88,641 92,153 49,103 60,782 2,995 701 365,583 21,290 10,972 5,380 31,575 88,161 93,648 48,830 62,595 3,101 1,617 367,169 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Freehold 50 years Less than freehold leasehold and impairment losses The Bank 2010 Cost At 1 January 2010 Additions Disposals (800) Write-off Reclassification to intangible assets (Note 16) Transfer Charge for the financial year Disposal - Transfer to subsidiary to Transfer At 31 December 2010 subsidiary to Transfer At 31 December 2010 Net book value as at 31 December 2010 21,290 9,379 4,048 19,191 68,852 12,320 15,373 10,090 600 1,617 162,760 Accumulated depreciation Accumulated depreciation At 1 January 2010 Write-off Write-off NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 15AND EQUIPMENT (continued) PROPERTY

AFFIN BANK BERHAD (25046-T) 105 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

16 INTANGIBLE ASSETS

Computer Goodwill Software Total The Group RM'000 RM'000 RM'000

Cost At 1 January 2011 133,430 109,015 242,445 Additions - 1,718 1,718 Disposal - (4) (4) Write-off - (4) (4) Reclassification from property and equipment (Note 15) - 9,347 9,347

At 31 December 2011 133,430 120,072 253,502

Less: Accumulated amortisation At 1 January 2011 - (88,009) (88,009) Amortised during the financial year - (9,366) (9,366) Disposal -3 3 Write-off -3 3

At 31 December 2011 - (97,369) (97,369)

Net book value as at 31 December 2011 133,430 22,703 156,133

Cost At 1 January 2010 133,430 104,501 237,931 Additions - 1,043 1,043 Write-off - (618) (618) Reclassification from property and equipment (Note 15) - 4,089 4,089

At 31 December 2010 133,430 109,015 242,445

Less: Accumulated amortisation At 1 January 2010 - (71,861) (71,861) Amortised during the financial year - (16,474) (16,474) Write-off - 326 326

At 31 December 2010 - (88,009) (88,009)

Net book value as at 31 December 2010 133,430 21,006 154,436

106 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

16 INTANGIBLE ASSETS (continued)

Computer Goodwill Software Total The Bank RM'000 RM'000 RM'000

Cost At 1 January 2011 137,323 104,937 242,260 Additions - 1,599 1,599 Disposal - (4) (4) Write-off - (4) (4) Reclassification from property and equipment (Note 15) - 7,142 7,142

At 31 December 2011 137,323 113,670 250,993

Less: Accumulated amortisation At 1 January 2011 - (85,392) (85,392) Amortised during the financial year - (8,836) (8,836) Disposal - 3 3 Write-off - 3 3

At 31 December 2011 - (94,222) (94,222)

Net book value as at 31 December 2011 137,323 19,448 156,771

Cost At 1 January 2010 137,323 101,973 239,296 Additions - 1,043 1,043 Write-off - (618) (618) Reclassification from property and equipment (Note 15) - 2,539 2,539

At 31 December 2010 137,323 104,937 242,260

Less: Accumulated amortisation At 1 January 2010 - (70,060) (70,060) Amortised during the financial year - (15,658) (15,658) Write-off - 326 326

At 31 December 2010 - (85,392) (85,392)

Net book value as at 31 December 2010 137,323 19,545 156,868

AFFIN BANK BERHAD (25046-T) 107 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

16 INTANGIBLE ASSETS (continued) Goodwill The carrying amount of the Bank's goodwill have been allocated to the following business segments, which represents the Bank's cash-generating units ('CGUs'):

2011 2010 RM'000 RM'000

Enterprise banking 123,591 123,591 Consumer banking 13,732 13,732

137,323 137,323

Goodwill is allocated to the Bank's CGU which are expected to benefits from the synergies of the acquisitions. For annual impairment testing purposes, the recoverable amount of the CGUs are determined based on value-in-use calculations using the cash flow projections based on the 2012 financial budgets approved by the Directors, covering a period of 5 years. The cash flow beyond the fifth year are projected based on the assumption that the Year 5 operating cash flow will be generated by the respective CGUs at a growth rate of 5% (2010: 5%) on perpetual basis.

The cash flow projections are derived based on a number of key factors including past performance and management’s expectations of the market developments. The discount rates used are based on the pre-tax weighted average cost of capital plus an appropriate risk premium where applicable ('WACC'), at the date of assessment of the CGUs.

2011 2011 2010 2010 Enterprise Consumer Enterprise Consumer banking banking banking banking %%%%

Pre-tax discount rate 14.80 14.74 14.29 14.21

No impairment charge was required for goodwill arising from all the business segments. Management views that any reasonable possible change to the assumptions applied is not likely to cause the recoverable amount of all the business segments to be lower than its carrying amount.

17 DEPOSITS FROM CUSTOMERS

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

(i) By type of deposit

Demand deposits 6,166,579 5,063,155 4,229,705 3,565,188 Savings deposits 1,526,891 1,400,535 1,223,359 1,142,332 Fixed deposits 22,313,675 20,037,784 18,021,753 16,885,793 Special investment deposits 822,914 642,171 - - Money market deposits 528,435 707,411 528,435 707,411 Negotiable instruments of deposit ('NID') 5,188,950 3,131,351 5,069,172 3,131,351

36,547,444 30,982,407 29,072,424 25,432,075

108 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

17 DEPOSITS FROM CUSTOMERS (continued)

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

(ii) Maturity structure of fixed deposit and NID

Due within six months 22,187,250 19,988,828 18,647,951 17,233,254 Six months to one year 5,018,157 3,133,020 4,208,729 2,740,853 One year to three years 95,977 24,167 33,205 20,856 Three years to five years 201,241 23,120 201,040 22,181

27,502,625 23,169,135 23,090,925 20,017,144

(iii) By type of customer

Government and statutory bodies 6,793,344 4,769,914 3,600,922 2,969,799 Business enterprise 10,961,534 9,789,744 8,603,523 8,197,090 Individuals 6,763,627 5,027,100 6,157,670 4,591,770 Others 12,028,939 11,395,649 10,710,309 9,673,416

36,547,444 30,982,407 29,072,424 25,432,075

18 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Licensed banks 3,724,682 5,024,966 2,752,720 4,308,897 Licensed investment banks 1,754,811 439,546 1,704,745 423,868 Bank Negara Malaysia 794,523 308,497 794,427 308,497 Other financial institutions 1,252,896 846,726 791,945 707,741

7,526,912 6,619,735 6,043,837 5,749,003

Maturity structure of deposits Due within six months 7,524,234 6,550,733 6,041,159 5,680,001 Six months to one year 2,678 69,002 2,678 69,002

7,526,912 6,619,735 6,043,837 5,749,003

19 RECOURSE OBLIGATION ON LOANS SOLD TO CAGAMAS BERHAD In the normal course of banking operations, the Bank sells loans to Cagamas Berhad with recourse at values equivalent to the unpaid principal balances of loans and advances due from the borrowers.

The Bank is liable in respect of housing loans and hire purchase portfolio sold directly and indirectly to Cagamas Berhad, under the condition that the Bank undertakes to administer these loans on behalf of Cagamas Berhad and to buy back any loans which are regarded as defective based on an agreed prudential criteria. Such financing transactions and the obligations to buy back the loans are reflected as a liability on the statement of financial position.

AFFIN BANK BERHAD (25046-T) 109 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

20 OTHER LIABILITIES

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Bank Negara Malaysia and Credit Guarantee Corporation Funding programmes 36,071 43,009 36,071 43,009 Margin and collateral deposits 72,793 65,191 72,133 62,552 Sundry creditors 206,888 188,983 190,513 172,182 Clearing accounts - 44,616 - 27,706 Defined contribution plan (a) 10,754 11,968 10,211 11,448 Accrued employee benefits (b) 229 125 206 105

326,735 353,892 309,134 317,002

(a) The Group and the Bank contributes to the Employee Provident Fund ('EPF'), the national defined contribution plan. Once the contributions have been paid, the Group and the Bank has no further payment obligations.

(b) This refers to the accruals for short-term employee benefits for leave entitlement. Under employment contract, employees earn their leave entitlement which they are entitled to carry forward and will lapse if not utilised in the following accounting period. Accruals are made for the estimated liability for unutilised annual leave.

21 DERIVATIVE FINANCIAL LIABILITIES

The Group and The Bank The Group and The Bank 2011 2010 Contract/ Contract/ notional notional amount Liabilities amount Liabilities RM'000 RM'000 RM'000 RM'000

At fair value Foreign exchange derivatives: Currency forwards 466,576 6,313 487,922 19,025 Cross currency swaps 1,465,194 33,904 340,850 22,715

Interest rate derivatives: Interest rate swap 1,950,455 57,182 919,193 28,455

3,882,225 97,399 1,747,965 70,195

22 AMOUNT DUE TO SUBSIDIARIES The amount due to subsidiaries is unsecured, interest-free and have no fixed terms of repayment.

110 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

23 SUBORDINATED TERM LOAN On 10 March 2009, the Bank has taken the first 10 year subordinated loan amounting to RM300 million. The first subordinated loan was constituted by Trust Deed dated 6 March 2009 and were issued on 10 March 2009.

On 26 May 2011, the Bank has taken the second 10 year subordinated loan amounting to RM300 million. The second subordinated loan was constituted by Trust Deed dated 20 May 2011 and were issued on 26 May 2011.

Both the subordinated loans were taken with the Bank's Holding Company.

The subordinated loans have a prepayment option on the first prepayment date or any interest payment date subsequent to the first prepayment date, giving the Bank the right, subject to Bank Negara Malaysia ('BNM') approval, to prepay the loans in whole or in part.

Interest on subordinated loans payable by quarterly.

Subordinated loan I

Value : RM300 million

Interest rate : Cost of Fund ('COF') plus 0.75% per annum for period of thirty six months from the issue date, COF plus 1.75% per annum for the next twenty four months and thereafter COF plus 2.00% for the next 5 years.

Subordinated loan II

Value : RM300 million

Interest rate : Cost of Fund ('COF') plus 1.00% per annum for the 10 years.

COF refers to rate determined by the lender on an interest determination date falling within the interest duration.

24 SHARE CAPITAL

Number of ordinary shares of RM1 each The Group and The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Authorised At beginning/end of the financial year 2,000,000 2,000,000 2,000,000 2,000,000

Issued and fully paid At beginning/end of the financial year 1,439,285 1,439,285 1,439,285 1,439,285

AFFIN BANK BERHAD (25046-T) 111 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

25 RESERVES

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Retained profits 667,326 522,171 530,489 411,831 Share premium 408,389 408,389 408,389 408,389 AFS revaluation reserves 74,941 54,249 68,611 45,795 Statutory reserves 1,011,044 888,910 904,624 807,500

2,161,700 1,873,719 1,912,113 1,673,515

Statutory reserves At beginning of the financial year 888,910 789,221 807,500 720,824 Transfer from retained profits 122,134 99,689 97,124 86,676

At end of the financial year 1,011,044 888,910 904,624 807,500

(a) A single tier company tax was introduced effective 1 January 2008. Under this single tier system, tax on a company’s profits is a final tax, and dividends distributed to shareholders will be exempted from tax. Companies with Section 108 tax credit balance are given an option to elect to move to a single tier system immediately or allowed to use the Section 108 credit balance for the purpose of dividend distribution during a transitional period of 6 years until 31 December 2013.

The Bank has elected to use its Section 108 credit balance for the purpose of dividend distribution during a transitional period of 6 years until 31 December 2013. The Section 108 balance of the Bank as at 31 December 2007 will be frozen and can only be adjusted downwards for any tax discharged, remitted or refunded during the 6 years period.

As at 31 December 2011, the Bank has a tax credit balance of RM2,533,928 under Section 108 of the Income Tax Act, 1967 and tax exempt account balance of RM82,896,257 under Section 12 of the Income Tax (Amendment) Act 1999, subject to agreement by the Inland Revenue Board.

(b) The statutory reserves of the Group and the Bank are maintained in compliance with the provisions of the Banking and Financial Institutions Act, 1989 and are not distributable as cash dividends.

(c) AFS revaluation reserves represent the unrealised gains or losses arising from the change in fair value of investments classified as financial investment available-for-sale. The gains or losses are transferred in the income statement upon disposal or when the securities become impaired.

112 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

26 INTEREST INCOME

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Loans, advances and financing 1,388,531 1,190,417 1,388,531 1,190,417 Money at call and deposit placements with financial institutions 148,478 108,787 165,052 117,260 Financial assets/investments - Held-for-trading 50 311 50 311 - Available-for-sale 141,979 116,495 141,830 116,347 - Held-to-maturity 23,276 15,522 23,229 15,522 Interest rate derivatives 71,879 48,701 71,879 48,701 Others - - 4,688 3,408

1,774,193 1,480,233 1,795,259 1,491,966 Amortisation of premium less accretion of discount 21,469 31,602 21,469 31,602

1,795,662 1,511,835 1,816,728 1,523,568

of which: Interest income earned on impaired loans, advances and financing 11,555 (382) 11,555 (382)

27 INTEREST EXPENSE

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Deposits and placements of banks and other financial institutions 114,418 110,572 114,419 110,579 Deposits from customers 788,840 552,448 788,874 552,474 Subordinated term loan 19,884 10,633 19,884 10,633 Loan sold to Cagamas Berhad 14,913 14,559 14,913 14,559 Interest rate derivatives 81,302 66,152 81,302 66,152 Others 1,490 6,484 1,490 6,484

1,020,847 760,848 1,020,882 760,881

AFFIN BANK BERHAD (25046-T) 113 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

28 ISLAMIC BANKING INCOME

The Group 2011 2010 RM'000 RM'000

Income derived from investment of depositors' funds and others 368,911 287,402 Income derived from investment of shareholders' funds 20,852 18,052

Total distributable income 389,763 305,454 Income attributable to depositors (190,830) (127,671)

198,933 177,783

29 OTHER OPERATING INCOME

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Fee income Commission 13,329 12,421 13,329 12,421 Service charges and fees 51,987 47,815 51,987 47,815 Guarantee fees 25,017 27,392 25,017 27,392

90,333 87,628 90,333 87,628

Income from financial instruments Gain arising on financial assets held-for-trading: - net gain on disposal 546 1,217 546 1,217 - unrealised (losses)/gains (9) 137 (9) 137

537 1,354 537 1,354

Gains/(losses) on derivatives: - realised 2,600 1,089 2,600 1,089 - unrealised (13,230) 6,303 (13,230) 6,303

(10,630) 7,392 (10,630) 7,392

114 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

29 OTHER OPERATING INCOME (continued)

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Income from financial instruments (continued) Gain arising on financial investments available-for-sale: - net gain on disposal 24,102 23,733 24,102 23,635 - gross dividend income 23 8 23 8

24,125 23,741 24,125 23,643

Gain arising on financial investments held-to-maturity: - net gain on redemption 2,546 2,053 2,378 2,053 - gross dividend income 9,705 2,901 9,705 2,901

12,251 4,954 12,083 4,954

Other income Foreign exchange gains/(losses): - realised 74,386 82,790 74,386 82,791 - unrealised (17,878) (9,549) (17,878) (9,549) Rental income 2,211 1,834 2,161 1,780 Gain on sale of property and equipment 23 219 23 219 (Loss)/Gain on disposal of foreclosed properties (272) 6,330 (272) 6,330 Other non-operating income 11,798 20,658 10,539 20,362

70,268 102,282 68,959 101,933

186,884 227,351 185,407 226,904

30 OTHER OPERATING EXPENSES

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Personnel costs (a) 290,791 295,053 235,592 240,585 Establishment costs (b) 166,781 167,973 142,477 143,342 Marketing expenses (c) 17,266 11,553 14,555 9,633 Administrative and general expenses (d) 58,875 56,332 49,377 46,585

533,713 530,911 442,001 440,145

AFFIN BANK BERHAD (25046-T) 115 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

30 OTHER OPERATING EXPENSES (continued) (a) Personnel costs

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Wages, salaries and bonuses 220,817 228,427 178,539 186,516 Defined contribution plan ('EPF') 36,003 35,770 29,352 29,223 Other personnel costs 33,971 30,856 27,701 24,846

290,791 295,053 235,592 240,585

(b) Establishment costs

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Rental of premises 20,222 18,985 16,995 15,980 Equipment rental 905 741 877 718 Repair and maintenance 27,757 24,849 23,540 21,061 Depreciation 18,872 20,071 17,853 19,297 Amortisation of intangible assets 9,366 16,474 8,836 15,658 IT Consultancy fees 57,272 54,659 49,799 47,348 Dataline rental 3,477 5,014 3,022 4,313 Security services 10,461 9,228 8,625 7,679 Electricity, water and sewerage 8,491 8,118 7,220 6,858 Other establishment costs 9,958 9,834 5,710 4,430

166,781 167,973 142,477 143,342

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Business promotion and advertisement 9,348 4,701 8,346 4,330 Entertainment 2,463 2,048 2,057 1,819 Travelling and accommodation 3,899 3,511 2,956 2,490 Other marketing expenses 1,556 1,293 1,196 994

17,266 11,553 14,555 9,633

116 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

30 OTHER OPERATING EXPENSES (continued) (d) Administration and general expenses

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Telecommunication expenses 4,901 4,665 4,157 3,965 Auditors' remuneration 1,479 2,180 1,025 1,859 Professional fees 13,954 21,958 10,262 16,739 Property and equipment written off 423 514 414 513 Mail and courier charges 3,834 4,456 3,295 3,798 Stationery and consumables 9,423 6,897 7,224 5,360 Other administration and general expenses 24,861 15,662 23,000 14,351

58,875 56,332 49,377 46,585

The expenditure includes the following statutory disclosure:

Directors' remuneration (Note 31) 6,331 5,320 6,009 5,477 Rental of premises 20,222 18,985 16,995 15,980 Equipment rental 905 741 877 718 Auditors' remuneration - statutory audit fees 795 707 619 569 - (over)/under provision prior year (4) 12 - - - audit related fees 133 264 88 168 - non audit fees 555 1,197 318 1,122 Depreciation of property and equipment 18,872 20,071 17,853 19,297 Amortisation of intangible assets 9,366 16,474 8,836 15,658 Property and equipment written off 423 514 414 513

31 CEO AND DIRECTORS' REMUNERATION The Directors of the Bank who have held office during the financial year are as follows:

Executive Director Dato' Zulkiflee Abbas bin Abdul Hamid (Resigned as Director w.e.f 1 November 2011)

Non-Executive Directors Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) (Chairman) Tan Sri Dato' Lodin bin Wok Kamaruddin Dr Raja Abdul Malek bin Raja Jallaludin Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) (Resigned as Director w.e.f 30 September 2011) Dato' Sri Abdul Aziz bin Abdul Rahman Mr Aubrey Li Kwok-Sing Mr Brian Li Man-Bun (Alternate Director to Mr Aubrey Li Kwok-Sing) (Resigned as Alternate Director w.e.f 18 April 2011) Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing) (Appointed as Alternate Director w.e.f 18 April 2011) Mr Stephen Charles Li (Resigned as Director w.e.f 16 August 2011)

AFFIN BANK BERHAD (25046-T) 117 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

31 CEO AND DIRECTORS' REMUNERATION (continued)

Non-Executive Directors (continued)

Mr Eric Koh Thong Hau (Alternate Director to Mr Stephen Charles Li) (Resigned as Alternate Director w.e.f 1 January 2011) Mr Lee Chor Kee (Alternate Director to Mr Stephen Charles Li) (Appointed as Alternate Director w.e.f 18 April 2011 and resigned as Alternate Director w.e.f 16 August 2011) En. Mohd Suffian bin Haji Haron Tan Sri Dato' Seri Mohamed Jawhar (Appointed as Director w.e.f 1 November 2011)

The aggregate amount of remuneration for the Directors of the Bank for the financial year were as follows:

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Executive Director Salaries 1,431 1,260 1,431 1,260 Bonuses 2,471 2,236 2,471 2,236 Defined contribution plan ('EPF') 638 569 638 569 Other employee benefits 90 62 90 62 Benefits-in-kind 122 98 122 98

Non-Executive Directors Fees 1,554 1,069 1,232 1,226 Benefits-in-kind 25 26 25 26

Directors' remuneration (Note 30) 6,331 5,320 6,009 5,477

A summary of the total remuneration of the Directors, distinguishing between Executive and Non-Executive Directors.

Directors' *Other Benefits - The Bank Salaries Bonuses Fees emoluments in-kind Total 2011 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Executive Director/CEO Dato' Zulkiflee Abbas bin Abdul Hamid 1,431 2,471 - 728 122 4,752

1,431 2,471 - 728 122 4,752

Non-executive Directors Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) - - 168 96 25 289 Tan Sri Dato' Lodin bin Wok Kamaruddin - - 97 - - 97 Dr. Raja Abdul Malek bin Raja Jallaludin - - 202 - - 202 Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) - - 125 - - 125 Dato' Sri Abdul Aziz bin Abdul Rahman - - 190 - - 190 Mr Aubrey Li Kwok-Sing - - 86 - - 86 Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing ) - - 5 - - 5 Mr Stephen Charles Li - - 59 - - 59 Mr Lee Chor Kee (Alternate Director to Mr Stephen Charles Li ) - - 1 - - 1 En. Mohd Suffian bin Haji Haron - - 189 - - 189 Tan Sri Dato' Seri Mohamed Jawhar - - 14 - - 14

- - 1,136 96 25 1,257

Total 1,431 2,471 1,136 824 147 6,009

118 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

31 CEO AND DIRECTORS' REMUNERATION (continued) A summary of the total remuneration of the Directors, distinguishing between Executive and Non-Executive Directors.

Directors' *Other Benefits - The Bank Salaries Bonuses Fees emoluments in-kind Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Executive Director/CEO Dato' Zulkiflee Abbas bin Abdul Hamid 1,260 2,236 - 631 98 4,225

1,260 2,236 - 631 98 4,225

Non-executive Directors Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) - - 169 96 26 291 Tan Sri Dato' Lodin bin Wok Kamaruddin - - 22 - - 22 Dr. Raja Abdul Malek bin Raja Jallaludin - - 202 - - 202 Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) - - 163 - - 163 Dato' Sri Abdul Aziz bin Abdul Rahman - - 192 - - 192 Mr Aubrey Li Kwok-Sing - - 91 - - 91 Mr Brian Li Man-Bun (Alternate Director to Mr Aubrey Li Kwok-Sing ) ------Mr Stephen Charles Li - - 88 - - 88 Mr Eric Koh Thong Hau (Alternate Director to Mr Stephen Charles Li ) - - 10 - - 10 En. Mohd Suffian bin Haji Haron - - 193 - - 193

- - 1,130 96 26 1,252

Total 1,260 2,236 1,130 727 124 5,477

* Executive Director’s Other emoluments include allowance and EPF

32 ALLOWANCES FOR LOSSES ON LOANS, ADVANCES AND FINANCING

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Individual impairment - made in the financial year 116,909 198,023 111,880 172,716 - written-back (13,571) (20,669) (12,198) (10,778) Collective impairment - made/(written-back) 67,662 (3,044) 59,788 (16,409) Bad debts and financing - recovered (214,257) (172,726) (213,325) (172,417) - written-off 15,956 15,810 15,791 15,628 Litigation losses arising from loans 40,000 78,000 40,000 78,000

12,699 95,394 1,936 66,740

AFFIN BANK BERHAD (25046-T) 119 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

Related parties that have transactions and their relationship with the Bank are as follows:

Related parties Relationship

Lembaga Tabung Angkatan Tentera ('LTAT') Ultimate holding corporate body

AFFIN Holdings Berhad ('AHB') Holding company

Subsidiaries and associates of LTAT Subsidiary and associate companies of the ultimate holding corporate body

Subsidiaries and associates of AHB as disclosed in its Subsidiary and associate companies of the holding company financial statements

Subsidiaries of AFFIN Bank Berhad as disclosed in Note 12 Subsidiaries

Joint controlled entity as disclosed in Note 13 Joint controlled entity of subsidiary

Voting shares in body corporate not less than 15% of votes Other related companies

Key management personnel The key management personnel of the Bank consist of: - Chief Executive Officer - Members of Senior Management team and the company secretary

Related parties of key management personnel (deemed as - Close family members and dependents of key management related to the Bank) personnel - Entities that are controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly by key management personnel or its close family members

Key management personnel includes the Chief Executive Officer of the Bank in office during the year and his remuneration for the financial year end are disclosed in Note 33(b).

