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’s theme – AFFINBANK celebrates 35 Years ‘A Journey’– illustrates the inspiring and challenging odyssey of AFFINBANK. A specially created 35th anniversary logo takes place of pride in the design, since its inception on 23rd October 1975, and it is complemented by graphic waves that wend its way gracefully across the cover. The fine lines represent the employees, shareholders and customers of our Bank, as they achieve harmony, on a mutually beneficial journey of growth. Through ups and downs, we will stay in sync with our stakeholders as we forge ahead vibrantly. TABLE OF CONTENTS
Corporate Milestone 4 Corporate Structure 6 Corporate Information 7 Board of Directors 8 Profile of Directors 9 Management Team 13 Management Team Profiles 15 Chairman’s Statement 17 Operational Review 20 Financial Highlights 23 Corporate Diary 24 Statement of Corporate Governance 26 Statement on Internal Control 34 Audit & Examination Committee 37 Network of Branches 39 Notice of Annual General Meeting 44 Annual Report 2010 4
CORPORATE MILESTONE
OUR
JOURNEY 2000 25 APRIL • Change name of Perwira Affin Bank Berhad (PAB) to Affin Bank 1975 Berhad (AFFINBANK). 23 OCTOBER • Incorporation of Perwira Habib Bank Malaysia Berhad (PHB). 2000 30 AUGUST Shareholders listing as according to Annual Report 1977 PHB: • Merger of PAB & BSN Commercial Bank (M) Berhad signed, - Lembaga Tabung Angkatan Tentera 34% paving formation of new AFFINBANK. - Habib Bank Limited Pakistan 33.33% - Syarikat Permodalan Kebangsaan Berhad 26% 2001 - Haji Hamidi bin Tan Sri Dato’ Osman 6.67% JANUARY • AFFINBANK commenced operations with 110 branches 1992 nationwide. • Emergence of Affin Holdings Berhad as biggest shareholder of PHB. 2005 JUNE 1994 • Merger with Affin-ACF Finance Berhad. 21 APRIL • Became Perwira Affin Bank Berhad (PAB) from Perwira Habib 2005 Bank Malaysia Berhad (PHB) since AFFIN Holdings has 100% • Introduction to the new logo and tagline - ‘Banking Without of PAB. Barriers’ 1999 2006 5 APRIL 1 APRIL • Signing of MoU between PAB & BSN Commercial Bank (M) • Affin Islamic Bank Berhad (AFFIN ISLAMIC) commenced its Berhad. operations. 5 AFFIN BANK BERHAD (25046-T) Annual Report 2010 6
CORPORATE STRUCTURE
PAB Properties Sdn. Bhd. 100%
ABB Nominees (Tempatan) Sdn. Bhd. 100%
ABB Nominee (Asing) Affin-ACF Holdings Sdn. Bhd. Sdn. Bhd. 100% 100%
Affin Factors Sdn. Bhd. Affin-ACF Capital 100% Sdn. Bhd. 100% ABB Trustee Berhad Affin Capital Sdn. Bhd. 100% 100% PAB Property 35.66% Development Sdn. Bhd. 100% LEMBAGA TABUNG ANGKATAN TENTERA Lembaga Tabung PAB Property Angkatan Tentera Management Sdn. Bhd. 100% Affin Money Brokers ABB Venture Sdn. Bhd. Capital Sdn. Bhd. 100% 100%
Affin Futures Sdn. Bhd. 100% 20.69% BSNC Nominees Affin-ADB Sdn. Bhd. (Tempatan) Sdn. Bhd. 100% 100% Boustead Holdings Berhad BSNCB Nominees (Tempatan) Sdn. Bhd. 100%
Affin Holdings Berhad
Affin Islamic Bank Berhad Affin Bank Berhad BSN Merchant Nominees 100% 100% (Tempatan) Sdn. Bhd. 23.52% 100%
Bank of East Asia Limited* ABB Asset Management (M) Berhad 100% AXA Affin Life Insurance Berhad Affin-ACF Nominees 100% (Tempatan) Sdn. Bhd. 100%
BSN Merchant Nominees (Asing) Sdn. Bhd. 100%
20.13% AXA Affin General Insurance ABB IT & Services OTHERS Sdn. Bhd. Berhad 100% 100% BHI Insurance (M) Sdn Bhd 100% Affin Investment Bank Affin Fund Management Berhad Berhad 100% 100% Affin Nominees (Tempatan) Sdn. Bhd. 100%
Merchant Nominees (Tempatan) Sdn. Bhd. 100%
Affin Nominees (Asing) Sdn. Bhd. 100%
Classic Precision Sdn. Bhd. 67%
* more than 20% shareholdings as at 28.2.2009 7 AFFIN BANK BERHAD (25046-T)
CORPORATE INFORMATION
BOARD OF DIRECTORS YBhg. Dato Sri Abdul Aziz bin Abdul Rahman Independent Non-Executive Director Chairman
YBhg. Jen. Tan Sri Dato’ Seri Ismail bin Hj. Omar (Bersara) Mr. Aubrey Li Kwok-Sing Chairman Non-Independent Non-Executive Director Non-Independent Non-Executive Director Mr. Brian Li Man-Bun Directors Alternate Director to Aubrey Li Kwok-Sing YBhg. Dato’ Zulkiflee Abbas bin Abdul Hamid Managing Director/ Chief Executive Officer Mr. Stephen Charles Li Non-Independent Executive Director Non-Independent Non-Executive Director
YBhg. Tan Sri Dato’ Lodin bin Wok Kamaruddin Mr. Eric Koh Thong Hau Non-Independent Non-Executive Director Alternate Director to Stephen Charles Li (Re-appointed as Director w.e.f. 4.10.2010) En. Mohd Suffian bin Haji Haron YM. Dr. Raja Abdul Malek bin Raja Jallaludin Independent Non-Executive Director Independent Non-Executive Director Managing Director/ Chief Executive Officer YBhg. Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli YBhg. Dato’ Zulkiflee Abbas bin Abdul Hamid bin Mohd Nor (Bersara) Managing Director/ Chief Executive Officer Non-Independent Non-Executive Director Non-Independent Executive Director
NAME SECRETARIES ISSUED AND PAID-UP SHARE CAPITAL Affin Bank Berhad (Co. No.: 25046-T) Nimma Safira binti Khalid No. of shares 1,439,285,382 Azizah binti Shukor Par value RM 1.00 DATE OF INCORPORATION Total RM1,439,285,382.00 REGISTERED OFFICE 23 October 1975 SUBSTANTIAL SHAREHOLDER 17th Floor, Menara AFFIN, PRINCIPAL ACTIVITIES 80, Jalan Raja Chulan No. of shares 50200 Kuala Lumpur. Affin Holdings Berhad 1,439,285,382 Affin Bank Berhad is principally involved in Tel.: 03-2055 9000 carrying out the banking and finance Fax.: 03-2026 1415 EXTERNAL AUDITORS related services. The Bank has seventeen (17) subsidiary companies and three (3) PricewaterhouseCoopers (AF 1146) AUTHORISED SHARE CAPITAL associate companies which are principally engaged in property management No. of shares 2,000,000,000 services, nominees services, trustees Par value RM1.00 management services and factoring Total RM2,000,000,000 services. Annual Report 2010 8
BOARD OF DIRECTORS
1. YBhg. Jen. Tan Sri Dato’ Seri Ismail bin Haji Omar 6. Mr. Aubrey Li Kwok-Sing (Bersara) Non-Independent Non-Executive Director Chairman Non-Independent Non-Executive Director 7. Mr. Stephen Charles Li Non-Independent Non-Executive Director 2. YBhg. Dato’ Zulkiflee Abbas bin Abdul Hamid Managing Director/ Chief Executive Officer 8. En. Mohd. Suffian bin Haji Haron Non-Independent Executive Director Independent Non-Executive Director
3. YBhg. Dato’ Sri Abdul Aziz bin Abdul Rahman 9. YBhg. Tan Sri Dato’ Lodin bin Wok Kamaruddin Independent Non-Executive Director Non-Independent Non-Executive Director (Re-appointed as Director w.e.f. 4.10.2010) 4. YM. Dr. Raja Abdul Malek bin Raja Jallaludin Independent Non-Executive Director
5. YBhg. Laksamana Madya Tan Sri Dato’ Seri Ahmad 6 8 9 4 5 7 Ramli bin Mohd Nor (Bersara) 3 Non-Independent Non-Executive Director 2 1 9 AFFIN BANK BERHAD (25046-T)
PROFILE OF DIRECTORS
YBHG. JEN. TAN SRI DATO’ YBHG. DATO’ ZULKIFLEE SERI ISMAIL BIN HJ. OMAR ABBAS BIN ABDUL HAMID (BERSARA)
Chairman Managing Director/ Chief Executive Officer Non-Independent Non-Executive Director Non-Independent Executive Director
Jen. Tan Sri Dato' Seri Ismail bin Hj. Omar (Bersara), aged 70, was Dato’ Zulkiflee Abbas bin Abdul Hamid aged 54, was appointed appointed as a Director and Chairman of AFFINBANK on 21 May as a Managing Director/Chief Executive Officer on 1 April 2009. 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 bank. He also served in until his retirement in 1998, after 38 years of military service. He various positions there including as a Board member of its graduated from Royal Military Academy, Sandhurst, United subsidiaries. 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 before assuming his current position. National Defence College, India and INTAN Malaysia. Dato’ Zulkiflee Abbas has vast working experience in banking His military service saw Key Command and Staff appointments at being 29 years in the industry. Dato’ Zulkiflee Abbas possesses all levels of the Armed Forces. As CDF, his responsibilities included the necessary knowledge and professional competence in the key roles in Malaysia’s Regional and International Defence conduct of the licensed institution’s business. Dato’ Zulkiflee Relations. Abbas balances the Board mix and help to enhance Board effectiveness. Tan Sri was Chairman of Affin Holdings Berhad and Affin-ACF Finance from 1999 prior to joining AFFINBANK. Currently, he Dato’ Zulkiflee Abbas bin Abdul Hamid attended all 18 Board among others is on the Board of Directors of AFFIN ISLAMIC, Meetings held during the financial year ended 31 December 2010. ABB Trustee Berhad, EP 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 Dato’ Seri Ismail bin Hj Omar attended all 18 Board Meetings held during the financial year ended 31 December 2010. Annual Report 2010 10
PROFILE OF DIRECTORS (continued)
YBHG. TAN SRI DATO’ YM. DR. RAJA ABDUL MALEK LODIN BIN WOK KAMARUDDIN BIN RAJA JALLALUDIN
Non-Independent Non-Executive Director Independent Non-Executive Director (Re-appointed as Director w.e.f.4.10.2010)
Tan Sri Dato' Lodin bin Wok Kamaruddin, aged 62, was Dr. Raja Abdul Malek bin Raja Jallaludin, aged 65, was appointed re-appointed to the Board of Directors of AFFINBANK on 4 to the Board of Directors of AFFINBANK on 29 January 1991. 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 Drs. experience pursuant to his various positions held in Lembaga 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 Bukit UMMC; been a member of the Ethical Committee of the Malaysian Fraser for 9 years. Tan Sri Lodin is also the Chairman of Boustead Medical Council, MOH; was the Chairman of Council Academy of Heavy Industries Corporation Berhad, Boustead Naval Shipyard Family Physicians, Malaysia. Sdn Bhd, Boustead Petroleum Marketing Sdn Bhd, Boustead REIT Managers Sdn Bhd, Johan Ceramics Berhad and 1Malaysia Dr. Raja Abdul Malek also has vast experience in the Development Berhad and also sits on the Boards of UAC Berhad, pharmaceutical world and had actively been involved since 1984. The University of Nottingham in Malaysia Sdn Bhd, Minority He had been the Medical Director (Malaysia-Singapore) for Parke Shareholder Watchdog Group, Atlas Hall Sdn Bhd, AFFIN Davis-Warner Lambert from 1984-2000, and had remained briefly ISLAMIC, Affin Investment Bank Berhad and AXA Affin Life so too with Pfizer Malaysia when these two Incorporations Insurance Berhad. merged in 2001. In 2003, Dr. Raja Abdul Malek joined HOE/ Pharmaceuticals/ HOEPharma Holdings Berhad 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 His other directorships in public and private companies include Administration Degree. ABB Trustee Berhad. He is also a member of the Advisory Panel of StemLife Berhad. Tan Sri Dato’ Lodin attended 2 out of the 3 Board Meetings from 4 October 2010 until the financial year ended 31 December 2010. Notwithstanding his tenure of 19 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 17 out of the 18 Board Meetings held during the financial year ended 31 December 2010. 11 AFFIN BANK BERHAD (25046-T)
PROFILE OF DIRECTORS (continued)
YBHG. LAKSAMANA MADYA YBHG. DATO’ SRI ABDUL AZIZ TAN SRI DATO’ SERI AHMAD BIN ABDUL RAHMAN RAMLI BIN MOHD NOR (BERSARA)
Non-Independent Non-Executive Director Independent Non-Executive Director
Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor, aged 67, was Dato' Sri Abdul Aziz bin Abdul Rahman, aged 65, was appointed appointed to the Board of Directors of AFFINBANK on 21 May to the Board of Directors of AFFINBANK on 28 January 2003. 2002. He retired as Chief of Royal Malaysian Navy in 1999. Dato’ Sri Abdul Aziz graduated with a Bachelor of Commerce from He graduated from the Brittania Royal Naval College Dartmouth, University of New South Wales, Sydney, Australia. He is member United Kingdom in 1965, the Indonesia Naval Staff College in of the Malaysian Institute of Certified Public Accountants (MICPA) 1976, the United States Naval War College and Naval Post- and the Malaysian Institute of Accountants (MIA). Graduate School Monterey in 1981. He also holds a Master Degree in Public Administration from the Harvard University, He has served as Chairman and board member of several United States of America. government institutions, agencies and public listed companies, both in Australia and Malaysia. He currently holds directorships in AFFIN ISLAMIC, Muhibbah Engineering (M) Berhad and Favelle Favco Berhad. At the corporate level he was with Price Waterhouse & Co. Sydney, Malaysia Airlines and Managing Director of Bank Rakyat Tan Sri Dato' Seri Ahmad Ramli is presently the Executive Deputy Berhad before venturing into politics and public service as the Chairman/ Group Managing Director of Boustead Heavy Pahang State Assemblyman, State Executive Councillor and Industries Corporation Berhad. Deputy Chief Minister of Pahang. He was a Senator of Malaysian Parliament for a maximum period of two (2) terms. Tan Sri Dato' Seri Ahmad Ramli’s appropriate leadership with strategically critical skills and experience has added value to the Presently he is a Board member of the International Islamic Board’s performance. Tan Sri Dato’ Seri Ahmad Ramli contributes University Malaysia, University Malaysia Pahang and their to the mix of skills and experience of the Board through his associated holding companies. relevant expertise in business, management and strategic planning on both short term and long term strategic issues. Dato’ Sri Abdul Aziz’s expertise and knowledge carries across a broad spectrum relating to finance and accounting. His standing Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor attended 16 out of in the community contributes effectively to his role as an the 18 Board Meetings held during the financial year ended 31 Independent Director particularly in meeting various stakeholders December 2010. expectation.
Dato' Sri Abdul Aziz bin Abdul Rahman attended all 18 Board Meetings held during the financial year ended 31 December 2010. Annual Report 2010 12
PROFILE OF DIRECTORS (continued)
MR. AUBREY LI KWOK-SING MR. STEPHEN CHARLES LI
Non-Independent Non-Executive Director Non-Independent Non-Executive Director
Mr. Aubrey Li Kwok-Sing, aged 61, was appointed to the Board of Mr. Stephen Charles Li, aged 51, was appointed to the Board of Directors of AFFINBANK on 17 March 2008. He is a Director of The Directors of AFFINBANK on 17 March 2008. Mr. Li is a Director of Bank of East Asia, Limited and Chairman of MCL Partners Limited. The Bank of East Asia, Limited.
Mr. Aubrey Li possesses extensive experience in investment Mr. Li also holds directorships in hedge funds based in the U.K. banking, merchant banking and capital markets. He is also a Director and E.U. He has over 16 years experience in investment banking of Café de Coral Holdings Limited, China Everbright International having held senior capital markets positions with several Limited, Kunlun Energy Limited, Kowloon Development Co. Ltd, international investment banks in London and Hong Kong. Pokfulam Development Company Limited, Tai Ping Carpets International Limited, Atlantis Investment Management (Ireland) Mr. Li holds a Bachelor of Science (Hons.) Degree in Mathematics Limited and Dalton Capital (Guernsey) Limited. from King’s College, University of London, United Kingdom in 1981. He is also a member of the Institute of Chartered Mr. Aubrey Li brings in related knowledge and experience in the Accountants in England and Wales. banking fields, business development and strategy which are considered to be a value in achieving AFFINBANK business Mr. Li engaged himself actively in the deliberations at the Board of objectives. Directors meeting. His global expertise, skills, work exposure and knowledge in investment banking and accounting brings balance Mr. Aubrey Li Kwok-Sing attended 11 out of the 18 Board to the Board and adds value that could further improve the Meetings held during the financial year ended 31 December 2010. Board’s performance and effectiveness.
Mr. Stephen Charles Li attended 8 out of the 18 Board Meetings held during the financial year ended 31 December 2010. EN. MOHD SUFFIAN BIN HAJI HARON Mr. Stephen Charles Li’s alternate director, Mr. Eric Koh Tong Hau, attended 10 out of 18 Board Meetings held during the financial year ended 31 December 2010.
Independent Non-Executive Director
Encik Mohd Suffian bin Haji Haron aged 66, was appointed to the Board of Director of AFFINBANK on 15 August 2009.
He graduated with a Bachelor of Economics from University of Malaya (1970) and holds a Master of Business Administration from University of Oregon in the United States (1976).
Current directorships in public companies include, AFFIN ISLAMIC, L.K. & Associates Sdn Bhd, Idaman Pharma Manufacturing Sdn Bhd and Polmag Sdn Bhd.
Encik Mohd Suffian brings a diverse professional experience to the Board. His background provides the necessary independence to the Board and add value by drawing on his experience and contributing to the Board’s decision-making process.
Encik Mohd Suffian bin Haji Haron attended all 18 Board Meetings held in the financial year ended 31 December 2010. 13 AFFIN BANK BERHAD (25046-T)
MANAGEMENT TEAM
1. YBhg. Dato' Zulkiflee Abbas bin Abdul Hamid Managing Director/ Chief Executive Officer
2. En. Amirudin bin Abdul Halim Director, Business Banking
3. Mr. Tan Kok Toon 5 3 2 Director, Treasury 4
4. Pn. Khatimah binti Mahadi 1 Group Chief Internal Auditor
5. En. Shariffudin bin Mohamad Executive Director, Operations Annual Report 2010 14
MANAGEMENT TEAM (continued)
6. En. Kamarul Ariffin bin Mohd. Jamil Chied Executive Officer, Affin Islamic Bank Berhad
7. Mr. Kasinathan T. Kasipillai Group Chief Risk Officer
7 8. En. Idris bin Abd. Hamid 8 9 10 11 Director, Consumer Banking
9. Mr. Ee Kok Sin 6 Chief Financial Officer
10. Mr. Richard Kong Chief Human Resource Officer
11. YBhg. Dato' Mohamad Aslam Khan Gulam Hassan Chief Recovery Specialist 15 AFFIN BANK BERHAD (25046-T)
MANAGEMENT TEAM PROFILES
While he was the Director, Operations, he was also the Chief YBHG. DATO' ZULKIFLEE Corporate Strategist and Chief Human Resource Officer.
ABBAS BIN ABDUL HAMID Currently, he oversees the Operations Division encompassing Managing Director/ Chief Executive Officer Branch Operations, Information Technology, Property and Logistics, Strategic and Support Services including Customer Fulfillment, Legal Dato’ Zulkiflee Abbas bin Abdul Hamid, 54 years old, currently and Corporate Communications. holds the position of Managing Director/ Chief Executive Officer of AFFINBANK since 1 April 2009. He brings with him over two decades of banking experience with a well-known international financial institution and its acclaimed global He joined AFFINBANK in March 2005 as Director, Enterprise outsourcing outfit. Banking and later on was made Executive Director, Banking before assuming his current position. He graduated with a Bachelor in Finance and a Master in Business Administration from Southern Illinois University, United States of Dato’ Zulkiflee has been in the banking industry for almost 30 America. years. He started in a local leading bank, working his way up through various ranks and responsibities at home and abroad. He left in 2005 while he was the Chief Credit Officer. EN. AMIRUDIN ABDUL HALIM Under his current portfolio, Dato’ Zulkiflee also holds directorships in Affin Investment Bank Berhad and Affin Islamic Bank Berhad Director, Business Banking
Dato’ Zulkiflee holds a Masters in Business Administration from Amirudin Abdul Halim joined AFFINBANK as Director, Business Southern Illinois University, United States of America, the same Banking in July 2009. university of which he obtained his Bachelor of Science (Marketing). He brings with him over 20 years of banking experience across EN. KAMARUL ARIFFIN many fields within the industry from credit control, branch operations, business and consumer banking to corporate MOHD JAMIL services. Chief Executive Officer, Affin Islamic Bank Berhad Amirudin served in several senior capacities during his long-term tenure with a local leading bank and brought recognition to the Kamarul Ariffin Mohd Jamil is the Chief Executive Officer of Affin bank in 2007 when it received The Asian Banker's 'Excellence in Islamic Bank Berhad (AFFIN ISLAMIC) since 2006. Retail Financial Services for Automobile Lending'. He joined AFFINBANK in 2003 as Head, Corporate Strategy He graduated with a Bachelor of Arts degree in Finance from St. Division and in 2005 was appointed as Head, Islamic Banking Louis University, United States of America and has attended Division. His appointment to his current position was in 2006 when various programmes by Stamford University, Wharton Business AFFIN ISLAMIC was incorporated as a wholly-owned subsidiary of School, Washington University and Asian Institute of Management, AFFINBANK. Philippines. Prior to AFFINBANK, Kamarul held various positions in Pengurusan Danaharta Nasional Berhad, namely Head of Managing Director's Office and Sepecial Assistant to Managing EN. IDRIS ABD. HAMID Director between 1999 to 2003. Director, Consumer Banking Kamarul graduated from the University of Cambridge in 1992 with a Bachelor of Arts (Economics). Idris Abd Hamid has over 30 years of experience in the banking and finance industry. His career with AFFINBANK began in 1994 EN. SHARIFFUDIN when he was the General Manager for Affin Finance Berhad and he was later made Deputy Chief Executive Officer for AFFIN-ACF MOHAMAD Finance Berhad from 2000 to 2005. Prior to joining AFFINBANK, Executive Director, Operations Idris held various positions at Arab-Malaysian Finance (currently known as AmBank) from 1984 to 1994 as Branch Manager, Shariffudin Mohamad is the Executive Director, Operations of Assistant Manager Corporate Loans and Head of Consumer AFFINBANK. Loans Division. He graduated from the University of Northern Colorado and Southern Illinois University, USA with Masters in He joined AFFINBANK as the Director, Operations in August 2007 and Business Administration and Bachelor of Science in Finance was appointed to his present position effective 1 November 2009. respectively. Annual Report 2010 16
MANAGEMENT TEAM PROFILES (continued)
He has over 30 years of local and overseas banking experience MR. TAN KOK TOON particularly in the area of Risk 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, Director, Treasury Singapore, Hong Kong, Mumbai and Jakarta.
Tan Kok Toon (KT) completed his Bachelor of Science (Hons) in Mathematics from Universiti Malaya in 1987. PN. KHATIMAH MAHADI
He joined AFFINBANK as Head of Treasury in October 2004 and is responsible for managing all aspects of Treasury Division across Group Chief Internal Auditor the Group which includes AFFIN Islamic Bank Berhad and Affin Investment Bank Berhad. He is the current Honorary Secretary, Khatimah Mahadi has 30 years of experience in Internal Auditing Persatuan Pasaran Kewangan Malaysia (Association Cambiste including 23 years in financial services with Citibank Berhad, a Internationale) and the Chairman to its Seminar and Education development bank and a finance company. In addition, she also Committee. had a stint with a local bank, Lembaga Pasaran dan Perlesenan Getah and Auditing/Consulting Firm Hanafiah, Raslan & Prior to AFFINBANK, KT worked in one of the largest banks in Mohamad. She was also the Director of Compliance and Country Malaysia. For more than 18 years, he served in various capacities Internal Audit Head when she was with Citibank Berhad. of Treasury operations, such as Treasury Manager with the Bank’s New York branch and as Treasury Business Advisor to turnaround a business project in the Philippines. KT is also the president of YBHG. DATO' MOHAMAD Kelab Sukan dan Rekreasi AFFINBANK. ASLAM KHAN GULAM HASSAN Chief Recovery Specialist MR. EE KOK SIN Dato' Mohamad Aslam Khan holds a Bachelor's Degree in Business Administration with honours. He joined AFFINBANK in Chief Financial Officer 1996 as the General Manager of Commercial Banking Division and was later appointed the Head of Special Asset Management. Ee Kok Sin began his career in 1982 as a Trainee Accountant with He has held various positions domestically and internationally both a firm of Chartered Accountants in London. He has extensive in the business and business support divisions. Dato' Aslam has experience in auditing, treasury functions, financial accounting, over 35 years of banking experience. financial management and information technology. Prior to AFFINBANK, he held various positions at Maybank for 21 Prior to his appointment at AFFINBANK, he was the General years. His last position there was the General Manager of Maybank Manager, Finance & Services of Pengurusan Danaharta Nasional in New York. He also had a five-year stint with the former Oriental Berhad. He is a Fellow Member of the Association of the Bank as the General Manager, Enterprise Banking Division. Chartered Certified Accountants (FCCA) and a member of The Malaysian Institute of Certified Public Accountants (MICPA) and Malaysian Institute of Accountants (MIA). MR. RICHARD KONG
MR. KASINATHAN T.KASIPILLAI Chief Human Resource Officer
Richard was previously the General Manager, Operations at Group Chief Risk Officer Pengurusan Danaharta Nasional Berhad until its winding down in December 2005. He has 35 years of extensive banking Kasinathan holds a Masters in Business Administration from the experience, including service in a leading international bank, University of Bath, UK and is a Certified Risk Professional awarded Standard Chartered Bank Malaysia Berhad. by Bank Administration Institute, Chicago, USA. He is also an Associate Fellow of Institute of Bankers Malaysia. This is in During his tenure with the Bank, he had the opportunity to serve recognition of his pioneering work in developing the Certified as Head, Special Assets Management (SAM) Malaysia, Regional Credit Professional (CCP) certification. He continues to serve as an Head SAM for Malaysia, Brunei & the Philippines. Richard also active member of CCP Examination Committee to this day. worked as a Senior Account Manager in SCB Nakornthon Bank in Bangkok, during the Asian financial crisis. He has a strong track record in the areas of asset management, credit risk management, commercial and domestic corporate banking and also in manpower planning, training and development. 17 AFFIN BANK BERHAD (25046-T)
CHAIRMAN’S STATEMENT
n behalf of the Board of Directors, I am pleased to present the Annual Report and OFinancial Statements of Affin Bank Berhad (AFFINBANK) for the financial year ended 31 December 2010.
During the year under review, Malaysia’s economy outperformed expectations to chalk up a commendable growth of 7.2% in 2010 compared with a contraction of 1.7% in 2009, bolstered by a rebound in manufacturing and services as well as brisk exports and imports.
The government, which implemented a RM67 billion stimulus package two years ago to boost the economy which was severely affected by the global downturn, had earlier forecasted Malaysia’s gross domestic product to grow by 5% to 6% in 2010.
However, the continued influx of foreign direct investments, a healthy reserves position maintained by Bank Negara and a record performing ringgit as well as high commodity prices, boosted growth and aided the country’s rebound in 2010.
In tandem with the strong rebound in the Malaysian economy, the Group’s net profit after zakat and tax attributable to shareholders also rose by 20% to RM381.2 million for the year ended 31 December 2010. The good performance was driven primarily by the deposits business sector especially the retail segment, improved customer touch-points to ensure excellent and efficient customer service, continuous improvements on risk management practices to be abreast with prevailing economic climate and human capital development.
In a healthier economic environment which facilitated higher actual loan recoveries, total allowances for losses on loans, advances and financing reduced to RM95.4 million for the current financial year compared with RM187.5 million in 2009, when the market conditions and economic environment were under great duress due to the global financial crisis.
Total loans and advances after deducting allowance for loan losses grew by 18% to RM26.0 billion compared with RM22.0 billion a year ago as economic activities and demand for credit gathered momentum during the year under review. To support the loan growth, total deposits correspondingly increased by 17% year-on-year to RM30.8 billion as at 31 December 2010. The Group’s total equity as at 31 December 2010 rose to RM3.3 billion contributed by RM346 million growth in the Reserves. Annual Report 2010 18
CHAIRMAN’S STATEMENT (continued)
AFFINBANK’s loan growth momentum remained “ strong at 17.5% year-on-year in December 2010 compared with the industry’s 12.8% for 2010. Improvements were seen in property loan segments (+14.6% for residential mortgages and 64.3% for non- residential mortgages), auto (+18.9%) and working capital loans (+13.1%) in December 2010.
In line with the Group’s strong financial performance, Backed with a strong and experienced” Board, befitting the Board approved a second and final one-tier tax its aspiration to become a mid-size bank of exempt dividend of 5 sen per share for the year under prominence, the Board of Directors remains review. Together with the first interim of 5.28 sen paid committed to ensure the highest standards of on 6 December 2010, the total dividend payout for the corporate governance throughout the organisation 2010 financial year amounted to 10.28 sen gross with the objectives of safeguarding the interests of all dividend per ordinary share or RM129.0 million. stakeholders and enhancing the shareholders’ value and financial performance of the Bank. AFFINBANK’s loan growth momentum remained strong at 17.5% year-on-year in December 2010 The Board considers that it has applied the Best compared with the industry’s 12.8% for 2010. Practices as set out in the Malaysian Code of Improvements were seen in property loan segments Corporate Governance throughout the financial year, (+14.6% for residential mortgages and 64.3% for non- same as per the requirements set out in the Bank residential mortgages), auto (+18.9%) and working Negara Malaysia’s Guidelines on Directorship in the capital loans (+13.1%) in December 2010. banking institutions (‘BNM/ GP1’).
This loan growth momentum is expected to remain Throughout 2010 and to date, the Bank continues to steady in 2011 due to strong consumer sentiment, conduct its business with integrity and exercise a high healthy business confidence, a stable interest rate level of transparency and objectivity. environment and pent-up credit demand spurred by a recovering economy. In a move to extend its reach and encouraged with the growth potential in Indonesia, AFFINBANK had in As the Group continues to forge ahead in our business August 2010 acquired an 80% equity interest in operations and growth, we have not forgotten our role Indonesian bank, PT Bank Ina Perdana for RM138 as corporate citizen. The year saw us undertaking million. several corporate social responsibility initiatives including the donation of 50 homes valued at RM1.8 PT Bank Ina Perdana has a niche positioning as a retail million for the poor at Bukit Kenau Integrated bank in the small and medium enterprise (SME) sector, Community Centre in Pekan, Pahang under Affin which fits in nicely with AFFINBANK’s long term plan to Islamic Bank, RM1 million contribution to Yayasan further grow its business and increase its shareholders Perajurit, the yearly Tabung Hari Pahlawan campaign, value. It has 22 branches which are strategically annual contribution of Bungkusan Hari Raya to Tabung located in major cities in Indonesia. Kebajikan Angkatan Tentera, and handouts of ‘duit raya’ during our Hari Raya Open House with orphans We see this acquisition as a step forward for and new converts. AFFINBANK and Affin Islamic Bank Berhad (AFFIN ISLAMIC). The potential for Islamic banking in Indonesia is vast and AFFIN ISLAMIC has the capabilities and expertise to ensure the growth and development of Shariah banking as we move regionally. 19 AFFIN BANK BERHAD (25046-T)
This acquisition was the first for AFFINBANK to The business units of the Bank comprise Business venture out of the Malaysian borders. Banking, Consumer Banking, Debt and Capital Markets and Hire Purchase. Consumer Banking Looking ahead, the economic outlook for 2011 is provides credit cards, personal loans, mortgages and expected to be more subdued as the first quarter of deposit taking services to individuals. the year have demonstrated how geopolitical risks in the Middle East and North Africa (MENA) virtually For Business Banking, the Bank will be leveraging on cannot be anticipated as uprisings lead to the spiralling business opportunities arising from the 10th Malaysia of global oil prices to a 30-month high of US$112.09 Plan as well as the Economic Transformation per barrel (for Brent crude) on 25 February and a 29- Programme, while Consumer Banking will be month high of US$96.98 per barrel (WTI). The major developing specific products and packages that suit concern is that the dominoes in the Middle East could certain targeted market segments. continue to fall. If the recent rise in oil prices is sustained, it would have a dampening impact on the The Group will also continue to seek improvements in global economy. our customer services, provide quicker turnaround time via better process efficiency and actively manage So far, the Malaysian economy has shown the ability to our operating costs to maintain profitability. With our absorb the crude oil price increases and is expected to strong balance sheet and capital position, the Group grow between 5.0% and 6.0% in 2011, driven by is confident that we will be able to meet all the domestic demand and strong export performance, challenges and opportunities ahead in order to serve backed by the Economic Transformation Programme. and provide continued support to our valued The banking industry in Malaysia is expected to customers. sustain its profitability with healthy capital and strong asset quality in 2011. On behalf of the Board, I would like to thank our shareholders, customers and business partners for High-impact projects like the Mass Rapid Transit in their continuing support. My appreciation goes to all Klang Valley especially in Greater Kuala Lumpur, are staff and management for their dedicated services and expected to generate a large multiplier effect to the for delivering a commendable performance for the economy and spur business and consumer spending, current year. Finally, I wish to thank all my fellow Board thus supporting overall economic growth especially in Members for their wise counsel and contributions. the loan sector.
Building on the momentum created in 2010, the Bank Jen. Tan Sri Dato’ Seri Ismail Bin Hj. Omar will continue to focus on ‘sustainable business growth’ (Bersara) in both Business Banking as well as Consumer Chairman Banking segments, with an attitude of ‘lowest risk 22 March 2011 tolerance’ financing. Annual Report 2010 20
n behalf of the Management team of Affin Bank Berhad (AFFINBANK), I am O pleased to put forth the review of our performance for the year ended 31 December 2010.
The year 2010 was a year of stability and performance across all boards for Malaysia in light of its political developments and economic expansion plan by the Government for its people.
Notwithstanding the difficult global economic environment experienced in Europe, Malaysia has steadily moved forward to remain robust and outperformed its own gross domestic product forecast.
The financial and banking sector in Malaysia has also profited from this setting with its strong solvency position and high quality of loan portfolio. The improved earnings from businesses, coupled with favourable employment prospects that bolstered the debt servicing capacity of banks’ borrowers’ plus the credit compression and injection from the public sector, ensured that the domestic financial markets were on secured grounds.
In this respect, Affin Bank Berhad remained resilient and registered 22.8% higher profit before zakat and tax of RM521.9 million for the financial year ended 31 December 2010 compared with RM425.1 million in 2009.
The stronger performance was achieved on the back of strong growth in the total deposits especially the retail segment, improved customer touch-points to ensure excellent and efficient customer service, continuous enhancement on risk management practices in keeping abreast with prevailing economic climate and human capital development.
Net profit after zakat and tax increased by 20% to RM381.2 million for the year ended 31 December 2010 compared with RM317.8 million the year before.
PERFORMANCE REVIEW 21 AFFIN BANK BERHAD (25046-T)
The higher profit after zakat and tax translated into a Business Banking return on equity (ROE) of 12.93%, a commendable Business Banking segment represents 40% of the progression from 11.43% in the previous year. Return Group's total revenue. on assets (ROA) improved to 1.04% from 0.93% a year ago, indicating a marked enhancement in the During the year, the Group's contract financing and its generation of the Bank’s investment. small and medium enterprise (SME) financing grew exponentially. Its commercial and institutional business Its net interest income rose by 2% to RM751.0 million also outperformed its targets last year. from RM736.0 million recorded in 2009. This is contributed by the remarkable double-digit growth in Consumer Banking loans, advances and financing, in the wake of the Consumer Banking segment constituted 37% of the substantial increased of deposits. Group’s revenue. Mortgage and Hire Purchase being the key products, grew by RM1.9 billion or 47.6%, Gross loans, advances and financing increased by contributing to the Group’s loans, advances and 17.5% to RM26.5 billion from RM22.6 billion the year financing growth of RM3.9 billion. before, mainly contributed by household loans, followed by the construction, property and finance, The growth in deposits was admirable with deposits insurance and business services sectors. from customers at the Group level increased 16.7% to RM30.8 billion from RM26.4 billion recorded the year AFFINBANK also recorded an increase of 2% in other before. Fixed deposits rose by 25.4% to RM19.9 operating income to RM227.4 million from RM221.9 billion from RM15.9 billion in 2009. million in 2009. Islamic banking income increased by 9% to RM177.8 million from RM162.6 million the year before. The launch of two new deposit products during the year under review contributed to this healthy growth. During the year, the Group’s total assets rose by These were the AFFIN FD PLUS and the OMG (OH RM6.5 billion to RM42.1 billion, compared with MY GOSHH!) deposits campaigns which gave the RM35.6 billion in 2009. Net financing grew by 18.1% Bank the much needed visibility in terms of attractive to RM26 billion. and better-than average industry’s rates, targeting its existing clientele and capturing new customer Earnings per share increased by 20% to 26.5 sen per segments. share from 22.1 sen per share during the year under review. Treasury The Bank’s treasury manages a fund size of RM14.4 The Group’s shareholders equity expanded further by billion and has maintained a sterling performance 11.7% to RM3.3 billion in 2010 from RM3.0 billion the in returns with the support of experienced fund year before. managers and financial analysts.
Further details about the Bank’s performance by its business and operations units are as stated:- Annual Report 2010 22
PERFORMANCE REVIEW (continued)
In this respect, Affin Bank Berhad remained resilient “ and registered 22.8% higher profit before zakat and tax of RM521.9 million for the financial year ended 31 December 2010 compared with RM425.1 million in 2009.
Operations Looking at the socio-political stability in the country and In 2010, the ”Group embarked on a rejuvenation the Government Transformation Plans (GTP), Malaysia’s programme to create visibility and to brand economy will definitely benefit from these two factors. AFFINBANK as a progressive yet personalized The estimated population growth rate of 1.58%* and financial partner for its customers. Convenience for the the growing affluent in the country will also be customers was the priority and relocation as well as contributors, with regulated banking system and the renovation underpinned this programme. Several controlled monetary structures that are well-placed. branches underwent a refurbishment exercise and a couple of branches like Taiping and Alor Setar were With all the factors and underlining conditions, relocated to commerce areas that are more vibrant determining the way forward and the business and business-centric. strategy for 2011 onwards will be two-pronged – internal improvements and external aggression. In creating new customer touch-points and channels, the Bank has identified new business areas to Internally, emphasis will be on customer service establish its presence and a new AFFIN Islamic branch enhancement with effective human capital opened its doors in mid-December located at the developments, credit and risk management Management & Science University (MSU) campus in improvements and continuous branding process of Shah Alam. the rejuvenation programme for the existing branches.
Overall, the Group’s operating expenses increased by External aggression will include product innovations 4.8% to RM530.9 million against 2009 result of and campaigns, identification of new sites for RM506.5 million. This was mainly due to increased presence, securing new business inclusive of our personnel costs as the Bank continues its development overseas acquisition, PT Bank Ina Perdana and and investment in its human capital as well. focused fee income business segments, image building and corporate initiatives via corporate The Group is well capitalised with its risk weighted capital responsibility programmes. ratio at 12.67% and a core capital ratio of 11.24%. The Bank is well-positioned to the meet the challenges RAM Rating Services Berhad has reaffirmed the Bank’s ahead as it grow steadily yet substantially to enhance long term and short term financial institution ratings at A1 its shareholders’ value and market standing. and P1 respectively, with a stable outlook. Lastly, I would like to thank all our customers, fellow In moving ahead with the times, year 2011 will be colleagues, the Management team, stakeholders challenging especially with regards to maintaining the including our regulators and government agencies as Bank’s upward momentum. well as our esteemed Board of Directors for their continued support and confidence. On the global front with crude oil prices on the rise and the civil discontentment in the Middle East and North Africa, many economies will be affected with rising Dato’ Zulkiflee Abbas Bin Abdul Hamid rates and prices due to difficulties of obtaining goods Managing Director/ Chief Executive Officer and services as well as inflation and unemployment 22 March 2011 and in the said countries, state welfare and rebuilding.
Note:- * Source from CIA World Fact Book. 23 AFFIN BANK BERHAD (25046-T)
FINANCIAL HIGHLIGHTS
EARNINGS PER SHARE (EPS) PROFIT BEFORE TAXATION (PBT) TOTAL ASSETS
(Sen) (RM’million) (RM’billion) 42.1 26.5 23.0 22.1 15.4 31.9 521.9 272.3 35.6 33.0 29.4 18.0 425.1 322.0 454.6
2010 2009 2008 2007 2006 2010 2009 2008 2007 2006 2010 2009 2008 2007 2006
The Group’s EPS for the financial year The Group achieved PBT of RM521.9 The Group’s financial position as at 31 ended 31 December 2010 stood at 26.5 million, a commendable 22.8% rise for the December 2010 continued to remain sen, compared to 22.1 sen the year year ended 31 December 2010, compared strong with total assets of RM42.1 billion, before. to RM425.1 million in 2009. The Group’s an increase of 18.2% compared with PAT also rose by 20% to RM381.2 million RM35.6 billion as at 31 December 2009. for the year ended 31 December 2010.
NET LOANS, ADVANCES & FINANCING DEPOSITS FROM CUSTOMERS SHAREHOLDERS’ EQUITY
(RM’billion) (RM’billion) (RM’billion) 22.0 26.0 19.5 16.8 17.0 2.5 30.8 25.2 22.6 3.0 2.7 2.3 26.4 23.5 3.3
2010 2009 2008 2007 2006 2010 2009 2008 2007 2006 2010 2009 2008 2007 2006
The Group’s net loans, advances and Total deposits increased by 16.7% Total shareholders’ equity of the Group financing grew by 18.1% to RM26.0 billion year-on-year to RM30.8 billion as at 31 increased by 11.7% to RM3.3 billion from compared with RM22.0 billion in 2009, as December 2010, in correspondence to the RM3.0 billion the year before. economic activities and demand for credit Group’s loan growth. gathered momentum during the year under review. Annual Report 2010 24
CORPORATE DIARY
AFFINBANK takes part in the DSA 2010 Exhibition for the first AFFINBANK contributes RM5,000 to the Malam Wartawan time as the Official Bank. Malaysia 2010, to appreciate and strengthen network with the media. 8 April 2010 8 April 2010
AFFINBANK shows support for the 14th Malaysian Banking Launching ceremony of the Integrated Community Centre at Summit 2010. Bukit Kenau, Mukim Pulau Manis, Pekan, Pahang, where 50 homes valued at RM1.8 million were built for the purpose of 27 May 2010 eradicating hardcore poor.