120 Annual Report 2011 ------1 1 2010 RM'000 ------which certain Companies in 2011 RM'000 - 15 526 671 808 2010 1,891 5,813 1,432 3,149 2,715 4,766 11,449 17,633 27,403 23,465 RM'000 - 46 418 190 2011 6,696 2,523 5,769 2,515 3,145 1,609 7,309 11,564 28,627 44,237 26,174 RM'000 ------109 2010 5,269 10,633 16,011 RM'000 ------230 2011 8,677 19,884 28,791 RM'000 ------1 613 135 326 2010 4,421 5,496 RM'000 ------613 corporate body company companies substantial interest 2011 Ultimate holding Holding Other related Directors have 2,633 6,585 9,831 banks and other financial institutions and other financial institutions Rental Brokerage fees Brokerage Interest on money market deposits Interest Interest on special investment account Interest agreements on repurchase Interest The Group RM'000 Interest on deposits and placements with Interest Expenditure on fixed deposits Interest Interest on deposits and placements of banks Interest Interest on advances Interest Other income Others Interest on Negotiable Instruments of Deposit Interest Income on private debt securities Interest (a) Related parties balances NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 33AND BALANCES (continued) TRANSACTIONS PARTY SIGNIFICANT RELATED

AFFIN BANK BERHAD (25046-T) 121 ------6 6 2010 RM'000 ------38 38 which certain Companies in 2011 RM'000 - - 97 2010 2,745 4,157 2,983 17,394 67,203 RM'000 519,617 190,490 153,008 783,038 510,425 335,769 1,861,329 33 35 2011 2,745 2,990 10,181 50,301 RM'000 115,767 759,035 575,742 749,884 704,465 456,222 2,090,396 1,337,004 1,718,550 ------76 74 2010 3,600 3,674 RM'000 300,682 601,140 300,382 ------300 130 2011 3,600 3,730 RM'000 601,850 887,210 285,060 ------98 98 2010 RM'000 528,215 528,215 ------98 98 corporate body company companies substantial interest 2011 Ultimate holding Holding Other related Directors have 57,416 492,930 435,514 financial institutions financial institutions The Group RM'000 Deposits and placement with banks other Intercompany balances Intercompany Money market deposits Intercompany balances Intercompany Advances Security deposits Other payables Amount due to Demand and fixed deposits Deposits and placement of banks other Special investment account Amount due from Private debt securities Commitment Negotiable Instruments of Deposit (a) Related parties balances (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 33AND BALANCES (continued) TRANSACTIONS PARTY SIGNIFICANT RELATED

122 Annual Report 2011 ------1 1 2010 ------Companies 2011 which certain RM'00 0 RM'000 - 15 497 808 2010 2,410 5,750 3,149 4,649 1,432 1,891 22,343 26,530 16,823 11,449 - 44 190 2011 1,460 5,753 3,146 7,149 2,516 6,696 2,523 43,110 11,564 25,446 27,515 RM'00 0 RM'000 - - - - - 7 94 23 476 352 2010 7,031 1,404 63,031 71,466 ------34 418 661 384 2011 64,917 81,491 15,913 RM'00 0 RM'000 ------109 2010 5,269 16,011 10,633 ------230 2011 8,677 28,791 19,884 RM'00 0 RM'000 ------326 613 2010 5,263 4,324 ------613 2011 9,831 6,585 2,633 corporate body company Subsidiaries companies substantial interest Ultimate holding Holding Other related Directors have banks and other financial institutions Other income Others The BankIncome on special investment account Interest RM'00 0 RM'000 Expenditure on short term advances Interest Interest on private debt securities Interest Interest on fixed deposits Interest Interest on advances Interest Interest on Negotiable Instruments of Deposit Interest Interest on deposits and placements with Interest Interest on money market deposits Interest Brokerage fees Brokerage Rental (a) Related parties balances (continued) 33AND BALANCES (continued) TRANSACTIONS PARTY SIGNIFICANT RELATED NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

AFFIN BANK BERHAD (25046-T) 123 ------5 5 2010 RM'000 ------Companies 2011 which certain RM'000 - - - - 91 2010 4,157 2,981 67,202 RM'000 766,786 316,701 473,957 153,008 506,113 190,490 1,861,329 - - 33 35 2011 2,990 50,301 RM'000 115,767 430,505 704,473 749,884 735,705 425,599 1,301,114 1,914,178 1,628,322 ------2010 1,606 2,200 5,202 49,560 47,954 RM'000 665,101 330,197 144,964 184,738 ------820 2011 1,800 49,127 48,307 RM'000 570,266 145,802 356,897 1,072,965 ------74 74 2010 3,674 3,600 RM'000 300,382 601,138 300,682 ------130 300 2011 3,730 3,600 RM'000 285,060 887,210 601,850 ------98 98 2010 RM'000 527,149 527,149 ------98 98 2011 corporate body company Subsidiaries companies substantial interest Ultimate holding Holding Other related Directors have 57,417 434,798 492,215 other financial institutions financial institutions Amount due to Demand and fixed deposits Negotiable Instruments of Deposit Security deposits Other payables Commitment - Deposits and placement of banks other Money market deposits balances Intercompany The BankAmount due from Special investment account RM'000 Private debt securities Advances Deposits and placements with banks balances Intercompany (a) Related parties balances (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 33AND BALANCES (continued) TRANSACTIONS PARTY SIGNIFICANT RELATED

124 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued) (b) Key management personnel compensation The remuneration of key management personnel of the Group and the Bank during the year are as follows:

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Short-term employment benefits Salaries 7,009 6,618 6,427 5,706 Bonuses 10,182 8,695 9,154 7,683 Defined contribution plan ('EPF') 2,905 2,594 2,640 2,265 Other employee benefits 1,119 1,038 1,067 890 Benefits-in-kind 380 445 311 383

21,595 19,390 19,599 16,927

Included in the above table are Directors' remuneration as disclosed in Note 31.

34 TAXATION

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

The taxation charge arising in Malaysia for the financial year

Current tax 152,316 66,627 135,373 56,599 Under provision in prior year 22,707 19,223 25,827 14,271 Deferred tax (Note 10) (7,453) 50,191 (13,325) 57,219

Tax expense for the year 167,570 136,041 147,875 128,089

The Group The Bank 2011 2010 2011 2010 % % % %

Statutory tax rate in Malaysia 25.00 25.00 25.00 25.00 Tax effect in respect of: Non allowable expenses 2.04 1.94 2.29 2.10 Non taxable income (0.44) (0.17) (0.46) (0.18) Utilisation of previously unrecognised tax losses (0.02) (0.01) - - Effect of different tax rate (0.94) (0.51) (1.08) (0.56) Tax savings arising from income exempt from tax for International Currency Business Unit (ICBU) (0.18) 0.54 - - Under accrual in prior years 3.70 3.68 4.81 3.01 Recognition of deferred tax previously not recognised (2.87) - (3.04) - Others 1.04 (4.40) 0.05 (2.39)

Average effective tax rate 27.33 26.07 27.57 26.98

Tax savings of the Group as a result of utilisation of tax losses brought forward from previous years from which the related credit is recognised during the financial year amounted to RM102,000 (2010: RM62,000)

AFFIN BANK BERHAD (25046-T) 125 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

35 EARNINGS PER SHARE The basic and fully diluted earnings per ordinary share for the Group and the Bank have been calculated based on the net profit attributable to equity holders of the Group and the Bank of RM440,003,000 (2010: RM381,237,000) and RM388,496,000 (2010: RM346,705,000) respectively. The weighted average number of shares in issue during the financial year of 1,439,285,000 (2010: 1,439,285,000) is used for the computation.

36 DIVIDEND Dividends declared or proposed for the financial year are as follows:

The Group and The Bank The Group and The Bank 2011 2010 Dividend Amount of Dividend Amount of per share dividend per share dividend sen RM'000 sen RM'000

Ordinary shares Interim dividend paid 7.00 100,750 5.28 57,000 Proposed final dividend 5.00 71,964 5.00 71,964

Dividends in respect of the financial year 12.00 172,714 10.28 128,964

At the forthcoming Annual General Meeting, a final tax exempt dividend in respect of the current financial year of 5 sen per share amounting to RM71,964,000 will be proposed for shareholder's approval. These financial statements do not reflect this final dividend which will be accounted for in the shareholder's equity as an appropriation of retained profits in the financial year ending 31 December 2011 when approved by the shareholder.

Dividends recognised as distribution to ordinary equity holders of the Bank:

The Group and The Bank The Group and The Bank 2011 2010 Dividend Amount of Dividend Amount of per share dividend per share dividend sen RM'000 sen RM'000

Ordinary shares Interim dividend 7.00 100,750 5.28 57,000 Final dividend 5.00 71,964 5.00 53,973

12.00 172,714 10.28 110,973

126 Annual Report 2011 2010 The Group Positive fair value Credit Risk - 93,784 - 14 3 amount contracts amount* amount* RM'000 RM'000 RM'000 RM’000 201,120 10,570 19,678 8,217 19,678 201,120 10,570 956,256445,273 2,664 32,602 7,936 7,079 38,490 8,842 408,608299,520 - 408,608 594,104 - 118,821 89,026 Principal of derivative equivalent weighted 6,062,519 - - - - 6,062,519 - 4,247,5492,416,4792,215,3591,495,31328,169 36,412 70,499 - 19,952 - 25,842 50,821 16,781 9,743 71,106 1,232,752 - 246,551 140,554 246,551 2,387,4561,232,752 - 1,022,073 - 1,193,728 10,310,068- - 18,844,7801,596,123 46,155 2,109,313 2011 The Group Positive fair value Credit Risk - 70,000 2,168 5,770 1,985 5,770 70,000 2,168 RM'000 RM'000 RM'000 RM'000 amount contracts amount* amount* 133,140 - 156 67 156 133,140 - 474,023 14,304 43,899 10,295 43,899 474,023 14,304 973,727 - 194,745 159,463 194,745 973,727 - 386,900 - 386,900 373,254 386,900 386,900 - 189,502 - 37,900 28,463 37,900 189,502 - Principal of derivative equivalent weighted 3,526,454 - 705,291 644,786 705,291 19,610 3,526,454 - 54,798 17,625 3,057,581 17,255 49,028 2,987,581 15,087 22,789 91,110 2,395,015 17,900 7,015,300 - 1,403,060 1,113,217 1,113,217 1,403,060 7,015,300 - 12,427 47,055 1,787,852 3,596 2,375,506 - 1,187,753 1,129,992 1,187,753 2,375,506 - 10,541,754 - 2,108,351 1,758,003 2,108,351 10,541,754 - 19,919,985 35,155 4,061,557 3,491,574 4,061,557 19,919,985 35,155 trade-related contingencies trade-related - maturity more than one year - maturity more contracts: exchange related Foreign - less than one year - one year to less than five years contracts: rate related Interest - less than one year - maturity less than one year - one year to less than five years than five years - more Short-term self-liquidating commitments to extend credit: Irrevocable Direct credit substitutes credit Direct contingent items Transaction-related In the normal course of business, the Group and the Bank make various commitments and incurs certain contingent liabilities with legal recourse to their customers. No material losses are anticipated to their customers. No material losses are and the Bank make various commitments incurs certain contingent liabilities with legal recourse In the normal course of business, Group of these transactions. as a result The commitments and contingencies consist of: lines card Unutilised credit NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 CONTINGENCIES AND 37 COMMITMENTS

AFFIN BANK BERHAD (25046-T) 127 2010 The Bank Positive fair value Credit Risk - 93,784 - 14 3 amount contracts amount* amount* RM'000 RM'000 RM'000 RM’000 594,104 - 118,821 89,026 201,120 10,570 19,678 8,217 546,276109,027 - 109,255 7,936 8,842 32,602 38,490 956,256 2,664 445,273 7,079 382,080280,656 - 382,080 Principal of derivative equivalent weighted 9,198,6095,360,9543,837,6552,416,4792,215,359- - 1,495,313- 28,169 - 36,412 70,499 - 19,952 - 25,842 50,821 16,781 9,743 71,106 2,189,031 - 1,094,516 928,260 16,821,8921,451,919 46,155 1,846,277 2011 The Bank Positive fair value Credit Risk - 70,000 2,168 5,770 1,985 5,770 70,000 2,168 RM'000 RM'000 RM'000 RM'000 amount contracts amount* amount* 189,502 - 37,900 28,463 37,900 189,502 - 133,140 - 156 67 156 133,140 - 474,023 14,304 43,899 10,295 43,899 474,023 14,304 627,826 - 125,564 131,304 125,564 627,826 - 378,797 - 378,797 366,784 378,797 378,797 - Principal of derivative equivalent weighted 6,057,224 - 1,211,445 956,882 565,143 1,211,445 619,663 6,057,224 - 19,610 3,098,316 - 54,798 17,625 3,057,581 17,255 49,028 2,987,581 15,087 22,789 91,110 2,395,015 17,900 9,155,540 - 1,831,108 1,522,025 1,831,108 9,155,540 - 12,427 47,055 1,787,852 3,596 2,226,050 - 1,113,025 1,060,529 1,113,025 2,226,050 - 18,030,311 35,155 3,632,302 3,151,504 3,632,302 35,155 18,030,311 The credit equivalent amount and risk-weighted amount is arrived at using the credit conversion factors as per Bank Negara Malaysia's revised Risk Weighted Capital Risk Weighted revised conversion factors as per Bank Negara Malaysia's equivalent amount and risk-weighted is arrived at using the credit The credit Adequacy Framework ("RWCAF") and Capital Adequacy for Islamic Banks ("CAFIB") guidelines. trade-related contingencies trade-related * Unutilised credit card lines card Unutilised credit - maturity less than one year than one year - maturity more contracts: exchange related Foreign - less than one year - one year to less than five years contracts: rate related Interest - less than one year Irrevocable commitments to extend credit: commitments to extend credit: Irrevocable - one year to less than five years than five years - more Short-term self-liquidating Direct credit substitutes credit Direct contingent items Transaction-related 37 AND CONTINGENCIES (continued) COMMITMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

128 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

37 COMMITMENTS AND CONTINGENCIES (continued) The table below analyses the contractual or underlying principal amounts of derivative financial instruments held or issued. In addition, they also set out the corresponding gross positive credit equivalent of the derivative financial instruments.

The Group and The Bank The Group and The Bank 2011 2010 Credit Credit Principal equivalent Principal equivalent amount amount amount amount RMʼ000 RM'000 RM’000 RM'000

Foreign exchange contracts Forward contracts 712,883 7,108 728,471 15,115 Swaps 2,344,698 47,690 1,688,008 55,384

Interest rate contracts Swaps 2,395,015 91,110 1,495,313 71,106

Foreign exchange related contracts and interest rate related contracts are subject to market risk and credit risk.

38 FINANCIAL RISK MANAGEMENT (i) Credit Risk Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial and contractual obligations to the Bank. Credit risk emanates mainly from loans, advances and financing, loan commitments arising from such lending activities, as well as through financial transactions with counterparties including interbank money market activities, derivative instruments used for hedging and debt securities. The management of credit in the Bank is governed by a set of credit policies approved by the Board of Directors. Approval authorities are delegated to Senior Management and Group Management Loan Committee ('GMLC') to implement the credit policies and ensure sound credit granting standards.

An independent Group Risk Management ('GRM') function with a direct reporting line to Board Risk Management Committee ('BRMC') is in place to ensure adherence to risk standards and discipline. Portfolio management risk reports are submitted regularly to BRMC.

Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Credit Plan. The Credit Plan is reviewed at least annually and approved by the BRMC.

AFFIN BANK BERHAD (25046-T) 129 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) Credit Risk measurement Loans, advances and financing Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank’s underwriting criteria and the ability of the Bank to make a return commensurate to the level of risk undertaken. A critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in the risk assessment and decision making process. The Bank has developed internal rating models to support the assessment and quantification of credit risk.

For consumer mass market products, statistically developed application scorecards are used by the Business to assess the risks associated with the credit application. The scorecards are used as a decision support tool at loan origination.

Over-the-Counter ('OTC') Derivatives The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure method, computation of credit equivalent exposure for interest rate and exchange rate related contracts is derived from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to maturity).

Risk limit control and mitigation policies The Bank employs various policies and practices to control and mitigate credit risk.

Lending limits The Bank establishes internal limits and related lending guidelines to manage large exposures and avoid undue concentration of credit risk in its credit portfolio. The limits include single customer groupings, connected parties, and geographical and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on changing market and economic conditions.

The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customers together with potential exposure from market movements.

Collateral Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:

- mortgage over residential properties; - charges over commercial real estate or vehicles financed; - charges over business assets such as business premises, inventory and accounts receivable; and - charges over financial instruments such as marketable equities.

130 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) Risk limit control and mitigation policies (continued) Financing covenants (for credit related commitments and loans books)

The primary purpose of these instruments is to ensure that funds are available to a customer when required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees or letters of credit. In terms of credit risk, the Bank is potentially exposed to loss in an amount equal to the total unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.

The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than short-term commitments.

Credit Risk monitoring Retail credits are actively monitored and managed on a portfolio basis by product type. A new collection management system has been implemented with a dedicated team in place to promptly identify, monitor and manage delinquent accounts at early stages of delinquency.

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against updated information. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses or deterioration in the credit quality. Remedial action is taken where evidence of deterioration exists.

Early Alert Process is in place as part of a means to pro-actively identify, report and manage deteriorating credit quality. Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.

Credit Risk culture The Bank recognises that learning is a continuous journey and is committed to enhance the knowledge and required skills set of its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation.

For effective and efficient staff learning, the Bank has implemented an E–Learning Program with an online Learning Management System ('LMS'). The LMS provides staff with a progressive self-learning alternative at own pace.

Group Risk Management commenced an Internal Credit Certification ('ICC') Programme for both Business Banking and Consumer Credit in July 2009 and August 2009 respectively. In October 2010, the Bank introduced ICC-Market Risk with the Diagnostic Assessment conducted through the LMS.

The aim of the ICCs is to assist the core credit related group of personnel in the Bank achieve a minimum level of knowledge and analytical skills required to make sound corporate and commercial loans to customers. It is envisaged that the core credit related group of personnel would all be certified within 2 to 3 years.

AFFIN BANK BERHAD (25046-T) 131 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) Maximum exposure to credit risk For financial assets recognised on the statement of financial position, the exposure to credit risk equals their carrying amount. For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that the Group and the Bank would have to pay if guarantee were to be called upon. For loan commitments and other commitments, the maximum exposure to credit risk is the full amount of the undrawn credit facilities granted to customers.

All financial assets of the Group and the Bank are subject to credit risk except for cash in hand, equity securities held as financial assets held-for-trading or financial investments available-forsale, as well as non-financial assets.

The exposure to credit risk of the Group and the Bank equals their carrying amount in the statement of financial position as at reporting date, except for the followings:

The Group The Bank 2011 2011 2011 2011 Maximum Maximum Carrying Credit Carrying Credit Value Exposure Value Exposure RMʼ000 RM'000 RMʼ000 RM'000 Credit risk exposures of on-balance sheet assets: Cash and short-term funds *9,879,366 9,737,883 *5,527,439 5,385,956 Financial investments available-for-sale #6,698,418 6,585,100 #5,214,533 5,104,894 Other assets 166,543 108,207 116,690 59,056

Credit risk exposure of off-balance sheet items: Financial guarantees ^2,762,407 1,574,653 ^2,604,847 1,491,822 Loan commitments and other credit related commitments ^17,157,578 2,486,904 ^15,425,464 2,140,480

Total maximum credit risk exposure 36,664,312 20,492,747 28,888,973 14,182,208

The Group The Bank 2010 2010 2010 2010 Maximum Maximum Carrying Credit Carrying Credit Value Exposure Value Exposure RM’000 RM'000 RM’000 RM'000 Credit risk exposures of on-balance sheet assets: Cash and short-term funds *8,640,457 8,534,879 *6,108,452 6,002,874 Financial investments available-for-sale #5,804,417 5,697,708 #4,455,472 4,352,544 Other assets 186,461 8,607 184,582 7,384

Credit risk exposure of off-balance sheet items: Financial guarantees ^2,796,064 1,602,338 ^2,571,111 1,476,596 Loan commitments and other credit related commitments ^16,048,716 506,976 ^14,250,781 369,681

Total maximum credit risk exposure 33,476,115 16,350,508 27,570,398 12,209,079

* including cash in hand # including equity securities ^ amount stated at notional value

Whilst the Group and the Bank's maximum exposure to credit risk is the carrying value of the assets, or in the case of off- balance sheet items, the amount guaranteed, committed or accepted, in most cases the likely exposure is far less due to collateral, credit enhancements and other actions taken to mitigate the credit exposure.

The financial effect of collateral held for loans, advances and financing of the Group and the Bank are 63% (2010: 59%) and 62% (2010: 58%) respectively. The financial effects of collateral for the other financial assets are insignificant.

132 Annual Report 2011 assets assets total contingencies * with banks assets Financial Financial On placements Financial Deposits and - - - - 330 14,175,465 107,637 - 14,283,432 496,341 14,283,432 - 107,637 14,175,465 330 ------179,282 2,261,321 - 1,232 2,441,835 654,642 42,645 2,441,835 989,050 487,238 37,417 289 2,511,729 305,407 431,334 1,232 369,397 462 2,998,575 10 ------2,261,321 486,--776 - 159,611 431,334 2,306,998 179,282 ------145,796 - 204,721 2,998,575 ------1,711,301 154,944 - 238 1,582,862 - - 55,514 72,687 - 1,466,560 509,842 - 316 1,435,434 - - 10,273 20,537 718,522 486,694 149,832 3,117,024 27,362 4,244,103 570 47,643 8,791,750 687,259 8,791,750 47,643 570 4,244,103 27,362 3,117,024 149,832 718,522 486,694 9,019,361 - - 3,256,493 16,186 61,386 - - 12,353,426 119,731 12,353,426 - - 61,386 16,186 3,256,493 - 9,019,361 - 9,737,883 486,694 149,832 6,585,100 521,105 30,143,865 108,207 49,901 47,782,587 4,061,557 Cash and and other held- investments investments Loans, Derivative balance Commitments short-term financial for- available- held-to- advances and Other financial sheet and Not inclusive of collective allowance amounting to RM450 million. business services government agencies & hotels restaurants The Group funds institutions trading for-sale maturity financing 2011 Agriculture Mining and quarrying Manufacturing gas and water supply Electricity, Construction Real estate storage and communication Transport, Finance, insurance and Government and RM'000 trade and Wholesale & retail RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Others assets Total * Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37. based on the credit Risk concentrations for commitments and contingencies are Credit risk concentrations portfolio management. The credit risk is managed through to credit of customers to meet their obligations. Exposure the failure risk is the of financial loss from Credit risk is to credit is maintained. Exposure that an acceptable level of risk diversification to ensure regularly and monitored reviewed are and exposures portfolio's risk profiles also managed in part by obtaining collateral security and corporate personal guarantees. set out in the following tables: and the Bank, by industry concentration, are risk concentrations of the Group The credit (i) Credit Risk (continued) 38 RISK MANAGEMENT (continued) FINANCIAL NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

AFFIN BANK BERHAD (25046-T) 133 486,808 12,452,633 152 8,607 assets assets total contingencies * 12,443,544 330 - - - with banks assets Financial Financial On placements Financial Deposits and Cash and and other held- investments investments Loans, Derivative balance Commitments 8,534,879 192,522 149,945 5,697,708 432,537 26,370,548 8,607 54,981 41,441,727 2,109,313 short-term financial for- available- held-to- advances and Other financial sheet and Not inclusive of collective allowance amounting to RM396 million. communication - - - 30,222 - 921,590- 107 951,919 26,231 951,919 107 921,590- - 30,222 - - communication - business services government agencies & hotels restaurants 247,132 8,287,747 192,522 149,945 - - 2,173,568 27,361 - 3,379,655 4,346,670 - 16,186 - - 52,634 7,189,832 75,394 241,832 - - 24,037 - 11,758,982 1,198,629 135,825 - 836 1,223,502 140,172 Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37. based on the credit Risk concentrations for commitments and contingencies are Construction - - - - 207,108 2,274,981 - 154 2,482,243 652,610 207,361 1,922,191 2,482,243 838 154 - - 1,743,308 2,274,981 157,515 207,108 20,530 - - - - 185,829 - 20102,323,155 Agricultureestate Mining and quarryingManufacturing - - gas and water supplyElectricity, - Construction - 476,428Real 2,323,155 storage and Transport, 3 31,535 - Finance, insurance and - - - - Government and RM'000476,425 - trade and Wholesale & retail - - - RM'000 - RM'000 - RM'000 - - RM'000 93,733 RM'000 - RM'000 - RM'000 RM'000 192,953 - RM'000 - 373,899 13 - 286,699 244 374,143 57 1,053 Others - assets Total * The Group funds institutions trading for-sale maturity financing Credit risk concentrations (continued) (i) Credit Risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

134 Annual Report 2011 assets assets total contingencies * with banks assets Financial Financial On placements Financial Deposits and - - - - 179,282 2,047,851 - 1,232 2,228,365 620,567 2,228,365 868,661 138,196 289 2,213,787 304,591 1,232 1,649,902 40,030 400,623 37,417 10 - - 431,167 238 345,384 - 482,819 462 - 2,047,851 2,555,690 158,795 - - 1,413,151 2,009,056 - 179,282 - 400,161 1,572,087 - 145,796 431,167 204,721 - - - - 316 - - - 72,687 - - - - - 2,555,690 - - - 4,890 - - - 1,392,298 - - - 20,537 ------330 11,275,156 59,056 - 11,334,542 450,577 11,334,542 - 59,056 11,275,156 330 - - - 668,863 1,098,988 149,832 2,543,665 27,362 3,810,888 - 47,643 8,347,241 608,711 2,543,665 47,643 3,810,888 27,362 149,832 - 668,863 1,098,988 4,717,093 - - 2,410,543 16,186 55,802 - - 7,199,624 39,651 7,199,624 - - 55,802 16,186 2,410,543 - 4,717,093 - 5,385,956 1,098,988 149,832 5,104,894 521,105 25,708,951 59,056 49,901 38,078,683 3,632,302 Cash and and other held- investments investments Loans, Derivative balance Commitments short-term financial for- available- held-to- advances and Other financial sheet and Not inclusive of collective allowance amounting to RM391 million. communication business services government agencies & hotels restaurants The Bank funds institutions trading for-sale maturity financing 2011 Agriculture Mining and quarrying Manufacturing gas and water supply Electricity, Construction Real estate storage and Transport, Finance, insurance and Government and RM'000 trade and Wholesale & retail RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37. based on the credit Risk concentrations for commitments and contingencies are Others assets Total * Credit risk concentrations (continued) (i) Credit Risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 135 10,063,436 483,002 10,063,436 7,384 152 7,384 assets assets total contingencies * with banks assets Financial Financial On placements Financial Deposits and - - - - 330 10,055,570 330 - - - Cash and and other held- investments investments Loans, Derivative balance Commitments 6,002,874 564,917 149,945 4,352,544 432,537 22,762,471 7,384 54,981 34,327,653 1,846,277 short-term financial for- available- held-to- advances and Other financial sheet and Not inclusive of collective allowance amounting to RM343 million. communication - - - 5,062 - 915,146 - 107 920,315 26,231 920,315 107 - 915,146 - 5,062 - - communication - business services government agencies & hotelsrestaurants 321,806 5,681,068 564,917 149,945 - 1,808,060 - 27,361 - 2,425,159 3,759,208 - 16,186 - - 52,634 6,683,931 75,394 209,594 - - 24,037 - 8,197,807 1,150,259 - 3,859 836 1,175,132 136,037 Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37. based on the credit Risk concentrations for commitments and contingencies are Manufacturing - - - 20,530 157,515 1,620,577 - 838 1,799,460 203,874 1,799,460 590,495 20102,169,929 838 AgricultureestateMining and quarrying 185,829 - Manufacturing gas and water supplyElectricity, 154 2,278,476 Construction1,620,577 Real storage and Transport, - 157,515 - Finance, insurance and 1,962,667 - - 20,530 Government and 2,278,476 RM'000 - 207,108 trade and Wholesale & retail 3- - 6,267 - - RM'000 - - 379,424 - - - - RM'000379,421 - - - RM'000 - - - RM'000 93,733 RM'000 - RM'000 - RM'000 192,089 - RM'000 - 373,664 13 - 285,835 244 373,908 57 1,032 Others assets Total * The Bank funds institutions trading for-sale maturity financing Credit risk concentrations (continued) (i) Credit Risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

136 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) Collaterals The main types of collateral obtained by the Group and the Bank are as follows:

- for personal housing loans, mortgages over residential properties; - for commercial property loans, charges over the properties being financed; - for hire purchase, charges over the vehicles or plant and machineries financed; and - for other loans, charges over business assets such as premises, inventories, trade receivables or deposits.

Total loans, advances and financing - credit quality All loans, advances and financing are categorised into “neither past due nor impaired”, “past due but not impaired” and “impaired”. Past due loans refer to loans that are overdue by one day or more. Impaired loans are loans with months-in- arrears more than 90 days or with impairment allowances.

Distribution of loans, advances and financing by credit quality

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Neither past due nor impaired (a) 26,803,010 22,362,063 22,916,350 19,340,931 Past due but not impaired (b) 2,643,450 3,213,211 2,232,612 2,742,727 Impaired (c) 865,662 971,123 693,318 818,522

Gross loans, advances and financing 30,312,122 26,546,397 25,842,280 22,902,180 less: Allowance for impairment -Individual (168,257) (175,849) (133,329) (139,709) -Collective (451,599) (395,701) (390,890) (343,220)

Net loans, advances and financing 29,692,266 25,974,847 25,318,061 22,419,251

Past due but not impaired includes accounts within grace period of the Group and the Bank amounting to RM0.9 billion (2010: RM1.2 billion) and RM0.8 billion (2010: RM1.1 billion) respectively.

(a) Loans neither past due nor impaired

Analysis of loans, advances and financing that are neither past due nor impaired analysed based on the Group and the Bank’s internal credit grading system is as follows:

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Quality classification

Satisfactory 22,345,076 18,598,272 18,817,505 15,964,665 Special mention 4,457,934 3,763,791 4,098,845 3,376,266

26,803,010 22,362,063 22,916,350 19,340,931

AFFIN BANK BERHAD (25046-T) 137 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) Total loans, advances and financing - credit quality (continued) (a) Loans neither past due nor impaired (continued)

Quality classification definitions

Satisfactory: Exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or levels of expected loss.

Special mention: Exposures require varying degrees of special attention and default risk is of greater concern.

(b) Loans past due but not impaired

Certain loans, advances and financing are past due but not impaired as the collateral values of these loans are in excess of the principal and profit outstanding. Allowances for these loans may have been set aside on a portfolio basis. The Bank’s loans, advances and financing which are past due but not impaired are as follows:

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Past due up to 30 days 1,338,561 1,730,084 1,190,391 1,542,944 Past due 30-60 days 900,300 996,340 716,992 849,976 Past due 60-90 days 404,589 486,787 325,229 349,807

2,643,450 3,213,211 2,232,612 2,742,727

c) Loans impaired

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Analysis of individually impaired assets:

Gross impaired loans 865,662 971,123 693,318 818,522

Individually impaired loans 114,330 439,997 38,938 329,510

138 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) Collateral and other credit enhancements obtained During the year, the Bank obtained assets by taking possession of collateral held as security or calling upon other credit enhancements as follows:

The Group and The Bank 2011 2010 RM'000 RM'000 Carrying amount

Nature of assets: Condominium 1,190 - Vacant industrial land - 1,370

Foreclosed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding indebtedness. The carrying amount of foreclosed properties held by the Group and the Bank as at reporting date has been classified as Other assets as disclosed in Note 8.

Private debt securities, treasury bills and derivatives

Private debt securities, treasury bills and other eligible bills included in financial assets held-for-trading and financial investments available-for-sale are measured on a fair value basis. The fair value will reflect the credit risk of the issuer.

Most listed and some unlisted securities are rated by external rating agencies. The Group and the Bank mainly uses external credit ratings provided by RAM, MARC, Standard & Poors' or Moody's.

The table below presents an analysis of debt securities, treasury bills and other eligible bills by rating agency.

AFFIN BANK BERHAD (25046-T) 139 Total 711,316 - - 99,853 50,092 - - - 166,566 - 763,701 - 1,410,778 - 1,006,592 32,017 - 1,606,738 Impaired Impaired Total * * 711,316 - 295,708 109,468 432,537 - - 99,853 50,092 - - - - 166,566 - 763,701 1,410,778 - - 1,006,592 32,017 95,839 10,870 106,709 ------27,361 ------430,728 - 430,728 430,728 - 4,326- - - 108,992 113,318 - - - - - 27,361 - 393,991 99,753393,991 521,105 27,361 ------2,611,724 - 2,611,724 39,421 174,620 39,421 - - - 2,611,724 - - 174,620 - 149,832------149,832 - -816,584 816,584 ------AAAAA+ AA- to A+ A- to A- Lower than Unrated RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 721,113 290,820 487,468 104,526 4,662,634 120,338487,468 104,526 721,113 290,820 6,386,899 721,113 290,820 460,107 104,526 30,172 1,652,387 314,696 284,915 178,545 1,652,387 314,696 81,4802,512,023 - 1,652,387 314,696 312,276 178,545 4,807,372 104,079312,276 178,545 1,652,387 314,696 7,369,355 Private debt securities Private debt securities Bank Negara Malaysia Monetary Notes Negotiable Instruments of Deposit Malaysian Governmentbills treasury Malaysian Government securities Malaysian Government investment issues BNM Sukuk Bank Negara Malaysia Monetary Notes Others - in Malaysia Quoted and unquoted Shares Private debt securities Malaysian Government investment issues Private debt securities Bank Negara Malaysia Monetary Notes Malaysian Government securities Bank Negara Malaysia Monetary Notes Others in Malaysia Quoted and unquoted Shares Malaysian Governmentbills treasury Net of allowance for impairment Collateral is not generally obtained directly from the issuers of debt securities. Certain securities may be collateralised by specifically identified assets that would obtainable in event from Collateral is not generally obtained directly of default. Financial investments held-to-maturity The Group AAA AA- to AA+ A- to A+ Lower than A- Unrated The Group * 2010 Financial assets held-for-trading Financial investments available-for-sale Financial investments held-to-maturity 2011Financial assets held-for-trading RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Financial investments available-for-sale Private debt securities, treasury bills and derivatives (continued) (i) Credit risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

140 Annual Report 2011 Total - - 99,853 50,092 - - - 137,730 - 763,701 674,170 849,557 - 1,229,320 9,827 102,928 Impaired Impaired Total * * - 295,708 109,468 432,537 - - 99,853 50,092 - - - - 137,730 763,701 - 674,170 849,557 93,101 ------27,361 ------27,36199,753- 393,991 521,105 - - - - - 149,832 - 149,832 1,915,445 39,421 430,728 149,832 - 24,949 39,421 802,322 - - - 430,728 - 1,915,445 - - - - 3,64824,949 - - - 802,322 - - - - 105,991 - - - - 109,639 ------698,066 - 698,066 - 698,066 ------AAAAA+ AA- to A+ A- to A- Lower than Unrated RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 398,527 247,086 487,468 93,428 3,692,150 119,295 5,037,954 3,692,150 119,295 487,468 398,527 247,086 93,428 398,527 247,086 460,107 93,428 30,172 1,057,484 289,605 284,915 178,545 1,057,484 289,605 81,480 - 1,892,029 1,057,484 289,605 312,276 178,545 3,944,159312,276 178,545 1,057,484 289,605 103,401 5,885,470 Private debt securities Private debt securities Bank Negara Malaysia Monetary Notes Negotiable Instruments of Deposit Malaysian Governmentbills treasury Malaysian Government securities Malaysian Government investment issues Bank Negara Malaysia Monetary Notes Others Private debt securities Quoted and unquoted Shares in Malaysia Quoted and unquoted Shares Bank Negara Malaysia Monetary Notes Malaysian Government securities Malaysian Government investment issues Bank Negara Malaysia Monetary Notes Others in Malaysia Quoted and unquoted Shares Private debt securities Malaysian Governmentbills treasury Net of allowance for impairment Collateral is not generally obtained directly from the issuers of debt securities. Certain securities may be collateralised by specifically identified assets that would obtainable in event from Collateral is not generally obtained directly of default. Financial investments held-to-maturity The Bank AAA AA- to AA+ A- to A+ Lower than A- Unrated The Bank * 2010 Financial assets held-for-trading Financial investments available-for-sale Financial investments held-to-maturity 2011Financial assets held-for-trading RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Financial investments available-for-sale Private debt securities, treasury bills and derivatives (continued) (i) Credit risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 141 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (ii) Market risk Market risk is defined as the risk of losses to the Bank’s portfolio positions arising from movements in market prices. The Bank’s market risk management objective is to ensure that market risk is appropriately identified, measured, controlled, managed and reported.

The Bank’s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate risk arises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives. The Bank is also exposed to basis risk when there is a mismatch between the change in price of a hedge and the change in price of the assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers’ requirements and proprietary position.

Market risk arising from the Bank’s trading book is primarily controlled through the imposition of Cut-loss and Value-at-Risk (VaR) Limits which are approved by both the Asset Liability Management Committee ('ALCO') and Board Risk Management Committee ('BRMC') in accordance with the Bank's risk appetite. These limits are set and reviewed regularly having regard to a number of factors, including liquidity and the Bank's business strategy.

For non-trading book, the Bank quantifies the interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate sensitive liabilities. The Bank also performs Net Interest Income simulation to assess the variation in earnings under various rates scenarios.

The non-trading book’s interest rate risk is managed through limits set over time buckets together with an Overall Risk Tolerance Limit.

In addition, the Bank conducts periodic stress test of its respective portfolios to ascertain market risk under abnormal market conditions.

The Bank's Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.

Value at risk ('VaR') Value-at-Risk ('VaR') is used to compute the maximum potential loss amount over a specified holding period of a trading portfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign exchange rates that could affect values of financial instruments.

The Variance-Covariance Parametric methodology is adopted to compute the potential loss amount. This is a statistically defined, probability-based approach that uses volatilities and correlations to quantify price risks. Under this methodology, a matrix of historical volatilities and correlations is computed from the past 100 business days’ market data. VaR is then computed by applying these volatilities and correlations to the outstanding trading portfolio.

The table below sets out a summary of the Bank’s VaR profile by financial instrument types for the trading portfolio:

Average The Group and The Bank Balance for the year Minimum Maximum 2011 RM'000 RM'000 RM'000 RM'000

Instruments FX swap 773 261 73 938 Government securities 4 - - 7

Average The Group and The Bank Balance for the year Minimum Maximum 2010 RM'000 RM'000 RM'000 RM'000

Instruments FX swap 201 241 134 437 Government securities - 1 - 11 Private debt securities - 1 - 18

142 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (ii) Market risk (continued) Other Risk Measures • Mark-to-market Mark-to-market valuation tracks the current market value of the outstanding financial instruments.

• Stress testing Stress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market movements. The stress test measure the change in value arising from range of extreme movements in the interest rates and foreign exchange rates based on past experience and simulated stress scenarios.

• Sensitivity/Dollar Duration Sensitivity/Dollar Duration measures the change in value of a portfolio resulting from a 0.01% increase in interest rates. This measure identifies the Bank’s interest rate exposures that are most vulnerable to interest rate changes and facilitates the implementation of hedging strategies.

Net interest income sensitivity The table below shows the pre-tax net interest income sensitivity for the non-trading financial assets and financial liabilities held at reporting date. The sensitivity has been measured using the Repricing Gap Simulation methodology based on 100 basis points parallel shifts in the interest rate.

The Group The Bank 2011 2011 2011 2011 +100 -100 +100 -100 basis point basis point basis point basis point RM million RM million RM million RM million

Impact on net interest income (13.9) 13.9 (20.7) 20.7 As percentage of net interest income -1.4% 1.4% -2.6% 2.6%

The Group The Bank 2010 2010 2010 2010 +100 -100 +100 -100 basis point basis point basis point basis point RM million RM million RM million RM million

Impact on net interest income (25.7) 25.7 (21.2) 21.2 As percentage of net interest income -2.8% 2.8% -2.8% 2.8%

AFFIN BANK BERHAD (25046-T) 143 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (ii) Market risk (continued) Foreign exchange risk sensitivity analysis

Open position

Ringgit Impact of Malaysia 1% fall in US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1% fall in exchange The Group amount amount US Dollar rate 2011 '000 '000 '000 '000

US Dollar (79) (250) (247) 2 Others (2,024) (6,432) (6,367) 64

The impact on the outstanding foreign exchange position as at 31 December 2011 for a one percent change in USD exchange rate from 3.1770 to 3.1452 was an increase of about RM66,815.

Open position

US Dollar (4,453) (13,730) (13,592) (137) Others (1,290) (3,977) (3,936) (39)

The impact on the outstanding foreign exchange position as at 31 December 2010 for a one percent change in USD exchange rate from 3.0835 to 3.0527 was a decrease of about RM176,000.

144 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (ii) Market risk (continued) Foreign exchange risk sensitivity analysis (continued)

Open position

Ringgit Impact of Malaysia 1% fall in US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1% fall in exchange The Bank amount amount US Dollar rate 2011 '000 '000 '000 '000

US Dollar 9,166 29,120 28,829 (291) Others (1,656) (5,260) (5,208) 53

The impact on the outstanding foreign exchange position as at 31 December 2011 for a one percent change in USD exchange rate from 3.1770 to 3.1452 was a decrease of about RM238,598.

Open position

US Dollar (5,944) (18,329) (18,145) (183) Others (984) (3,034) (3,003) (30)

The impact on the outstanding foreign exchange position as at 31 December 2010 for a one percent change in USD exchange rate from 3.0835 to 3.0527 was a decrease of about RM213,000.

Foreign exchange risk The Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Limits are set on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. The table summarises the Bank's exposure to foreign currency exchange rate risk at reporting date. Included in the table are the Bank's financial instruments at carrying amounts, categorised by currency.

AFFIN BANK BERHAD (25046-T) 145 4,482 1,425,409 96 Yen Others Total Dollar Great Dollar Pound States Britain Australian Japanese United - 292,241 - 162,885 49,736 251,818 576,895 32,584 79,872 - - 48 81,085 32,085 - - 48 - - 405,411 - - 2,166 25 1,098 3,472 - 183 1,315 - 9,036 947 12,511 - 1,213 - 1,100,023 - 2,589 - - 70 5,670 - 2,659 - - 1,105,693 - 338 1,035,041 97,872 - 473 1,135,343 1,619 Euro 87,801 382,752 2,692 32,630 529,854 982 22,997 88,139 1,875,133 150,325 366,631 66,124 104,671 2,651,023 (61,730) 638,067 139,367 1,225,614 343,693 66,028 100,189 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 149,869 1,237,066 10,958 22,938 149,869 125,418 9,643 16,251 96 304,546 3,269 633,166 1,380,515 31,477 - 287,601 2,356,427 23,668 and other financial institutions and other financial institutions The Group Deposits and placements with banks Financial investments available-for-sale Loans, advances and financing 2011 Assets Cash and short-term funds Other assets Liabilities customers Deposits from Derivative financial assets financial assets Total Deposits and placements of banks Derivative financial liabilities financial liabilities Total Other liabilities Net on-balance sheet financial position commitments balance sheet credit Off Foreign exchange risk (continued) (ii) Market risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

146 Annual Report 2011 Total - 510,053 7 192,572 67 3 ,849 374 12,360 4,155 264,278 4,596 790,540 1,522 3,626 1,147 749,709 Others - - - - Yen 356 3,114 33,399 207,692 - 96 98 34 Dollar 9,973 4,166 25,619 2,049 - - - 15,685 29,604 20 113 Great 8,488 3,410 2,058 Britain Australian Japanese Pound Dollar 1,988 8,478 3,748 States United - 505,887 - - - - - 147,276 194,100 46,893 39,823 29,633 30,184 340,633 271 747,822 Euro 3,476 1,255,053 7,660 49,084 208,383 7,660 57,653 726,496 62,707 11,898 66,259 1,494,232 14,271 25,619 3,205 163,867 (4,184) 528,557 37,186 43,382 37,088 61,663 703,692 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,093,230 2,051,238 65,866 25,235 328,457 68,370 3,632,396 and other financial institutions and other financial institutions Off balance sheet credit commitments balance sheet credit Off Deposits and placements of banks Net on-balance sheet financial position Derivative financial assets financial assets Total Liabilities customers Deposits from Derivative financial liabilities financial liabilities Total Other liabilities 2010 Deposits and placements with banks Financial investments available-for-sale Loans, advances and financing Assets Cash and short-term funds The Group Foreign exchange risk (continued) (ii) Market risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 147 4,482 1,388,599 96 Yen Others Total Dollar Great Dollar Pound States Britain Australian Japanese United - 334,268 - 162,885 49,736 251,818 576,895 32,584 79,872 - - 48 81,085 32,085 - - 48 - 447,438 - - - 2,166 25 1,098 3,472 - 183 1,315 - 9,036 947 12,511 - 1,213 - 1,065,071 - 2,589 - - 70 4,491 - 2,659 - - 1,069,562 - 338 875,511 338 875,511 97,872 - 473 975,813 1,619 Euro 87,316 444,788 2,049 31,233 588,927 902 22,639 87,654 1,819,666 149,682 365,234 66,044 104,313 2,592,593 (61,610) 617,619 138,731 343,475 1,203,994 65,948 99,831 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 149,264 1,202,047 10,951 21,759 149,264 125,351 9,636 16,251 96 303,867 3,269 417,394 363,709 26,965 1,102,736 287,601 - 7,067 and other financial institutions and other financial institutions Deposits and placements with banks Financial investments available-for-sale Loans, advances and financing 2011 Assets Cash and short-term funds Other assets The Bank Liabilities customers Deposits from Derivative financial assets financial assets Total Deposits and placements of banks Derivative financial liabilities financial liabilities Total Other liabilities Net on-balance sheet financial position commitments balance sheet credit Off Foreign exchange risk (continued) (ii) Market risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

148 Annual Report 2011 Total - 510,028 - 229,563 67 3,849 374 12,360 4,155 264,120 1,543 3,647 4,596 790,357 1,147 591,754 Others - - - - Yen 356 2,969 33,163 282,365 - 96 98 34 Dollar 9,973 4,166 25,619 1,765 - - - 15,685 29,604 20 113 Great 8,485 3,410 1,899 Britain Australian Japanese Pound Dollar 1,988 8,478 3,748 States United - 505,862 - - - - 184,274 - 183,003 46,893 39,823 29,633 30,170 329,522 271 589,867 Euro 3,259 1,198,713 7,564 48,925 208,324 57,369 7,564 726,412 62,562 11,895 66,023 1,436,851 14,271 25,619 2,988 239,581 (4,305) 472,301 37,030 43,098 36,943 61,427 646,494 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,093,230 2,051,238 65,866 25,235 328,457 68,370 3,632,396 and other financial institutions and other financial institutions Deposits and placements of banks Derivative financial assets financial assets Total Derivative financial liabilities financial liabilities Total Liabilities customers Deposits from commitments balance sheet credit Off Other liabilities Net on-balance sheet financial position 2010 Deposits and placements with banks Assets Cash and short-term funds Financial investments available-for-sale Financial investments available-for-sale Loans, advances and financing The Bank Foreign exchange risk (continued) (ii) Market risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 149 * # Non interest/ Effective Non-trading book - - - - - 18,530 31,371 49,901 31,371 18,530 ------149,832 149,832 3.01 149,832 149,832 1,770,621 - - - - - 697,4051,770,621 ------697,405 95,609 282,599 15,032 90,000 95,609 5,159,961 714,721 - 163,658 29,952 253,398 376,728 3,454 6,698,418 486,694 3.55 - - 4.11 Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest 204,721 163,670 - 51,186 - 101,528 - 521,105 5.16 9,695,200 - - - - 184,166 - 9,879,366 2.86 9,879,366 - 184,166 - - 9,695,200 26,966,073 1,811,639 2,728,732 12,337,103 2,735,690 2,487,763 181,203 49,248,203 16,940,591 1,275,642 2,285,786 6,923,472 2,020,969 1,275,642 2,285,786 6,923,472 16,940,591 (451,599) 28,994,861 - 4.94 The negative balance represents collective allowance for loans, advances and financing. The negative balance represents entity. jointly controlled entity and amount due from jointly controlled and other financial institutions # (1) Net of individual allowance. tax assets, subsidiaries, other assets, investment in deferred and equipment, intangible assets, statutory deposits with BNM, tax recoverable, Others include property Derivative financial assets assets Total * The Group2011Assets Cash and short-term funds month months RM'000 months RM'000 years RM'000 RM'000 years sensitive RM'000 book RM'000 RM'000 Total RM'000 rate % Deposits and placements with banks Financial investments available-for-sale Financial investments available-for-sale - impaired Others (1) Financial assets held-for-trading Financial assets held-for-trading Financial investment held-to-maturity Loans, advances and financing - non-impaired Interest/profit rate risk liability funding. One of the major causes these rate characteristics of the assets and their corresponding mismatches in the interest rates arises from Sensitivity to interest rate risk management of the overall interest actively managed as part of the assets and liabilities. These mismatches are in the repricing mismatches is timing differences policy guidelines. with Group which is conducted in accordance process or maturity dates as assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing and the Bank’s the Group’s The following table represents date. at reporting (ii) Market risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