16 July 2010
AFFINBANK sponsors RM160,000 for the Hari Pahlawan 2010 AFFINBANK runs for a good cause at The Edge-Bursa campaign. Malaysia Kuala Lumpur Rat Race.
19 July 2010 3 August 2010 25 AFFIN BANK BERHAD (25046-T)
CORPORATE DIARY (continued)
AFFINBANK continues its tradition to contribute cash and AFFINBANK hosts a breaking of fast for 130 orphans and 30 in-kind worth RM100,000 to the Armed Forces personnel Muslim converts from around Klang Valley. serving overseas, in the spirit of Ramadhan month. 20 October 2010 16 August 2010
AFFINBANK contributed its internal AFFINBANKers Pakistan AFFINBANK supports the Karnival Perpaduan 1 Malaysia while Flood Relief Fund, in light of the tragedy in Pakistan. promoting its latest financial products and services.
6 October 2010 14 November 2010
AFFINBANK demonstrates its role as a caring organisation AFFINBANK and MAHSA University College enters into a loan through community service for the Selangor and Federal facility agreement of RM324 million. Territory Association for the Mentally Handicapped. 30 November 2010 20 November 2010 Annual Report 2010 26
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 enable the shareholder of AFFINBANK and the public to access and determine the standards of Corporate Governance. Throughout 2010 and to date, AFFINBANK continues to conduct its business with integrity and exercise 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.
`The Board of AFFINBANK has a balance composition with a strong independent element. It consists of representatives from the private sectors 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 9 to 12 reflect clearly the depth and diversity in expertise and perspective they have 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 will ensure the Board functions objectively, independently and effectively.
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 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 37 of this 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 various Committee 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 strategy. The Committee obtains advice from experts in compensation and benefits, both internally and externally. 27 AFFIN BANK BERHAD (25046-T)
STATEMENT OF CORPORATE GOVERNANCE (continued)
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 consist of nine (9) Directors and two (2) alternate Directors comprising one (1) Executive Director and eight (8) Non-Executive Directors, of whom three (3) are Independent Non- Executive Directors and five (5) are Non-Independent Non-Executive Directors. All Directors have 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.
The composition of the Board is further balanced by the presence of Independent Non-Executive 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 abstain from discussing or voting on the matter.
Appointments and Re-election to the Board In 2010, BNM approved the reappointment of one (1) of Non-Independent Non-Executive Director. In accordance with the Company’s Memorandum and Articles of Association, one-third (1/3) of the Directors, or, if their number is not three (3) or a multiple of three (3), the number nearest to one-third (1/3), shall retire from office at each Annual General Meeting and they may offer themselves for re-election. Annual Report 2010 28
STATEMENT OF CORPORATE GOVERNANCE (continued)
Directors’ Training In accordance with the Code, all newly appointed Non-Executive Directors are furnished by AFFINBANK with copies of the BNM Guidelines, the Banking and Financial Institutions Act 1989, the Green Book 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 year ended 31 December 2010 are set out below.
Director Course Title Trainer/Organiser Date
YBhg. Jen Tan Sri Dato’ 1. World Islamic Economic World Islamic Economic 19 May 2010 Seri Ismail bin Haji Omar Forum - Gearing for Forum Foundation (Bersara) Economic Resurgence
2. Invitation to Launch of BNM, FIDE 28 June 2010 Performance Pays - the Report on Non -Executive Directors Remuneration
3. Islamic Banking Affin Holdings Berhad 1 July 2010 Training
4. 2nd Annual Corporate Asian World Summit 6 & 7 July 2010 Governance Summit & Federation of 2010 - Truth, Lies and Public Listed Company Corporate Governance & Malaysian Institute of Corporate Governance
5. Briefing on Financial Affin Holdings Berhad 8 July 2010 Reporting Standards (FRS) Goods and Service Tax (GST)
6. Briefing by PwC on Affin Holdings Berhad 20 August 2010 Performance Pays: A study of financial institutions Directors’ Remuneration
7. The Financial Industry BNM 3 November 2010 Conference 2010 29 AFFIN BANK BERHAD (25046-T)
STATEMENT OF CORPORATE GOVERNANCE (continued)
Director Course Title Trainer/Organiser Date
YBhg. Dato’ Zulkiflee 1. Invitation to Launch of BNM, FIDE 28 June 2010 Abbas bin Abdul Hamid Performance Pays - the Report on Non-Executive Directors Remuneration,
2. Islamic Banking Training Affin Holdings Berhad 1 July 2010
3. 2nd Annual Corporate Asian World Summit 6 & 7 July 2010 Governance Summit 2010 & Federation of - Truth, Lies and Public Listed Company Corporate Governance & Malaysian Institute of Corporate Governance
4. FIDE Programme for The Financial 19 & 20 July 2010 Directors (Group 17) Institutions Directors’ 2 & 3 August 2010 Education (FIDE) 20 & 21 September 2010 18 & 19 October 2010
5. Briefing by PwC on Affin Holdings Berhad 20 August 2010 Performance Pays: A study of financial institutions Directors’ Remuneration
6. The Financial Industry BNM 3 Nov. 2010 Conference 2010
YM. Dr. Raja Abdul Malek 1. FIDE Directors’ BNM, FIDE 8 Feb. 2010 bin Raja Jallaludin Compensation Study: Focus Group workshop
2. Strategic Islamic Finance PNB Investment Institute 16 June 2010 Sdn Bhd
3. Invitation to Launch of BNM, FIDE 28 June 2010 Performance Pays - the Report on Non-Executive Directors Remuneration,
4. 2nd Annual Corporate Asian World Summit 6 & 7 July 2010 Governance Summit 2010 & Federation of - Truth, Lies and Corporate Public Listed Company Governance & Malaysian Institute of Corporate Governance
5. Briefing on Financial Affin Holdings Berhad 8 July 2010 Reporting Standards (FRS) Goods and Service Tax (GST) Annual Report 2010 30
STATEMENT OF CORPORATE GOVERNANCE (continued)
Director Course Title Trainer/Organiser Date
Dr. Raja Abdul Malek 6. Briefing by PwC on Affin Holdings Berhad 20 August 2010 bin Raja Jallaludin Performance Pays: A study of financial institutions Directors’ Remuneration
7. Regulatory Framework And Malaysian Institute of 24 November 2010 Directors Duties 2010 Corporate Governance (MICG)
YBhg. Laksamana Madya 1. Hi-Tea Talk by YBhg Dr. AIBIM 8 June 2010 Tan Sri Dato’ Seri Ahmad Abbas Mirakhor Ramli bin Mohd Nor (Bersara) 2. Invitation to Launch of BNM, FIDE 28 June 2010 Performance Pays - the Report on Non-Executive Directors Remuneration
3. Islamic Banking Training Affin Holdings Berhad 1 July 2010
4. 2nd Annual Corporate Asian World Summit 6 & 7 July 2010 Governance Summit 2010 & Federation of - Truth, Lies and Corporate Public Listed Company Governance & Malaysian Institute of Corporate Governance
5. Briefing on Financial Affin Holdings Berhad 8 July 2010 Reporting Standards (FRS) Goods and Service Tax (GST)
YBhg. Dato’ Sri Abdul 1. Managing Risks in BNM-Cagamas 13 January 2010 Aziz Abdul Rahman Mortgage Financing
2. Hi-Tea Talk by Ybhg Dr. AIBIM 8 June 2010 Abbas Mirakhor
3. Board Risk Management BNM, FIDE 21 & 22 June 2010 Committee Programme
4. Invitation to Launch of BNM, FIDE 28 June 2010 Performance Pays - the Report on Non-Executive Directors Remuneration
5. Islamic Banking Training Affin Holdings Berhad 1 July 2010
6. Briefing by PwC on Affin Holdings Berhad 20 August 2010 Performance Pays: A study of financial institutions Directors’ Remuneration 31 AFFIN BANK BERHAD (25046-T)
STATEMENT OF CORPORATE GOVERNANCE (continued)
Director Course Title Trainer/Organiser Date
Mr. Aubrey Li Kwok-Sing 1. FIDE Programme for The Financial Institutions 12 & 13 April 2010 & Mr. Brian Li Man-Bun Directors (Group 15) Directors’ Education (FIDE) 10 &11 May 2010 (Alternate director to Mr. 17 & 18 Jun 2010 Aubrey Li) 15 & 16 April 2010
Mr. Stephen Charles Li 1. FIDE Programme for The Financial Institutions 12 & 13 Apr 2010 & Mr. Eric Koh Tong Hau Directors (Group 15) Directors’ Education (FIDE) 10 &11 May 2010 (Alternate Director To 7 & 8 December 2009 Mr. Stephen Charles Li) 15 & 16 April 2010
2. Invitation to Launch of BNM, FIDE 28 June 2010 Performance Pays - the Report on Non-Executive Directors Remuneration,
3. Islamic Banking Training Affin Holdings Berhad 1 July 2010
En. Mohd Suffian bin 1. Managing Risks in BNM-Cagamas 13 Jan 2010 Haji Haron Mortgage Financing
2. Building Audit Committee BNM, FIDE 17 & 18 May 2010 for Tomorrow
3. Board Risk Management BNM, FIDE 21 & 22 June 2010 Committee Programme
4. Invitation to Launch of BNM, FIDE 28 June 2010 Performance Pays - the Report on Non-Executive Directors Remuneration
5. Briefing on Financial Affin Holdings Berhad 8 July 2010 Reporting Standards (FRS) Goods and Service Tax (GST)
6. The Financial Industry BNM 3 November 2010 Conference 2010
7. Regulatory Framework And Malaysian Institute of 24 November 2010 Directors Duties 2010 Corporate Governance (MICG) Annual Report 2010 32
STATEMENT OF CORPORATE GOVERNANCE (continued)
Meeting and Supply of Information to the Board Board meetings for each financial year are scheduled in advance before the end of each financial year so as 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 Boards’ approval. For Financial year ended 31 December 2010, 18 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 proposals 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 operation 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 with assistance and their full access to necessary materials and relevant information and the advice and services of the Company Secretary in order 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 which is subject to the approval of the shareholder, an allowance for attendance of meetings and a Committee fee. A revision of Director’s fee was effected in 2010. The Directors’ fees and allowances 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 Affin Holdings relevant legislation.
Shareholder AFFINBANK is a wholly owned subsidiary of Affin Holdings Berhad, a company listed on Bursa Malaysia.
Annual General Meeting (“AGM”) The Annual Report and financial statements for year ended December 2009 were tabled at the 34th AGM on 24 March 2010. Likewise the Annual Report and financial statements for year ended December 2010 was tabled at the 35th AGM on 15 March 2011. 33 AFFIN BANK BERHAD (25046-T)
STATEMENT OF CORPORATE GOVERNANCE (continued)
3. Accountability and Audit Financial Reporting AFFINBANK continues to subscribe to the philosophy of transparent, fair, reliable and easily understandable reporting to shareholder. 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 2010.
The Board acknowledges and accepts full responsibility for the financial information contained in this Annual Report and by which it means to provide 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 2010 give 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. Annual Report 2010 34
STATEMENT ON INTERNAL CONTROL
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 34 through 36 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.
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 Committee and administratively to the Managing Director/Chief Executive Officer. The division is responsible for conducting independent audits in accordance with the approved 2009 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 internal auditors. A full Audit Committee report outlining its role in relation to the Auditors is set out in page 37. 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.
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 2010, the Board is able to conclude that AFFINBANK conducts its business prudently and in line with good governance practices. 35 AFFIN BANK BERHAD (25046-T)
STATEMENT ON INTERNAL CONTROL (continued)
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 fir 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 or 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. Annual Report 2010 36
STATEMENT ON INTERNAL CONTROL (continued)
* 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. 37 AFFIN BANK BERHAD (25046-T)
AUDIT AND EXAMINATION COMMITTEE
AUDIT AND EXAMINATION COMMITTEE (AEC)
01. YBhg. Dato’ Sri Abdul Aziz bin Abdul Rahman AEC Chairman
02. YM. Dr. Raja Abdul Malek bin Raja Jallaludin Member
03. YBhg. Tan Sri Mohamed Jawhar bin Hassan Member Representative from Affin Islamic Bank Berhad
02 01 03
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.
Authority The Committee shall have unlimited access to all records, information and documents relevant to its activities, to the Group Internal and External Auditors and to senior management of the Bank and its subsidiaries. The Group Internal 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. Annual Report 2010 38
AUDIT AND EXAMINATION COMMITTEE (continued)
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. 39 AFFIN BANK BERHAD (25046-T)
NETWORK OF BRANCHES
JOHOR 7. Muar 3. Langkawi 1 Jalan Petrie, 149-151, 1. Ayer Hitam 84000 Muar, Persiaran Bunga Raya, No. 765, Jalan Batu Pahat, Johor. Langkawi Mall, 86100 Ayer Hitam, Tel : 06-953 2384/ 3753/ 9795 07000 Kuah, Johor. Fax : 06-953 3489 Langkawi, Tel : 07-758 1100 / 1616 Kedah. Fax : 07-758 1001 8. Permas Jaya Tel : 04-966 4426/ 4427/ 4510 23 & 25, Fax : 04-966 4717 2. Batu Pahat Jalan Permas 10/2, 3 & 4, Jalan Merah, Bandar Baru Permas Jaya, 3. Sungai Petani Taman Bukit Pasir, 81750 Johor Bahru, 23E & 23F, 83000 Batu Pahat, Johor. Jalan Kampung Baru, Johor. Tel : 07-386 3703/ 3857/ 3904 08000 Sungai Petani, Tel : 07-433 4210 / 4213 Fax : 07-386 5061 Kedah. Fax : 07-433 3246 Tel : 04-421 1808/ 422 0831/ 9. Segamat 423 0684/ 423 0680 3. Johor Bahru No. 1, Ground Floor, Fax : 04-422 6675 M1-23 & M2-29, Jalan Nagasari 23, Johor Bahru City Square, Bandar Segamat Baru, KELANTAN 106-108, Jalan Wong Ah Fook, 85000 Segamat, Johor. 80000 Johor Bahru, Tel : 07-943 1378/ 1428/ 1432 1. Jeli Johor. Fax : 07-943 1373 No. A1 & A2, Blok A, Tel : 07-221 2403/ 2419/ 2440/ 2446 Bandar Baru Bukit Bunga, Fax : 07-221 2462 10. Tampoi 11700 Bukit Bunga, 49 & 51, Tanah Merah, 4. Johor Jaya Jalan Sri Perkasa 2/1, Kelantan. 130 & 132, Jalan Ros Merah 2/17, Taman Tampoi Utara, Tel : 09-946 8955/ 8952 Taman Johor Jaya, 81200 Tampoi, Johor Bahru, Fax : 09-946 8954 81100 Johor Bahru, Johor. Johor. Tel : 07-241 4946/ 4948/ 4951 2. Kota Bharu Direct Line Fax : 07-241 4953 13788H & 3788I, Branch Manager : 07-355 5115 Seksyen 13, Direct Line Manager JOHOR (AFFIN ISLAMIC) Jalan Sultan Ibrahim, Branch Services : 07- 351 8605 15050 Kota Bharu, Tel : 07-351 8602/ 8603/ 8596 1. Taman Molek Kelantan. Fax : 07-351 4122 No. 23, 23-01, 23-02, Tel : 09-744 5688/ 5582/ 743 8653 Jalan Molek 1/29, Fax : 09-744 2202 5. Kluang Taman Molek, 503, Jalan Mersing, 81100 Johor Bahru, MELAKA 86000 Kluang, Johor. Johor. Tel : 07-351 9522 (3 lines) 1. Bukit Baru DL Branch Manager : 07-774 1359 Direct Line : 07-357 8522 No. 7 & 8, Jalan DR1, Tel : 07-772 4736/ 4750/ 4758 Fax : 07-357 9522 Delima Point, Fax : 07-772 4486 (Operations) Taman Delima Raya, Fax : 07-358 4355 75150 Melaka. 6. Kulai (House Financing) Tel : 06-232 1386/ 1390/ 1395 13 & 14, Jalan Raya, Fax : 06-232 1579 Taman Sri Kulai Baru, Batu 21, KEDAH 81000 Kulai, 2. Melaka Raya Johor. 1. Alor Setar 200 & 201, Tel : 07-663 9799/ 9802/ 9803 No. 147 & 148, Taman Melaka Raya, Fax : 07-663 9800 Susuran Sultan Abdul Hamid 8, Off Jalan Parameswara, Kompleks Sultan Abdul Hamid, 75000 Melaka. Fasa 2 Persiaran Sultan Abdul Hamid, Tel : 06-283 5500/ 5501/ 5502 05050 Alor Setar, Fax : 06-284 6618 Kedah. Tel : 04-772 1477 Fax : 04-771 4796 Annual Report 2010 40
NETWORK OF BRANCHES (continued)
NEGERI SEMBILAN PERAK PERLIS
1. Nilai 1. Ipoh 1. Kangar 5733 & 5734, Jalan TS 2/1, No. 1 & 3, A2, Taman Pengkalan Asam, Taman Semarak Phase II, Ground & First Floor, Jalan Alor Setar-Kangar, 71800 Nilai, Persiaran Greentown 9, 01000 Kangar, Negeri Sembilan. Greentown Business Centre, Perlis. Tel : 06-799 4114/ 5836/ 5837 30450 Ipoh, Tel : 04-977 8669/ 8670/ 8672 Fax : 06-799 5115 Perak. Fax : 04-977 8566 Tel : 05-255 0980/ 0987 2. Port Dickson Fax : 05-255 0976 PULAU PINANG 3 & 4, Jalan Mahajaya, P.D. Centre Point, 2. Ipoh Garden 1. Bayan Baru 71000 Port Dickson, No. 27A-27A1, 124 & 126, Jalan Mayang Pasir, Negeri Sembilan. Jalan Sultan Azlan Shah Utara, Taman Sri Tunas, Tel : 06-647 3950/ 3951/ 3955 31400 Ipoh, 11950 Bayan Baru, Fax : 06-647 4776 Perak. Pulau Pinang. Tel : 05-549 7277/ 7266 Tel : 04-644 7593/ 643 3815/ 3. Seremban Fax : 05-549 7299 644 4171 No. 175, Jalan Dato' Bandar Tunggal, Fax : 04-645 2709 70000 Seremban, 3. Lumut Negeri Sembilan. Tingkat Bawah, 2. Butterworth Tel : 06-762 9651/ 9652/ 9653 Kompleks Mutiara Armada, 55-57, Jalan Selat, Fax : 06-763 6125 Jalan Nakhoda, Taman Selat, Pengkalan TLDM, P.O.Box 165, PAHANG 32100 Lumut, Off Jalan Bagan Luar, Perak. 12000 Butterworth, 1. Jengka Tel : 05-683 5051/ 5066 Pulau Pinang. Nadi Kota, Fax : 05-683 5579 Tel : 04-333 1372/ 3177 26400 Bandar Jengka, Fax : 04-332 3299 Pahang. 4. Sitiawan Tel : 09-466 2233/ 2253 No. 11 & 12, Taman Sitiawan 1, 3. Fettes Park Fax : 09-466 2422 Jalan Lumut, 98-G-32, 32000 Sitiawan, Jalan Fettes, 2. Kuantan Perak. Prima Tanjung Business Centre, 1, Jalan Tun Ismail, Tel : 05-692 8401/ 691 7516 Tanjung Tokong, P.O.Box 354, Fax : 05-691 7339 11200 Pulau Pinang. 25740 Kuantan, Tel : 04-899 9069 Pahang. 5. Taiping Fax : 04-899 0767 Tel : 09-515 7146/ 7166/ 7642/ 7520 No. 40 & 42, Fax : 09-513 4027 Jalan Tupai, 4. Jalan Macalister 34000 Taiping, No. 104C, 104D & 104E, 3. Mentakab Perak. Jalan Macalister, 70, Jalan Temerloh, Tel : 05-806 6816 10400 Pulau Pinang. 28400 Mentakab, Fax : 05-808 0432 Tel : 04-229 1495 Pahang. Fax : 04-226 1530 Tel : 09-278 4487/ 277 2969 6. Teluk Intan Fax : 09-277 6654 11, Medan Sri Intan, 5. Kepala Batas Jalan Sekolah, Lot 1317 & 1318, 4. Temerloh 36000 Teluk Intan, Lorong Malinja, 9, Ground Floor, Perak. Taman Sepakat, Jalan Ahmad Shah, Tel : 05-621 0130/ 0131/ 0133 Off Jalan Butterworth, 28000 Temerloh, Fax : 05-621 0128 13200 Kepala Batas, Pahang. Seberang Prai Utara, Tel : 09-296 8811 Pulau Pinang. Fax : 09-296 8800 Tel : 04-575 1824/ 1853/ 1902 Fax : 04-575 1975 41 AFFIN BANK BERHAD (25046-T)
NETWORK OF BRANCHES (continued)