150 Annual Report 2011 Non interest/ Effective - 6,583,870 57,182 49,248,203 - 2,982,885 57,182 45,647,218 Non-trading book -82,059 - 82,059 ------3,600,9853,600,985 ------40,217 57,182 97,399 57,182 40,217 ------425,133 - 3,326 - 428,459 4.77 428,459 - 3,326 363,095 425,133 - - 363,095 - - - - - Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest 605,163 764,268 34,550 (1,392,942) (11,039) (11,039) (1,392,942) 605,163 764,268 34,550 - - 600,000 - - - - 1,850 - 601,850 4.16 601,850 - 1,850 - - 600,000 6,154,305 (11,068,279) (5,464,746) 11,615,116 2,735,690 (4,096,107) 124,021 6,759,468 (10,304,011) (5,430,196) 10,222,174 2,724,651 (4,096,107) 124,021 4,520,732 2,731,195 261,210 - - 13,775 - 7,526,912 3.13 20,811,768 20,811,768 12,879,918 8,193,478 721,987 20,811,768 20,811,768 12,879,918 8,193,478 721,987 15,691,036 10,148,723 7,932,268 296,854 - 2,478,563 - 36,547,444 3.20 and other financial institutions to Cagamas Berhad Derivative financial liabilities liabilities Total Equity liabilities and equity Total sensitivity gap On-balance sheet interest sensitivity gap (3) sheet interest Off-balance interest sensitivity gap Total (2) tax liabilities and other liabilities. for taxation, deferred Other liabilities include provision (3) rate sensitive derivative financial instruments. the net notional amounts of all interest sheet gap represents The off-balance The Group2011Liabilities customers Deposits from Deposits and placements of banks month months RM'000 months RM'000 years RM'000 years RM'000 sensitive RM'000 book RM'000 RM'000 Total RM'000 rate % Interest/profit rate risk (continued) Subordinated term loan Subordinated Bills and acceptances payable Recourse obligation on loans sold Other liabilities (2) (ii) Market risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 151 * # Non interest/ Effective - 45,238 9,743 54,981 - - Non-trading book - - Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest 20,968,705 2,301,851 3,167,757 10,901,575 2,889,197 42,063,921 1,675,240 20,968,705 2,301,851 159,596 3,167,757 The negative balance represents collective allowance for loans, advances and financing. The negative balance represents entity. jointly controlled entity and amount due from jointly controlled and other financial institutions 29,597 132,468 30,270 - - 187 - 192,522 2.62 # (1) Net of individual allowance. tax assets, subsidiaries, other assets, investment in deferred and equipment, intangible assets, statutory deposits with BNM, tax recoverable, Others include property Derivative financial assets assets Total * The Group2010Assets Cash and short-term funds Deposits and placements with banks Financial assets held-for-trading Financial investments available-for-sale impaired Financial investment held-to-maturity (1) Loans, advances and financing non-impaired 795,274 - 8,457,033 - 395,267 Others - 930,603 month 24,037 670,773 - 207,108 - 814,215 months 3,260,546 RM'000 402,154 795,274 months RM'000- 814,215 - 145,074 - - - - - RM'0002,487,043 1,031,672 2,466,714 7,527,074 12,062,771 (395,701) years- - - 113,955 RM'000 - 25,179,573 - - years - RM'000 5,804,417 4.94 - sensitive 3.67 RM'000 RM'000 - 87,437 book - 183,424 RM'000 - Total - % - 432,537 rate 8,640,457 4.95 92 2.76 149,853 149,945 2.81 Interest/profit rate risk (continued) (ii) Market risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

152 Annual Report 2011 - - Non interest/ Effective - 52,747 17,448 70,195 - 2,888,312 17,448 38,750,917 - 6,201,316 17,448 42,063,921 - - Non-trading book ------3,313,004 - 3,313,004 - - 3,313,004 - - - Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest 2,338,038 (8,552,300) (2,041,298) 9,795,582 2,843,906 (4,526,076) 142,148 18,930,304 11,309,456 5,203,862 401,535 18,930,304 11,309,456 5,203,862 401,535 and other financial institutions to Cagamas Berhad 3,099,547 3,437,614 - 68,186 - - 14,388 - - - 6,619,735 286,370 2.86 - 2,521 - 288,891 5.00 Derivative financial liabilities liabilities Total Equity liabilities and equity Total sensitivity gap (3) sheet interest Off-balance sensitivity gap interest Total 299,637 (2) 455,305 tax liabilities and other liabilities. for taxation, deferred Other liabilities include provision (3) rate sensitive derivative financial instruments. the net notional amounts of all interest sheet gap represents The off-balance (5,193) (704,458) (45,291) The Group2010Liabilities customers Deposits from Deposits and placements of banks Bills and acceptances payable Recourse obligation on loans sold term loan Subordinated Other liabilities (2) 15,530,757 7,871,842 5,203,862 month 46,979 months - RM'000 months RM'000 - 300,000 RM'000 2,328,967 - years RM'000 - years - RM'000 - 30,982,407 - sensitive RM'000 2.99 - RM'000 book - - RM'000 Total - - % - rate 110,161 - - - 682 110,161 - - 378,846 300,682 3.52 - 378,846 Interest/profit rate risk (continued) On-balance sheet interest sensitivity gap On-balance sheet interest 2,038,401 (9,007,605) (2,036,105) 10,500,040 2,889,197 (4,526,076) 142,148 (ii) Market risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 153 * # Non interest/ Effective Non-trading book ------149,832 149,832 3.01 149,832 559,989 149,832 - 1,833,534 - - - - 49,901 - 31,371 559,989 1,833,534 - - - 18,530 ------95,609 652,010 24,804 287,210 25,000 4,152,676 472,771 14,355 148,433 29,952 203,758 206,943 1,098,988 5,214,533 - - 3.55 4.27 Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest 355,535 - - - - 1,362 - 356,897 3.02 356,897 - 1,362 - - 355,535 204,721 - 51,186 163,670 - 101,528 - 521,105 5.16 521,105 - 101,528 163,670 - 51,186 204,721 - 5,352,057 - - - - 175,382 - 5,527,439 2.78 5,527,439 5,352,057- 175,382 - - 20,730,212 1,999,479 2,207,033 10,527,928 1,962,212 40,070,290 2,462,223 20,730,212 1,999,479 181,203 2,207,033 14,692,338 1,143,711 1,924,100 5,924,372 1,464,441 1,924,100 5,924,372 1,143,711 14,692,338 (390,890) 24,758,072 - 4.95 The negative balance represents collective allowance for loans, advances and financing. The negative balance represents tax assets, investment in subsidiaries and deferred and equipment, intangible assets, statutory deposits with BNM, tax recoverable, Others include property other assets. and other financial institutions # (1) Net of individual allowance. Amount due from subsidiaries Amount due from assets Total * The Bank2011Assets Cash and short-term funds month months RM'000 months RM'000 years RM'000 RM'000 years RM'000 sensitive RM'000 book RM'000 Total RM'000 rate % Deposits and placements with banks Financial investments available-for-sale Financial investments available-for-sale - impaired Others (1) Derivative financial assets Financial assets held-for-trading Financial assets held-for-trading Financial investment held-to-maturity Loans, advances and financing - non-impaired Interest/profit rate risk (continued) (ii) Market risk (continued) 38 RISK MANAGEMENT (continued) FINANCIAL NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

154 Annual Report 2011 Non interest/ Effective - 2,979,711 57,182 36,718,892 - 6,331,109 57,182 40,070,290 Non-trading book - - - - - 3,351,398 - 3,351,398 - 3,351,398 ------48,307 - 48,307 - 48,307 ------425,133 - 3,326 - 428,459 4.77 - 428,459 82,059 - - 82,059 3,326 97,399 344,557 425,133 - - - - 57,182 - 344,557 - - 40,217 ------Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest 605,163 764,268 34,550 (1,392,942) (11,039) (11,039) (1,392,942) 605,163 764,268 34,550 - - 600,000 - - - - 1,850 - 601,850 4.16 601,850 600,000- 1,850 - - 5,224,203 (8,709,757) (4,600,658) 9,868,865 5,224,203 (8,709,757) 1,962,212 (3,868,886) 124,021 5,829,366 (7,945,489) (4,566,108) 8,475,923 1,951,173 (3,868,886) 124,021 3,364,801 2,406,195 261,210 - - 11,631 - 6,043,837 3.19 11,541,208 8,303,041 11,541,208 6,546,481 233,930 - 2,447,764 29,072,424 - 3.31 15,506,009 10,709,236 6,807,691 659,063 15,506,009 10,709,236 6,807,691 659,063 and other financial institutions to Cagamas Berhad Amount due to subsidiaries liabilities Total Equity liabilities and equity Total sensitivity gap On-balance sheet interest sensitivity gap (3) sheet interest Off-balance interest sensitivity gap Total (2) tax liabilities and other liabilities. for taxation, deferred Other liabilities include provision (3) rate sensitive derivative financial instruments. the net notional amounts of all interest sheet gap represents The off-balance Deposits and placements of banks The Bank2011Liabilities customers Deposits from month months RM'000 months RM'000 years RM'000 RM'000 years RM'000 sensitive RM'000 book RM'000 Total RM'000 rate % Interest/profit rate risk (continued) Bills and acceptances payable Recourse obligation on loans sold term loan Subordinated Derivative financial liabilities Other liabilities (2) (ii) Market risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 155 * # Non interest/ Effective - 1,730 - 185,271 2.62 - - Non-trading book - Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest 183,541 16,797,613 2,319,312 2,864,508 9,076,119 2,372,762 2,319,312 2,864,508 9,076,119 35,453,667 16,797,613 159,596 1,863,757 The negative balance represents collective allowance for loans, advances and financing. The negative balance represents tax assets, investment in subsidiaries and deferred and equipment, intangible assets, statutory deposits with BNM, tax recoverable, Others include property other assets. and other financial institutions 29,597 462,664 67,272 - - 5,384 - 564,917 2.76 # (1) Net of individual allowance. Amount due from subsidiaries Amount due from assets Total * The Bank2010Assets Cash and short-term funds Deposits and placements with banks Financial assets held-for-trading Financial investments available-for-sale impaired Financial investment held-to-maturity (1) Loans, advances and financing non-impaired - 5,933,150 - 333,650 Others 734,627 Derivative financial assets 24,037 month1,082,841 678,813 660,868 - 207,108 - 2,246,981 RM'000 months- 349,206 - 678,813 RM'0001,082,841 months - 130,140 - - - - - RM'000 10,293,638 2,023,556 914,913 2,136,368 6,715,183 - - - years 113,955 (343,220) RM'000 - - 21,740,438 - - RM'000 4,455,472 years 4.95 - - 3.74 sensitive RM'000 RM'000 - 87,437 - book 175,302 - RM'000 - Total - % - 432,537 - 6,108,452 rate 4.95 92 2.70 149,853 - 149,945 2.81 - 45,238 9,743 54,981 Interest/profit rate risk (continued) (ii) Market risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

156 Annual Report 2011 - - Non interest/ Effective - 47,926 - 47,926 - 2,880,482 17,448 32,340,867 - 5,993,282 17,448 35,453,667 - - Non-trading book ------3,112,800 - 3,112,800 - - 3,112,800 - - - Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest 2,170,111 (6,966,951) (1,585,791) 8,042,537 2,327,471 (4,129,525) 142,148 14,927,139 9,741,568 4,445,106 329,124 14,927,139 9,741,568 4,445,106 329,124 and other financial institutions to Cagamas Berhad 2,479,622 3,187,614 68,186 - - - 13,581 - - - 5,749,003 286,370 2.86 - 2,521 - 288,891 5.00 Amount due to subsidiaries liabilities Total Equity liabilities and equity Total sensitivity gap (3) sheet interest Off-balance sensitivity gap interest Total 299,637 (2) 455,305 tax liabilities. Other liabilities include other and deferred (3) rate sensitive derivative financial instruments. the net notional amounts of all interest sheet gap represents The off-balance (5,193) (704,458) (45,291) The Bank2010Liabilities customers Deposits from Deposits and placements of banks Bills and acceptances payable Recourse obligation on loans sold term loan Subordinated Other liabilities (2) 12,147,517 Derivative financial liabilities 6,553,954 4,376,920 month 42,754 - RM'000 months RM'000 months - 300,000 RM'000 2,310,930 - years RM'000 - - - RM'000 years - 25,432,075 - sensitive RM'000 3.02 - - RM'000 book - - RM'000 - - Total - % - rate 110,161 - - - - 682 - 110,161 - 52,747 - 17,448 341,934 300,682 70,195 3.52 - 341,934 Interest/profit rate risk (continued) On-balance sheet interest sensitivity gap On-balance sheet interest 1,870,474 (7,422,256) (1,580,598) 8,746,995 2,372,762 (4,129,525) 142,148 (ii) Market risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 157 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (iii) Liquidity Risk Liquidity risk is the risk of incurring additional cost to generate cash to cover the required funding shortfall in the trading and banking book. Liquidity risk arises from the Bank's funding activities and the management of its assets.

To measure and manage net funding requirements, the Bank adopts BNM's New Liquidity Framework ('NLF'). The NLF ascertains the liquidity condition based on the contractual and behavioral cash-flow of assets, liabilities and off- balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets. The NLF is also supported by indicative ratios on the Bank’s funding structure to monitor the reliance on particular funding sources.

The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. Liquidity risk is tracked using internal and external qualitative and quantitative indicators. The Bank also conducts liquidity stress tests to gauge the Bank’s resilience in the event of a liquidity crisis. In addition, the Bank has in place the Contingency Funding Plan, which provides a systematic approach in handling liquidity disruption. The document encompasses strategies, decision-making authorities, and courses of action to be taken in the event of liquidity crisis and emergencies.

The BRMC is responsible for the Bank's liquidity policy although the strategic management of liquidity has been delegated to the ALCO. The BRMC is informed regularly of the liquidity situation in the Bank.

Liquidity risk disclosure table which is based on contractual undiscounted cash flow:

Up to 1 >1-3 >3-12 >1-5 Over 5 The Group month months months years years Total 2011 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Deposits from customers 18,060,100 10,230,464 8,163,881 301,839 - 36,756,284 Deposits and placements of banks and other financial institutions 4,538,018 2,783,990 270,956 235,100 - 7,828,064 Bills and acceptances payable 82,059 - - - - 82,059 Recourse obligation on loans sold to Cagamas Berhad 3,172 5,545 26,189 456,743 - 491,649 Other liabilities 326,735 - - - - 326,735 Subordinated term loan 2,148 4,338 21,314 115,350 692,392 835,542

23,012,232 13,024,337 8,482,340 1,109,032 692,392 46,320,333

Up to 1 >1-3 >3-12 >1-5 Over 5 The Group month months months years years Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Deposits from customers 17,771,143 7,945,925 5,348,779 53,387 - 31,119,234 Deposits and placements of banks and other financial institutions 3,253,752 3,473,483 72,122 - - 6,799,357 Bills and acceptances payable 110,161 - - - - 110,161 Recourse obligation on loans sold to Cagamas Berhad 3,226 3,106 19,021 310,879 - 336,232 Other liabilities 353,892 - - - - 353,892 Subordinated term loan 961 1,828 8,521 58,072 348,068 417,450

21,493,135 11,424,342 5,448,443 422,338 348,068 39,136,326

158 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (iii) Liquidity Risk (continued) Liquidity risk disclosure table which is based on contractual undiscounted cash flow (continued):

Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total 2011 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Deposits from customers 13,884,254 8,370,572 6,747,083 238,879 - 29,240,788 Deposits and placements of banks and other financial institutions 3,379,595 2,457,466 270,956 235,100 - 6,343,117 Bills and acceptances payable 82,059 - - - - 82,059 Recourse obligation on loans sold to Cagamas Berhad 3,172 5,545 26,189 456,743 - 491,649 Other liabilities 309,134 - - - - 309,134 Amount due to subsidiaries 48,307 - - - - 48,307 Subordinated term loan 2,148 4,338 21,314 115,350 692,392 835,542

17,708,669 10,837,921 7,065,542 1,046,072 692,392 37,350,596

Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Deposits from customers 14,383,718 6,609,699 4,495,601 48,678 - 25,537,696 Deposits and placements of banks and other financial institutions 2,493,320 3,222,177 71,720 - - 5,787,217 Bills and acceptances payable 110,161 - - - - 110,161 Recourse obligation on loans sold to Cagamas Berhad 3,226 3,106 19,021 310,879 - 336,232 Other liabilities 317,002 - - - - 317,002 Amount due to subsidiaries 47,926 - - - - 47,926 Subordinated term loan 961 1,828 8,521 58,072 348,068 417,450

17,356,314 9,836,810 4,594,863 417,629 348,068 32,553,684

AFFIN BANK BERHAD (25046-T) 159 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (iii) Liquidity Risk (continued) Derivative financial liabilities Derivative financial liabilities based on contractual undiscounted cash flow:

Up to 1 >1-3 >3-12 >1-5 Over 5 The Group and The Bank month months months years years Total 2011 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Derivatives settled on net basis Interest rate derivatives (1,264) (2,920) (3,604) (12,051) (1,416) (21,255)

Derivatives settled on gross basis Foreign exchange derivatives: Outflow (1,368,790) (763,020) (860,055) (70,000) - (3,061,865) Inflow 1,367,630 760,402 859,550 70,000 - 3,057,582

(1,160) (2,618) (505) - - (4,283)

Up to 1 >1-3 >3-12 >1-5 Over 5 The Group and The Bank month months months years years Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Derivatives settled on net basis Interest rate derivatives (1,098) (1,353) (9,658) (33,596) (12,799) (58,504)

Derivatives settled on gross basis Foreign exchange derivatives: Outflow (278,479) (207,640) (229,901) (115,560) - (831,580) Inflow 278,466 205,907 229,397 115,560 - 829,330

(13) (1,733) (504) - - (2,250)

160 Annual Report 2011 2,745 - - - - - 2,745 2,745 - - - 22,636 2,770 4,427 3,791 1,973 14,304 49,901 14,304 22,636 2,770 4,427 3,791 1,973 Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 101,167 361 51,186 163,670 - 204,721 521,105 149,832 204,721 295,957 15,055 163,670 166,543 149,832 - - - 5,530 - 156,236 - 19,446 51,186 - 329,024 486,694 180,193 10,757 101,167 361 - 314,519 3,720,058 1,439,903 40,448 714,721 6,698,418 109,808 - 1,268,650 - 3,430 - - 329,253 1,601,333 329,253 3,430 - 1,268,650 - 9,879,366 - - - - - 9,879,366 9,879,366 - - - 2,413,151 29,692,266 670,961 17,144,414 430,807 3,689,505 5,343,428 14,572,336 49,248,203 869,340 18,447,861 815,126 7,602,000 6,941,540 intangible assets. and other financial institutions (1) and equipment property entity, tax assets, investment in jointly controlled statutory deposits with BNM, deferred Other non-financial assets include tax recoverable, Other non-financial assets (1) The Group2011Assets Cash and short-term funds Deposits and placements with banks months months RM'000 months RM'000 years RM'000 years RM'000 RM'000 years RM'000 Total RM'000 Liquidity risk for assets and liabilities based on remaining contractual maturities important factors are and counter-guarantees sheet assets and liabilities, commitments The maturities of on-balance sheet assets and liabilities as well other off-balance based on remaining maturity tenures analysis of assets and liabilities into relevant and the Bank. The table below provides in assessing the liquidity of Group contractual maturities. Financial assets held-for-trading Financial assets held-for-trading Financial investments available-for-sale Financial investments held-to-maturity Loans, advances and financing Other assets Derivative financial assets entity jointly controlled Amount due from (iii) Liquidity Risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 161 - - - - - 326,735 - - - - - 13,493,662 - - - 13,493,662 13,493,662 ------16,242 - - 20,118 36,360 20,118 16,242 - - - 1,850 - - - - 600,000 601,850 600,000 3,326 1,850 - - - - 275,133 150,000 - 428,459 82,059 - - - - - 82,059 82,059 - - - 36,846 10,855 4,345 18,317 10,725 97,399 16,311 Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 769,559 490,736 (30,000) (405) - 1,229,890 - 326,735 7,264,364 259,870 2,678 - - - 7,526,912 2,678 - - 259,870 7,264,364 35,968,428 3,231,015 5,060,059 590,551 160,736 636,429 45,647,218 5,060,059 590,551 160,736 636,429 3,231,015 35,968,428 28,253,248 2,960,290 5,036,794 28,253,248 2,960,290 297,101 11 36,547,444 - (21,396,092) (2,361,675) (4,244,933) (21,396,092) (2,361,675) 7,011,449 6,780,804 17,811,432 3,600,985 (20,626,533) (1,870,939) 9,248,324 6,981,449 6,780,804 17,811,432 18,324,537 17,811,432 9,248,324 6,981,449 6,780,804 (1,870,939) (20,626,533) and other financial institutions Cagamas Berhad Off balance sheet credit commitments balance sheet credit Off On balance sheet gap (2) tax liabilities. for taxation and deferred Other non-financial liabilities include provision Other non-financial liabilities (2) Derivatives Net maturity mismatch Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) The Group2011Liabilities customers Deposits from Deposits and placements of banks Bills and acceptances payable Recourse obligation on loans sold to term loan Subordinated Other liabilities Derivative financial liabilities months months RM'000 months RM'000 years RM'000 years RM'000 RM'000 years RM'000 Total RM'000 (iii) Liquidity Risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

162 Annual Report 2011 - 329,949 625,009 - - 49,930 Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 245,130 13,844,378 1,276,722 1,041,451 5,382,846 5,511,590 15,006,934 42,063,921 15,006,934 13,844,378 1,276,722 1,041,451 5,382,846 5,511,590 and other financial institutions 112,441 14,776 15,680 - 49,625 - 192,522 (1) and equipment intangible assets. property entity, tax assets, investment in jointly controlled Other non-financial assets include statutory deposits with BNM, deferred Other non-financial assets (1) The Group2010Assets Cash and short-term funds Deposits and placements with banks Financial assets held-for-trading Financial investments available-for-sale Financial investments held-to-maturity Loans, advances and financing Other assets Derivative financial assets entity jointly controlled Amount due from 8,640,457 1,370,603 587,087 149,945 111,113 months 184,027 - months 3,174,354 2,168,054 RM'000 361 1,092,492 2,745 - 668,789 months RM'000 402,154 780,775 - 5,804,417 RM'000 3,085,018 - years 28,850 4,366,931 - - RM'000 13,898,980 113,955 25,974,847 5,709 - years RM'000 8,740 - - RM'000 - 109 years - 207,108 RM'000 - 10,692 Total - - 432,537 10,930 2,542 - 8,640,457 5,127 7,079 - - 149,945 54,981 - - 161,664 186,461 2,745 Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) (iii) Liquidity Risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 163 551,357 - - - 24,932 24,954 - (30,000) (23,126) - 22 218,885 - Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 32,725,205 2,047,932 3,287,106 32,725,205 2,047,932 41,996 316,825 38,750,917 331,853 (18,495,229) (552,325) 11,431,456 5,310,850 5,194,765 14,675,081 17,564,598 (18,880,827) (771,210) (2,245,655) 5,340,850 5,194,765 14,675,081 3,313,004 Cagamas Berhad and other financial institutions Cagamas 288,891 286,370 - - - 2,521 - 6,550,733 - 69,002 - - - 6,619,735 Other non-financial liabilities (2) Derivatives 385,598 Net maturity mismatch (2) tax liabilities. for taxation and deferred Other non-financial liabilities include provision On balance sheet gap commitments balance sheet credit Off - - 13,700,237 - - - 13,700,237 Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) The Group2010Liabilities customers Deposits from Deposits and placements of banks liabilities Bills and acceptances payable Recourse obligation on loans sold to term loan Subordinated Other Derivative financial liabilities 25,684,478 2,033,162 353,892 months 3,217,480 110,161 353,892 - - - 24,168 months RM'000 23,119 months - RM'000 22,738 RM'000 682 years - - RM'000 14,770 30,982,407 years RM'000 - 602 - RM'000 years 17,828 RM'000 - Total 7,336 - 6,921 - - 70,195 110,161 - 300,000 300,682 (iii) Liquidity Risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

164 Annual Report 2011 60,727 - 10,578 5,351 - 40,034 116,690 40,034 - 5,351 10,578 60,727 - 49,901 14,304 22,636 2,770 4,427 3,791 1,973 Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 101,167 361 51,186 163,670 - 204,721 521,105 149,832 204,721 671,105 24,879 1,098,988 163,670 149,832 - - - 358,289 25,269 - 19,446 51,186 - 270,179 101,167 361 63,031 255,876 3,069,175 1,083,501 472,771 5,214,533 356,897 356,897 - - - 1,108,650 - - - - 608,194 1,716,844 608,194 1,108,650 - - 5,527,439 - - - - - 5,527,439 5,527,439 - - - 2,317,892 25,318,061 514,844 13,959,631 378,331 3,468,025 4,679,338 10,586,524 40,070,290 605,885 15,324,924 700,398 6,729,458 6,123,101 and other financial institutions (1) and equipment intangible assets. Other non-financial assets include statutory deposits with BNM, investment in subsidiaries, property Other non-financial assets (1) The Bank2011Assets Cash and short-term funds Deposits and placements with banks months months RM'000 months RM'000 years RM'000 RM'000 years RM'000 years RM'000 Total RM'000 Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) Financial assets held-for-trading Financial assets held-for-trading Financial investments available-for-sale Financial investments held-to-maturity Loans, advances and financing Other assets Derivative financial assets subsidiaries Amount due from (iii) Liquidity Risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 165 - - 11,949,889 - - - 11,949,889 - 11,949,889 - - - - - 16,212 - - 19,21116,212 - 35,423 - - 1,850 - - - - 600,000 601,850 600,000 3,326 1,850 - - - - 275,133 150,000 - 428,459 82,059 - - - - - 82,059 82,059 - - - 48,307 36,846 10,855 4,345 18,317 10,725 97,399 16,311 48,307 - - - Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 769,559 490,736 (30,000) (405) - 1,229,890 - 309,134 - - - - - 309,134 309,134 - - - 5,781,289 259,870 2,678 - - - 6,043,837 2,678 - - 259,870 5,781,289 28,500,376 2,647,015 4,247,664 527,581 160,734 635,522 36,718,892 4,247,664 527,581 160,734 635,522 2,647,015 28,500,376 22,237,565 2,376,290 4,224,429 22,237,565 2,376,290 234,131 9 29,072,424 - (17,913,852) (2,041,130) (3,547,266) (17,913,852) (2,041,130) 6,201,877 5,962,367 14,689,402 3,351,398 (17,144,293) (1,550,394) 8,402,218 6,171,877 5,962,367 14,689,402 16,531,177 and other financial institutions Cagamas Berhad Off balance sheet credit commitments balance sheet credit Off On balance sheet gap (2) tax liabilities. for taxation and deferred Other non-financial liabilities include provision Other non-financial liabilities (2) Derivatives Net maturity mismatch The Bank2011Liabilities customers Deposits from Deposits and placements of banks Bills and acceptances payable Recourse obligation on loans sold to term loan Subordinated Other liabilities Derivative financial liabilities Amount due to subsidiaries months months RM'000 months RM'000 years RM'000 RM'000 years RM'000 years RM'000 Total RM'000 Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) (iii) Liquidity Risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