6. Prai 3. Sandakan SELANGOR No. 2, Tingkat Kikik 7, Lot No. 163 & 164, Taman Inderawasi, Block 18, Jalan Prima Square, 1. Ampang Jaya 13600 Pulau Pinang. Batu 4, Jalan Utara, No. 11 & 11A, Tel : 04-399 3900/ 397 8535/ 90000 Sandakan, Sabah. Jalan Mamanda 7/1, 397 8543 Tel : 089-212 752/ 212 753 Ampang Point, Fax : 04-397 9243 Fax : 089-212 644 68000 Ampang, Selangor. 7. Seberang Jaya 4. Tawau Tel : 03-4257 6802/ 6804 No. 10, Jalan Todak Satu, TB 281, 282 & 283, Fax : 03-4257 8636 Pusat Bandar Seberang Jaya, Jalan Haji Karim, 13700 Prai, Town Extension II, 2. Ampang New Village Pulau Pinang. P.O. Box 630, 49-G, Jalan Wawasan Ampang 2/1, Tel : 04-399 5881 91008 Tawau, Bandar Baru Ampang, Fax : 04-399 2881 Sabah. 68000 Ampang, Tel : 089-778 197/ 198 Selangor. 8. Wisma Pelaut Fax : 089-762 199 Tel : 03-4296 2210/ 2311 1A, Light Street, Fax : 03-4296 2206 Wisma Pelaut, SARAWAK 10200 Pulau Pinang. 3. Jalan Meru, Klang Tel : 04-263 6633/ 2121/ 4373/ 1. Bintulu No. 40, Pelangi Avenue, 261 2494 Sub Lot 13, Jalan Kelicap 42A/KU1, Fax : 04-261 9801 Off Lot 3299, Klang Bandar Di Raja, Parkcity Commerce Square, 41050 Klang, PULAU PINANG (AFFIN ISLAMIC) 97000 Bintulu, Selangor. Sarawak. Tel : 03-3341 5237 1. Juru Auto-City Tel : 086-314 248/ 249/ 261 Fax : 03-3341 5427 No. 1813A, Fax : 086-314 206 Jalan Perusahaan, Auto-City, 4. Kajang North-South Highway, 2. Kuching 2 & 3, Jalan Saga, Juru Interchange, Lot 247 & 248, Taman Sri Saga, 13600 Prai, Pulau Pinang. Section 49, KTLD, Off Jalan Sg. Chua, Tel : 04-507 7422/ 7522/ Jalan Tuanku Abdul Rahman, 43000 Kajang, 3522 (Pilot) 93100 Kuching, Selangor. Direct Line : 04-507 1522 Sarawak. Tel : 03-8737 7435/ 7436/ 7437 Fax : 04-507 6522/ 0522 Tel : 082-245 888/ 256 896/ Fax : 03-8737 7433 422 909/ 589/ 598 SABAH Fax : 082-257 366 5. Kelana Jaya 101, Block C, Menara Glomac, 1. Jalan Gaya, Kota Kinabalu 3. Miri Kelana Business Centre 97, No. 86, Lot 2387 & 2388, Jalan SS7/2, Jalan Gaya, Block A4, 47301 Kelana Jaya, 88000 Kota Kinabalu, Jalan Boulevard 1A, Petaling Jaya, Sabah. Boulevard Commercial Center, Selangor. Tel : 088-230 213 / 233 232 KM 3, Jalan Miri-Pujut, Tel : 03-7625 2111/ 7806 1749 Fax : 088-212 476/ 088-265 430 98000 Miri, Fax : 03-7806 1759 Sarawak. 2. Sadong Jaya Complex, Tel : 085-437 442/ 443/ 445 6. Kepong Kota Kinabalu Fax : 085-437 297 6, Jalan 54, Lot 19 & 20, Block K, Desa Jaya, Sadong Jaya Complex, 4. Sibu 52100 Kepong, Jalan Ikan Juara 3, No. 91 & 93, Selangor. Karamunsing, Jalan Kampung Nyabor, Tel : 03-6276 4942/ 4943/ 4946 88300 Kota Kinabalu, 96000 Sibu, Fax : 03-6276 6375 Sabah. Sarawak. Tel : 088-264 410/ 413/ 261 515 Tel : 084-325 926/ 943/ 340 929 Fax : 088-261 414 Fax : 084-325 960 Annual Report 2010 42
NETWORK OF BRANCHES (continued)
7. Kinrara 14. Rawang SELANGOR (AFFIN ISLAMIC) No. 1, Jalan TK1/11A, No. 33G & 35G, Taman Kinrara, Section 1, Jln 1B, Fortune Avenue, 1. SS2 Batu 7 1/2, Jalan Puchong, 48000 Rawang, 161-163, Jalan SS2/24, 47100 Puchong, Selangor. 47300 Petaling Jaya, Selangor. Tel : 03-6091 3322/ 3311/ 2394/ 2396 Selangor. Direct Line : 03-8070 5682 Fax : 03-6091 3344 Tel : 03-7874 3513 Tel : 03-8070 3403 Fax : 03-7874 3480 Fax : 03-8075 8159 15. Sea Park 20-22, Jalan 21/12, 2. MSU Shah Alam 8. Klang Utara Sea Park, Management & Science University, No. 29 & 31, 46300 Petaling Jaya, 2nd Floor, University Drive, Jalan Tiara 3, Selangor. Persiaran Olahraga, Section 13, Bandar Baru Klang, Tel : 03-7875 6514/ 6255/ 6461 40100 Shah Alam, 41150 Klang, Fax : 03-7876 6020 Selangor. Selangor. Tel : 03-5510 0425 Tel : 03-3342 1585/ 1597/ 1602/ 1669 16. Seri Kembangan Fax : 03-5510 0563 Fax : 03-3342 1719 36, Jalan PSK 3, Pusat Perdagangan Seri Kembangan, TERENGGANU 9. Kompleks PKNS 43300 Seri Kembangan, Lot G17-20, Selangor. 1. Kemaman Ground Floor, Tel : 03-8945 6429/ 8943 6488 K711-713, Kompleks PKNS, Fax : 03-8945 6442/ 8943 5306 Wisma IKY Naga, 40000 Shah Alam, Jalan Sulaimani, Selangor. 17. Subang Jaya 24000 Kemaman, Tel : 03-5510 5200/ 6990/ 0523 7 & 9, Jalan SS 15/8A, Terengganu. Fax : 03-5510 8200 47500 Petaling Jaya, Tel : 09-858 1744/ 2544/ 6572/ 3980 Selangor. Fax : 09-859 1572 10. Kota Warisan Tel : 03-5634 8043/ 8045/ 8049 No. 48, Jalan Warisan Megah, Fax : 03-5634 8040 2. Kemaman Supply Base 43900 Sepang, Ground Floor, Selangor. 18. The Curve, Damansara Admin Building Block B, Tel : 03-8706 6300 Lot G32 & 126, Kemaman Supply Base, Fax : 03-8706 6599 Ground & First Floor, 24007 Kemaman, The Curve Shopping Complex, Terengganu. 11. PJ State Jalan PJU 7/8, Tel : 09-863 1297/ 1303 No. 38 & 40, Mutiara Damansara, Fax : 09-863 1295 Jalan Yong Shook Lin, 47820 Petaling Jaya, 46050 Petaling Jaya, Selangor. TERENGGANU (AFFIN ISLAMIC) Selangor. Tel : 03-7726 7258/ 7728 7035 Tel: 03-7955 0032/ 7956 0022 (HPC) Fax : 03-7727 8912 1. Kuala Terengganu Fax: 03-7954 0012/ 7956 0022 (HPC) 63 & 63-A, Jalan Sultan Ismail, 19. UiTM 20200 Kuala Terengganu, 12. Port Klang Institut Teknologi MARA, Terengganu. No. 1, Jalan Berangan, Tingkat 2, Tel : 09-622 3725/ 3825/ 3925 42000 Port Klang, Menara UiTM, Fax : 09-623 6496 Selangor. 40450 Shah Alam, Tel : 03-3168 8366/ 3167/ 7346 Selangor. Fax : 03-3167 2784/ 6432 Tel : 03-5519 2377/ 1160 Fax : 03-5510 5580 13. Puchong No. 16 & 18, 20. USJ Taipan Jalan Bandar 3, 8A & 8B, Jalan USJ 10/1J, Pusat Bandar Puchong, 47610 UEP Subang Jaya, 47100 Puchong, Petaling Jaya, Selangor. Selangor. Tel : 03-5882 2880/ 2810/ 2816/ 2817 Tel : 03-8023 7271/ 7206/ 8593/ Fax : 03-5882 2881 8649/ 9095 Fax : 03-8023 9161 43 AFFIN BANK BERHAD (25046-T)
NETWORK OF BRANCHES (continued)
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. Direct Line : 03-6136 2106 Tel : 03-2698 7912/ 03-2691 5649 Tel : 03-2283 5025/ 5026/ 5027 Tel : 03-6137 2053/ 7122 Fax : 03-2698 6071 Fax : 03-2283 5028 Fax : 03-6138 7122 WILAYAH PERSEKUTUAN 2. Bangunan Getah Asli 9. Seri Petaling (AFFIN ISLAMIC) Tingkat Bawah, 10-12, Jalan Raden Tengah, 148, Jalan Ampang, Bandar Baru Seri Petaling, 1. Fraser 50450 Kuala Lumpur. 57000 Kuala Lumpur. 20-G & 20-1, Jalan Metro Pudu, Tel : 03-2162 8770 Tel : 03-9058 5600 Fraser Business Park, Fax : 03-2162 8587 Fax : 03-9058 8513 55100 Kuala Lumpur. Tel : 03-9222 8877 3. Batu Cantonment 10. Setapak Fax : 03-9222 9877 No. 840 & 842, 159 & 161, Jalan Genting Kelang, Batu 4 3/4, P.O.Box 202, WILAYAH PERSEKUTUAN Jalan Ipoh, 53300 Setapak, PUTRAJAYA 51200 Kuala Lumpur. Kuala Lumpur. Tel : 03-6258 7370/ 7690 Tel : 03-4023 0455/ 0552 1. Putrajaya Fax : 03-6251 8214 Fax : 03-4021 3921 Jabatan Akauntan Negara, Kompleks Kementerian Kewangan, 4. Central 11. Taman Maluri No. 1, Persiaran Perdana, Ground & Mezzanine Floor, 250 & 252, Jalan Mahkota, Presint 2, Menara Affin, Taman Maluri, 62594 Putrajaya, 80, Jalan Raja Chulan, 55100 Kuala Lumpur. Wilayah Persekutuan. P.O.Box 12744, Direct Line : 03-9282 7303 Tel : 03-8888 3814/ 8889 1784/ 50788 Kuala Lumpur. Tel : 03-9282 7250 92927/ 93095 Tel : 03-2055 2222 (30 lines) Fax : 03-9283 4380 Fax : 03-8889 2082 Fax : 03-2070 7592 12. Taman Midah WILAYAH PERSEKUTUAN 5. Jalan Bunus 38 & 40, Jalan Midah 1, LABUAN (OFFSHORE) 133, Jalan Bunus, Taman Midah, Cheras, Off Jalan Masjid India, 56000 Kuala Lumpur. 1. Labuan Offshore 50100 Kuala Lumpur. Tel : 03-9130 0366/ 0194/ 0215 Unit 3 (J), Level 3, Tel : 03-2693 4686 (5 lines) Fax : 03-9131 7024 Main Office Tower, Fax : 03-2691 3207 Financial Park Labuan, 13. Taman Tun Dr. Ismail Jalan Merdeka, 6. Jalan Ipoh 47 & 49, Jalan Tun Mohd Fuad 3, 87000 Federal Territory Labuan. 468-11 & 468-11B, Taman Tun Dr. Ismail, Tel : 087-411 931/ 960 Batu 3, Jalan Ipoh, 60000 Kuala Lumpur. Fax : 087-411 973 51200 Kuala Lumpur. Tel : 03-7727 9080 / 9062 / 9082 Tel : 03-4042 5554 (3 lines) Fax : 03-7727 9543 Fax : 03-4042 4912 14. Wangsa Maju 7. LTAT No. 2 & 4, Jalan 1/27F, Ground Floor, Kuala Lumpur Sub-Urban Centre, Bangunan LTAT, Wangsa Maju, Jalan Bukit Bintang, 53300 Kuala Lumpur. 55100 Kuala Lumpur. Direct Line : 03-4143 3005 Tel : 03-2142 6311/ 6173/ 6681 Tel : 03-4143 2814/ 2816 Fax : 03-2148 0586 Fax : 03-4143 3095 Annual Report 2010 44
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the 35th 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 Wednesday, 15 March 2011 at 11.00 a.m. for the transaction of the following business:-
Agenda: 1. To receive the Statutory Statements of Accounts for the year ended 31 December 2010 together with the Directors' and Auditors' Reports thereon
2. To declare a final tax exempted dividend of 5.0% amounting to RM71,964,269.10 for the financial year ended 31 December 2010.
3. To approve Directors’ fees for 2010.
4. 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. Jen. Tan Sri Dato’ Seri Ismail bin Hj. Omar (Bersara);
b. YM. Dr. Raja Abdul Malek bin Raja Jallaludin; and
c. YBhg. Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli bin Mohd Nor (Bersara).
5. To appoint Messrs PricewaterhouseCoopers as Auditors for the financial year ending 31 December 2011 and to authorise the Directors to fix their remuneration
6. To transact any other ordinary business.
BY ORDER OF THE BOARD
NIMMA SAFIRA KHALID AZIZAH SHUKOR Secretaries
NOTE: The instrument appointing a proxy and the power of attorney or other authority, if any, under A member entitled to attend and vote at the which it is signed or a notarially certified copy of Meeting is entitled to appoint a proxy to attend such power or authority shall be deposited at the and vote instead of him and the proxy need not Company’s registered office at the 17th Floor, be a member of the Company. Menara Affin, 80, Jalan Raja Chulan, 50200 Kuala Lumpur, at least fortyeight (48) hours The instrument appointing a proxy shall be in before the time appointed for holding the writing under the hand of the appointor of his Meeting or adjourned Meeting as the case may attorney duly authorised in writing or, if the be otherwise the person so named shall not be appointor is a corporation, either under the seal entitled to vote in respect thereof. or in some other manner approved by Directors. FINANCIAL STATEMENTS
Directors' Report 46 Statements of Financial Position 59 Income Statements 60 Statements of Comprehensive Income 61 Statement of Changes in Equity 62 Statements of Cash Flows 64 Summary of Significant Accounting Policies 67 Notes to the Financial Statements 82 Statement by Directors 164 Statutory Declaration 164 Independent Auditors’ Report 165 Basel II Pillar 3 Disclosures 166 Annual Report 2010 46
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 2010.
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 521,904 474,794 Taxation and zakat (140,667) (128,089)
Net profit for the financial year 381,237 346,705
DIVIDENDS The dividends on ordinary shares paid or declared by the Bank since 31 December 2009 were as follows:
In respect of the financial year ended 31 December 2009 as shown in the directors' report for that financial year :-
RM'000
Final gross dividend of 5.00 sen per share, less income tax of 25% paid on 25 March 2010 53,973
In respect of the financial year ended 31 December 2010 :-
Interim gross dividend of 5.28 sen per share, less income tax of 25% paid on 6 December 2010 57,000
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.
RESERVE 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. 47 AFFIN BANK BERHAD (25046-T)
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 There were no material events subsequent to the reporting date that require disclosure or adjustments to the financial statements. Annual Report 2010 48
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 Director
Dato' Zulkiflee Abbas bin Abdul Hamid Managing Director/Chief Executive Officer Non-Independent Executive Director
Tan Sri Dato' Lodin bin Wok Kamaruddin Non-Independent Non-Executive Director (Reappointed as Director w.e.f. 4 October 2010)
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
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)
Mr Stephen Charles Li Non-Independent Non-Executive Director
Mr Eric Koh Thong Hau Non-Independent Non-Executive Director (Alternate Director to Mr Stephen Charles Li)
En. Mohd Suffian bin Haji Haron Independent Non-Executive Director 49 AFFIN BANK BERHAD (25046-T)
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 1.1.2010 Bought Sold 31.12.2010
AFFIN Holdings Berhad Tan Sri Dato' Lodin bin Wok Kamaruddin 808,714* - - 808,714* Dato' Dr. Lee Chee Kuon 7,000 - - 7,000 Dato' Sri Abdul Hamidy bin Abdul Hafiz 200,000 - - 200,000
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 5,766,465 150,000^ - 5,916,465
Al-Hadharah Boustead REIT Tan Sri Dato' Lodin bin Wok Kamaruddin 200,000 50,000^^ - 250,000
* Shares held in trust by nominee company ^ Acquisition of REIT on 21 April 2010 ^^ Single tier dividend Redeemable Preference Shares for financial year ended 31 December 2010 received on 24 December 2010
Number of warrants 2000/2010
As at As at 1.1.2010 Bought Expired 31.12.2010
AFFIN Holdings Berhad Tan Sri Dato' Lodin bin Wok Kamaruddin 1,500 - 1,500 -
Each warrant of the holding company ('AFFIN Warrants 2000/2005') entitles the registered holder to subscribe one new ordinary share of RM 1.00 each in AFFIN Holdings Berhad at any time from the date of issue of 8 July 2000 at the exercise price of RM 3.10 per share. The original exercise period of the AFFIN Warrants 2000/2005 was to expire on 7 July 2005. During the financial year 2005, the AFFIN Warrants 2000/2005 was extended for another five years and expired on 7 July 2010 ('AFFIN Warrants 2000/2010').
Ordinary shares of RM10 each; RM5 uncalled
As at As at 1.1.2010 Bought Transfer 31.12.2010
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 Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 20,000 - - 20,000
*** Shares held in trust for the Bank Annual Report 2010 50
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
DIRECTORS' INTERESTS (continued)
Ordinary shares of 50 sen each
As at As at 1.1.2010 Bought Sold 31.12.2010
Boustead Holdings Berhad Tan Sri Dato' Lodin bin Wok Kamaruddin 26,122,599 - - 26,122,599
Redeemable preference shares of RM1 each
As at As at 1.1.2010 Bought Sold 31.12.2010
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 except that certain Directors received remuneration as directors/executives of related corporations, share options granted to Directors of the Bank pursuant to the holding company's Employee Share Option Scheme and share options granted by the ultimate holding corporate body and Boustead Holdings Berhad.
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. 51 AFFIN BANK BERHAD (25046-T)
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
CORPORATE GOVERNANCE (continued) (i) Board of Directors Responsibility and Oversight (continued) The Board of Directors (continued) 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 18 times during the financial year.
Board Balance The Board of Directors comprises of Managing Director/Chief Executive Officer, eight Non-Executive Directors and two alternate Non-Executive Directors. There are three Independent Non-Executive Directors, five Non-Independent Non-Executive Directors and one Non-Independent Executive Director. 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 2010, the Bank continues to have a strong and experienced Board, befitting its aspiration to become a mid size Bank of prominence. It consists of representatives from the private sector with suitable qualifications and experience in relevant areas particularly in banking.
The composition of the Board and the number of meetings attended by each director are as follows:
Directors Total Meetings Attended
Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) 18 / 18 Chairman Non-Independent Non-Executive Director
Dato' Zulkiflee Abbas bin Abdul Hamid 18 / 18 Managing Director/Chief Executive Officer Non-Independent Executive Director
Tan Sri Dato' Lodin bin Wok Kamaruddin 2 / 3 Non-Independent Non-Executive Director (Reappointment as Director w.e.f. 4 October 2010)
Dr Raja Abdul Malek bin Raja Jallaludin 17 / 18 Independent Non-Executive Director
Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 16 / 18 Non-Independent Non-Executive Director
Dato' Sri Abdul Aziz bin Abdul Rahman 18 / 18 Independent Non-Executive Director
Mr Aubrey Li Kwok-Sing 11 / 18 Non-Independent Non-Executive Director
Mr Brian Li Man-Bun 0 / 18 Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing) Annual Report 2010 52
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
CORPORATE GOVERNANCE (continued) (i) Board of Directors Responsibility and Oversight (continued) Board Balance (continued)
Directors Total Meetings Attended
Mr Stephen Charles Li 8 / 18 Non-Independent Non-Executive Director
Mr Eric Koh Thong Hau 10 / 18 Non-Independent Non-Executive Director (Alternate Director to Mr Stephen Charles Li)
En. Mohd Suffian bin Haji Haron 18 / 18 Independent Non-Executive Director
Tan Sri Mohamed Jawhar 1 / 1 Independent Non-Executive Director (Attended AFFIN Bank's Board Meeting by invitation)
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 2010, a total of 4 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 4 / 4 Chairman/Independent Non-Executive Director
Dato' Zulkiflee Abbas bin Abdul Hamid 4 / 4 Member/Non-Independent Executive Director
Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 4 / 4 Member/Non-Independent Non-Executive Director
Dato' Sri Abdul Aziz bin Abdul Rahman 4 / 4 Member/Independent Non-Executive Director
Dr Raja Abdul Malek bin Raja Jallaludin 4 / 4 Member/Independent Non-Executive Director 53 AFFIN BANK BERHAD (25046-T)
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 2010, a total of 7 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 7 / 7 Chairman/Independent Non-Executive Director
Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 6 / 7 Member/Non-Independent Non-Executive Director
En. Mohd Suffian bin Haji Haron 7 / 7 Member/Independent Non-Executive Director
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 Guidelines on the Governance of Shariah Committee for the Islamic Financial Institutions ('BNM/GPS-i').
The duties and responsibility of the Shariah Committee are as follow:
• 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 product comply with Shariah principles; and
• To advice the Bank on matters to be referred to the Shariah Advisory Council.
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 / 8 Member Annual Report 2010 54
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
CORPORATE GOVERNANCE (continued) (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
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 2010, a total of 5 meetings were held. The BRMC comprises the following members and details of attendance of each member at the BRMC meetings held during the financial year are as follows:
Members Total Meetings Attended
Dato' Sri Abdul Aziz bin Abdul Rahman 5 / 5 Chairman/Independent Non-Executive Director
Dr Raja Abdul Malek bin Raja Jallaludin 5 / 5 Member/Independent Non-Executive Director
En. Mohd Suffian bin Haji Haron 5 / 5 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.
During the financial year ended 31 December 2010, 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) 13 / 14 Member/Non-Independent Non-Executive Director
En. Mohd Suffian bin Haji Haron 14 / 14 Member/Independent Non-Executive Director 55 AFFIN BANK BERHAD (25046-T)
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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') Responsibilities of these committees include:
• Manage the asset liability of the Bank through coordination of the Bank's overall planning process including strategic planning, budgeting and asset liability management process; • Direct the Bank's overall acquisition and allocation of funds; • Prudently manage 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; and • Review of market risks in Bank's trading portfolios.
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.
(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. Annual Report 2010 56
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
CORPORATE GOVERNANCE (continued) (iii) Internal Audit and Internal Control Activities (continued) • 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.
The AEC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31 December 2010, a total of 9 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 9 / 9 Chairman/Independent Non-Executive Director
Dr Raja Abdul Malek bin Raja Jallaludin 9 / 9 Member/Independent Non-Executive Director
Tan Sri Mohamed Jawhar 9 / 9 Member/Independent Non-Executive Director (Representative from AFFIN Islamic Bank Berhad) 57 AFFIN BANK BERHAD (25046-T)
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
CORPORATE GOVERNANCE (continued) (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 2010 AND FUTURE OUTLOOK As global economy began to improve in 2010, the pre-emptive measures such as fiscal stimulus packages and easing of monetary policies introduced by the Government in 2009 helped push Malaysian economy toward speedier recovery.
In 2010, AFFIN Bank was able to ride on Malaysia’s economic recovery in its lending activities without compromising the existing prudent risk management policies and practices.
For 2010, the Bank posted a strong growth in operating profit by RM11.2 million (1.8%) as compared to the previous year. As indicators to sustainable business growth, net loans & advances grew year-to-year by RM4.0 billion (18.1% ) while asset quality continues to improve further as the Bank’s impaired loan ratio stood at 3.66%. The Bank was able to register Profit Before Tax growth of RM96.8 million (22.8% ) as compared to the previous year.
In 2010, the Bank was able to ensure sustainable business growth through :
• Further develop the deposits business sector especially the retail segment • Improving customer touchpoints to ensure excellent and efficient customer service • Continuous improvement on risk management practices to be abreast with prevailing economic climate • Human capital development
BUSINESS OUTLOOK FOR 2011 Building on the momentum created in 2010, the Bank will continue to focus on “sustainable business growth” in both Business Banking as well as Consumer Banking segment.
For Business Banking, the Bank will be leveraging on business opportunities arising from the 10th Malaysia Plan as well as the Economic Transformation Programs ('ETP') while Consumer Banking will be developing specific products and packages that suit a particular market segments. Annual Report 2010 58
DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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: 26 July 2010 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 did not pay on behalf of its depositors or shareholder. The Bank only pays zakat on its business.
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 2011.
Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) Chairman
Dato' Zulkiflee Abbas bin Abdul Hamid Managing Director/Chief Executive Officer 59 AFFIN BANK BERHAD (25046-T)
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2010
The Group The Bank 2010 2009 2010 2009 Note RM'000 RM'000 RM'000 RM'000
ASSETS Cash and short-term funds 2 8,629,563 6,132,889 6,102,307 4,176,945 Deposits and placements with banks and other financial institutions 3 192,335 142,777 559,533 623,271 Financial assets held-for-trading 4 149,853 150,000 149,853 150,000 Financial investments available-for-sale 5 5,766,053 5,627,371 4,428,260 4,239,770 Financial investments held-to-maturity 6 431,159 481,474 431,159 480,899 Loans, advances and financing 7 25,974,847 21,989,304 22,419,251 19,108,595 Other assets 8 246,202 415,290 233,619 384,271 Derivative financial assets 9 46,155 29,727 46,155 29,727 Tax recoverable 49,930 31 46,072 - Deferred tax assets 10 4,291 54,789 - 54,390 Statutory deposits with Bank Negara Malaysia 11 245,130 219,600 245,130 219,600 Investment in subsidiaries 12 - - 287,429 287,429 Investment in jointly controlled entity 13 500 500 - - Amount due from subsidiaries 14 - - 185,271 231,285 Amount due from jointly controlled entity 2,745 1,057 - - Property and equipment 15 170,722 187,758 162,760 177,698 Intangible assets 16 154,436 166,070 156,868 169,236
TOTAL ASSETS 42,063,921 35,598,637 35,453,667 30,333,116
LIABILITIES Deposits from customers 17 30,845,248 26,440,319 25,313,874 21,815,054 Deposits and placements of banks and other financial institutions 18 6,605,348 5,023,663 5,735,422 4,521,228 Bills and acceptances payable 110,161 94,265 110,161 94,265 Recourse obligation on loans sold to Cagamas Berhad 19 286,370 297,216 286,370 297,216 Other liabilities 20 521,276 431,745 464,622 404,055 Derivative financial liabilities 21 57,560 41,684 57,560 41,684 Provision for taxation 22 2,726 - 1,118 Amount due to subsidiaries 22 - - 47,926 47,730 Deferred tax liabilities 10 24,932 1 24,932 - Subordinated term loan 23 300,000 300,000 300,000 300,000
TOTAL LIABILITIES 38,750,917 32,631,619 32,340,867 27,522,350
EQUITY Share capital 24 1,439,285 1,439,285 1,439,285 1,439,285 Reserves 25 1,873,719 1,527,733 1,673,515 1,371,481
TOTAL EQUITY 3,313,004 2,967,018 3,112,800 2,810,766
TOTAL LIABILITIES AND EQUITY 42,063,921 35,598,637 35,453,667 30,333,116
COMMITMENTS AND CONTINGENCIES 37 18,844,780 17,918,128 16,821,892 15,760,619
The accounting policies on pages 67 to 81 and the notes on pages 82 to 163 form an integral part of these financial statements. Annual Report 2010 60
INCOME STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
The Group The Bank 2010 2009 2010 2009 Note RM'000 RM'000 RM'000 RM'000
Interest income 26 1,511,835 1,341,088 1,523,568 1,348,136 Interest expense 27 (760,848) (605,111) (760,881) (605,336)
Net interest income 750,987 735,977 762,687 742,800 Islamic Banking income 28 177,783 162,637 - -
928,770 898,614 762,687 742,800 Other operating income 29 227,351 221,928 226,904 230,284
Net income 1,156,121 1,120,542 989,591 973,084 Other operating expenses 30 (530,911) (506,487) (440,145) (429,032)
Operating profit 625,210 614,055 549,446 544,052 Allowances for losses on loans, advances and financing 32 (95,394) (187,534) (66,740) (157,539) Impairment losses on securities (7,912) (1,374) (7,912) (1,374)
Profit before taxation and zakat 521,904 425,147 474,794 385,139 Taxation 34 (136,041) (104,087) (128,089) (89,899) Zakat (4,626) (3,308) - -
Net profit after taxation and zakat 381,237 317,752 346,705 295,240
Attributable to: Equity holders of the Bank 381,237 317,752 346,705 295,240
Earnings per share - basic/fully diluted (sen) 35 26.5 22.1 24.1 20.5
The accounting policies on pages 67 to 81 and the notes on pages 82 to 163 form an integral part of these financial statements. 61 AFFIN BANK BERHAD (25046-T)
STATEMENTS OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Net profit after taxation and zakat 381,237 317,752 346,705 295,240 Other comprehensive income: Income and expense recognised directly in equity 16,474 46,149 11,334 40,934 Deferred tax on financial investments available-for-sale (4,115) (11,105) (2,834) (10,234)
Other comprehensive income for the financial year, net of tax 12,359 35,044 8,500 30,700
Total comprehensive income for the financial year 393,596 352,796 355,205 325,940
Equity holders of the Group: Total comprehensive income 393,596 352,796 355,205 325,940
The accounting policies on pages 67 to 81 and the notes on pages 82 to 163 form an integral part of these financial statements. Annual Report 2010 62
STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
Non-distributable Distributable
Investment Share Share Statutory fluctuation Retained The Group capital premium reserve reserve profits Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
At 1 January 2010 As previously reported 1,439,285 408,389 789,221 (1,880) 332,003 2,967,018 Adoption of FRS 139 (Note 45) - - - 43,770 19,593 63,363
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: Income and expense recognised directly in equity - - - 16,474 - 16,474 Deferred tax on financial investments available-for-sale - - - (4,115) - (4,115)
Total comprehensive income - - - 12,359 381,237 393,596
Dividend paid - - - - (110,973) (110,973) Transfer to statutory reserve - - 99,689 - (99,689) -
At 31 December 2010 1,439,285 408,389 888,910 54,249 522,171 3,313,004
At 1 January 2009 1,439,285 408,389 625,209 (36,924) 273,579 2,709,538 Comprehensive income: Net profit for the financial year - - - - 317,752 317,752 Other comprehensive income: Income and expense recognised directly in equity - - - 46,149 - 46,149 Deferred tax on financial investments available-for-sale - - - (11,105) - (11,105)
Total comprehensive income - - - 35,044 317,752 352,796
Dividend paid - - - - (95,316) (95,316) Transfer to statutory reserve - - 164,012 - (164,012) -
At 31 December 2009 1,439,285 408,389 789,221 (1,880) 332,003 2,967,018 63 AFFIN BANK BERHAD (25046-T)
STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
Non-distributable Distributable
Investment Share Share Statutory fluctuation Retained The Bank capital premium reserve reserve profits Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
At 1 January 2010 As previously reported 1,439,285 408,389 720,824 (6,853) 249,121 2,810,766 Adoption of FRS 139 (Note 45) - - - 44,148 13,654 57,802
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: Income and expense recognised directly in equity - - - 11,334 - 11,334 Deferred tax on financial investments available-for-sale - - - (2,834) - (2,834)
Total comprehensive income - - - 8,500 346,705 355,205
Dividend paid - - - - (110,973) (110,973) Transfer to statutory reserve - - 86,676 - (86,676) -
At 31 December 2010 1,439,285 408,389 807,500 45,795 411,831 3,112,800
At 1 January 2009 1,439,285 408,389 573,204 (37,553) 196,817 2,580,142 Comprehensive income : Net profit for the financial year - - - - 295,240 295,240 Other comprehensive income: Income and expense recognised directly in equity - - - 40,934 - 40,934 Deferred tax on financial investments available-for-sale - - - (10,234) - (10,234)
Total comprehensive income - - - 30,700 295,240 325,940
Dividend paid - - - - (95,316) (95,316) Transfer to statutory reserve - - 147,620 - (147,620) -
At 31 December 2009 1,439,285 408,389 720,824 (6,853) 249,121 2,810,766
The accounting policies on pages 67 to 81 and the notes on pages 82 to 163 form an integral part of these financial statements. Annual Report 2010 64
STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation 521,904 425,147 474,794 385,139 Adjustments for items not involving the movement of cash and cash equivalents:
Interest income - financial assets held-for-trading (311) (950) (311) (950) - financial investments available-for-sale (116,495) (103,621) (116,347) (103,621) - financial investments held-to-maturity (15,522) (21,705) (15,522) (19,708) Dividend income - financial investments available-for-sale (8) (150) (8) (150) - financial investments held-to-maturity (2,901) (5,704) (2,901) (5,704) Dividend income from subsidiaries - - - (16,102) Amortisation of premium less accretion of discount - financial investments available-for-sale (30,938) (12,744) (30,938) (12,744) - financial investments held-to-maturity (664) - (664) - Gain on sale - financial assets held-for-trading (1,217) (1,646) (1,217) (1,646) - financial investments available-for-sale (23,733) (7,002) (23,635) (6,960) - financial investments held-to-maturity (2,053) (1,633) (2,053) (1,633) Unrealised (gain)/loss on revaluation - trading (137) 69 (137) 69 - derivatives (6,303) (11,716) (6,303) (11,716) - foreign exchange 9,549 10,072 9,549 10,072 Allowance for impairment loss - financial investments available-for-sale 4,012 1,374 4,012 1,374 - financial investments held-to-maturity 3,900 - 3,900 - Depreciation of property and equipment 20,071 21,862 19,297 21,092 Property and equipment written-off 514 455 513 421 Foreclosed properties - dimunition in value 2,440 1,798 2,422 1,798 Gain on sale of property and equipment (219) (168) (219) (168) Gain on sale of leasehold properties - (1,185) - (1,185) Amortisation of intangible assets 16,474 20,502 15,658 19,999 Lease rental - leasehold properties - 241 - 234 Gain on sale of foreclosed properties (6,330) (18,918) (6,330) (18,918) Net specific allowance for bad and doubtful debts and financing - 275,593 - 252,137 Charge of general allowance - 37,135 - 30,378 Net individual impairment 177,354 - 161,938 - Net collective impairment (3,044) - (16,409) - Bad debt and financing written-off 15,810 12,237 15,628 12,137 Other provision 78,000 - 78,000 -
Operating profit before changes in working capital 640,153 619,343 562,717 533,645 65 AFFIN BANK BERHAD (25046-T)
STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
The Group The Bank 2010 2009 2010 2009 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 (49,558) (32,561) 63,738 (168,495) Financial assets held-for-trading 1,501 (9,579) 1,501 (9,579) Interest income from financial assets held-for-trading 311 950 311 950 Foreign exchange transaction (48,511) 1,733 (48,921) 2,018 Loans, advances and financing (4,148,877) (2,798,014) (3,450,614) (2,343,274) Other assets 164,799 82,863 144,152 67,481 Derivative financial instruments (552) (1,526) (552) (1,526) Statutory deposits with Bank Negara Malaysia (25,530) 545,000 (25,530) 438,600 Amount due from subsidiaries - - 46,210 46,144 Amount due from jointly controlled entity (1,688) (307) - -
Increase/(decrease) in operating liabilities:
Deposits from customers 4,404,929 1,212,530 3,498,821 835,486 Deposits and placements of banks and other financial institutions 1,581,685 1,202,776 1,214,194 1,599,187 Bills and acceptances payable 15,896 (41,978) 15,896 (41,978) Recourse obligation on loans sold to Cagamas Berhad (10,846) 286,128 (10,846) 286,128 Other liablilities 10,364 (52,045) (17,466) (42,469)
Cash generated from operations 2,534,076 1,015,313 1,993,611 1,202,318 Tax paid (138,418) (141,313) (118,028) (132,200) Zakat paid (3,493) (2,314) - (91)
Net cash generated from operating activities 2,392,165 871,686 1,875,583 1,070,027 Annual Report 2010 66
STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received - financial investments available-for-sale 116,495 103,621 116,347 103,621 - financial investments held-to-maturity 15,522 21,705 15,522 19,708 Dividend income - financial investments available-for-sale 8 150 8 150 - financial investments held-to-maturity 2,901 5,704 2,901 5,704 Dividend income from subsidiaries - - - 16,102 Redemption of financial investments held-to-maturity net of purchase 23,853 83,172 23,853 76,875 Net sale/(purchase) of financial investments available-for-sale 12,090 (1,374,836) (43,027) (1,065,790) Proceeds from disposal of - property and equipment 2,480 22,701 2,480 7,701 - foreclosed properties 24,941 45,870 24,941 45,870 Purchase of property and equipment (9,608) (14,552) (9,482) (12,938) Purchase of intangible assets (1,043) (786) (1,043) (948)
Net cash generated/(used in) from investing activities 187,639 (1,107,251) 132,500 (803,945)
CASH FLOWS FROM FINANCING ACTIVITIES
Investment in subsidiary - - - (100,000) Repayment of subordinated term loan - (500,000) - (500,000) Proceeds from issuance of subordinated term loan - 300,000 - 300,000 Payment of dividend (110,973) (95,316) (110,973) (95,316)
Net cash used in financing activities (110,973) (295,316) (110,973) (395,316)
Net increase/(decrease) in cash and cash equivalents 2,468,831 (530,881) 1,897,110 (129,234) Amount vested from subsidiary - - - 843 Net increase/(decrease) in foreign exchange 27,843 (13,312) 28,252 (13,598) Cash and cash equivalents at beginning of the financial year 6,132,889 6,677,082 4,176,945 4,318,934
CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR (Note 2) 8,629,563 6,132,889 6,102,307 4,176,945
The accounting policies on pages 67 to 81 and the notes on pages 82 to 163 form an integral part of these financial statements. 67 AFFIN BANK BERHAD (25046-T)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 judgement 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 judgement 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 2010 are as follows:
• FRS 7 "Financial Instruments: Disclosures" and the related Amendments
• FRS 101 (revised) "Presentation of Financial Statements"
• FRS 123 "Borrowing Costs"
• FRS 139 "Financial Instruments: Recognition and Measurement" and the related Amendments
• Amendment to FRS 1 "First-time Adoption of Financial Reporting Standards" and FRS 127 "Consolidated and Separate Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate"
• Amendment to FRS 2 "Share-based Payment: Vesting Conditions and Cancellations"
• Amendments to FRS 132 "Financial Instruments: Presentation" and FRS 101 (revised) "Presentation of Financial Statements" - Puttable financial instruments and obligations arising on liquidation
• IC Interpretation 9 "Reassessment of Embedded Derivatives" and the related Amendments
• IC Interpretation 10 "Interim Financial Reporting and Impairment"
• IC Interpretation 11 "FRS 2 Group and Treasury Share Transactions"
• IC Interpretation 13 "Customer Loyalty Programmes"
• Improvements to FRSs (2009)
A summary of the impact of the new accounting standards, amendments and improvements to published standards and interpretations on the financial statements of the Group and Bank are set out in Note 45. Annual Report 2010 68
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(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 revised FRS 3 "Business combinations" (effective prospectively from 1 July 2010) continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through profit or loss. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition- related costs should be expensed.
• The revised FRS 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.
• The revised FRS 127 "Consolidated and separate financial statements" (applies prospectively to transactions with non- controlling interests from 1 July 2010) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. When this standard is effective, all earnings and losses of the subsidiary are attributed to the parent and the non-controlling interest, even if the attribution of losses to the non-controlling interest results in a debit balance in the shareholders’ equity. Profit or loss attribution to non-controlling interests for prior years is not restated. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss.
• Amendment to FRS 2 "Share-based payment: Group cash-settled share-based payment transactions" (effective from 1 January 2011) clarifies that an entity that receives goods or services in a share-based payment arrangement must account for those goods or services no matter which entity in the group settles the transaction, and no matter whether the transaction is settled in shares or cash. The amendments also incorporate guidance previously included in IC Interpretation 8 "Scope of FRS 2" and IC Interpretation 11 "FRS 2 – group and treasury share transactions", which shall be withdrawn upon application of this amendment.
• Amendments to FRS 7 "Financial instruments: Disclosures" and FRS 1 "First-time adoption of financial reporting standards" (effective from 1 January 2011) requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy.
The Group has applied the transitional provision which exempts entities from disclosing the possible impact arising from the initial application of this amendment on the financial statements of the Group and Bank.
• Amendment to FRS 132 "Financial instruments: Presentation" on classification of rights issues (effective from 1 March 2010) addresses accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity instruments instead of as derivative liabilities, regardless of the currency in which the exercise price is denominated. Currently, these issues are accounted for as derivative liabilities.
• IC Interpretation 4 "Determining whether an arrangement contains a lease" (effective from 1 January 2011) requires the Group to identify any arrangement that does not take the legal form of a lease, but conveys a right to use an asset in return for a payment or series of payments. This interpretation provides guidance for determining whether such arrangements are, or contain, leases. The assessment is based on the substance of the arrangement and requires assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset. If the arrangement contains a lease, the requirements of FRS 117 "Leases" should be applied to the lease element of the arrangement. 69 AFFIN BANK BERHAD (25046-T)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(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) • IC Interpretation 17 "Distribution of non-cash assets to owners" (effective from 1 July 2010) provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. FRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable.
• 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 profit or loss. Entities are no longer permitted to reclassify the carrying value of the existing financial liability into equity with no gain or loss recognised in profit or loss.
Improvements to FRSs:
• FRS 2 (effective from 1 July 2010) clarifies that contributions of a business on formation of a joint venture and common control transactions are outside the scope of FRS 2.
• FRS 3 (effective from 1 January 2011)
- Clarifies that the choice of measuring non-controlling interests at fair value or at the proportionate share of the acquiree’s net assets applies only to instruments that represent present ownership interests and entitle their holders to a proportionate share of the net assets in the event of liquidation. All other components of non-controlling interest are measured at fair value unless another measurement basis is required by FRS.
- Clarifies that the amendments to FRS 7, FRS 132 and FRS 139 that eliminate the exemption for contingent consideration, do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of FRS 3 (2010). Those contingent consideration arrangements are to be accounted for in accordance with the guidance in FRS 3 (2005).
• FRS 5 "Non-current assets held for sale and discontinued operations" (effective from 1 July 2010) clarifies that all of a subsidiary's assets and liabilities are classified as held for sale if a partial disposal sale plan results in loss of control. Relevant disclosure should be made for this subsidiary if the definition of a discontinued operation is met.
• FRS 101 "Presentation of financial statements" (effective from 1 January 2011) clarifies that an entity shall present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements.
• FRS 138 "Intangible Assets" (effective from 1 July 2010) clarifies that a group of complementary intangible assets acquired in a business combination may be recognised as a single asset if each asset has similar useful lives.
• IC Interpretation 9 (effective from 1 July 2010) clarifies that this interpretation does not apply to embedded derivatives in contracts acquired in a business combination, businesses under common control or the formation of a joint venture.
The Group will apply these standards when effective. The adoption of these standards and amendments will not have significant impact on the results of the Group and the Bank. Annual Report 2010 70
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(B) ECONOMIC ENTITIES IN THE GROUP The consolidated financial statements include the financial statements of the Bank, subsidiaries and jointly controlled entities, made up to the end of the financial year.