166 Annual Report 2011 - 607,057 898,259 - - 46,072 Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 245,130 11,328,862 35,453,667 1,166,191 12,729,392 995,317 4,548,289 4,685,616 and other financial institutions 442,636 47,725 15,680 - 58,876 - 564,917 (1) and equipment intangible assets. statutory deposits with BNM, investment in subsidiaries, property Other non-financial assets include tax recoverable, Other non-financial assets (1) The Bank2010Assets Cash and short-term funds Deposits and placements with banks Financial assets held-for-trading Financial investments available-for-sale Financial investments held-to-maturity Loans, advances and financing Other assets Derivative financial assets subsidiaries Amount due from 6,108,452 1,099,715 585,520 149,945 111,113 months 174,050 - 2,950,236 1,496,103 RM'000 months 361 - 750,878 526,876 RM'000 months 349,206 748,576 - 185,271 RM'000 4,455,472 2,922,556 - 28,850 years 3,873,320 - RM'000 11,397,687 113,955 22,419,251 5,709 - years - RM'000 7,514 - RM'000 - 109 years - 207,108 - RM'000 - 10,692 - 432,537 Total 10,830 2,542 - - 6,108,452 4,983 7,079 - 149,945 54,981 - - 161,255 184,582 - 185,271 Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) (iii) Liquidity Risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

AFFIN BANK BERHAD (25046-T) 167 551,357 - - 12,245,520 - - 24,932 24,932 - - - (30,000) - (23,126) - - 12,245,520 218,885 - - Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 27,152,851 1,614,644 2,886,948 27,152,851 1,614,644 38,685 315,886 32,340,867 331,853 (15,823,989) (448,453) (1,891,631) 4,509,604 4,369,730 (15,438,391) 12,397,539 (229,568) 3,112,800 10,330,763 4,479,604 4,369,730 12,397,539 15,909,677 Cagamas Berhad and other financial institutions Cagamas 288,891 286,370 - - - 2,521 - 5,680,001 - 69,002 - - - 5,749,003 Deferred tax liabilities Deferred On balance sheet gap commitments balance sheet credit Off Derivatives 385,598 Net maturity mismatch The Bank2010Liabilities customers Deposits from Deposits and placements of banks liabilities Bills and acceptances payable Recourse obligation on loans sold to term loan Subordinated Other Derivative financial liabilities Amount due to subsidiaries 20,971,820 1,599,874 317,002 2,817,344 110,161 months 317,002 - - - 20,857 RM'000 months 22,180 - RM'000 months 22,738 RM'000 682 years 47,926 - - RM'000 14,770 25,432,075 years RM'000 - - 602 - RM'000 years 17,828 RM'000 - - Total 7,336 - 6,921 - - - 70,195 110,161 - - 300,000 300,682 - 47,926 Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) (iii) Liquidity Risk (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 38 RISK MANAGEMENT (continued) FINANCIAL

168 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (iv) Operational Risk Management Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people, infrastructure or technology or events which are beyond the Bank’s immediate control which have an operational impact, including natural disaster, fraudulent activities and money laundering.

The Bank manages operational risk through a control based environment in which policies and procedures are formulated after taking into account individual unit’s business activities, the market in which it is operating and regulatory requirement in force. Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix. Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational Risk Management process.

The Bank gathers, analyses and reports operational risk loss and 'near miss' events to Group Operational Risk Management Committee and Board Risk Management Committee. Appropriate remedial actions are reviewed for effectiveness and implemented to minimise the recurrence of similar risk events.

As a matter of requirement, all Operational Risk Coordinators must satisfy an internal operational risk (including anti-money laundering/counter financing of terrorism and business continuity management) Certification Program. These coordinators will first go through an online self learning exercise before attempting on-line assessments to measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training and development activities for the coordinators.

(v) Fair value of financial instruments Financial instruments comprise financial assets, financial liabilities and also off balance sheet financial instruments. The fair value of a financial instrument is the amount at which the instruments could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction. The information presented herein represents estimates of fair values as at reporting date.

Quoted market prices, when available, are used as the measure of fair values. For financial instruments, without quoted market prices, fair values are estimated using net present value or other valuation techniques. These techniques involve a certain degree of uncertainty depending on the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in these assumptions could materially affect these estimates and the resulting fair value.

Fair value information for non-financial assets and liabilities are excluded as they do not fall within the scope of FRS 132 which requires fair values to be disclosed. This includes property and equipment, statutory deposits with Bank Negara Malaysia, investment in subsidiaries, other assets, tax recoverable, deferred tax and intangible assets.

AFFIN BANK BERHAD (25046-T) 169 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (v) Fair value of financial instruments (continued) The fair values of the financial assets and financial liabilities of the Group and the Bank approximated to their respective carrying value as at reporting date, except for the following:

The Group The Bank 2011 2011 Carrying Fair Carrying Fair value value value value RMʼ000 RM'000 RMʼ000 RM'000

Financial assets Financial investments held-to-maturity 521,105 717,476 521,105 717,476 Loans, advances and financing 29,692,266 30,116,855 25,318,061 25,585,624

30,213,371 30,834,331 25,839,166 26,303,100

Financial liabilities Deposits from customers 36,547,444 36,544,839 29,072,424 29,070,615 Recourse obligation on loans sold to Cagamas Berhad 428,459 450,380 428,459 450,380

36,975,903 36,995,219 29,500,883 29,520,995

The Group The Bank 2010 2010 Carrying Fair Carrying Fair value value value value RM’000 RM'000 RM’000 RM'000

Financial assets Financial investments held-to-maturity 432,537 648,319 432,537 648,319 Loans, advances and financing 25,974,847 26,270,051 22,419,251 22,690,852

26,407,384 26,918,370 22,851,788 23,339,171

Financial liabilities Deposits from customers 30,982,407 30,971,746 25,432,075 25,424,521 Recourse obligation on loans sold to Cagamas Berhad 288,891 303,270 288,891 303,270

31,271,298 31,275,016 25,720,966 25,727,791

170 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (v) Fair value of financial instruments (continued) The fair values of derivative financial instruments at the reporting date are as follows:

The Group and the Bank The Group and the Bank 2011 2010 Underlying Underlying notional Asset Liability notional Asset Liability RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Foreign exchange contracts - forward contracts 712,883 2,433 6,313 728,471 2,381 19,025 - swaps 2,344,698 16,097 33,904 1,688,008 35,206 22,715

Interest rate contracts - swaps 2,395,015 31,371 57,182 1,495,313 17,394 28,455

The derivative financial instruments become favorable (assets) or unfavorable (liabilities) as a result of fluctuation in market interest rates or foreign exchange rates relative to their terms. The extent to which instruments are favorable or unfavorable and the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

The fair value estimates were determined by application of the methodologies and assumptions described below.

Short-term funds and placements with banks and other financial institutions For short-term funds and placements with banks and other financial institutions with maturity of less than six months, the carrying amount is a reasonable estimate of fair value.

For amounts with maturities of six months or more, fair values have been estimated by reference to current rates at which similar deposits and placements would be made to banks with similar credit ratings and maturities.

Financial assets held-for-trading, financial investments available-for-sale and held-to-maturity The fair values of financial assets held-for-trading, financial investments available-for-sale and financial investments held-to- maturity are reasonable estimates based on quoted market prices. In the absence of such quoted prices, the fair values are based on the expected cash flows of the instruments discounted by indicative market yields for the similar instruments as at reporting date or the audited net tangible asset of the invested company.

Loans, advances and financing Loans, advances and financing of the Group comprise of floating rate loans and fixed rate loans. For performing floating rate loans, the carrying amount is a reasonable estimate of their fair values.

The fair values of performing fixed rate loans are arrived at using the discounted cash flows based on the prevailing market rates of loans and advances with similar credit ratings and maturities.

The fair values of impaired loans and advances, whether fixed or floating are represented by their carrying values, net of individual and collective allowances, being the reasonable estimate of recoverable amount.

AFFIN BANK BERHAD (25046-T) 171 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (v) Fair value of financial instruments (continued) Other assets and liabilities The carrying value less any estimated allowance for financial assets and liabilities included in other assets and other liabilities are assumed to approximate their fair values as these items are not materially sensitive to the shift in market interest rates.

Deposits from customers, banks and other financial institutions, bills and acceptances payable The carrying values of deposits and liabilities with maturities of six months or less are assumed to be reasonable estimates of their fair values. Where the remaining maturities of deposits and liabilities are above six months, their estimated fair values are arrived at using the discounted cash flows based on prevailing market rates currently offered for similar remaining maturities.

The estimated fair value of deposits with no stated maturity, which include non-interest bearing deposits, approximates carrying amount which represents the amount repayable on demand.

Recourse obligation on loans sold to Cagamas Berhad For floating rate loans sold to Cagamas Berhad, the carrying value is generally a reasonable estimate of their fair values.

The fair values of fixed rate loans sold to Cagamas Berhad are arrived at using the discounted cash flow methodology at prevailing market rates of similarly profiled loans.

Subordinated term loan For fixed rate borrowings, the estimate of fair value is based on discounted cash flow model using prevailing lending rates for borrowings with similar risks and remaining term to maturity.

For floating rate borrowings, the carrying value is generally a reasonable estimate of their fair values.

Derivative financial instruments The fair value of exchange rate and interest rate contracts is the estimated amount the Group would receive or pay to terminate the contracts at the reporting date.

172 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (v) Fair value of financial instruments (continued) Fair value measurements The following table presents assets and liabilities measured at fair value and classified by level of the following fair value measurement heirarchy:

(a) Level 1 - quoted price (unadjusted) in active markets for identical assets and liabilities;

(b) Level 2 - inputs other than quaoted price included within level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e.derived from prices); and

The Group Level 1 Level 2 Level 3 Total 2011 RMʼ000 RM'000 RMʼ000 RM'000

Assets Financial assets held-for-trading - 149,832 - 149,832 Financial investments available-for-sale* - Private debt securities - 2,512,024 - 2,512,024 - Equity securities 7,454 - 105,864 113,318 - Other financial assets - 4,073,076 - 4,073,076 Derivative financial assets - 49,901 - 49,901

Liabilities Derivative financial liabilities - 97,399 - 97,399

The Group Level 1 Level 2 Level 3 Total 2010 RM’000 RM'000 RM’000 RM'000

Assets Financial assets held-for-trading - 149,945 - 149,945 Financial investments available-for-sale* - Private debt securities - 1,606,737 - 1,606,737 - Equity securities 13,536 - 93,173 106,709 - Other financial assets - 4,090,971 - 4,090,971 Derivative financial assets - 54,981 - 54,981

Liabilities Derivative financial liabilities - 70,195 - 70,195

AFFIN BANK BERHAD (25046-T) 173 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (v) Fair value of financial instruments (continued) Fair value measurements (continued)

The Bank Level 1 Level 2 Level 3 Total 2011 RMʼ000 RM'000 RMʼ000 RM'000

Assets Financial assets held-for-trading - 149,832 - 149,832 Financial investments available-for-sale* - Private debt securities - 1,892,031 - 1,892,031 - Equity securities 3,844 - 105,795 109,639 - Other financial assets - 3,212,863 - 3,212,863 Derivative financial assets - 49,901 - 49,901

Liabilities Derivative financial liabilities - 97,399 - 97,399

The Bank Level 1 Level 2 Level 3 Total 2010 RM’000 RM'000 RM’000 RM'000

Assets Financial assets held-for-trading - 149,945 - 149,945 Financial investments available-for-sale* - Private debt securities - 1,229,320 - 1,229,320 - Equity securities 9,827 - 93,101 102,928 - Other financial assets - 3,123,224 - 3,123,224 Derivative financial assets - 54,981 - 54,981

Liabilities Derivative financial liabilities - 70,195 - 70,195

* Net of allowance for impairment

Financial instruments that are valued using quoted prices in active market are classified as Level 1 of the valuation hierarcy. These would include listed equities which are actively traded.

Where fair value is determined using quoted prices in less active markets or quoted prices for similar assets and liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available, the Group and the Bank then determine fair value based upon valuation techniques that use as inputs, market parameters inclusing but not limited to yield curves, volatilities and foreign exchange rates. The majority of valuation techniques employ only observable market data and so reliability of the fair value measurement is high. These would include corporate private debt securities, corporate notes and most of the Group's OTC derivatives.

The Group and the Bank classify financial instruments as Level 3 when there is reliance on unobservable inputs to the valuation model attributing to a significant contribution to the instrument value. Valuation reserves or pricing adjustments where applicable will be used to converge to fair value.

174 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

38 FINANCIAL RISK MANAGEMENT (continued) (v) Fair value of financial instruments (continued) Fair value measurements (continued) The Group and the Bank may also use valuation models or discounted cash flow technique to determine the fair value.

Most of the OTC derivatives are priced using valuation models. Where derivative products have been established in the markets for some time, the Group and the Bank use models that are widely accepted by the industry.

The valuation techniques and inputs used generally depend on the contractual terms and the risks inherent in the instrument as well as the availability of pricing information in the market. Principal techniques used include discounted cash flows, and other appropriate valuation models. OTC derivatives which are valued using unobservable inputs that are supported by little or no market activity which are significant to the fair value of the assets or liabilities are classified as Level 3.

The following table present the changes in Level 3 instruments for the financial year ended:

The Group The Bank 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Opening 93,173 25,279 93,101 24,704 Profit/(loss) 200 - 200 - Sales (300) - (300) - AFS revaluationn reserves 12,829 67,894 12,832 68,397 Allowance for impairment (38) - (38) -

Closing 105,864 93,173 105,795 93,101

Effect of changes in significant unobservable assumptions to reasonably possible alternatives As at reporting date, financial instruments measured with valuation techniques using significant unobservable inputs (Level 3) mainly include unquoted shares held for socio economic purposes.

In estimating its significance, the Group and the Bank used an approach that is currently based on methodologies used for fair value adjustments. These adjustments reflects the values that the Group and the Bank estimate are appropriate to adjust from the valuations produced to reflect for uncertainties in the inputs used. The methodologies used can be a statistical or other relevant approved techniques.

39 LEASE COMMITMENTS

The Bank has lease comitments in respect of rented premises and hired equipment, all of which are classified as operating leases. A summary of the non-cancelable long-term commitments, net of subleases are as follows:

The Group and The Bank 2011 2010 RMʼ000 RM'000

Within one year 20,956 19,771 One year to five years 83,824 79,084

AFFIN BANK BERHAD (25046-T) 175 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

40 CAPITAL AND OPERATING COMMITMENTS Capital commitments Capital expenditure approved by the Directors but not provided for in the financial statements amounted to approximately:

The Group and The Bank 2011 2010 RMʼ000 RM'000

Authorised and contracted for 12,261 4,163 Authorised but not contracted for - -

12,261 4,163

Analysed as follows: Property and equipment 12,261 4,163

Operating commitments Operating expenditure approved by the Directors but not provided for in the financial statements amounted to approximately:

The Group and The Bank 2011 2010 RMʼ000 RM'000

Authorised and contracted for 266,202 320,852

41 CAPITAL MANAGEMENT The Group and the Bank's objectives when managing capital are:

• To comply with the capital requirements set by the regulators of the banking markets where the entities within the Group and the Bank operates;

• To safeguard the Group and the Bank's ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

• To maintain a strong capital base to support the development of its business.

The Group and the Bank maintain a ratio of total regulatory capital to its risk-weighted assets above a minimum level agreed with the management which takes into account the risk profile of the Group and the Bank.

The table in Note 42 below summarises the composition of regulatory capital and the ratios of the Group and the Bank for the year ended 31 December 2011.

176 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

42 CAPITAL ADEQUACY The capital adequacy ratios are as follows:

The Group# The Bank Basel II Basel II Basel II Basel II 2011 2010 2011 2010 RM'000 RM'000 RM'000 RM'000

Tier I capital Paid-up share capital 1,439,285 1,439,285 1,439,285 1,439,285 Share premium 408,389 408,389 408,389 408,389 Retained profits 642,638 499,179 530,489 411,831 Statutory reserve 1,011,044 888,910 904,624 807,500

3,501,356 3,235,763 3,282,787 3,067,005 Less: Goodwill (137,323) (137,323) (137,323) (137,323) Deferred tax assets * (3,658) - (3,659) -

Total Tier I capital 3,360,375 3,098,440 3,141,805 2,929,682

Tier II capital Subordinated term loan 600,000 300,000 600,000 300,000 Collective impairment @ 182,269 153,538 138,227 111,304

Total Tier II capital 782,269 453,538 738,227 411,304

Total capital 4,142,644 3,551,978 3,880,032 3,340,986

Less: Investment in capital instruments of other banking institutions (40,257) (39,858) (40,257) (39,858) Investment in subsidiaries (27,389) (27,429) (287,389) (287,429)

Capital base 4,074,998 3,484,691 3,552,386 3,013,699

Core capital ratio 10.00% 11.51% 10.64% 12.35% Risk-weighted capital ratio 12.12% 12.94% 12.03% 12.71% Core capital ratio (net of proposed dividends) ^ 9.78% 11.24% 10.39% 12.05% Risk-weighted capital ratio (net of proposed dividends) ^ 11.91% 12.67% 11.78% 12.40%

Risk-weighted assets for: Credit risk 31,344,231 24,768,236 27,608,268 21,849,466 Market risk 133,160 96,572 102,489 91,973 Operational risk 2,135,976 2,062,578 1,828,940 1,776,655

Total risk-weighted assets 33,613,367 26,927,386 29,539,697 23,718,094

* Deferred tax assets exclude deferred tax arising from AFS revaluation reserves. # The Group comprises the Bank and the Bank's subsidiary, AFFIN Islamic Bank Berhad. @ Qualifying collective impairment is restricted to allowances on unimpaired portion of the loans, advances and financing. ^ Net proposed dividends of RM71,964,000 (2010: RM71,964,000).

AFFIN BANK BERHAD (25046-T) 177 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

42 CAPITAL ADEQUACY (continued) The Group and the Bank implemented the Basel II - Risk-Weighted Assets Computation under the Risk-Weighted Capital Adequacy Framework with effect from 1 January 2008. The Group and the Bank have adopted the Standardised Approach for credit risk and market risk and Basic Indicator Approach for operational risk computation.

Pursuant to Bank Negara Malaysia’s circular, ‘Recognition of Deferred Tax Asset ('DTA') and Treatment of DTA for RWCR Purposes’ dated 8 August 2003, deferred tax income/(expenses) is excluded from the calculation of Tier I capital and DTA is excluded from the calculation of risk-weighted assets.

43 LITIGATIONS AGAINST THE BANK (a) A syndicate of lenders, including AFFIN Bank Berhad (the 'Bank'), had granted facilities of RM62.5 million (the 'Facilities') to a Borrower to, inter alia, finance a development project. At borrower’s request, the Facilities were restructured in 1999 but in July 2000, continued drawdown under the restructured Facilities was refused as borrower had failed to comply with conditions precedent for such drawdown. The lenders and borrower negotiated to resolve the default and the Facilities were restructured again in 2003. Further financing was also granted in 2004 and the Project was completed with certificate of fitness in January 2005.

Subsequent to the completion of the project, borrower brought a claim against the lead banker, as the agent of the syndicate lenders, for loss and damage arising from alleged breach of duty and obligations owed by the lead banker to the borrower in relation to various actions taken or omitted to be taken in disbursements and transactions under the Facilities. The lead banker filed an action against the borrower and its guarantor of the Facilities, for recovery of the amounts outstanding under the Facilities.

The 2 actions were consolidated and heard together at full trial. On 6 May 2009, the High Court granted judgment in favour of borrower against the lead banker, as an agent of the lenders, and dismissed the lenders’ action for recovery of the Facilities. The judgment against the lead banker included a sum of RM115.5 million to be paid, as well as further damages to be assessed and an immediate release of all security granted by the borrower and its guarantors for the Facilities. The award of damages of RM115.5 million was made despite parties’ agreement that the trial proceed only on issue of liability and no evidence of damage/loss was produced. If the judgment of 6 May 2009 is maintained, lead banker will seek contribution from the lenders, including the Bank.

The lead banker and the lenders have appealed to the Court of Appeal against the said High Court decision of 6 May 2009 and the appeal is fixed for hearing on 10 February 2012. On 10 February 2012, the defendant has proposed for the hearing to go through Court Mediation. The lead banker and the lenders have agreed to the proposal and the Court of Appeal has fixed 9 March 2012 for the Court Mediation to hear the case.

The solicitors for the lead banker and the lenders have expressed the view that the lead banker and the lenders have a more than even chance of success in their appeal against the Judgment.

(b) Other than above, there are various legal suits against the Bank in respect of claims and counter claims of approximately RM42.8 million (2010: RM86.3 million). Based on legal advice, the Directors are of the opinion that no provision for damages need to be made in the financial statements, as the probability of adverse adjudication against the Bank is remote.

178 Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

44 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The Group and the Bank makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. To enhance the information content of the estimates, certain variables that are anticipated to have material impact to the Group’s and the Bank’s results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

Allowance for losses on loans, advances and financing The accounting estimates and judgments related to the impairment of loans and provision for off-balance sheet positions is a critical accounting estimate for because the underlying assumptions used for both the individually and collectively assessed impairment can change from period to period and may significantly affect the Group and the Bank’s results of operations.

In assessing assets for impairment, management judgment is required. The determination of the impairment allowance required for loans which are deemed to be individually significant often requires the use of considerable management judgment concerning such matters as local economic conditions, the financial performance of the counterparty and the value of any collateral held, for which there may not be a readily accessible market. The actual amount of the future cash flows and their timing may differ from the estimates used by management and consequently may cause actual losses to differ from the reported allowances.

The impairment allowance for portfolios of smaller-balance homogenous loans, such as those to individuals and small business customers of the private and retail business, and for those loans which are individually significant but for which no objective evidence of impairment exists, is determined on a collective basis. The collective impairment allowance is calculated on a portfolio basis using statistical models which incorporate numerous estimates and judgments, and therefore is subject to estimation uncertainty. The Group and the Bank perform a regular review of the models and underlying data and assumptions as far as possible to reflect the current economic circumstances. The probability of default, loss given defaults, and loss identification period, amongst other things, are all taken into account during this review.

Estimated impairment of goodwill The Group performs an impairment review on an annual basis to ensure that the carrying value of the goodwill does not exceed its recoverable amounts from cash generating units to which the goodwill is allocated. The recoverable amount represents the present value of the estimated future cash flows expected to arise from continuing operations. Therefore, in arriving at the recoverable amount, management exercise judgment in estimating the future cash flows, growth rate and discount rate.

45 SUBSEQUENT EVENT On 18 January 2012, the Bank will take on its third 10 year subordinated loan amounting to RM300 million.

The subordinated loan will be taken with the Bank's Holding Company.

Interest on subordinated loans payable by quarterly.

The nominal value and interest rate of the subordinated loan payable semi-annually are as follows:

Value : RM300 million Interest rate : Cost of Fund ('COF') plus 1.00% per annum for the 10 years.

COF refers to rate determined by the lender on an interest determination date falling within the interest duration.

AFFIN BANK BERHAD (25046-T) 179 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

46 CREDIT EXPOSURES ARISING FROM TRANSACTIONS WITH CONNECTED PARTIES The following credit exposures are based on Bank Negara Malaysia's revised Guidelines on Credit Transaction and Exposures with Connected Parties, which are effective 1 January 2008.

(i) The aggregate value of outstanding credit exposures with connected parties (RM'000) 2,412,021 (ii) The percentage of outstanding credit exposures to connected parties as a proportion of total credit exposures 6% (iii) The percentage of outstanding credit exposures with connected parties which is impaired or in default Nil

47 APPROVAL OF FINANCIAL STATEMENTS The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 28 February 2012.

180 Annual Report 2011 STATEMENT BY DIRECTORS PURSUANT TO SECTION 169 (15) OF THE COMPANIES ACT, 1965

We, JEN TAN SRI DATO' SERI ISMAIL BIN HAJI OMAR (BERSARA) and EN. MOHD SUFFIAN BIN HAJI HARON, two of the Directors of AFFIN BANK BERHAD, state that, in the opinion of the Directors, the accompanying financial statements set out on pages 64 to 180 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Bank as at 31 December 2011 and of the results and cash flows of the Group and the Bank for the financial year ended on the date in accordance with the provisions of the Companies Act, 1965, MASB Approved Accounting Standards for Entities Other Than Private Entities and Bank Negara Malaysia Guidelines.