Subsidiaries Subsidiaries are all those corporations, partnerships, or other entities in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from their activities, 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 fully consolidated from the date on which control is transferred to the Group and de-consolidated from the date that control ceases. The Group uses the purchase method of accounting to account for the acquisition of subsidiaries. The cost of an acquisition is measured as fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of identifiable net assets acquired at the date of acquisition is reflected as goodwill (refer to accounting policy Note C on goodwill). If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
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.
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 reserves. 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.
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.
Dilution gains and losses in jointly controlled entities are recognised in the income statement.
For incremental interest in a jointly controlled entity, the date of acquisition is purchase date at each stage and goodwill is calculated at each purchase date based on the fair value of assets and liabilities identified. There is no "step up to fair value" of net assets of previously acquired stake and the share of profits and equity movements for the previously acquired stake is recorded directly through equity. 71 AFFIN BANK BERHAD (25046-T)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(B) ECONOMIC ENTITIES IN THE GROUP (continued) Jointly controlled entity (continued) When the Group ceases to have control or joint control over an entity, the carrying amount of the investment at the date control, joint control or significant influence ceases become its cost on initial measurement 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.
In the Bank's financial statements, the investment in subsidiaries and jointly controlled entity is stated at cost less 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).
(C) INTANGIBLE ASSET Goodwill Goodwill represents the excess of the cost of acquisition of subsidiaries, jointly controlled entities and associated company 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 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. The Group allocates its goodwill between the enterprise and consumer banking segment.
Computer software Acquired computer software are capitalised on the basis of the cost incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (five years). Computer software classified as intangible asset are stated at cost less accumulated amortisation and accumulated impairment losses, if any.
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. Annual Report 2010 72
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(E) RECOGNITION OF INTEREST / FINANCING INCOME FRS 139 prescribes that financial assets classified as held-to-maturity and loans and receivables are measured at amortised cost using effective interest method. Whilst the Group and the Bank's financial investments held-to-maturity are already measured on this basis under the requirements of BNM's revised BNM/GP8 effective from 1 January 2005, interest income on its loans and receivables continued to be recognised based on contractual interest rates. Upon the full adoption of FRS 139 on 1 January 2010, 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.
Prior to the adoption of FRS 139, interest accrued and recognised as income prior to the date that a loan is classified as impaired is reversed out of income and set-off against the interest receivable account in the statement of financial position. Thereafter, interest on the impaired loan is recognised as income on a cash basis. Upon adoption of FRS 139, once a loan has been written down as a result of an impairment loss, interest income is thereafter recognised using the rate of interest used to discount the future cash flows for the purpose of measuring impairment loss.
The effects of the changes are disclosed in Note 45.
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.
(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 The Group and the Bank have changed its accounting policy for recognition and measurement of financial assets upon adoption of FRS 139 "Financial Instruments: Recognition and Measurement" on 1 January 2010. The Group and the Bank have applied the new policy according to the transitional provision of FRS 139 by re-measuring all financial assets, as appropriate, and recording and adjustments to the previous carrying amounts to opening retained earnings. Refer to Note 45 for the impact of this change in accounting policy.
In accordance with FRS 139, 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 investment available-for-sale; and financial investments held-to-maturity. Management determines the classification of its financial instruments at initial recognition. 73 AFFIN BANK BERHAD (25046-T)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(G) FINANCIAL ASSETS (continued) 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.
The adoption of FRS 139 has resulted in a change in accounting policy relating to the assessment for impairment of loans, advances and financing. The existing accounting policies relating to the assessment of impairment of other financial assets of the Group and the Bank are already largely in line with those of FRS 139. Prior to the adoption of FRS 139, allowances for impaired loans, advances and financing (previously referred to as non-performing loans) were computed in conformity with the BNM/GP3 -Guidelines on Classification of Non-Performing Loans and Provision for Substandard, Bad and Doubtful Debts.
Upon the adoption of FRS 139, the Group and the Bank assess at each reporting date 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.
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. Annual Report 2010 74
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(G) FINANCIAL ASSETS (continued) Loans, advances and financing (continued) 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.
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-for trading unless they are designated and effective as hedging instruments. Derivative 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 consolidated 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. According to FRS 139, 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. 75 AFFIN BANK BERHAD (25046-T)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(G) FINANCIAL ASSETS (continued) 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.
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 impairement resulting in the recognition of an impairement 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. Annual Report 2010 76
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(G) FINANCIAL ASSETS (continued) 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.
(H) FINANCIAL LIABILITIES
In accordance with FRS 139, 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. Derivative are recognised in the statement of financial position as ‘Derivative financial liabilities’ when their fair values are negative. Financial liabilities held-for-trading also include obligations to deliver financial assets borrowed by a short seller. Those financial instruments are recognised in the statement of financial position as 'Financial liabilities held-for-trading'.
Gains and losses arising from changes in fair value of financial liabilities classified held-for-trading are included in the income statement.
The Group and the Bank measure all financial liabilities at amortised cost using the effective interest method except for:
• derivatives that are liabilities, which shall be measured at fair value. For derivative liabilities that are linked to and settled by delivery of unquoted equity instruments whose fair value cannot be realiably measured, the derivatives shall be measured at cost; • financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies; • financial guarantee contracts; • commitments to provide a loan at below-market interest rate; and • financial liabilities that designated as hedged items and subject to hedge accounting requirements under the applicable FRS.
Financial liabilities for which the fair value option is applied are recognised in the statement of financial position as 'Financial liabilities designated at fair value'. Fair value changes relating to financial liabilities designated at fair value through profit or loss are recognised in 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.
Derecognition 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 risks and rewards have not been transferred, the Group and the Bank test control to ensure that continuing involvement on the basis of any retained powers of control does not prevent derecognition). Financial liabilites are derecognised when they have been redeemed or otherwise extinguished. 77 AFFIN BANK BERHAD (25046-T)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(I) 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.
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
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.
(J) LAND HELD FOR SALE Land held for sale is stated at cost less accumulated impairment losses. Where an indication of impairment exists, an analysis is performed to assess whether the carrying amount of the land is fully recoverable. A write-down would be made if the carrying amount exceeded the recoverable amount. Any subsequent increase in recoverable amount would be recognised 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. Annual Report 2010 78
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(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.
Following the adoption of the improvement to FRS 117 “Leases”, leasehold land in which the Group has substantially all the risks and rewards incidental to ownership has been reclassified retrospectively from operating lease to finance lease. Previously, leasehold land was classified as an operating lease unless title is expected to pass to the lessee at the end of the lease term.
Refer to Note 45 for the impact of this change in accounting policy.
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. 79 AFFIN BANK BERHAD (25046-T)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(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. Annual Report 2010 80
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(N) INCOME TAX Current tax Current tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and include all taxes based upon the taxable profits for the financial year.
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 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 principally arising from depreciation of property and equipment, amortisation of intangible assets, foreign exchange and derivatives, provision for other liabilities and unused tax losses carried forward.
Deferred tax related to fair value re-measurement of financial investment available-for-sale, which are charged or credited directly to other comprehensive income and is subsequently recognised in the income statement together with the deferred gain or loss.
(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.
(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.
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. 81 AFFIN BANK BERHAD (25046-T)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
(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.
(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.
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. Annual Report 2010 82
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 2010 was 3,113 (2009: 3,065) and 2,933 (2009: 2,900) 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 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Cash and bank balances with banks and other financial institutions 172,530 138,525 169,157 134,582 Money at call and deposit placements maturing within one month 8,457,033 5,994,364 5,933,150 4,042,363
8,629,563 6,132,889 6,102,307 4,176,945
3 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Licensed banks 15,681 - 382,879 480,494 Licensed investment banks 176,654 142,777 176,654 142,777
192,335 142,777 559,533 623,271
4 FINANCIAL ASSETS HELD-FOR-TRADING
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
At fair value Bank Negara Malaysia Monetary Notes 99,853 - 99,853 - Negotiable Instruments of Deposit 50,000 150,000 50,000 150,000
149,853 150,000 149,853 150,000 83 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
5 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
At fair value Malaysian Government treasury bills 166,566 151,098 137,730 93,392 Malaysian Government securities 756,181 1,632,607 756,181 1,632,607 Malaysian Government investment issues 1,398,095 877,623 668,411 235,469 BNM Sukuk 31,712 - - - Bank Negara Malaysia Monetary Notes 1,006,592 638,548 849,557 408,072 Negotiable Instruments of Deposit and Islamic Debt Certificates 140,057 460,002 140,057 460,002 Bankers' acceptances and Islamic accepted bills 556,994 36,580 556,994 - Khazanah bonds 13,250 24,961 - -
4,069,447 3,821,419 3,108,930 2,829,542 Quoted securities: Shares in Malaysia 51,375 65,059 40,920 54,617 Private debt securities in Malaysia 2,167 2,253 2,167 2,253 Unquoted securities: Shares in Malaysia 93,173 - 93,101 - Private debt securities - in Malaysia 1,253,121 1,495,913 890,568 1,131,828 - outside Malaysia 336,775 312,425 325,834 284,483
5,806,058 5,697,069 4,461,520 4,302,723 Allowance for impairment of securities (40,005) (69,698) (33,260) (62,953)
5,766,053 5,627,371 4,428,260 4,239,770
6 FINANCIAL INVESTMENTS HELD-TO-MATURITY
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
At amortised cost Quoted securities: Private debt securities in Malaysia 38,123 38,123 38,123 38,123
Unquoted securities: Private debt securities in Malaysia 480,788 478,915 480,620 478,747
At cost Unquoted shares in Malaysia - 54,393 - 53,818
518,911 571,431 518,743 570,688 Allowance for impairment of securities (87,752) (89,957) (87,584) (89,789)
431,159 481,474 431,159 480,899 Annual Report 2010 84
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
7 LOANS, ADVANCES AND FINANCING
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
(i) By type
Overdrafts 1,971,364 1,936,567 1,747,438 1,718,354 Term loans/financing - Housing loans/financing 3,885,327 3,248,631 2,831,771 2,415,866 - Hire purchase receivables 7,835,986 6,592,317 6,774,821 5,729,092 - Syndicated financing 1,371,964 1,099,161 1,254,969 920,137 - Other term loans/financing 7,784,898 6,363,775 6,850,106 5,811,261 Bills receivables 39,077 39,727 37,688 31,856 Trust receipts 266,050 316,033 222,092 239,571 Claims on customers under acceptances credits 659,074 603,804 601,137 508,763 Staff loans/financing (of which RM Nil to Directors) 151,146 151,565 143,110 143,702 Credit/charge cards 101,682 96,468 101,682 96,468 Revolving credits 2,476,644 2,148,317 2,334,181 2,029,715 Factoring 3,185 3,532 3,185 3,532
Gross loans, advances and financing 26,546,397 22,599,897 22,902,180 19,648,317 Less: Allowance for bad and doubtful debts and financing - General - (335,067) - (291,000) - Specific - (275,526) - (248,722) Allowance for impairment - Individual (175,849) - (139,709) - - Collective (395,701) - (343,220) -
Total net loans, advances and financing 25,974,847 21,989,304 22,419,251 19,108,595
- Included in term loans are housing loans sold to Cagamas Berhad with recourse amounting to RM286,370,000 (2009: RM297,216,000).
- Included in Group's other term loan/financing as at reporting is RM13.5 million (2009: 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 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Maturing within one year 6,552,073 6,032,892 5,989,754 5,432,079 One year to three years 2,748,818 2,624,066 2,581,046 2,410,452 Three years to five years 4,411,920 3,450,201 3,906,606 3,214,452 Over five years 12,833,586 10,492,738 10,424,774 8,591,334
26,546,397 22,599,897 22,902,180 19,648,317 85 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
7 LOANS, ADVANCES AND FINANCING (continued)
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
(iii) By type of customer
Domestic non-bank financial institutions - Stockbroking companies 270 - 270 - - Others 2,146,330 1,519,286 1,724,629 1,333,982 Domestic business enterprises - Small and medium enterprises 6,789,502 6,182,392 6,311,415 5,670,572 - Others 5,785,703 4,628,530 5,265,662 4,245,440 Government and statutory bodies 75,394 93,267 75,394 84,326 Individuals 11,473,630 9,909,813 9,369,378 8,191,403 Other domestic entities 45,584 20,117 43,749 19,297 Foreign entities 229,984 246,492 111,683 103,297
26,546,397 22,599,897 22,902,180 19,648,317
(iv) By interest/profit rate sensitivity
Fixed rate - Housing loans/financing 286,138 357,071 183,375 163,641 - Hire purchase receivables 7,834,034 6,589,445 6,773,029 5,726,220 - Other fixed rate loans/financing 3,934,311 3,779,761 3,400,299 3,208,943 Variable rate - BLR plus 10,210,602 8,969,682 8,596,943 7,776,326 - Cost plus 4,281,312 2,903,938 3,948,534 2,773,187
26,546,397 22,599,897 22,902,180 19,648,317
(v) By economic sector
Primary agriculture 482,204 528,113 385,200 410,454 Mining and quarrying 373,899 254,864 373,664 254,665 Manufacturing 1,790,610 1,681,203 1,660,682 1,570,652 Electricity, gas and water supply 194,137 155,944 193,273 155,671 Construction 2,367,389 2,412,212 2,027,689 1,929,928 Real estate 2,328,423 1,444,968 2,283,744 1,403,443 Wholesale & retail trade and restaurants & hotels 1,213,751 1,166,009 1,164,859 1,090,258 Transport, storage and communication 921,590 925,398 915,146 898,675 Finance, insurance and business services 4,396,591 3,298,676 3,809,129 3,016,548 Education, health and others 855,655 698,097 584,559 622,075 Household 11,579,272 10,004,551 9,461,991 8,271,706 Others 42,876 29,862 42,244 24,242
26,546,397 22,599,897 22,902,180 19,648,317 Annual Report 2010 86
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
7 LOANS, ADVANCES AND FINANCING (continued)
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
(vi) By economic purpose
Purchase of securities 268,145 171,054 254,706 150,042 Purchase of transport vehicles 7,869,187 6,619,191 6,807,263 5,751,834 Purchase of landed property of which: - Residential 3,982,258 3,473,593 2,913,043 2,579,015 - Non-residential 2,637,636 1,605,207 2,211,785 1,430,102 Fixed assets other than land and building 339,184 274,654 329,088 270,145 Personal use 721,877 746,550 689,560 721,970 Credit card 101,682 96,468 101,682 96,468 Consumer durable 1,067 1,365 1,033 1,324 Construction 772,577 652,128 648,490 518,311 Merger and acquisition 4,867 14,598 4,867 14,598 Working capital 9,635,096 8,519,822 8,739,309 7,729,265 Others 212,821 425,267 201,354 385,243
26,546,397 22,599,897 22,902,180 19,648,317
(vii) By geographical distribution
Perlis 27,648 17,882 25,762 16,255 Kedah 902,980 954,969 691,342 743,340 Pulau Pinang 1,271,331 1,110,256 1,176,306 1,027,779 Perak 853,633 726,315 689,294 597,903 Selangor 7,602,382 6,552,003 6,423,997 5,582,084 Wilayah Persekutuan 8,720,586 7,060,962 7,876,473 6,425,087 Negeri Sembilan 721,564 635,459 660,393 585,102 Melaka 663,856 575,803 623,077 550,692 Johor 2,027,324 1,849,159 1,889,371 1,711,981 Pahang 623,000 416,548 368,284 313,620 Terengganu 567,382 521,026 277,903 293,468 Kelantan 256,176 232,161 58,335 48,822 Sarawak 732,788 572,920 707,464 555,644 Sabah 1,173,362 1,048,697 1,137,077 999,578 Labuan 277,901 177,666 277,889 177,651 Abroad 124,484 148,071 19,213 19,311
26,546,397 22,599,897 22,902,180 19,648,317 87 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
7 LOANS, ADVANCES AND FINANCING (continued)
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
(viii)Movements of impaired loans
At beginning of the financial year 774,886 1,086,173 714,430 1,035,778 Adoption of FRS 139 264,897 - 194,513 -
1,039,783 1,086,173 908,943 1,035,778 Acquisition from subsidiary - - - 296 Classified as impaired 689,486 780,474 596,797 697,126 Reclassified as non-impaired (313,791) (379,573) (271,704) (336,133) Amount recovered (221,338) (254,944) (198,624) (238,824) Amount written-off (223,017) (457,244) (216,890) (443,813)
At end of the financial year 971,123 774,886 818,522 714,430
The Group The Bank 2010 2010 RM'000 RM'000
(ix) Movements in allowance for impairment
Individual impairment At beginning of the financial year -- Adoption of FRS 139 175,953 152,725
175,953 152,725 Provision for loan impairment 198,023 172,716 Amount recovered (20,669) (10,778) Amount written-off (170,906) (169,730) Unwind of discount of allowance (6,552) (5,224)
At end of the financial year 175,849 139,709
Collective impairment At beginning of the financial year -- Adoption of FRS 139 449,893 405,968
449,893 405,968 Provision for loan impairment/(recovered) (3,044) (16,409) Amount written-off (51,148) (46,339)
At end of the financial year 395,701 343,220 Annual Report 2010 88
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
7 LOANS, ADVANCES AND FINANCING (continued)
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
(x) Movements in allowance for bad and doubtful debts and financing
General allowance
At beginning of the financial year 335,067 297,932 291,000 260,443 Acquisition from subsidiary - - - 179 Adoption of FRS 139 (335,067) - (291,000) - Allowance made during the financial year - 37,182 - 30,378 Amount written-back - (47) - -
At end of the financial year - 335,067 - 291,000
As % of gross loans, advances and financing less specific allowance - 1.50% - 1.50%
Specific allowance
At beginning of the financial year 275,526 448,783 248,722 431,746 Acquisition from subsidiary - - - 257 Adoption of FRS 139 (275,526) - (248,722) - Allowance made during the financial year - 322,570 - 297,631 Transferred to allowance from impairment of securities - 9,843 - 9,843 Transferred to debt conversion - (1,626) - (1,626) Amount recovered - (46,977) - (45,494) Amount written-off - (457,067) - (443,635)
At end of the financial year - 275,526 - 248,722
(xi) Impaired loans by economic sectors
Primary agriculture 11,937 5,443 11,874 5,345 Mining and quarrying 50 985 - 985 Manufacturing 99,831 81,803 78,707 57,120 Electricity, gas and water supply 2,360 2,154 2,066 2,125 Construction 252,660 140,963 175,208 140,798 Real estate 8,263 28,820 8,263 28,820 Wholesale & retail trade and restaurants & hotels 48,103 21,538 45,555 19,695 Transport, storage and communication 4,633 3,768 4,633 3,768 Finance, insurance and business services 15,108 15,498 14,469 14,911 Education, health and others 8,301 9,021 8,301 9,021 Household 519,877 460,095 469,446 427,044 Others - 4,798 - 4,798
971,123 774,886 818,522 714,430 89 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
7 LOANS, ADVANCES AND FINANCING (continued)
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
(xii) Impaired loans by economic purposes
Purchase of securities 2,741 3,614 2,741 3,614 Purchase of transport vehicles 81,586 86,447 73,743 80,252 Purchase of landed property of which: - Residential 407,763 341,928 365,321 314,856 - Non-residential 44,744 51,691 44,119 48,411 Fixed assets other than land and building 3,633 4,639 3,185 4,191 Personal use 16,373 18,946 16,170 18,927 Credit card 636 865 636 865 Consumer durable 34 33 34 33 Construction 197,713 33,127 136,000 33,127 Working capital 215,683 224,587 176,360 203,383 Others 217 9,009 213 6,771
971,123 774,886 818,522 714,430
(xiii)Impaired loans by geographical distribution
Perlis 840 563 840 563 Kedah 40,612 27,157 39,228 26,525 Pulau Pinang 30,120 30,702 27,892 27,896 Perak 16,202 15,372 14,559 14,414 Selangor 426,852 310,686 382,454 274,721 Wilayah Persekutuan 185,642 178,535 173,975 169,880 Negeri Sembilan 37,483 36,656 35,466 34,871 Melaka 15,854 17,717 15,356 17,594 Johor 88,097 113,682 85,252 110,807 Pahang 17,013 11,596 13,368 9,019 Terengganu 8,009 4,462 6,529 3,589 Kelantan 6,171 5,147 3,011 2,329 Sarawak 6,614 7,075 6,387 6,814 Sabah 14,387 15,497 14,160 15,369 Labuan 45 39 45 39 Abroad 77,182 - - -
971,123 774,886 818,522 714,430 Annual Report 2010 90
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
8 OTHER ASSETS
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Other debtors, deposits and prepayments 27,273 22,285 26,606 21,707 Clearing accounts 4,160 153,097 4,077 129,236 Accrued interest/income receivable 60,301 57,437 49,593 51,273 Prepaid lease rental (a) - - - - Foreclosed properties (b) 160,648 180,329 160,253 179,916 Others (6,180) 2,142 (6,910) 2,139
246,202 415,290 233,619 384,271
(a) Prepaid lease rental
Cost At beginning of the financial year As previously reported 19,164 20,167 17,274 18,277 Reclassified to property and equipment (Note 15) (19,164) (20,167) (17,274) (18,277)
As restated/At end of the financial year - - - -
Less: Accumulated amortisation At beginning of the financial year As previously reported 2,984 2,820 2,774 2,617 Reclassified to property and equipment (Note 15) (2,984) (2,820) (2,774) ( 2,617)
As restated/At end of the financial year - - - -
Net book value at end of financial year - - - -
(b) Foreclosed properties
At beginning of the financial year 180,329 187,422 179,916 187,009 Amount arising during the financial year 1,370 21,657 1,370 21,657 Disposal during the financial year (18,611) (26,952) (18,611) (26,952)
163,088 182,127 162,675 181,714 Foreclosed properties - dimunition in value (2,440) (1,798) (2,422) (1,798)
At end of the financial year 160,648 180,329 160,253 179,916 91 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
9 DERIVATIVE FINANCIAL ASSETS
The Group and The Bank The Group and The Bank 2010 2009 Contract/ Contract/ notional notional amount Assets amount Assets RM'000 RM'000 RM'000 RM'000
At fair value Foreign exchange derivatives: Currency forwards 240,549 2,381 338,607 4,134 Currency swaps 1,347,158 34,031 1,037,690 17,530
Interest rate derivatives: Interest rate swap 576,120 9,743 375,635 8,063
2,163,827 46,155 1,751,932 29,727
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 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Deferred tax assets: - to be recovered after more than 12 months 5,221 47,681 - 47,171 - to be recovered within 12 months (930) 7,108 - 7,219
4,291 54,789 - 54,390
Deferred tax liabilities: - to be recovered after more than 12 months (2,876) - (2,876) - - to be recovered within 12 months (22,056) (1) (22,056) -
(24,932) (1) (24,932) -
At beginning of the financial year 54,788 62,415 54,390 62,803 Adoption of FRS 139 (21,123) - (19,269) -
33,665 62,415 35,121 62,803
(Charged)/credited to income statement (Note 34) (50,191) 3 ,478 (57,219) 1,821 - property and equipment 913 2,335 844 2,374 - intangible assets 2,908 1,638 3,092 1,499 - general allowance on bad and doubtful debts (83,767) 9,284 (72,750) 7,639 - collective allowances (transitional provision) for bad and doubtful financing 6,785 - 267 - - revaluation gain/(losses) on forex 13,507 1,262 11,879 (1,700) - revaluation gain/(losses) on derivatives 2,929 (10,233) 2,929 (10,233) - others 6,534 (808) (3,480) 2,242 Charged to equity (4,115) (11,105) (2,834) (10,234)
At end of the financial year (20,641) 54,788 (24,932) 54,390 Annual Report 2010 92
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Subject to income tax
Deferred tax assets (before offsetting) General allowance on bad and doubtful debts - 83,767 - 72,750 Collective allowances (transitional provision) for bad and doubtful financing 6,785 - 267 - Investment fluctuation reserve for financial investments available-for-sale - 2,285 - 2,284 Others 12 12 12 8,045
6,797 86,064 279 83,079 Offsetting (2,506) (31,275) (279) (28,689)
Deferred tax assets (after offsetting) 4,291 54,789 - 54,390
Deferred tax liabilities (before offsetting) Property and equipment (5,340) (6,255) (5,059) (5,903) Intangible assets (5,252) (8,160) (4,886) (7,978) Revaluation gain on forex - (13,507) - (11,879) Revaluation gain on derivatives - (2,929) - (2,929) Investment fluctuation reserve for financial investments available-for-sale (16,846) (425) (15,266) -
(27,438) (31,276) (25,211) (28,689) Offsetting 2,506 31,275 279 28,689
Deferred tax liabilities (after offsetting) (24,932) (1) (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 105,260 105,507 - -
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.