In accordance with a resolution of the Board of Directors dated 28 February 2012.

JEN TAN SRI DATO' SERI ISMAIL BIN HAJI OMAR (BERSARA) Chairman

EN. MOHD SUFFIAN BIN HAJI HARON Director

STATUTORY DECLARATION PURSUANT TO SECTION 169 (16) OF THE COMPANIES ACT, 1965

I, EE KOK SIN, the officer of AFFIN BANK BERHAD primarily responsible for the financial management of the Group and the Bank, do solemnly and sincerely declare that, in my opinion, the accompanying financial statements set out on pages 64 to 180, are correct and I make this solemn declaration conscientiously believing the same to be true, by virtue of the provisions of the Statutory Declarations Act, 1960.

EE KOK SIN

Subscribed and solemnly declared by the abovenamed EE KOK SIN at Kuala Lumpur in Malaysia on 28 February 2012, before me.

Commissioner for Oaths

AFFIN BANK BERHAD (25046-T) 181 INDEPENDENT AUDITORS' REPORT TO THE MEMBER OF AFFIN BANK BERHAD (Incorporated In Malaysia)

REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of AFFIN Bank Berhad, which comprise the statements of financial position as at 31 December 2011 of the Group and the Bank, and the statements of income, comprehensive income, changes in equity and cash flows of the Group and the Bank for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 64 to 180.

Directorsʼ Responsibility for the Financial Statements The directors of the Bank are responsible for the preparation of financial statements that give a true and fair view in accordance with MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities, Bank Negara Malaysia Guidelines and the Companies Act, 1965, and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Auditorsʼ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Bank’s preparation of the financial statements that give a true and fair value in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements have been properly drawn up in accordance with MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities, Bank Negara Malaysia Guidelines and the Companies Act, 1965 so as to give a true and fair view of the financial position of the Group and the Bank as of 31 December 2011 and of their financial performance and cash flows for the year then ended.

182 Annual Report 2011 INDEPENDENT AUDITORS' REPORT TO THE MEMBER OF AFFIN BANK BERHAD (Incorporated In Malaysia)

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Bank and its subsidiaries have been properly kept in accordance with the provisions of the Act. b) We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Bank’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes. c) Our audit reports on the financial statements of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act.

OTHER MATTERS This report is made solely to the member of the Bank, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

PRICEWATERHOUSECOOPERS SOO HOO KHOON YEAN (No. AF : 1146) (No. 2682/10/13 (J) ) Chartered Accountants Chartered Accountant

Kuala Lumpur, Malaysia 28 February 2012

AFFIN BANK BERHAD (25046-T) 183 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

Table of Contents

Page

1. Introduction 1.1 Background 185 1.2 Scope of Application 185

2. Risk Governance Structure 2.1 Overview 185 2.2 Board Committees 186 2.3 Management Committees 187 2.4 Group Risk Management Function 188 2.5 Internal Audit and Internal Control Activities 188

3. Capital 3.1 Capital Structure 189 3.2 Capital Adequacy 189

4. Risk Management Objectives and Policies 190

5. Credit Risk 5.1 Credit Risk Management Objectives and Policies 190 5.2 Application of Standardised Approach for Credit Risk 190 5.3 Credit Risk Measurement 191 5.4 Risk Limit Control and Mitigation Policies 191 5.5 Credit Risk Monitoring 193 5.6 Impairment Provisioning 193 5.7 Credit Risk Culture 198

6. Market Risk 6.1 Market Risk Management Objectives and Policies 198 6.2 Application of Standardised Approach for Credit Risk 198 6.3 Market Risk Measurement, Control and Monitoring 198 6.4 Value-At-Risk ('VaR') 199 6.5 Foreign Exchange Risk 199 6.6 Market Risk Culture 199

7. Liquidity Risk 7.1 Liquidity Risk Management Objectives and Policies 199 7.2 Liquidity Risk Measurement, Control and Monitoring 199

8. Operational Risk 8.1 Operational Risk Management Objectives and Policies 200 8.2 Application of Basic Indicator Approach for Operational Risk 200 8.3 Operational Risk Measurement, Control and Monitoring 200 8.4 Operational Risk Culture 200

9. Shariah Compliance 200 Appendices 201

184 Annual Report 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

1 Introduction 1.1 Background AFFIN Bank Berhad ('ABB') adopted Basel II in January 2008 in line with the directive from Bank Negara Malaysia ('BNM'). The Basel II framework is structured around three fundamental Pillars.

- Pillar 1 defines the minimum capital requirement to ensure that financial institutions hold sufficient capital to cover their exposure to credit, market and operational risks.

- Pillar 2 requires financial institutions to have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.

- Pillar 3 requires financial institutions to establish and implement an appropriate disclosure policy that promotes transparency regarding their risk management practices and capital adequacy positions.

ABB elected to adopt the following approaches under Pillar 1 requirements:

- Standardised Approach for Credit Risk - Basic Indicator Approach for Operational Risk - Standardised Approach for Market Risk

1.2 Scope of Application

This document contains the disclosure requirements under Pillar 3 for ABB for the year ended 31 December 2011. The disclosures are made in line with the Pillar 3 disclosure requirements under the Basel II framework as laid out by BNM.

The disclosures should be read in conjunction with ABB’s 2011 Annual Report for the year ended 31 December 2011.

The Group’s capital requirements are generally based on the principles of consolidation adopted in the preparation of its financial statements. The Group’s consolidated entities comprises the Bank and the Bank’s subsidiary, AFFIN Islamic Bank Berhad.

2 Risk Governance Structure 2.1 Overview The Board of Directors of ABB is ultimately responsible for the overall performance of ABB. The Board’s responsibilities remain within the framework of BNM Guidelines. The Board also exercises great care to ensure that high ethical standards are upheld, and that the interests of stakeholders are not compromised. These include responsibility for determining ABB’s general policies and strategies for the short, medium and long term, approving business plans, including targets and budgets, and approving major strategic decisions.

The Board has overall responsibility for maintaining the proper management and protection of ABB’s interests by ensuring effective implementation of the risk management policy and process, as well as adherence to a sound system of internal control, and by seeking regular assurance on their effectiveness. The Board also recognises that risks cannot be eliminated completely. As such, the inherent system of internal control is designed to provide a reasonable though not absolute assurance against the risk of material errors, fraud or losses occurring. The system of internal controls encompasses controls relating to financial, operational, risk management and compliance with applicable laws, regulations, policies and guidelines.

The terms of reference of the Board Committees as disclosed in the Annual Report provide an outline of its role and functions. In carrying out its functions, the Board has delegated specific responsibilities to other Board Committees, which operated under approved terms of reference, to assist the Board in discharging their duties. The Chairmen of the various Committees report on the outcome of their Committee meetings to the Board and any further deliberation is made at Board level, if required. These reports and deliberations are incorporated into the Minutes of the Board meetings. The Board meets on a monthly basis.

The Board of ABB has a balance composition with a strong independent element. It consists of representatives from the private sector with suitable qualifications fulfilling the fit and proper criteria as required by BNM/GP1, a mixture of different skills, competencies, experience and personalities.

AFFIN BANK BERHAD (25046-T) 185 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

2 Risk governance structure (continued) 2.2 Board Committees

Board Remuneration Committee ('BRC')

The BRC is responsible for providing a formal and transparent procedure for developing the remuneration policy for Directors, Managing Director/Chief Executive Officer and key senior management officers and ensuring that compensation is competitive and consistent with ABB’s culture, objectives and strategy.

The Committee obtains advice from experts in compensation and benefits, both internally and externally.

Board Nominating Committee ('BNC')

The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors and Managing Director/Chief Executive Officer, assessing the effectiveness of individual Directors, the Board as a whole and the performance of the Managing Director/Chief Executive Officer and key senior management personnel.

Board Risk Management Committee ('BRMC')

The BRMC is responsible for overseeing management’s activities in managing credit, market, liquidity, operational, legal and other risks and to ensure that the risk management process is in place and functioning.

It has responsibility for reviewing and approving all risk management policies and risk management methodologies. BRMC also reviews guidelines and portfolio management reports including risk exposure information.

The Committee also ensures that the procedures and framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively.

Board Loan Review and Recovery Committee ('BLRRC')

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

Audit and Examination Committee ('AEC')

The AEC is responsible for providing oversight on reviewing the adequacy and integrity of the internal control systems and oversees the work of the internal and external auditors.

Reliance is placed on the results of independent audits performed primarily by internal auditors, the outcome of statutory audits on financial statements conducted by external auditors and on representations by Management based on their control self-assessment of all areas of their responsibility.

Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to Board members for notation and discussion. ABB has an established Group Internal Audit Division (GIA) which reports functionally to the Audit Committee and administratively to the Managing Director/Chief Executive Officer.

Shariah Committee

ABB's business activities are subject to Shariah compliance and conformation by the Shariah Committee. The Shariah Committee is formed as legislated under Section 3(5)(b) of the Islamic Banking Act, 1983 and as per Shariah Governance Framework for Islamic Financial Institutions.

The duties and responsibility of the Shariah Committee are as follows:

(i) To advise the Board on Shariah matters in order to ensure that the business operations of ABB comply with the Shariah principles at all times;

(ii) To endorse and validate relevant documentations of ABB's products to ensure that the product comply with Shariah principles; and

(iii) To advise ABB on matters to be referred to the Shariah Advisory Council.

186 Annual Report 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

2 Risk governance structure (continued) 2.3 Management Committees Management Committee ('MCM')

MCM comprising the senior management team chaired by the MD/CEO, assists the Board in managing the day-to-day operations and ensure its effectiveness. MCM formulates tactical plans and business strategies, monitors ABB’s overall performance, and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual business plan and budget.

Group Management Loan Committee ('GMLC')

GMLC is established within senior management chaired by the MD/CEO to approve complex and larger loans and workout/recovery proposals beyond the delegated authority of the concerned individual senior management personnel of ABB.

Asset and Liability Management Committee ('ALCO')

ALCO's responsibilities include:

(i) Managing the asset liability of ABB through coordination of the overall planning process including strategic planning, budgeting and asset liability management process;

(ii) Directing ABB's overall acquisition and allocation of funds;

(iii) Prudently managing ABB's interest rate exposure;

(iv) Determine the overall Balance Sheet strategy and ensuring policy compliance;

(v) Determined the type and scope of derivative activities, approve individual derivative transactions as well as control over the level of exposure in derivative

(vi) Reviewing of market risks in ABB's trading portfolios;

(vii) Managing the effective usage of economic and regulatory capital throughout the organisation;

(viii) Reviewing and recommending the capital plan for approval;

(ix) Approving capital management standards and policies, capital raising and repayment transactions;

(x) Reviewing quarterly capital adequacy monitoring reports; and

(xi) Reviewing and approving key assumptions inherent in economic capital modeling and stress/scenario tests.

AFFIN BANK BERHAD (25046-T) 187 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

2 Risk Governance Structure (continued) 2.3 Management Committees (continued) Group Operational Risk Management Committee ('GORMC') GORMC is established within senior management to manage operational risks. Its responsibilities include:

(i) To evaluate operational risks issues on escalating importance/strategic risk exposure;

(ii) To review and recommend on broad operational risks management policies best practices for adoption by ABB's operating units;

(iii) To review the effectiveness of broad internal controls and making recommendation on changes if necessary;

(iv) To review/approve recommendation on operational risk management groups section up to address specific issue;

(v) To take the lead in inculcating an operational risks awareness culture;

(vi) To approve operational risk management methodologies/measurements tools; and

(vii) To review and approve the strategic operational risk management initiatives/plans and to endorse for BRMC's approval if necessary.

Early Alert Committee ('EAC') EAC is established within senior management chaired by the MD/CEO to monitor credit quality through monthly review of the Early Alert, Watchlist and Exit Accounts and review the actions taken to address the emerging risks and issues in these accounts.

2.4 Group Risk Management Function An integrated risk management framework is in place. The Group Risk Management ('GRM') function, headed by Group Chief Risk Officer ('GCRO') and operating in an independent capacity, is part of ABB's senior management structure which works closely as a team in managing risks to enhance stakeholders' value.

GRM reports to BRMC. Committees namely BLRRC, GMLC, ALCO and GORMC assist BRMC in managing credit, liquidity and operational risk. The responsibilities of these Committees include risk identification, risk assessment and measurement, risk control and mitigation; and risk monitoring.

2.5 Internal Audit and Internal Control Activities In accordance with BNM's GP10 guidelines, GIA conducts continuous reviews on auditable areas within ABB. The continuous reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance to the audit plan approved by the AEC.

Based on GIA's review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an opinion on the effectiveness of internal controls maintained by each entity. The risks highlighted on the respective auditable areas as well as recommendation made by the GIA are addressed at AEC and Management meetings on bi-monthly basis. The AEC also conduct annual reviews on the adequacy of internal audit function, scope of work, resources and budget of GIA.

188 Annual Report 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

3 Capital 3.1 Capital Structure The following table sets forth details on the capital resources and capital adequacy ratios for the Group as at 31 December 2011. The Group’s Core capital ratio ('CCR') and Risk-weighted capital ratio ('RWCR') as at 31 December 2011 were above the BNM minimum requirements of 4.0% and 8.0% respectively.

The Group The Bank 2011 2010 2011 2010 Tier I capital RM'000 RM'000 RM'000 RM'000 Paid-up share capital 1,439,285 1,439,285 1,439,285 1,439,285 Share premium 408,389 408,389 408,389 408,389 Retained profits 642,638 499,179 530,489 411,831 Statutory reserves 1,011,044 888,910 904,624 807,500

3,501,356 3,235,763 3,282,787 3,067,005

Less: Goodwill (137,323) (137,323) (137,323) (137,323) Deferred tax assets (3,658) - (3,659) -

Total Tier I capital 3,360,375 3,098,440 3,141,805 2,929,682

Tier II capital Subordinated term loan 600,000 300,000 600,000 300,000 Collective impairment 182,269 153,538 138,227 111,304

Total Tier II capital 782,269 453,538 738,227 411,304

Less: Investment in capital instruments of other banking institutions (40,257) (39,858) (40,257) (39,858) Investment in subsidiaries (27,389) (27,429) (287,389) (287,429)

Capital base 4,074,998 3,484,691 3,552,386 3,013,699

Core capital ratio 10.00% 11.51% 10.64% 12.35% Risk-weighted capital ratio 12.12% 12.94% 12.03% 12.71% Core capital ratio (net of proposed dividends) 9.78% 11.24% 10.39% 12.05% Risk-weighted capital ratio (net of proposed dividends) 11.91% 12.67% 11.78% 12.40%

Risk-weighted assets for: Credit risk 31,344,231 24,768,236 27,608,268 21,849,466 Market risk 133,160 96,572 102,489 91,973 Operational risk 2,135,976 2,062,578 1,828,940 1,776,655

Total risk-weighted assets 33,613,367 26,927,386 29,539,697 23,718,094

3.2 Capital Adequacy The Group's has in place an internal limit for its CCR and RWCR, which is guided by the need to maintain a prudent relationship between available capital and the risks of its underlying businesses. The capital management process is monitored by managements through periodic reviews.

Refer to Appendix I.

AFFIN BANK BERHAD (25046-T) 189 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

4 Risk Management Objectives and Policies ABB is principally engaged in all aspects of banking and related financial services. The principal activities of ABB's subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been no significant changes in these principal activities during the financial year.

ABB’s business activities involve the analysis, measurement, acceptance, and management of risks but it operates within well defined risk acceptance criteria covering customer segments, industries and products. ABB does not enter into risk it cannot administer, book, monitor or value, or deal with persons of questionable integrity.

ABB’s risk management policies are established to identify all the key risks, assess and measure these risks, control and mitigate these risks, and manage and monitor the risk positions.

ABB regularly reviews its risk management policies and systems to reflect changes in markets, products and best practice in risk management processes. ABB’s aim is to achieve an appropriate balance between risk and return and minimise any potential adverse effects.

The key business risks to which ABB is exposed are credit risk, liquidity risk, market risk and operational risk.

5 Credit Risk 5.1 Credit Risk Management Objectives and Policies

Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial and contractual obligations to ABB. Credit risk emanates mainly from loans and advances, loan commitments arising from such lending activities, as well as through financial transactions with counterparties including interbank money market activities, derivative instruments used for hedging and debt securities.

The management of credit in ABB is governed by a set of credit policies approved by the Board of Directors. Approval authorities are delegated to Senior Management and GMLC to implement the credit policies and ensure sound credit granting standards.

An independent GRM function with a direct reporting line to BRMC is in place to ensure adherence to risk standards and discipline.

5.2 Application of Standardised Approach for Credit Risk ABB uses the following ECAIs to determine the risk weights for the rated credit exposures:-

• RAM Rating Services Berhad • Malaysian Rating Corporation Berhad • Standard & Poor’s Rating Services • Moody’s Investors Service • Fitch Ratings

190 Annual Report 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

5 Credit Risk (continued) 5.2 Application of Standardised Approach for Credit Risk (continued) The external ratings of the ECAIs are used to determine the risk weights of the following types of exposure: sovereigns, banks, public sector entities and corporates.

The mapping of the rating categories of different ECAIs to the risk weights is in accordance with the guidelines provided by BNM. In cases where there is no issuer or issue rating, the exposures are treated as unrated and accorded a risk weight appropriate for unrated exposure in the respective category.

The external ratings are updated in the core banking system, and extracted and matched by the risk system according to the above rules to determine the appropriate risk weights.

Refer to Appendix II and Appendices III (i) to III (ii).

5.3 Credit Risk Measurement Loans, advances and financing Credit evaluation is the process of analysing the creditworthiness of the prospective customer against ABB’s underwriting criteria and the ability of ABB to make a return commensurate to the level of risk undertaken. A critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in the risk assessment and decision making process. ABB has developed internal rating models to support the assessment and quantification of credit risk.

Over-the-Counter ('OTC') Derivatives

The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure method, computation of credit equivalent exposure for interest rate and exchange rate related contracts is derived from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to maturity).

5.4 Risk Limit Control and Mitigation Policies ABB employs various policies and practices to control and mitigate credit risk.

Lending limits ABB establishes internal limits and related lending guidelines to manage large exposures and avoid undue concentration of credit risk in its credit portfolio. The limits include single customer groupings, connected parties, and geographical and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on changing market and economic conditions.

The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customers together with potential exposure from market movements.

AFFIN BANK BERHAD (25046-T) 191 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

5 Credit Risk (continued) 5.4 Risk Limit Control and Mitigation Policies (continued) Collateral

Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral may be taken to mitigate credit risk. The main collateral types accepted and given value by ABB are:

• Mortgages over residential properties; • Charges over commercial real estate or vehicles financed; • Charges over business assets such as business premises, inventory and account receivables; and • Charges over financial instruments such as marketable securities

In order to be recognised as security, all items pledged must have value and ABB must have physical control and/or legal title thereto, together with the necessary documentation to enable ABB to realise the asset without the co-operation of the asset owner. Other items, such as personal or corporate guarantees, may be taken for comfort but will not be treated as security for approval purposes. Valuations are updated on a regular basis.

Prior to acceptance of any item as security, verification must be done to ensure that the security exists and an accurate and up-to-date valuation can be placed upon it. A pre-facility disbursement site visit must be undertaken in respect of landed security of significant value. Where third parties are used to undertake a valuation they must be taken from a list of approved valuers.

All assets which provide security to ABB must be adequately insured with an insurer from the list of approved insurers.

The security documentation process is centralised in an independent Security Documentation Section at Head Office. ABB adopts standardised Letter of Offer and Legal Documents. Variations/amendments require the approval from the relevant approving authority in the Bank.

Financial covenants (for credit related commitments and loan books)

Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees or letters of credit. In terms of credit risk, ABB is potentially exposed to loss in an amount equal to the total unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.

ABB monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than short-term commitments.

Refer to Appendix IV (a) to (b).

192 Annual Report 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

5 Credit Risk (continued) 5.5 Credit Risk Monitoring Retail credits are actively monitored and managed on a portfolio basis by product type. A new collection management system has been implemented with a dedicated team in place to promptly identify, monitor and manage delinquent accounts at early stages of delinquency.

Portfolio management risk reports are submitted regularly to EAC and BRMC.

5.6 Impairment Provisioning Individual impairment provisioning Significant loans, with or without past due status, are subject to individual assessment for impairment when an evidence of impairment surfaces or at the very least once annually during the annual review process.

If impaired, the amount of loss is measured as the difference between the asset‘s carrying value and the present value of estimated future cash flows discounted at the financial assets original effective interest rate. The level of impairment allowance on significant loans is reviewed regularly, at least quarterly or more often when circumstances require.

Significant loans that are deemed not impaired after individual assessment are included in a group of loans with similar characteristics and collectively assessed for impairment.

Collective impairment provisioning All loans are grouped in respective business segments according to similar credit risk characteristics and is generally based on industry, asset or collateral type, credit grade and past due status grouped based on business segments.

Portfolio provisioning is determined for each segment based on its respective loss probabilities and other information relevant to estimation of the future cash flows of each segment.

Collective provisioning is applicable to all loans not covered under individual assessment as well as significant loans that are deemed not impaired after individual assessment.

AFFIN BANK BERHAD (25046-T) 193 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

5 Credit Risk (continued) 5.6 Impairment Provisioning (continued) Analysed by economic sector

The Group The Bank 2011 2010 2011 2010 Past due loans RM'000 RM'000 RM'000 RM'000

Primary agriculture 15,363 25,065 15,022 25,000 Mining and quarrying 1,063 1,034 1,000 1,034 Manufacturing 34,755 55,979 33,733 53,530 Electricity, gas and water supply 1,253 1,701 1,190 1,580 Construction 148,750 195,354 116,430 132,596 Real estate 31,084 183,208 31,084 181,164 Wholesale & retail trade and restaurants & hotels 74,168 69,846 71,508 63,909 Transport, storage and communication 39,594 58,578 37,872 57,658 Finance, insurance and business services 65,535 271,344 63,957 222,654 Education, health and others 107,549 130,868 106,456 130,467 Household 2,115,554 2,220,092 1,745,578 1,872,993 Others - 142 - 142

2,634,668 3,213,211 2,223,830 2,742,727

The Group The Bank 2011 2010 2011 2010 Individual impairment RM'000 RM'000 RM'000 RM'000

Primary agriculture 2,350 5,778 2,349 5,778 Manufacturing 10,712 47,302 3,869 40,105 Electricity, gas and water supply 1,030 1,184 1,030 1,184 Construction 126,033 92,408 99,601 65,022 Real estate 1,870 1,900 1,870 1,900 Wholesale & retail trade and restaurants & hotels 1,431 15,122 242 14,600 Finance, insurance and business services 22,604 3,368 22,213 3,368 Education, health and others 45 8,786 45 7,752 Household 2,182 - 2,110 -

168,257 175,848 133,329 139,709

194 Annual Report 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

5 Credit Risk (continued) 5.6 Impairment Provisioning (continued) Analysed by economic sector (continued)

The Group The Bank 2011 2010 2011 2010 Individual impairment charged RM'000 RM'000 RM'000 RM'000

Primary agriculture 665 6,039 665 6,039 Mining and quarrying - 1,046 - 1,046 Manufacturing 4,793 45,226 3,377 43,262 Electricity, gas and water supply 48 1,191 48 1,191 Construction 82,192 98,539 80,311 75,814 Real estate 926 2,075 926 2,075 Wholesale & retail trade and restaurants & hotels 3,919 15,588 3,088 15,066 Transport, storage and communication - 6,599 - 6,599 Finance, insurance and business services 22,948 3,789 22,557 3,789 Education, health and others 55 17,931 55 17,835 Household 1,363 - 853 -

116,909 198,023 111,880 172,716

The Group The Bank 2011 2010 2011 2010 Individual impairment written-off RM'000 RM'000 RM'000 RM'000

Primary agriculture 3,666 - 3,666 - Mining and quarrying - 1,046 - 1,046 Manufacturing 34,778 2,677 34,330 1,502 Construction 45,116 71,454 43,227 71,454 Real estate 13 7,157 13 7,157 Wholesale & retail trade and restaurants & hotels 10,049 5,271 10,049 5,271 Transport, storage and communication - 6,549 - 6,549 Finance, insurance and business services 2,368 63,076 2,368 63,076 Education, health and others - 13,675 - 13,675 Household 235 - 235 -

96,225 170,905 93,888 169,730

AFFIN BANK BERHAD (25046-T) 195 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

5 Credit Risk (continued) 5.6 Impairment Provisioning (continued) Analysed by economic sector (continued)

The Group The Bank 2011 2010 2011 2010 Collective impairment RM'000 RM'000 RM'000 RM'000

Primary agriculture 2,223 2,877 1,796 2,642 Mining and quarrying 801 1,350 797 1,337 Manufacturing 19,175 28,455 17,093 27,135 Electricity, gas and water supply 561 716 521 678 Construction 22,194 18,408 18,148 16,102 Real estate 12,271 8,258 10,456 8,035 Wholesale & retail trade and restaurants & hotels 12,996 12,352 12,662 11,932 Transport, storage and communication 8,413 5,406 8,312 5,380 Finance, insurance and business services 17,298 15,591 14,845 13,891 Education, health and others 6,611 6,658 4,376 5,517 Household 349,056 268,318 301,884 249,333 Others - 27,312 - 1,238

451,599 395,701 390,890 343,220

Analysed by geographical area

The Group The Bank 2011 2010 2011 2010 Past due loans RM'000 RM'000 RM'000 RM'000

Perlis 2,136 1,613 1,876 1,271 Kedah 121,774 150,752 85,200 89,000 Pulau Pinang 101,470 126,917 92,451 118,361 Perak 131,475 145,745 91,731 108,697 Selangor 715,453 909,378 597,053 795,447 Wilayah Persekutuan 392,363 654,069 354,355 578,597 Negeri Sembilan 110,914 123,082 101,609 111,816 Melaka 136,583 134,772 132,924 131,112 Johor 271,243 320,955 251,586 299,750 Pahang 111,174 98,030 85,555 71,358 Terengganu 68,159 65,665 14,527 14,879 Kelantan 53,775 56,413 5,571 7,026 Sarawak 149,629 148,198 146,454 144,516 Sabah 268,520 277,149 262,938 270,436 Labuan - 269 - 257 Outside Malaysia - 204 - 204

2,634,668 3,213,211 2,223,830 2,742,727

196 Annual Report 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

5 Credit Risk (continued) 5.6 Impairment Provisioning (continued) Analysed by geographical area (continued)

The Group The Bank 2011 2010 2011 2010 Individual impairment RM'000 RM'000 RM'000 RM'000

Kedah 1,283 6,394 1,283 6,394 Pulau Pinang 858 646 858 640 Perak 2,404 2,084 2,404 2,084 Selangor 95,843 68,011 95,842 60,293 Wilayah Persekutuan 30,858 28,525 29,597 54,881 Negeri Sembilan 2,349 2,127 2,349 2,127 Melaka - 777 - 777 Johor 930 2,778 930 2,778 Pahang 6,843 5,968 - 5,968 Terengganu - 2,613 - 2,613 Kelantan 66 1,154 66 1,154 Outside Malaysia 26,823 27,386 - -

168,257 148,463 133,329 139,709

The Group The Bank 2011 2010 2011 2010 Collective impairment RM'000 RM'000 RM'000 RM'000

Perlis 438 312 418 303 Kedah 20,780 11,156 17,603 9,581 Pulau Pinang 19,788 12,111 18,211 11,227 Perak 16,412 13,267 12,870 12,138 Selangor 179,768 128,479 155,598 91,650 Wilayah Persekutuan 80,214 154,491 71,426 150,545 Negeri Sembilan 25,262 8,937 23,530 8,103 Melaka 12,629 9,198 12,156 8,889 Johor 44,068 26,892 41,487 25,460 Pahang 10,711 6,658 7,699 5,266 Terengganu 6,757 4,105 2,992 2,767 Kelantan 7,655 3,129 1,129 734 Sarawak 10,683 6,079 10,253 5,930 Sabah 16,434 9,895 15,518 9,635 Labuan - 992 - 992

451,599 395,701 390,890 343,220

AFFIN BANK BERHAD (25046-T) 197 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

5 Credit Risk (continued) 5.7 Credit Risk Culture ABB recognises that learning is a continuous journey and is committed to enhance the knowledge and required skills set of its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation.