The appointment of AFFIN Islamic Bank Berhad ('AIBB') as an Islamic principal dealer from 1 July 2009 to 31 December 2012 by Bank Negara Malaysia has in turn accorded AIBB to maintain the 1% Statutory Reserve Requirement ('SRR') balances in the form of Malaysian Government securities and/or Government Investment issues holdings instead of cash. As at reporting date, RM40,000,000 (2009: RM30,000,000) of Malaysian Government securities and/or Government Investment issues has been maintained by AIBB to comply with the SRR. 93 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
12 INVESTMENT IN SUBSIDIARIES
The Bank 2010 2009 RM'000 RM'000
Unquoted shares, at cost 319,557 319,557 Less: Allowance for impairment losses (32,128) (32,128)
287,429 287,429
The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows:
Percentage of equity held 2010 2009 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. Annual Report 2010 94
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
13 INVESTMENT IN JOINTLY CONTROLLED ENTITY
The Group 2010 2009 RM'000 RM'000
Unquoted shares at cost 500 500 Group's share of post acquisition retained losses - -
500 500
The Group did not account for the share of post acquisition retained losses as it is immaterial and has not commenced the development of land.
The summarised financial information of jointly controlled entity are as follows:
Revenue 2 1 Loss after tax (792) (3) Total assets 20,816 16,813 Total liabilities 20,621 15,820
The jointly controlled entity was incorporated on 1 April 2008 and the details are as follows:
Issued and Percentage of paid up equity held share capital 2010 2009 Name Principal activites 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 2010 2009 RM'000 RM'000
Advances to a subsidiary 183,541 229,364 Other receivables 1,730 1,921
185,271 231,285
The advances of RM183,541,000 (2009: RM229,364,000) to subsidiary is unsecured, bear interest at 2.62% per annum (2009: 2.14%) and have no fixed terms of repayment. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
15 PROPERTY AND EQUIPMENT
Leasehold land Buildings Buildings Office Computer on on equipment equipment Capital Freehold 50 years Less than freehold leasehold and and Motor work-in The Group land or more 50 years land land Renovation furniture software vehicles progress Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Cost
At 1 January 2010 As previously reported 25,087 - - 33,480 89,549 94,572 50,262 63,359 3,458 2,251 362,018 Reclassified from other assets (Note 8) - 13,470 5,694 ------19,164
As restated 25,087 13,470 5,694 33,480 89,549 94,572 50,262 63,359 3,458 2,251 381,182 Additions - - - - - 1,653 1,358 2,601 437 3,559 9,608 Disposals (800) (608) (314) (269) (480) (154) (47) - (317) - (2,989) Write-off - - - - - (52) (1,648) (554) (14) - (2,268) Reclassification - - - - - 53 87 (36) - (104) - Transfer to intangible assets (Note 16) ------(4,089) (4,089)
At 31 December 2010 24,287 12,862 5,380 33,211 89,069 96,072 50,012 65,370 3,564 1,617 381,444
Accumulated depreciation and impairment losses At 1 January 2010 95 As previously reported - - - 12,810 18,078 77,346 32,390 47,036 2,780 - 190,440 Reclassified from other assets (Note 8) - 1,757 1,227 ------2,984
As restated - 1,757 1,227 12,810 18,078 77,346 32,390 47,036 2,780 - 193,424 Charge for the financial year - 111 122 552 1,789 6,011 3,078 8,091 317 - 20,071 Disposal - (57) (17) (89) (74) (137) (37) - (317) - (728) Write-off - - - - - (36) (1,511) (484) (14) - (2,045) Reclassification ------5 (5)--- AFFIN BANKBERHAD
At 31 December 2010 - 1,811 1,332 13,273 19,793 83,184 33,925 54,638 2,766 - 210,722
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 (25046-T) NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
15 PROPERTY AND EQUIPMENT (continued)
Leasehold land Buildings Buildings Office Computer on on equipment equipment Capital
Freehold 50 years Less than freehold leasehold and and Motor work-in 96 The Group land or more 50 years land land Renovation furniture software vehicles progress Total 2009 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Cost
At 1 January 2009 As previously reported 28,630 - - 35,616 90,095 91,703 48,665 65,230 3,947 5,116 369,002 Reclassified from other assets (Note 8) - 14,039 6,128 ------20,167
As restated 28,630 14,039 6,128 35,616 90,095 91,703 48,665 65,230 3,947 5,116 389,169 Additions - - - - - 4,806 3,639 2,425 12 3,670 14,552 Disposals (3,543) (569) (434) (2,136) (546) (93) (59) - (458) - (7,838) Write-off - - - - - (2,286) (2,115) (4,545) (43) - (8,989) Reclassification - - - - - 442 132 249 - (823) - Transfer to intangible assets (Note 16) ------(5,712) (5,712)
At 31 December 2009 25,087 13,470 5,694 33,480 89,549 94,572 50,262 63,359 3,458 2,251 381,182
Accumulated depreciation and impairment losses At 1 January 2009 As previously reported - - - 13,383 16,343 73,766 30,306 42,219 2,508 - 178,525 Reclassified from other assets (Note 8) - 1,662 1,158 ------2,820
As restated - 1,662 1,158 13,383 16,343 73,766 30,306 42,219 2,508 - 181,345 Charge for the financial year - 117 124 556 1,799 5,784 4,015 9,317 391 - 22,103 Disposal - (22) (55) (1,129) (64) (92) (52) - (76) - (1,490) Write-off - - - - - (2,112) (1,879) (4,500) (43) - (8,534)
At 31 December 2009 - 1,757 1,227 12,810 18,078 77,346 32,390 47,036 2,780 - 193,424
Net book value as at 31 December 2009 25,087 11,713 4,467 20,670 71,471 17,226 17,872 16,323 678 2,251 187,758 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
15 PROPERTY AND EQUIPMENT (continued)
Leasehold land Buildings Buildings Office Computer on on equipment equipment Capital Freehold 50 years Less than freehold leasehold and and Motor work-in The Bank land or more 50 years land land Renovation furniture software vehicles progress Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Cost
At 1 January 2010 As previously reported 22,090 - - 31,844 88,641 92,153 49,103 60,782 2,995 701 348,309 Reclassified from other assets (Note 8) - 11,580 5,694 ------17,274
As restated 22,090 11,580 5,694 31,844 88,641 92,153 49,103 60,782 2,995 701 365,583 Additions - - - - - 1,647 1,338 2,501 437 3,559 9,482 Disposals (800) (608) (314) (269) (480) (154) (47) - (317) - (2,989) Write-off - - - - - (52) (1,648) (550) (14) - (2,264) Reclassification - - - - - 54 87 (36) - (105) - Transfer to intangible assets (Note 16) ------(2,538) (2,538) Transfer to subsidiary ------(3) (102) - - (105)
At 31 December 2010 21,290 10,972 5,380 31,575 88,161 93,648 48,830 62,595 3,101 1,617 367,169
Accumulated depreciation and impairment losses 97 At 1 January 2010 As previously reported - - - 11,954 17,612 75,760 32,023 45,156 2,606 - 185,111 Reclassified from other assets (Note 8) - 1,547 1,227 ------2,774
As restated - 1,547 1,227 11,954 17,612 75,760 32,023 45,156 2,606 - 187,885 Charge for the financial year - 103 122 519 1,771 5,741 2,978 7,837 226 - 19,297 Disposal - (57) (17) (89) (74) (137) (37) - (317) - (728) Write-off - - - - - (36) (1,511) (482) (14) - (2,043) AFFIN BANKBERHAD Reclassification ------Transfer to subsidiary ------4 (6)--(2)
At 31 December 2010 - 1,593 1,332 12,384 19,309 81,328 33,457 52,505 2,501 - 204,409 (25046-T)
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 NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
15 PROPERTY AND EQUIPMENT (continued)
Leasehold land Buildings Buildings Office Computer on on equipment equipment Capital Freehold 50 years Less than freehold leasehold and and Motor work-in 98 The Bank land or more 50 years land land Renovation furniture software vehicles progress Total 2009 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Cost
At 1 January 2009 As previously reported 25,633 - - 33,980 89,187 89,260 47,520 62,447 3,441 5,116 356,584 Reclassified from other assets (Note 8) - 12,149 6,128 ------18,277
As restated 25,633 12,149 6,128 33,980 89,187 89,260 47,520 62,447 3,441 5,116 374,861 Additions - - - - - 4,788 3,621 2,397 12 2,120 12,938 Disposals (3,543) (569) (434) (2,136) (546) (92) (59) - (458) - (7,837) Write-off - - - - - (2,245) (2,087) (4,311) - - (8,643) Reclassification - - - - - 442 132 249 - (823) - Transfer to intangible assets (Note 16) ------(5,712) (5,712) Transfer to subsidiary ------(24) -- - (24)
At 31 December 2009 22,090 11,580 5,694 31,844 88,641 92,153 49,103 60,782 2,995 701 365,583
Accumulated depreciation and impairment losses At 1 January 2009 As previously reported - - - 12,560 15,895 72,444 30,043 40,350 2,383 - 173,675 Reclassified from other assets (Note 8) - 1,459 1,158 ------2,617
As restated - 1,459 1,158 12,560 15,895 72,444 30,043 40,350 2,383 - 176,292 Charge for the financial year - 110 124 523 1,781 5,509 3,907 9,073 299 - 21,326 Disposal - (22) (55) (1,129) (64) (92) (52) - (76) - (1,490) Write-off - - - - - (2,101) (1,854) (4,267) - - (8,222) Transfer to subsidiary ------(21) -- - (21)
At 31 December 2009 - 1,547 1,227 11,954 17,612 75,760 32,023 45,156 2,606 - 187,885
Net book value as at 31 December 2009 22,090 10,033 4,467 19,890 71,029 16,393 17,080 15,626 389 701 177,698 99 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
16 INTANGIBLE ASSETS
Computer Goodwill Software Total The Group RM'000 RM'000 RM'000
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
Cost At 1 January 2009 133,430 98,003 231,433 Additions - 786 786 Reclassification from property and equipment (Note 15) - 5,712 5,712
At 31 December 2009 133,430 104,501 237,931
Less: Accumulated amortisation At 1 January 2009 - (51,359) (51,359) Amortised during the financial year - (20,502) (20,502)
At 31 December 2009 - (71,861) (71,861)
Net book value as at 31 December 2009 133,430 32,640 166,070 Annual Report 2010 100
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
16 INTANGIBLE ASSETS (continued)
Computer Goodwill Software Total The Bank RM'000 RM'000 RM'000
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
Cost At 1 January 2009 137,323 95,313 232,636 Additions - 948 948 Reclassification from property and equipment (Note 15) - 5,712 5,712
At 31 December 2009 137,323 101,973 239,296
Less: Accumulated amortisation At 1 January 2009 - (50,061) (50,061) Amortised during the financial year - (19,999) (19,999)
At 31 December 2009 - (70,060) (70,060)
Net book value as at 31 December 2009 137,323 31,913 169,236 101 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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'):
2010 2009 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 2010 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% (2009: 5%) to infinity.
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.
2010 2010 2009 2009 Enterprise Consumer Enterprise Consumer banking banking banking banking %%%%
Pre-tax discount rate 14.29 14.21 10.89 10.83
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 2010 2009 2010 2009 (i) By type of deposit RM'000 RM'000 RM'000 RM'000
Demand deposits 5,063,155 4,399,413 3,565,188 3,208,959 Savings deposits 1,400,535 1,030,103 1,142,332 824,129 Fixed deposits 19,913,674 15,883,534 16,780,143 13,670,901 Special investment deposits 641,673 706,577 - - Money market deposits 706,697 401,391 706,697 401,391 Negotiable instruments of deposit ('NID') 3,119,514 4,019,301 3,119,514 3,709,674
30,845,248 26,440,319 25,313,874 21,815,054 Annual Report 2010 102
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
17 DEPOSITS FROM CUSTOMERS (continued)
The Group The Bank 2010 2009 2010 2009 (i) Maturity structure of fixed deposit and NID RM'000 RM'000 RM'000 RM'000
Due within six months 19,879,571 17,303,056 17,139,965 14,974,939 Six months to one year 3,106,639 2,500,457 2,716,939 2,311,196 One year to three years 24,026 74,881 20,738 70,847 Three years to five years 22,952 24,441 22,015 23,593
23,033,188 19,902,835 19,899,657 17,380,575
(iii) By type of customer
Government and statutory bodies 4,749,240 3,630,291 2,954,953 2,057,628 Business enterprise 9,744,742 9,286,822 8,158,218 7,881,652 Individuals 5,003,875 3,969,168 4,568,915 3,607,557 Others 11,347,391 9,554,038 9,631,788 8,268,217
30,845,248 26,440,319 25,313,874 21,815,054
18 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Licensed banks 5,012,341 3,403,799 4,296,841 3,238,564 Licensed investment banks 226,253 695,015 226,253 592,250 Bank Negara Malaysia 308,350 - 308,350 - Other financial institutions 1,058,404 924,849 903,978 690,414
6,605,348 5,023,663 5,735,422 4,521,228
Maturity structure of deposits Due within six months 6,537,162 5,019,439 5,667,236 4,517,004 Six months to one year 68,186 4,224 68,186 4,224
6,605,348 5,023,663 5,735,422 4,521,228
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 financial position. 103 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
20 OTHER LIABILITIES
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Bank Negara Malaysia and Credit Guarantee Corporation Funding programmes 43,002 71,768 43,002 71,768 Margin and collateral deposits 65,191 57,325 62,552 55,447 Accrued interest payable 167,391 123,487 147,627 113,562 Sundry creditors 188,983 169,985 172,182 154,416 Clearing accounts 44,616 - 27,706 - Defined contribution plan (a) 11,968 9,055 11,448 8,757 Accrued employee benefits (b) 125 125 105 105
521,276 431,745 464,622 404,055
(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 2010 2009 Contract/ Contract/ notional notional amount Liabilities amount Liabilities RM'000 RM'000 RM'000 RM'000
At fair value Foreign exchange derivatives: Currency forwards 487,922 19,025 365,393 7,040 Currency swaps 340,846 21,087 473,155 7,698
Interest rate derivatives: Interest rate swap 919,193 17,448 1,039,363 26,946
1,747,961 57,560 1,877,911 41,684
22 AMOUNT DUE TO SUBSIDIARIES The amount due to subsidiaries is unsecured, interest-free and have no fixed terms of repayment. Annual Report 2010 104
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
23 SUBORDINATED TERM LOAN On 10 March 2009, the Bank prepaid its 10 years subordinated term loan of RM500 million with Employee Provident Fund ('EPF'). On the same day a new 10 year subordinated loan amounting to RM300 million was taken with the Bank's Holding Company.
The subordinated loan was constituted by Trust Deed dated 6 March 2009 and were issued on 10 March 2009.
The subordinated loan has 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 loan in whole or in part.
Interest on subordinated loan payable semi annually.
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 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.
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 &The Bank 2010 2009 2010 2009 '000 '000 RM'000 RM'000
Authorised At beginning/End of the financial year 2,000,000 2,000,000 2,000,000 2,000,000
Issued and fully paid At beginning/End of the financial year 1,439,285 1,439,285 1,439,285 1,439,285
25 RESERVES
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Distributable Retained profits 522,171 332,003 411,831 249,121
Non-distributable Share premium 408,389 408,389 408,389 408,389 Investment fluctuation reserve 54,249 (1,880) 45,795 (6,853) Statutory reserve 888,910 789,221 807,500 720,824
1,873,719 1,527,733 1,673,515 1,371,481 105 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
25 RESERVES (continued)
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Statutory reserve At beginning of the financial year 789,221 625,209 720,824 573,204 Transfer from retained profits 99,689 164,012 86,676 147,620
At end of the financial year 888,910 789,221 807,500 720,824
(a) 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.
(b) Investment fluctuation reserves represent the unrealised gains or losses arising from the change in fair value of investments classified as financial investment available-for-sale. The gains or losses are transferred in the income statement upon disposal or when the securities become impaired.