For effective and efficient staff learning, ABB has implemented an E–Learning Program with an online Learning Management System ('LMS'). The LMS provides staff with a progressive self-learning alternative at own pace.

GRM commenced an Internal Credit Certification ('ICC') Programme for both Business Banking and Consumer Credit in July 2009 and August 2009 respectively.

The aim of the ICCs is to assist the core credit related group of personnel in ABB achieve a minimum level of knowledge and analytical skills required to make sound corporate and commercial loans to customers. It is envisaged that the core credit related group of personnel would all be certified within 2 to 3 years.

6 Market Risk 6.1 Market Risk Management Objectives and Policies Market risk is defined as the risk of losses to ABB’s portfolio positions arising from movements in market prices. ABB’s market risk management objective is to ensure that market risk is appropriately identified, measured, controlled, managed and reported.

ABB’s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate risk arises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives. ABB is also exposed to basis risk when there is a mismatch between the change in price of a hedge and the change in price of the assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers' requirements and proprietary positions.

6.2 Application of Standardised Approach for Market Risk ABB adopts the Standardised Approach for the purpose of calculating the capital requirement for market risk.

Refer to Appendix 1.

6.3 Market Risk Measurement, Control and Monitoring Market risk arising from ABB’s trading book is primarily controlled through the imposition of Cut-loss and Value-at-Risk ('VaR') Limits which are approved by both ALCO and BRMC in accordance with ABB's risk appetite. These limits are set and reviewed regularly having regard to a number of factors, including liquidity and ABB's business strategy.

For non-trading book, ABB quantifies the interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate sensitive liabilities. ABB also performs Net Interest Income simulation to assess the variation in earnings under various rates scenarios.

The non-trading book’s interest rate risk is managed through limits set over time buckets together with an Overall Risk Tolerance Limit.

In addition, ABB conducts periodic stress test of its respective portfolios to ascertain market risk under abnormal market conditions.

ABB's Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.

198 Annual Report 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

6 Market Risk (continued) 6.4 Value-at-Risk ('VaR') Value-at-Risk ('VaR') is used to compute the maximum potential loss amount over a specified holding period of a Trading portfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign exchange rates that could affect values of financial instruments.

Other risk measures include the following:

(i) Mark-to-Market valuation tracks the current market value of the outstanding financial instruments.

(ii) Stress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market movements. The stress test measure the change in value arising from range of extreme movements in the interest rates and foreign exchange rates based on past experience and simulated stress scenarios.

(iii) Sensitivity/Dollar Duration is an additional measure of interest rate risk that is computed on a daily basis. It measures the change in value of a portfolio resulting from a 0.01% increase in interest rates. This measure identifies ABB interest rate exposures that are most vulnerable to interest rate changes and it facilitates the implementation of hedging strategies.

6.5 Foreign Exchange Risk ABB takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in aggregate for both overnight and intra- day positions, which are monitored daily.

6.6 Market Risk Culture In October 2010, ABB introduced ICC-Market Risk with the Diagnostic Assessment conducted through the LMS.

7 Liquidity Risk 7.1 Liquidity Risk Management Objectives and Policies Liquidity risk is the risk of loss due to failure to access funds at reasonable cost to fund ABB's operations and meet its liabilities when they fall due. Liquidity risk arises from ABB's funding activities and the management of its assets.

7.2 Liquidity Risk Measurement, Control and Monitoring

To measure and manage net funding requirements, ABB adopts BNM's New Liquidity Framework ('NLF'). The NLF ascertains the liquidity condition based on the contractual and behavioral cash-flow of assets, liabilities and off-balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets. The NLF is also supported by indicative ratios on the Bank’s funding structure to monitor the reliance on particular funding sources.

ABB employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. The risk is measured monthly using internal and external qualitative and quantitative liquidity risk indicators. ABB also conducts liquidity stress tests to gauge ABB’s resilience in the event of a funding crisis. In addition, the Bank has in place the Contingency Funding Plan, which provides a systematic approach in handling liquidity disruption. The document encompasses strategies, decision-making authorities, and courses of action to be taken in the event of liquidity crisis and emergencies.

BRMC is responsible for ABB's liquidity policy although the strategic management of liquidity has been delegated to ALCO. The BRMC is informed regularly of the liquidity situation in the ABB.

AFFIN BANK BERHAD (25046-T) 199 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

8 Operational Risk 8.1 Operational Risk Management Objectives and Policies Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people, infrastructure or technology or events which are beyond the bank’s immediate control which have an operational impact, including natural disaster, fraudulent activities and money laundering.

ABB manages operational risk through a control based environment in which policies and procedures are formulated after taking into account individual unit’s business activities, the market in which it is operating and regulatory requirement in force.

8.2 Application of Basic Indicator Approach for Operational Risk ABB adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational risk. The capital requirement is calculated by taking 15% of ABB’s average annual gross income over the previous three years.

8.3 Operational Risk Measurement, Control and Monitoring Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix. Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodic reviews undertaken by GIA to ensure adequacy and effectiveness of the Group Operational Risk Management process.

ABB gathers and reports operational risk loss and 'near miss' events to GORMC and BRMC. Appropriate remedial actions are reviewed and implemented to minimise the recurrence of such events.

8.4 Operational Risk Culture As a matter of requirement, all Operational Risk Coordinators must satisfy an internal operational risk (including anti-money laundering/counter financing of terrorism and business continuity management) Certification Program. These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to measure their skills and knowledge level. This will enable GRM to prescribe appropriate training and development activities for the coordinators.

9 Shariah Compliance

Shariah compliance is the fundamental of Islamic banking and finance. It gives legitimacy to the practices and business operations of the Islamic financial institutions ('IFIs') concerned. Comprehensive compliance with Shariah principles would also boosts confidence of shareholders and public that all the practices and activities by the IFIs are in compliance with the Shariah principles at all times.

Shariah Governance Framework for Islamic Financial Institutions (the 'Framework') issued by Bank Negara Malaysia becomes the main reference to oversee the Shariah governance process within AFFIN Islamic Bank Berhad. In order to comply with all the requirements in the Framework, Board of Directors of the Bank are very committed to ensure among others all the required Shariah compliance and research functions include Shariah Risk Management Control, Shariah Review, Shariah Research and Shariah Audit are properly established to undertake its respective functions. Equally important to it, the existence of Shariah Committee with qualified members that regularly provides the Bank with Shariah advice and guidance has further strengthened the Shariah governance process within the Bank.

200 Annual Report 2011 8% APPENDIX I PSIA - 601,122 - 48,090 - - - - 3,491,573 279,326 - 13,032,517 - 1,042,601 - 31,344,231 2,507,538 - 27,852,658 2,228,212 PSIA Total RiskTotal Risk Total Minimum Assets 2,135,976 170,878 33,613,367 - 31,344,231 2,689,069 Gross Net Assets Weighted Assets Weighted Capital 21,286 21,286 21,286 - 1,703 480,308 468,241 401,279 400,748 601,122 468,241 - 37,459 314,927 307,035 460,548 460,548 - 36,844 4,061,557 3,898,896 3,491,573 9,983,406 9,881,160 7,413,326 2,017,8183,310,875 1,157,879 7,413,326 - 593,067 2,017,818 250,702 3,547,045 3,542,236 1,872,792 1,157,879 - 250,702 20,056 - 92,630 1,872,792 - 149,823 3,746,630 3,591,861 3,031,025 3,031,025 - 242,482 2,265,022 2,232,566 3,034,793 3,034,793 - 242,783 12,388,534 - 54,182,644 53,041,242 31,344,231 15,705,514 14,866,815 13,032,517 50,121,087 49,142,346 27,852,658 before CRM after CRM Exposures/EAD Exposures/EAD Risk Weighted Absorbed by after Effects of Requirements at 31,367 31,651 60,746 (283) - - 4,860 3,280,139 3,158,611 3,280,139 3,158,611 121,528 72,414 - - 5,793 Long Position Short Position OTC derivatives or credit derivatives OTC derivatives or credit Regulatory Retail Other Assets Banks Sovereigns/Central Banks, Development Financial Institutions & MDBs Insurance Companies, Securities Firms & Fund Managers Residential Real Estate (RRE) Financing Higher Risk Assets Equity Exposure On Balance Sheet Exposures Corporates Off Balance Sheet Exposures Off other than Balance Sheet Exposures Off PSIA "Profit Sharing Investment Account" PSIA "Profit OTC "Over The Counter" Exposure Class Defaulted Exposures for On-Balance Sheet Exposures Total Defaulted Exposures for Off-Balance Sheet Exposures Total for On and Off-Balance Sheet Exposures Total Risk Currency Foreign Operational Risk and Capital Requirements RWA Total Interest Rate Risk Interest 1 CREDIT RISK 1 CREDIT The Group and the Bank have adopted Basel II - Risk Weighted Assets computation under the BNM's Risk-Weighted Capital Adequacy Framework with effect from 1 January 2008. The Group and the Bank 1 January 2008. The Group from Capital Adequacy Framework with effect Assets computation under the BNM's Risk-Weighted and the Bank have adopted Basel II - Risk Weighted The Group for operation risk computation. risk and market risk, Basic Indicator Approach for credit Approach have adopted the Standardised and does not form part of the audited accounts. disclosed as accompanying information to the annual report, are The following information concerningand the Bank's risk exposures the Group Approach (RM'000) Adequacy under the Standardised Disclosure on Capital The Group 2011 3 RISK OPERATIONAL 2 MARKET RISK BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

AFFIN BANK BERHAD (25046-T) 201 8% 723 875 7,629 3,515 5,549 2,177 43,212 62,285 46,632 28,402 936,592 APPENDIX I - - PSIA 9,040 95,362 10,941 43,934 11,707,401 - - - 778,567 582,895 - 540,152 - - - - - 7,408,826 355,022 592,706 - - 1,683,907 23,172,113 - 134,713 - 1,853,769 - 1,552,189 - 1,596,123 124,175 24,768,236 - - 127,690 1,981,459 PSIA Total RiskTotal Risk Total Minimum 9,040 Assets 95,362 10,941 43,934 69,361 27,211 778,567 582,895 540,152 355,022 2,062,578 165,006 11,707,401 26,927,386 - 24,768,236 2,154,191 24,768,236 26,927,386 - 95,362 45,199 29,289 (13,713) 13,151,465 Gross Net Assets Weighted Assets Weighted Capital 95,362 51,159 31,835 22,612 389,024 388,597 1,980,809 1,978,940 1,970,016 1,970,016 9,990,439 1,007,575 9,878,644 1,007,575 7,408,826 1,275,168 1,255,513 1,683,907 2,109,313 2,072,773 1,596,123 2,077,478 2,043,484 1,552,189 11,727,290 11,727,290 42,505,772 41,498,601 23,172,113 44,615,085 43,571,374 24,768,236 before CRMbefore after CRM Exposures/EAD Exposures/EAD Risk Weighted Absorbed by of after Effects at Requirements 8,899 2,609,530 2,473,385 136,145 Long Position Short Position OTC derivatives or credit derivatives OTC derivatives or credit Insurance Companies, Securities Firms & Fund Managers Residential Real Estate (RRE) Financing Higher Risk Assets Banks, Development Financial Institutions & MDBs Sovereigns/Central Banks Sovereigns/Central Public Sector Entities Regulatory Retail Other Assets On Balance Sheet Exposures Corporates 14,018,930 Exposure Class Exposure Defaulted Exposures for On-Balance Sheet Exposures Total Defaulted Exposures Sheet Exposures for Off-Balance Total Sheet Exposures for On and Off-Balance Total Risk Currency Foreign Operational Risk and Capital Requirements RWA Total Interest Rate Risk Interest Sharing Investment Account" PSIA "Profit OTC "Over The Counter" Off Balance Sheet Exposures Off other than Balance Sheet Exposures Off 2 MARKET RISK Disclosure on Capital Adequacy under the Standardised Approach (RM'000) Adequacy under the Standardised Disclosure on Capital (continued) The Group 2010 1 CREDIT RISK 1 CREDIT 3 RISK OPERATIONAL BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

202 Annual Report 2011 8% APPENDIX I PSIA - 11,685,047 - 11,685,047 934,804 - 3,151,504 252,120 - 24,456,764 1,956,541 - 27,608,268 2,208,661 PSIA Total RiskTotal Risk Total Minimum Assets 1,828,940 146,315 29,539,697 - 27,608,268 2,363,175 27,608,268 29,539,697 - Gross Net Assets Weighted Assets Weighted Capital 21,286 21,286 21,286 - 1,703 369,693 369,693 359,952 359,422 539,133 369,693 - 29,575 539,133 - 43,131 310,304 302,531 453,793 453,793 - 36,303 3,321,998 3,174,387 2,697,711 3,632,302 - 2,697,711 215,817 3,476,918 3,151,504 8,680,704 8,582,647 6,439,439 2,278,319 468,235 7,251,236 3,135,881 1,122,880 6,439,439 - 515,155 2,437,678 2,435,175 1,056,292 - - 468,235 1,122,880 - 37,459 89,830 1,056,292 - - 84,503 - - 2,049,518 2,017,076 2,754,759 2,754,759 - 220,381 13,814,948 13,051,434 11,685,047 40,399,215 39,502,169 24,456,764 44,031,517 42,979,087 27,608,268 before CRM after CRM Exposures/EAD Exposures/EAD Risk Weighted Absorbed by after Effects of Requirements at 30,075 979 29,096 30,075 29,096 2,406 - - 30,075 979 3,280,139 3,158,611 3,280,139 3,158,611 121,528 72,414 - - 5,793 Long Position Short Position OTC derivatives or credit derivatives OTC derivatives or credit On Balance Sheet Exposures Corporates Regulatory Retail Other Assets Banks Sovereigns/Central Banks, Development Financial Institutions & MDBs Insurance Companies, Securities Firms & Fund Managers Residential Real Estate (RRE) Financing Higher Risk Assets Equity Exposure Balance Sheet Exposures Off other than Balance Sheet Exposures Off Exposure Class Defaulted Exposures for On-Balance Sheet Exposures Total Defaulted Exposures for Off-Balance Sheet Exposures Total for On and Off-Balance Sheet Exposures Total Risk Currency Foreign Operational Risk and Capital Requirements RWA Total PSIA "Profit Sharing Investment Account" PSIA "Profit OTC "Over The Counter" Interest Rate Risk Interest 1 CREDIT RISK 1 CREDIT BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 Disclosure on Capital Adequacy under the Standardised Approach (RM'000) Adequacy under the Standardised Disclosure on Capital (continued) The Bank 2011 3 RISK OPERATIONAL 2 MARKET RISK

AFFIN BANK BERHAD (25046-T) 203 - 24 8% 723 5,549 3,515 1,809 42,319 58,138 41,512 42,038 850,129 APPENDIX I - - - 306 PSIA 9,040 43,934 10,626,610 - - - 726,720 518,901 - - 528,984 - - - - 5,963,336 525,486 477,067 - - 1,498,164 20,397,547 - 119,853 - 1,631,803 - 1,407,985 - 1,451,919 112,639 21,849,466 - 116,154 1,747,957 - PSIA Total RiskTotal Risk Total Minimum - 306 9,040 Assets 69,361 43,934 22,612 726,720 518,901 528,984 525,486 1,776,655 142,132 10,626,610 23,718,094 - 21,849,466 1,897,447 21,849,466 23,718,094 - 306 45,199 29,289 (18,312) 11,749,181 306 Gross Net Assets Weighted Assets Weighted Capital 51,159 31,835 22,612 346,361 345,933 1,859,507 1,857,981 1,914,175 1,914,175 8,186,533 8,186,533 8,055,493 1,286,037 7,951,324 1,286,037 5,963,336 1,128,386 1,108,751 1,814,442 1,498,164 1,846,277 1,780,448 1,809,737 1,407,985 1,451,919 35,368,010 34,445,420 20,397,547 37,214,287 36,255,157 21,849,466 before CRMbefore after CRM Exposures/EAD Exposures/EAD Risk Weighted Absorbed by of after Effects at Requirements 4,300 2,609,530 2,473,385 136,145 Long Position Short Position OTC derivatives or credit derivatives OTC derivatives or credit Insurance Companies, Securities Firms & Fund Managers Residential Real Estate (RRE) Financing Higher Risk Assets Banks, Development Financial Institutions & MDBs Sovereigns/Central Banks Sovereigns/Central Public Sector Entities Regulatory Retail Other Assets On Balance Sheet Exposures Corporates 12,540,053 Interest Rate Risk Interest Off Balance Sheet Exposures Off other than Balance Sheet Exposures Off Sharing Investment Account" PSIA "Profit OTC "Over The Counter" Exposure Class Exposure Defaulted Exposures for On-Balance Sheet Exposures Total Defaulted Exposures Sheet Exposures for Off-Balance Total Sheet Exposures for On and Off-Balance Total Risk Currency Foreign Operational Risk and Capital Requirements RWA Total 2 MARKET RISK Disclosure on Capital Adequacy under the Standardised Approach (RM'000) Adequacy under the Standardised Disclosure on Capital (continued) The Bank 2010 1 CREDIT RISK 1 CREDIT 3 RISK OPERATIONAL BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

204 Annual Report 2011 APPENDIX I BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

Disclosure on Capital Adequacy under the Standardised Approach (continued) Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. The Bank’s Capital-at-Risk ('CaR') is defined as the amount of the Bank’s capital that is exposed to the risk of unexpected losses arising particularly from movements in interest and foreign exchange rates. A CaR Limit is set as a management trigger to ensure that the Bank’s exposure to such movements do not compromise the Bank’s capital adequacy. The Bank is currently adopting BNM’s Standardised Approach for the computation of market risk capital charges. The market risk capital charges addresses among others, capital requirement for market risk which includes the interest rate risk pertaining to the Bank’s exposure in the trading book as well as foreign exchange risk in the trading and banking books.

The computation of market risk capital charge covers the following outstanding financial instruments: a) Foreign Exchange b) Interest Rate Swap ('IRS') c) Cross Currency Swap ('CCS') d) Fixed Income Instruments (i.e. Private Debt and Government Securities)

AFFIN BANK BERHAD (25046-T) 205 - APPENDIX II After Total Credit Risk Weighted Equity Mitigation Assets Exposure - Securitisation Specialised Netting & Risk Total ------Regulatory Residential Higher Risk Other Financing/ Exposures after Netting and Credit Risk Mitigation Insurance Securities Companies, ------MDBs & Fund - - 1,790,162 - 775,822 797 626,070 - - - - - 3,192,851 1,596,426 3,192,851 8,326,444 601,970 - 626,070 - - - - 11,101,926 1,719,914 797 775,822 - 954,581 - - - - - 1,719,914 ------1,790,162 - 10,147,345 ------15,142,052 - - - 7,952 531,245 20,389 523,929 238,760 37,058 - - - 36,001 - - - 16,522,671 - - - - 16,522,671 - - - 21,286 - 1,252,732 407,616 174,089 453,716 - - - 3,245 - - - - 3,491,099 2,327,399 - - - 40,257 - - - 51,243 1,600 2,053,153 15,084 1,869,989 1,668 - - 35,371 - - - 4,028,108 805,622 4,028,108 35,371 - - - 1,668 - 1,869,989 15,084 2,053,153 1,600 51,243 12,407,931 ------1,740,442 - - - 14,148,373 - 14,148,373 1,740,442 - - - 12,407,931 - - Sovereigns Banks, Firms PSE "Public Sector Entities" MDB "Multilateral Development Banks" FDI "Financial Development Institutions" 0% 10% 20% 35% 50% 75% 90% 100% 110% 125% 135% 150% 270% 350% 400% 625% 938% 1250% Average Risk Weight Weights Bank PSEs and FDIsManagersRisk PSEs Corporates Bank Weights and Retail & Central Mortgage Assets Assets Investment Deduction Capital from Base BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 Disclosure on Credit Risk: Disclosures on Risk Weights under the Standardised Approach (RM'000) under the Standardised Disclosure on Credit Risk: Disclosures Risk Weights The Group 2011

206 Annual Report 2011 - APPENDIX II After Total Credit RiskCredit Weighted Equity Mitigation Assets Exposure - Securitisation - - 1,946,178 1,297,452 - Specialised Netting & Risk Total Regulatory Residential Higher Risk Other Financing/ Exposures after Netting and Credit Risk Mitigation after Netting and Credit Exposures Insurance Securities Companies, FDIs Managers Corporates Retail Mortgage Assets Assets Investment MDBs & Fund ------326,319 543,654 1,018 423,216 3,245 & Central Sovereigns Banks, Firms ) Risk BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 The Group 2010 Disclosure on Credit Risk: Disclosures on Risk Weights under the Standardised Approach (RM'000) under the Standardised Disclosure on Credit Risk: Disclosures Risk Weights (continued 100% 10,941 - 39,824 105,464 12,189,309 8,703 247,982 34,559 336,960 - - - 12,973,742 12,973,742 12,973,742 - - 336,960 - 34,559 247,982 8,703 12,189,309 105,464 39,824 10,941 - 100% 110% 135% 150% 350% 400% 625% ------1250% Average Risk Weight 20% 131,982 45,209 1,751,344 - 1,104,217 875 - - 65,973 - - - 3,099,600 619,920 3,099,600 65,973 - - - 1,238,286 875 - - 12,320,649 1,104,217 2,476,573 601,396 - - 492,107 - 1,751,344 - - 572,920 - - - - 7,498,003 11,719,253 - - 1,406,021 0% 45,209 238 10% 1,330,074 9,997,337 131,982 20% - 1,406,021 - - - - 35% ------573,341 - 50% - 9,997,337 - - - - 75% - - - 90% - - - - - 125% 270% 938% Deduction Capital from Base - 39,858 - - - - - PSE "Public Sector Entities" - MDB "Multilateral Development Banks" FDI "Financial Development Institutions" Weights Bank PSEs Bank Weights and

AFFIN BANK BERHAD (25046-T) 207 - 14,834,608 APPENDIX II After Total Credit Risk Weighted Equity Mitigation Assets Exposure - Securitisation Specialised Netting & Risk Total Regulatory Residential Higher Risk Other Financing/ Exposures after Netting and Credit Risk Mitigation Insurance Securities Companies, MDBs & Fund ------36,001 ------375,830 125,687 383,203 1,223,311 ------3,216,048 2,144,032 - - 1,600 1,864,977 - 1,289,793 1,668 - - 389,185 - - - 3,547,223 709,445 14,834,608 3,547,223 1,541,366 21,286 389,185 - - - 3,082,732 - 390,398 - 1,668 - 6,737,571 1,289,793 569,231 - 561,873 - - - - - 355,427 8,983,428 1,626,373 1,864,977 - 7,952 (125) 730,822 13,650,277 - 163,917 - - - - - 1,626,373 - - - - 1,600 ------1,790,162 - - 8,819,511 388,879 - - - - - 20,389 ------40,257 ------7,261,956 ------1,498,735 - - - 8,760,691 - 8,760,691 1,498,735 - - - 7,261,956 - - Sovereigns Banks, Firms BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 Approach (RM'000) under the Standardised Disclosure on Credit Risk: Disclosures Risk Weights (continued) The Bank 2011 Risk & Central 110% 125% 135% 150% 270% 350% 400% 625% 938% 1250% Average Risk Weight 0% 20% 35% 50% 75% 90% 100% Deduction Capital from Base PSE "Public Sector Entities" MDB "Multilateral Development Banks" FDI "Financial Development Institutions" 10% Weights Bank PSEs and FDIsManagersPSEs Corporates Bank Weights and Retail Mortgage Assets Assets Investment

208 Annual Report 2011 - APPENDIX II After Total Credit RiskCredit Weighted Equity Mitigation Assets Exposure - Securitisation Specialised Netting & Risk Total Regulatory Residential Higher Risk Other Financing/ Exposures after Netting and Credit Risk Mitigation after Netting and Credit Exposures ------Securities Insurance Companies, ------FDIs Managers Corporates Retail Mortgage Assets Assets Investment MDBs & Fund ------326,318 482,009 1,018 364,240 - - - 1,760,378 1,173,585 - & Central Sovereigns Banks, Firms Deduction Capital from Base - 39,858 - - - - - PSE "Public Sector Entities" - MDB "Multilateral Development Banks" FDI "Financial Development Institutions" 100% - - 39,824 10,408 11,098,278 3,875 232,490 - 476,074 - - - 11,860,949 11,860,949 547,491 2,737,454 11,860,949 1,156,172 247,060 - - - - - 476,074 - 2,312,344 875 - 760,651 471,963 - 232,490 - 509,514 - - - - 6,052,513 1,683,644 - 1,348,467 3,875 238 1,229,251 11,098,278 8,070,017 45,209 20% - 1,348,467 - - - - 35% 15 573,341 - 50% - 8,070,017 - - - - 10,408 75% - - - 90% - - 39,824 100% - - - 110% - - - 125% 135% - - 150% 350% 400% - - 625% - - 938% 1250% - - - - Average Risk Weight 270% 0% 8,189,437 ------562,902 - - - 8,752,339 - 8,752,339 562,902 - - - 8,189,437 - - 0% 10% Weights Bank PSEsRisk Bank Weights and BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 Disclosure on Credit Risk: Disclosures on Risk Weights under the Standardised Approach (RM'000) Approach under the Standardised on Risk Weights Risk: Disclosures on Credit Disclosure (continued) The Bank 2010

AFFIN BANK BERHAD (25046-T) 209 APPENDIX III - - - - 42,946 ------542,012 - 461,499 907,646 - - 18,667,009 19,251,967 907,646 - 907,646 - 461,499 461,499 Ratings of Corporate by Approved ECAIs Ratings of Corporate by S&P S&P AA- to AAA A- A+ to BBB+ to BB- B+ to D Unrated RAM AA3 to AAA A3 to A BBB1 to BB3 B to D Unrated Fitch AA- to AAA A- A+ to BBB+ to BB- B+ to D Unrated MARC AA- to AAA A- A+ to BBB+ to BB- B+ to D Unrated Moodys Aa3 Aaa to A3 A1 to Baa1 to Ba3 B1 to C Unrated Rating & Investment Inc AA- to AAA A- A+ to BBB+ to BB- B+ to D Unrated based on their external ratings as corporates) On and Off-Balance Sheet Exposures Credit Exposures (using Corporate Risk Weights) Public Sector Entities (applicable for entities risk weighted Insurance Cos, Securities Firms & Fund Managers Total Total Exposure Class Corporates The Group 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 (i) Disclosures on Rated Exposures according to Ratings by ECAIs (RM'000)

210 Annual Report 2011 APPENDIX III 433,081 1,155,313 3 ,570 433,081 1,155,313 3 433,081 1,155,313 14,184,902 - 3,570 14,341,552 - Ratings of Corporate by Approved ECAIs Ratings of Corporate by Approved S&P AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated Fitch AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated RAM AAA to AA3 A to A3 BBB1 to BB3 B to D Unrated MARC AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated Moodys Aaa to Aa3 A1 to A3 Baa1 to Ba3 B1 to C Unrated Rating & Investment Inc AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated based on their external ratings as corporates) - - - - 51,184 On and Off-Balance Sheet Exposures On and Off-Balance (using Corporate Risk Weights) Exposures Credit Public Sector Entities (applicable for entities risk weighted Insurance Cos, Securities Firms & Fund Managers - - - - 105,466 Total Total Exposure Class Exposure Corporates (continued) The Group 2010 (i) Disclosures on Rated Exposures according to Ratings by ECAIs (RM'000) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

AFFIN BANK BERHAD (25046-T) 211 APPENDIX III - - - - 42,946 388,879 - - 458,514 837,671 - - 16,512,286 16,944,111 837,671 - 837,671 - 458,514 458,514 Ratings of Corporate by Approved ECAIs Ratings of Corporate by S&P S&P AA- to AAA A- A+ to BBB+ to BB- B+ to D Unrated RAM AA3 to AAA A3 to A BBB1 to BB3 B to D Unrated Fitch AA- to AAA A- A+ to BBB+ to BB- B+ to D Unrated MARC AA- to AAA A- A+ to BBB+ to BB- B+ to D Unrated Moodys Aa3 Aaa to A3 A1 to Baa1 to Ba3 B1 to C Unrated Rating & Investment Inc AA- to AAA A- A+ to BBB+ to BB- B+ to D Unrated based on their external ratings as corporates) Insurance Cos, Securities Firms & Fund Managers On and Off-Balance Sheet Exposures Credit Exposures (using Corporate Risk Weights) Public Sector Entities (applicable for entities risk weighted Total Total Exposure Class Corporates (continued) The Bank 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 (i) Disclosures on Rated Exposures according to Ratings by ECAIs (RM'000)

212 Annual Report 2011 APPENDIX III 427,064 1,054,489 3,570 427,064 1,054,489 3,570 12,744,599 - 12,806,193 - Ratings of Corporate by Approved ECAIs Ratings of Corporate by Approved S&P AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated Fitch AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated RAM AAA to AA3 A to A3 BBB1 to BB3 B to D Unrated MARC AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated Moodys Aaa to Aa3 A1 to A3 Baa1 to Ba3 B1 to C Unrated Rating & Investment Inc AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated based on their external ratings as corporates) - - - - 51,184 On and Off-Balance Sheet Exposures On and Off-Balance (using Corporate Risk Weights) Exposures Credit Public Sector Entities (applicable for entities risk weighted Insurance Cos, Securities Firms & Fund Managers - - - - 10,410 Exposure Class Exposure Corporates Total Total (continued) The Bank 2010 (i) Disclosures on Rated Exposures according to Ratings by ECAIs (RM'000) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

AFFIN BANK BERHAD (25046-T) 213 APPENDIX III - - - - - 12,459,175 - 12,459,175 - - - - Ratings of Banking Institutions by Approved ECAIs Ratings of Banking Institutions by 534,983 106,461 534,983 106,461 106,345 20,389 106,345 20,389 3,095,526 - 3,095,526 - Ratings of Sovereigns and Central Banks by Approved ECAIs Ratings of Sovereigns and Central Banks by S&P S&P AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to D Unrated S&P AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to D Unrated RAM AA3- to AAA A3 A1 to BBB1+ to BBB3 BB1 to B3 C1+ to D Unrated Fitch AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to D Unrated Fitch AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to D Unrated MARC AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- C+ to D Unrated Moodys Aa3 Aaa to A3 A1 to Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated Moodys Aa3 Aaa to A3 A1 to Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated Rating & Rating & Investment Inc AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to C Unrated Investment Inc AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to C Unrated Exposure Class Exposure Class On and Off-Balance Sheet Exposures On and Off-Balance Sheet Exposures Sovereigns and Central Banks Sovereigns Total Banks, MDBs and FDIs Total (continued) The Group 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 (ii) Disclosures on Rated Exposures according to Ratings by ECAIs (RM'000)

214 Annual Report 2011 APPENDIX III - - - 157 1,274,354 - 10,941 - - - 10,941 - 11,851,234 - 11,851,234 Ratings of Banking Institutions by Approved ECAIs Ratings of Banking Institutions by Approved Ratings of Sovereigns and Central Banks by Approved ECAIs and Central Banks by Approved Ratings of Sovereigns 911,685 911,685 62,276 62,276 116,038 116,038 1,274,354 - 157 S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated RAM AAA to AA3- A1 to A3 BBB1+ to BBB3 BB1 to B3 C1+ to D Unrated MARC AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- C+ to D Unrated Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated Rating & Rating & Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated Exposure Class Exposure Class Exposure On and Off-Balance Sheet Exposures On and Off-Balance Sheet Exposures On and Off-Balance Sovereigns and Central Banks Sovereigns Total Banks, MDBs and FDIs Total (continued) The Group 2010 (ii) Disclosures on Rated Exposures according to Ratings by ECAIs (RM'000) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

AFFIN BANK BERHAD (25046-T) 215 APPENDIX III - - - - - 7,261,956 - 7,261,956 - - - - Ratings of Banking Institutions by Approved ECAIs Ratings of Banking Institutions by 521,800 106,461 106,345 521,800 106,461 20,389 106,345 2,920,532 20,389 - 2,920,532 - Ratings of Sovereigns and Central Banks by Approved ECAIs Ratings of Sovereigns and Central Banks by S&P S&P AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to D Unrated S&P AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to D Unrated RAM AA3- to AAA A3 A1 to BBB1+ to BBB3 BB1 to B3 C1+ to D Unrated Fitch AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to D Unrated Fitch AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to D Unrated MARC AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- C+ to D Unrated Moodys Aa3 Aaa to A3 A1 to Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated Moodys Aa3 Aaa to A3 A1 to Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated Rating & Rating & Investment Inc AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to C Unrated Investment Inc AA- to AAA A- A+ to BBB+ to BBB- BB+ to B- CCC+ to C Unrated Exposure Class Exposure Class On and Off-Balance Sheet Exposures On and Off-Balance Sheet Exposures Total Total Total Sovereigns and Central Banks Sovereigns Banks, MDBs and FDIs (continued) The Bank 2011 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 (ii) Disclosures on Rated Exposures according to Ratings by ECAIs (RM'000)

216 Annual Report 2011 APPENDIX III - - - - 157 1,218,515 ------8,189,452 - 8,189,452 Ratings of Banking Institutions by Approved ECAIs Ratings of Banking Institutions by Approved Ratings of Sovereigns and Central Banks by Approved ECAIs and Central Banks by Approved Ratings of Sovereigns 899,824 899,824 62,276 62,276 116,038 116,038 1,218,515 - 157 S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated RAM AAA to AA3- A1 to A3 BBB1+ to BBB3 BB1 to B3 C1+ to D Unrated MARC AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- C+ to D Unrated Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated Rating & Rating & Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated Exposure Class Exposure Class Exposure On and Off-Balance Sheet Exposures On and Off-Balance Sheet Exposures On and Off-Balance Total Total Sovereigns and Central Banks Sovereigns Banks, MDBs and FDIs Total Total (continued) The Bank 2010 BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 (ii) Disclosures on Rated Exposures according to Ratings by ECAIs (RM'000)

AFFIN BANK BERHAD (25046-T) 217 BASEL II PILLAR 3 DISCLOSURES APPENDIX IV FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

a) Disclosures on Credit Risk Mitigation (RM'000) The Group 2011

Exposures Exposures Exposures Exposures before Covered by Covered by Covered by Exposure Class CRM Guarantees/ Eligible Other Credit Financial Eligible Derivatives Collateral Collateral

Credit Risk On-Balance Sheet Exposures Sovereigns/Central Banks 12,388,534 - - - Banks, Development Financial Institutions & MDBs 3,310,875 - - - Insurance Cos, Securities Firms & Fund Managers 480,308 - - - Corporates 15,705,514 240,138 961,640 - Regulatory Retail 9,983,406 1,125 134,071 - Residential Mortgages 3,547,045 - 4,809 - Higher Risk Assets 401,279 - 533 - Other Assets 2,017,818 - - - Equity Exposure 21,286 - - - Defaulted Exposures 2,265,022 587 40,349 -

Total for On-Balance Sheet Exposures 50,121,087 241,850 1,141,402 -

Off-Balance Sheet Exposures Off-Balance Sheet exposures other than OTC derivatives or credit derivatives 3,746,630 - - - Defaulted Exposures 314,927 - - -

Total for Off-Balance Sheet Exposures 4,061,557 - - -

Total On and Off-Balance Sheet Exposures 54,182,644 241,850 1,141,402 -

218 Annual Report 2011 APPENDIX IV BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

a) Disclosures on Credit Risk Mitigation (RM'000) (continued) The Group 2010

Exposures Exposures Exposures Exposures before Covered by Covered by Covered by Exposure Class CRM Guarantees/ Eligible Other Credit Financial Eligible Derivatives Collateral Collateral

Credit Risk On-Balance Sheet Exposures Sovereigns/Central Banks 11,727,290 - - - Public Sector Entities 51,159 - 5,975 - Banks, Development Financial Institutions & MDBs 1,970,016 - - - Insurance Cos, Securities Firms & Fund Managers 95,362 - 2 - Corporates 14,018,930 242,210 901,322 - Regulatory Retail 9,990,439 518 111,915 - Residential Mortgages 1,980,809 - 1,869 - Higher Risk Assets 389,024 - 427 - Other Assets 1,007,575 - - - Defaulted Exposures 1,275,168 357 22,202 -

Total for On-Balance Sheet Exposures 42,505,772 243,085 1,043,712 -

Off-Balance Sheet Exposures Off-Balance Sheet exposures other than OTC derivatives or credit derivatives 2,077,478 - - - Defaulted Exposures 31,835 - - -

Total for Off-Balance Sheet Exposures 2,109,313 - - -

Total On and Off-Balance Sheet Exposures 44,615,085 243,085 1,043,712 -

AFFIN BANK BERHAD (25046-T) 219 BASEL II PILLAR 3 DISCLOSURES APPENDIX IV FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

a) Disclosures on Credit Risk Mitigation (RM'000) (continued) The Bank 2011

Exposures Exposures Exposures Exposures before Covered by Covered by Covered by Exposure Class CRM Guarantees/ Eligible Other Credit Financial Eligible Derivatives Collateral Collateral

Credit Risk On-Balance Sheet Exposures Sovereigns/Central Banks 7,251,236 - - - Banks, Development Financial Institutions & MDBs 3,135,881 - - - Insurance Cos, Securities Firms & Fund Managers 369,693 - - - Corporates 13,814,948 236,938 880,469 - Regulatory Retail 8,680,704 1,125 128,713 - Residential Mortgages 2,437,678 - 2,503 - Higher Risk Assets 359,952 - 531 - Other Assets 2,278,319 - - - Equity Exposure 21,286 - - - Defaulted Exposures 2,049,518 587 40,214 -

Total for On-Balance Sheet Exposures 40,399,215 238,650 1,052,430 -

Off-Balance Sheet Exposures Off-Balance Sheet exposures other than OTC derivatives or credit derivatives 3,321,998 - - - Defaulted Exposures 310,304 - - -

Total for Off-Balance Sheet Exposures 3,632,302 - - -

Total On and Off-Balance Sheet Exposures 44,031,517 238,650 1,052,430 -

220 Annual Report 2011 APPENDIX IV BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

a) Disclosures on Credit Risk Mitigation (RM'000) (continued) The Bank 2010

Exposures Exposures Exposures Exposures before Covered by Covered by Covered by Exposure Class CRM Guarantees/ Eligible Other Credit Financial Eligible Derivatives Collateral Collateral

Credit Risk On-Balance Sheet Exposures Sovereigns/Central Banks 8,186,533 - - - Public Sector Entities 51,159 - 5,975 - Banks, Development Financial Institutions & MDBs 1,914,175 - - - Insurance Cos, Securities Firms & Fund Managers 306 - 2 - Corporates 12,540,053 242,210 824,732 - Regulatory Retail 8,055,493 518 104,288 - Residential Mortgages 1,859,507 - 1,526 - Higher Risk Assets 346,361 - 427 - Other Assets 1,286,037 - - - Defaulted Exposures 1,128,386 357 22,181 -

Total for On-Balance Sheet Exposures 35,368,010 243,085 959,131 -

Off-Balance Sheet Exposures Off-Balance Sheet exposures other than OTC derivatives or credit derivatives 1,814,442 - - - Defaulted Exposures 31,835 - - -

Total for Off-Balance Sheet Exposures 1,846,277 - - -

Total On and Off-Balance Sheet Exposures 37,214,287 243,085 959,131 -

b) Disclosure on Off-Balance Sheet and Counterparty Credit Risk Counterparty Credit Risk is the risk that the counterparty to a transaction could default before the final settlement of the transaction's cashflows. An economic loss could occur if the transactions with the counterparty has a positive economic value for the Bank at the time of default.

In contrast to the exposure to credit risk through a loan, where the exposure to credit risk is unilateral and only the lending bank faces the risk of loss, Counterparty Credit Risk creates a bilateral risk of loss where the market value for many types of transactions can be positive or negative to either counterparty.

In respect of off-balance sheet items, the credit risk inherent in each off-balance sheet instrument is translated into an on-balance sheet exposure equivalent (credit equivalent) by multiplying the nominal principal amount with a credit conversion factor ('CCF') as prescribed by the Standardised Approach under the Risk Weighted Capital Adequacy Framework. The resulting amount is then weighted against the risk weight of the counterparty. In addition, counterparty risk weights for over-the-counter ('OTC') derivative transactions will be determined based on the external rating of the counterparty and will not be subject to any specific ceiling.

AFFIN BANK BERHAD (25046-T) 221 BASEL II PILLAR 3 DISCLOSURES APPENDIX IV FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

b) Disclosure on Off-Balance Sheet and Counterparty Credit Risk (RM'000) (continued) The Group 2011

Positive Fair Value of Credit Risk Principal Derivative Equivalent Weighted Description Amount Contracts Amount Amount

Direct credit substitutes 386,900 - 386,900 373,254 Transaction related contingent items 2,375,506 - 1,187,753 1,129,992 Short term self liquidating trade related contingencies 973,726 - 194,745 159,464 Foreign exchange related contracts One year or less 2,987,581 15,087 49,028 17,625 Over one year to five years 70,000 2,168 5,770 1,985 Interest/Profit rate related contracts One year or less 133,140 - 156 67 Over one year to five years 1,787,852 3,596 47,055 12,427 Over five years 474,023 14,304 43,899 10,295 Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 3,526,454 - 705,291 644,787 Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year 7,015,300 - 1,403,060 1,113,216 Unutilised credit card lines 189,502 - 37,900 28,463

Total 19,919,984 35,155 4,061,557 3,491,575

The Group 2010

Direct credit substitutes 408,608 - 408,608 299,520 Transaction related contingent items 2,387,456 - 1,193,728 1,022,073 Short term self liquidating trade related contingencies 1,232,752 - 246,551 140,554 Foreign exchange related contracts One year or less 2,215,359 25,842 50,821 19,952 Over one year to five years 201,120 10,570 19,678 8,217 Interest/Profit rate related contracts One year or less 93,784 - 14 3 Over one year to five years 956,256 2,664 32,602 7,936 Over five years 445,273 7,079 38,490 8,842 Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 4,247,549 - - - Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year 6,062,519 - - - Unutilised credit card lines 594,104 - 118,821 89,026

Total 18,844,780 46,155 2,109,313 1,596,123

------222 Annual Report 2011 APPENDIX IV BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

b) Disclosure on Off-Balance Sheet and Counterparty Credit Risk (RM'000) (continued) The Bank 2011

Positive Fair Value of Credit Risk Principal Derivative Equivalent Weighted Description Amount Contracts Amount Amount

Direct credit substitutes 378,797 - 378,797 366,784 Transaction related contingent items 2,226,050 - 1,113,025 1,060,529 Short term self liquidating trade related contingencies 627,826 - 125,564 131,304 Foreign exchange related contracts One year or less 2,987,581 15,087 49,028 17,625 Over one year to five years 70,000 2,168 5,770 1,985 Interest/Profit rate related contracts One year or less 133,140 - 156 67 Over one year to five years 1,787,852 3,596 47,055 12,427 Over five years 474,023 14,304 43,899 10,295 Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 3,098,316 - 619,663 565,143 Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year 6,057,224 - 1,211,445 956,882 Unutilised credit card lines 189,502 - 37,900 28,463

Total 18,030,311 35,155 3,632,302 3,151,504

The Bank 2010

Direct credit substitutes 382,080 - 382,080 280,656 Transaction related contingent items 2,189,031 - 1,094,516 928,260 Short term self liquidating trade related contingencies 546,276 - 109,255 109,027 Foreign exchange related contracts One year or less 2,215,359 25,842 50,821 19,952 Over one year to five years 201,120 10,570 19,678 8,217 Interest/Profit rate related contracts One year or less 93,784 - 14 3 Over one year to five years 956,256 2,664 32,602 7,936 Over five years 445,273 7,079 38,490 8,842 Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 3,837,655 - - - Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year 5,360,954 - - - Unutilised credit card lines 594,104 - 118,821 89,026

Total 16,821,892 46,155 1,846,277 1,451,919

AFFIN BANK BERHAD (25046-T) 223 BASEL II PILLAR 3 DISCLOSURES APPENDIX IV FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

c) Disclosures on Market Risk - Interest Rate Risk/Rate of Return Risk in the Banking Book Interest rate risk is the current and prospective impact to the Bank's financial condition due to adverse changes in the interest rates to which the balance sheet is exposed. The objective is to manage interest rate risk to achieve stable and sustainable net interest income in the long term which impact can be viewed from the perspectives of (1) earnings in the next 12 months, and (2) economic value.

(1) Next 12 months' Earnings - Interest rate risk from the earnings perspective is the impact based on changes to the net interest income over the next 12 months. This risk is measured monthly through sensitivity analysis including the application of an instantaneous 100 basis point parallel shock in interest rates across the yield curve. The prospective change to the net interest income is measured using an Asset Liability Management simulation model which incorporates the assessment of both existing and new business.

(2) Economic Value - Measuring the change in the economic value of equity is an assessment of the long term impact to the earnings potential. This is assessed through the application of relevant duration factors to capture the net economic value impact over the long term or total life of all balance sheet assets and liabilities to adverse changes in interest rates.

The above calculations do not take into account loan prepayments.

2011

The Group The Bank

Type of Currency Impact on Positions Impact on Positions (100 basis points) Parallel Shift (100 basis points) Parallel Shift

Increase/(Decline) Increase/(Decline) Increase/(Decline) Increase/(Decline) RM million in Earnings in Economic Value in Earnings in Economic Value

Ringgit Malaysia (20.0) 214.9 (28.0) 263.7 US Dollar 3.8 1.9 5.0 2.0 Great Britain Pound 0.8 0.1 0.8 0.1 Australian Dollar 1.1 7.6 1.1 7.6 Singapore Dollar 0.5 0.9 0.5 0.9 Japanese Yen 0.4 0.2 0.4 0.2 Others (*) (0.7) - (0.7) -

Total (14.1) 225.6 (20.9) 274.5

2010

Ringgit Malaysia (31.2) 311.4 (26.8) 328.1 US Dollar 4.1 7.4 4.2 7.2 Great Britain Pound 0.4 1.0 0.4 1.0 Australian Dollar 0.4 0.8 0.4 0.8 Singapore Dollar 0.3 2.2 0.3 2.2 Japanese Yen 0.3 0.8 0.3 0.8 Others (*) (0.1) - (0.1) -

Total (25.8) 323.6 (21.3) 340.1

* Others comprise of NZD, UER, HKD and AED currencies where the amount of each currency is relatively small.

224 Annual Report 2011 AFFIN BANK BERHAD (25046-T) 17th Floor, Menara AFFIN, 80, Jalan Raja Chulan, 50200 Kuala Lumpur T: 03 2055 9000 F: 03 2026 1415 www.affinbank.com.my