26 INTEREST INCOME
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Loans, advances and financing 1,190,417 1,071,593 1,190,417 1,071,593 Money at call and deposit placements with financial institutions 108,787 77,082 117,260 83,714 Financial assets/investments - Held-for-trading 311 950 311 950 - Available-for-sale 116,495 103,621 116,347 103,621 - Held-to-maturity 15,522 21,705 15,522 19,708 Interest rate derivatives 48,701 53,393 48,701 53,393 Others - - 3,408 2,413
1,480,233 1,328,344 1,491,966 1,335,392 Amortisation of premium less accretion of discount 31,602 12,744 31,602 12,744
1,511,835 1,341,088 1,523,568 1,348,136
of which: Interest income earned on impaired loans, advances and financing (382) - (382) - Annual Report 2010 106
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
27 INTEREST EXPENSE
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Deposits and placements of banks and other financial institutions 110,572 66,595 110,579 66,797 Deposits from customers 552,448 447,550 552,474 447,573 Subordinated term loan 10,633 13,036 10,633 13,036 Loan sold to Cagamas Berhad 14,559 6,477 14,559 6,477 Interest rate derivatives 66,152 70,354 66,152 70,354 Others 6,484 1,099 6,484 1,099
760,848 605,111 760,881 605,336
28 ISLAMIC BANKING INCOME
The Group 2010 2009 RM'000 RM'000
Income derived from investment of depositors' funds and others 287,402 242,605 Income derived from investment of shareholders' funds 18,052 14,283
Total distributable income 305,454 256,888 Income attributable to depositors (127,671) (94,251)
177,783 162,637
29 OTHER OPERATING INCOME
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Fee income Commission 12,421 12,894 12,421 12,894 Service charges and fees 47,815 47,135 47,815 47,135 Guarantee fees 27,392 32,998 27,392 32,998
87,628 93,027 87,628 93,027
Income from financial instruments Gain arising on financial assets held-for-trading: - net gain on disposal 1,217 1,646 1,217 1,646 - unrealised gains/(losses) 137 (69) 137 (69)
1,354 1,577 1,354 1,577
Gains on derivatives: - realised 1,089 951 1,089 951 - unrealised 6,303 11,716 6,303 11,716
7,392 12,667 7,392 12,667 107 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
29 OTHER OPERATING INCOME (continued)
The Group The Bank 2010 2009 2010 2009 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 23,733 7,002 23,635 6,960 - gross dividend income 8 150 8 150
23,741 7,152 23,643 7,110
Gain arising on financial investments held-to-maturity: - net gain on redemption 2,053 1,633 2,053 1,633 - gross dividend income 2,901 5,704 2,901 5,704
4,954 7,337 4,954 7,337
Other income Foreign exchange gains/(losses): - realised 82,790 71,810 82,790 71,810 - unrealised (9,549) (10,072) (9,549) (10,072) Rental income 1,834 1,490 1,780 1,441 Gain on sale of property and equipment 219 1,353 219 1,353 Gain on disposal of foreclosed properties 6,330 18,918 6,330 18,918 Dividend from subsidiaries - - - 16,102 Other non-operating income 20,658 16,669 20,363 9,014
102,282 100,168 101,933 108,566
227,351 221,928 226,904 230,284
30 OTHER OPERATING EXPENSES
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Personnel costs (a) 295,053 251,671 240,585 208,655 Establishment costs (b) 167,973 170,400 143,342 147,957 Marketing expenses (c) 11,553 34,637 9,633 29,844 Administrative and general expenses (d) 56,332 49,779 46,585 42,576
530,911 506,487 440,145 429,032
(a) Personnel costs
Wages, salaries and bonuses 228,427 196,676 186,516 163,605 Defined contribution plan ('EPF') 35,770 30,810 29,223 25,560 Other personnel costs 30,856 24,185 24,846 19,490
295,053 251,671 240,585 208,655 Annual Report 2010 108
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
30 OTHER OPERATING EXPENSES (continued)
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
(b) Establishment costs
Rental of premises 18,985 18,450 15,980 15,766 Equipment rental 741 599 718 567 Repair and maintenance 24,849 23,917 21,061 20,708 Depreciation 20,071 22,103 19,297 21,326 Amortisation of intangible assets 16,474 20,502 15,658 19,999 IT Consultancy fees 54,659 51,292 47,348 45,071 Dataline rental 5,014 4,214 4,313 3,708 Security services 9,228 8,991 7,679 7,588 Electricity, water and sewerage 8,118 7,943 6,858 6,848 Other establishment costs 9,834 12,389 4,430 6,376
167,973 170,400 143,342 147,957
(c) Marketing expenses
Dealers' handling charges - 25,271 - 22,085 Business promotion and advertisement 4,701 3,454 4,330 3,145 Entertainment 2,048 1,347 1,819 1,150 Travelling and accommodation 3,511 3,259 2,490 2,452 Other marketing expenses 1,293 1,306 994 1,012
11,553 34,637 9,633 29,844
(d) Administration and general expenses
Telecommunication expenses 4,665 5,119 3,965 4,381 Auditors' remuneration 2,180 1,162 1,859 890 Professional fees 21,958 20,734 16,739 17,233 Property and equipment written off 514 455 513 421 Mail and courier charges 4,456 3,942 3,798 3,411 Stationery and consumables 6,897 6,673 5,360 5,451 Other administration and general expenses 15,662 11,694 14,351 10,789
56,332 49,779 46,585 42,576 109 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
30 OTHER OPERATING EXPENSES (continued) The expenditure includes the following statutory disclosure:
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Directors' remuneration (Note 31) 6,079 7,504 5,477 7,099 Rental of premises 18,985 18,450 15,980 15,766 Equipment rental 741 599 718 567 Auditors' remuneration - statutory audit fees 707 672 569 535 - under/(over) provision prior year 12 (11) - - - audit related fees 264 125 168 81 - non audit fees 1,197 376 1,122 274 Depreciation of property and equipment 20,071 21,862 19,297 21,092 Amortisation of intangible assets 16,474 20,502 15,658 19,999 Property and equipment written off 514 455 513 421
31 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
Non-Executive Directors Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) Tan Sri Dato' Lodin bin Wok Kamaruddin (Reappointed as Director w.e.f. 4 October 2010) Dr. Raja Abdul Malek bin Raja Jallaludin Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 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) Mr Stephen Charles Li Mr Eric Koh Thong Hau (Alternate director to Mr Stephen Charles Li) En. Mohd Suffian bin Haji Haron Annual Report 2010 110
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
31 DIRECTORS' REMUNERATION (continued) The aggregate amount of remuneration for the Directors of the Bank for the financial years were as follows:
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Executive Directors Salaries 1,260 1,542 1,260 1,542 Bonuses 2,236 3,457 2,236 3,457 Defined contribution plan ('EPF') 569 828 569 828 Other employee benefits 62 71 62 71 Benefits-in-kind 98 304 98 304
Non-Executive Directors Fees 1,828 1,274 1,226 869 Benefits-in-kind 26 28 26 28
Directors' remuneration (Note 30) 6,079 7,504 5,477 7,099 Shariah Committee fees 188 156 - -
6,267 7,660 5,477 7,099
The remuneration attributable to the Managing Director/Chief Executive Officer of the Bank, including benefits-in-kind during the financial year amounted to RM4,225,000 (2009: RM6,202,000).
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 Directors 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 5,477 111 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
31 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 2009 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Executive Directors Dato' Zulkiflee Abbas bin Abdul Hamid 810 90 - 197 78 1,175 Dato' Sri Abdul Hamidy bin Adbul Hafiz 732 3,368 - 702 225 5,027
1,542 3,458 - 899 303 6,202
Non-executive Directors Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) - - 129 96 28 253 Dr. Raja Abdul Malek bin Raja Jallaludin - - 116 - - 116 Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) - - 107 - - 107 Dato' Sri Abdul Aziz bin Abdul Rahman - - 112 - - 112 Mr Aubrey Li Kwok-Sing - - 79 - - 79 Mr Brian Li Man-Bun (Alternate director to Mr Aubrey Li Kwok-Sing) ------Mr Stephen Charles Li - - 71 - - 71 Mr Eric Koh Thong Hau (Alternate director to Mr Stephen Charles Li) - - 15 - - 15 En. Mohd Suffian bin Haji Haron - - 38 - - 38 Datuk Razman Md. Hashim bin Che Din Md.Hashim (Retired as Director w.e.f 21 May 2009) - - 49 - - 49 Dato' Dr Lee Chee Kuon (Retired as Director w.e.f 21 May 2009) - - 57 - - 57
- - 773 96 28 897
Total 1,542 3,458 773 995 331 7,099
* Executive Director' Other emoluments include allowance and EPF Annual Report 2010 112
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
32 ALLOWANCES FOR LOSSES ON LOANS, ADVANCES AND FINANCING
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Allowance for bad and doubtful debts on loans and financing: Specific allowance - made in the financial year - 322,570 - 297,631 - written-back - (46,977) - (45,494) General allowance - made in the financial year - 37,182 - 30,378 - written-back - (47) - - Individual impairment - made in the financial year 198,023 - 172,716 - - written-back (20,669) - (10,778) - Collective impairment - made/(written-back) (3,044) - (16,409) - Bad debts and financing - recovered (172,726) (137,431) (172,417) (137,113) - written-off 15,810 12,237 15,628 12,137 Litigation losses arising from loans * 78,000 - 78,000 -
95,394 187,534 66,740 157,539
* Litigation losses arising from loans made during the financial year is in relation to litigation claims against the Bank as stated in Note 43(a) and (b). 113 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 related to the Bank) management 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 directors of the company in office during the year and their remuneration for the financial year are disclosed in Note 33(b). NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued)
(a) Related parties balances 114 Companies in which certain Ultimate holding Holding Other related Directors have corporate body company companies substantial interest 2010 2009 2010 2009 2010 2009 2010 2009 Group RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Income
Interest on private debt securities - - - - 3,149 3,386 - - Interest on advances - - - - 17,633 13,410 1 4 Interest on deposits and placements with banks and other financial institutions - - - - 808 2,360 - - Other income - - - - 5,813 4,153 - -
- - - - 27,403 23,309 1 4
Expenditure Interest on fixed deposits 4,421 2,331 5,269 4,801 4,766 7,019 - - Interest on Negotiable Instruments of Deposit - - - - 1,432 3,165 - - Interest on deposits and placements of banks and other financial institutions - - - - 15 18 - - Interest on special investment account 135 135 - - 671 729 - 5 Interest on money market deposits 326 2,778 109 17 1,891 1,610 - 4 Interest on repurchase agreements 1 ------Brokerage fees - - - - 526 467 - - Rental 613 613 - - 11,449 11,203 - - Others - - 10,633 7,447 2,715 1,748 - -
5,496 5,857 16,011 12,265 23,465 25,959 - 9 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued)
(a) Related parties balances (continued)
Companies in which certain Ultimate holding Holding Other related Directors have corporate body company companies substantial interest 2010 2009 2010 2009 2010 2009 2010 2009 Group RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Amount due from Private debt securities - - - - 66,107 415,281 - - Advances - - - - 519,617 458,358 - 104 Deposits and placement with banks and other financial institutions - - 3,600 3,600 190,490 142,777 - - Interest receivable on private debt securities - - - 28 1,096 1,306 - - Intercompany balances - - - - 2,745 1,058 - - Security deposits 98 200 74 - 2,983 3,180 - -
98 200 3,674 3,628 783,038 1,021,960 - 104 115 Amount due to Demand and fixed deposits 527,776 197,314 300,029 242,487 333,962 351,435 6 30 Negotiable Instruments of Deposit - - - - - 150,000 - - Deposits and placement of banks and other financial institutions - - 300,000 300,000 4,157 - - - Special investment account - - - - 17,394 44,515 - 453 Money market deposits - - - 315 153,008 40,337 - 138 AFFIN BANKBERHAD Interest payable 439 154 1,035 242 1,807 1,621 - - Other payables - - 76 544 97 86 - -
528,215 197,468 601,140 543,588 510,425 587,994 6 621 (25046-T) NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued)
(a) Related parties balances (continued) 116 Companies in which certain Ultimate holding Holding Other related Directors have corporate body company Subsidiaries companies substantial interest 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 Bank RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Income Interest on special investment account - - - - 7,031 4,487 - - - - Interest on private debt securities ------3,149 3,386 - - Interest on advances ------16,823 12,891 1 4 Interest on deposits and placements with banks and other financial institutions - - - - 1,404 2,145 808 2,360 - - Other income - - - - 63,031 51,712 5,750 4,154 - -
- - - - 71,466 58,344 26,530 22,791 1 4
Expenditure Interest on short term advances - - - - 7 34 15 17 - - Interest on fixed deposits 4,324 2,331 5,269 4,801 23 22 4,649 6,744 - - Interest on Negotiable Instruments of Deposit ------1,432 3,165 - - Interest on money market deposits 326 2,778 109 17 - 333 1,891 1,610 - 4 Brokerage fees ------497 445 - - Rental 613 613 - - 352 384 11,449 11,203 - - Others - - 10,633 7,447 94 - 2,410 1,602 - -
5,263 5,722 16,011 12,265 476 773 22,343 24,786 - 4 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued)
(a) Related parties balances (continued)
Companies in which certain Ultimate holding Holding Other related Directors have corporate body company Subsidiaries companies substantial interest 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 Bank RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Amount due from Special investment account - - - - 330,197 176,000 - - - - Private debt securities ------66,106 415,281 - - Advances ------506,113 444,878 - 104 Deposits and placements with banks and other financial institutions - - 3,600 3,600 144,964 457,270 190,490 142,777 - - Interest receivable - - - 28 5,202 3,390 1,096 1,306 - - Intercompany balances - - - - 184,738 231,286 - - - - Security deposits 98 200 74 - - - 2,981 2,878 - -
98 200 3,674 3,628 665,101 867,946 766,786 1,007,120 - 104 117 Amount due to Demand and fixed deposits 526,710 196,725 300,029 242,487 1,606 2,061 314,925 333,237 5 30 Negotiable Instruments of Deposit ------150,000 - - Deposits and placement of banks and other financial institutions - - 300,000 300,000 - 102,765 4,157 - - - Money market deposits - - - 315 - - 153,008 40,337 - 138
Interest payable 439 154 1,035 242 - 3 1,776 1,524 - - AFFIN BANKBERHAD Intercompany balances - - - - 47,954 47,731 - - - - Other payables - - 74 544 - - 91 83 - -
527,149 196,879 601,138 543,588 49,560 152,560 473,957 525,181 5 168 (25046-T)
The significant related party transactions and balances described above were carried out on terms and conditions obtainable on transactions with unrelated parties except for amount due from subsidiaries of RM136.8 million (2009: amount due from subsidiaries of RM183.6 million). Amount due from/(to) subsidiaries are unsecured, interest free and have no fixed terms of repayment. Annual Report 2010 118
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
Short-term employment benefits Salaries 6,618 6,474 5,706 5,694 Bonuses 8,695 9,257 7,683 8,472 Defined contribution plan ('EPF') 2,594 2,699 2,265 2,427 Other employee benefits 1,038 1,039 890 893 Benefits-in-kind 445 550 383 463
19,390 20,019 16,927 17,949
Included in the above table are Directors' remuneration as disclosed in Note 31.
34 TAXATION
The Group The Bank 2010 2009 2010 2009 RM'000 RM'000 RM'000 RM'000
The taxation charge arising in Malaysia for the financial year
Current tax 66,627 107,748 56,599 92,183 Under/(over) provision in prior year 19,223 (183) 14,271 (508) Deferred tax (Note 10) 50,191 (3,478) 57,219 (1,776)
Tax expense for the year 136,041 104,087 128,089 89,899
The Group The Bank 2010 2009 2010 2009 % % % %
Statutory tax rate in Malaysia 25.00 25.00 25.00 25.00 Tax effect in respect of: Non allowable expenses 1.94 0.99 2.10 0.29 Non taxable income (0.17) 0.18 (0.18) (0.44) Utilisation of previously unrecognised tax losses (0.01) (0.12) - - Effect of different tax rate (0.51) (1.10) (0.56) (1.22) Tax savings arising from income exempt from tax for International Currency Business Unit (ICBU) 0.54 (0.29) - - Under/(over) accrual in prior years 3.68 (0.04) 3.01 (0.13) Others (4.40) (0.14) (2.39) (0.16)
Average effective tax rate 26.07 24.48 26.98 23.34
Tax savings of the Group during the financial year due to the recognition of previously unrecognised tax losses amounted to RM62,000 (2009: RM516,000). 119 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 RM381,237,000 (2009: RM317,752,000) and RM346,705,000 (2009: RM295,240,000) respectively. The weighted average number of shares in issue during the financial year of 1,439,285,000 (2009: 1,439,285,000) is used for the computation.
36 DIVIDEND PER SHARE Dividends declared or proposed for the financial year are as follows:
The Group and The Bank The Group and The Bank 2010 2009 Gross Amount of Gross Amount of dividend dividend dividend dividend per share net of tax per share net of tax sen RM'000 sen RM'000
Ordinary shares Interim dividend paid 5.28 57,000 6.83 73,727 Proposed final dividend 5.00 71,964 5.00 53,973
Dividends in respect of the financial year 10.28 128,964 11.83 127,700
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 2010 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 2010 2009 Gross Amount of Gross Amount of dividend dividend dividend dividend per share net of tax per share net of tax sen RM'000 sen RM'000
Ordinary shares Interim dividend 5.28 57,000 6.83 73,727 Final dividend 5.00 53,973 2.00 21,589
10.28 110,973 8.83 95,316 NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
37 COMMITMENTS AND CONTINGENCIES In the normal course of business, the Group and the Bank make various commitments and incurs certain contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of these transactions. 120 The commitments and contingencies consist of:
The Group The Group 2010 2009
Positive Positive fair value Credit Risk - fair value Credit Risk - Principal of derivative equivalent weighted Principal of derivative equivalent weighted amount contracts amount* amount* amount contracts amount* amount* RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM’000
Direct credit substitutes 408,608 - 408,608 299,520 495,326 - 495,326 470,810 Transaction-related contingent items 2,387,456 - 1,193,728 1,022,073 2,648,189 - 1,324,094 1,106,247 Short-term self-liquidating trade-related contingencies 1,232,752 - 246,551 140,554 1,401,193 - 280,239 120,271 Irrevocable commitments to extend credit: 10,310,068 - - - 9,188,099 - - - - maturity less than one year 6,062,519 - - - 5,231,059 - - - - maturity more than one year 4,247,549 - - - 3,957,040 - - - Foreign exchange related contracts: 2,416,479 36,412 70,499 28,169 2,214,845 21,663 56,193 24,692 - less than one year 2,215,359 25,842 50,821 19,952 2,111,158 18,440 45,883 20,345 - one year to less than five years 201,120 10,570 19,678 8,217 103,687 3,223 10,310 4,347 Interest rate related contracts: 1,495,313 9,743 71,106 16,781 1,414,998 8,064 57,854 14,749 - less than one year 93,784 - 14 3 385,000 - 910 184 - one year to less than five years 956,256 2,664 32,602 7,936 589,721 3,981 18,380 6,655 - more than five years 445,273 7,079 38,490 8,842 440,277 4,083 38,564 7,910 Unutilised credit card lines 594,104 - 118,821 89,026 555,478 - 111,096 83,248
18,844,780 46,155 2,109,313 1,596,123 17,918,128 29,727 2,324,802 1,820,017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
37 COMMITMENTS AND CONTINGENCIES (continued)
The Bank The Bank 2010 2009
Positive Positive fair value Credit Risk - fair value Credit Risk - Principal of derivative equivalent weighted Principal of derivative equivalent weighted amount contracts amount* amount* amount contracts amount* amount* RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM’000
Direct credit substitutes 382,080 - 382,080 280,656 444,676 - 444,676 437,598 Transaction-related contingent items 2,189,031 - 1,094,516 928,260 2,480,918 - 1,240,459 1,022,917 Short-term self-liquidating trade-related contingencies 546,276 - 109,255 109,027 324,530 - 64,906 63,881 Irrevocable commitments to extend credit: 9,198,609 - - - 8,325,174 - - - - maturity less than one year 5,360,954 - - - 4,651,975 - - - - maturity more than one year 3,837,655 - - - 3,673,199 - - - Foreign exchange related contracts: 2,416,479 36,412 70,499 28,169 2,214,845 21,663 56,193 24,692 - less than one year 2,215,359 25,842 50,821 19,952 2,111,158 18,440 45,883 20,345 - one year to less than five years 201,120 10,570 19,678 8,217 103,687 3,223 10,310 4,347 Interest rate related contracts: 1,495,313 9,743 71,106 16,781 1,414,998 8,064 57,854 14,749 - less than one year 93,784 - 14 3 385,000 - 910 184
- one year to less than five years 956,256 2,664 32,602 7,936 589,721 3,981 18,380 6,655 121 - more than five years 445,273 7,079 38,490 8,842 440,277 4,083 38,564 7,910 Unutilised credit card lines 594,104 - 118,821 89,026 555,478 - 111,096 83,248
16,821,892 46,155 1,846,277 1,451,919 15,760,619 29,727 1,975,184 1,647,085
* 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 AFFIN BANKBERHAD Adequacy Framework ("RWCAF") and Capital Adequacy for Islamic Banks ("CAFIB") guidelines. (25046-T) Annual Report 2010 122
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
37 COMMITMENTS AND CONTINGENCIES (continued) FINANCIAL DERIVATIVES Financial derivatives are financial instruments whose characteristics are derived from the underlying assets, or from interest and exchange rates or indices. These include forwards, swaps, futures and options. The following outlines the nature and terms of the most common types of derivatives used by the Bank:
Exchange rate contracts Forward foreign exchange contracts are agreements to buy or sell fixed amounts of currency at agreed rates of exchange on a specified future date.
Cross currency swaps are agreements to exchange, and on termination of the swap, re-exchange principal amounts denominated in different currencies. Cross currency swaps may involve the exchange of interest payments in one specified currency for interest payments in another specified currency for a specified period.
Currency futures are typically exchange-traded agreements to buy or sell standard amounts of a specified currency at an agreed exchange rate on a standard future date.
Currency options give the buyer on payment of a premium, the right, but not the obligation, to buy or sell specified amounts of currency at agreed rates of exchange on or before a specified future date.
Interest rate contracts Interest rate swaps involve the exchange of interest obligations with counterparties for a specified period without exchanging the underlying (or notional principal).
Interest rate caps and floors give the buyer the ability to fix the maximum or minimum rate of interest. There is no facility to deposit of draw down funds; instead the writer pays to the buyer the amount by which the market rate exceeds or is less than the cap rate or the floor rate respectively. A combination of an interest rate cap and floor is known as an interest rate collar.
Forward rate agreements give the buyer the ability to determine the underlying rate of interest for a specified period commencing on a specified future date (the settlement date). There is no exchange of principal and settlement is effected on the settlement date. The settlement amount is calculated by reference to the difference between the contracted rate and the market rate prevailing on the settlement date.
Swaptions give the buyer the right, but not the obligation, to enter an interest rate swap as either the payer or receiver of the fixed side of the swap.
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 2010 2009 Credit Credit Principal equivalent Principal equivalent amount amount amount amount RM’000 RM'000 RM’000 RM'000
Foreign exchange contracts Forward contracts 728,471 15,115 704,000 12,554 Swaps 1,688,004 55,384 1,510,845 43,639
Interest rate contracts Swaps 1,495,313 71,106 1,414,998 57,854
Foreign exchange related contracts and interest rate related contracts are subject to market risk and credit risk. 123 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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.
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. Annual Report 2010 124
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) 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 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.
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 collaterised 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. 125 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) Maximum exposure to credit risk The following table presents the Group and the Bank’s maximum exposure to credit risk of on-balance sheet and off-balance sheet financial instruments, without taking into account of any collateral held or other credit enhancements. For on-balance sheet assets, the exposure to credit risk equals their carrying amount. For contingent liabilities, the maximum exposure to credit risk is the maximum amount that the Group and the Bank would have to pay if the obligations of the instruments issued are called upon. For credit commitments, the maximum exposure to credit risk is the full amount of the undrawn credit facilities granted to customers.
The Group The Bank Maximum exposure 2010 2010 RM'000 RM'000
Credit risk exposures of on-balance sheet assets: Cash and short-term funds (exclude cash in hand) 8,523,985 5,996,729 Deposits and placements with banks and other financial institutions 192,335 559,533 Financial assets held-for-trading 149,853 149,853 Financial investments available-for-sale (exclude equity securities) 5,659,343 4,325,332 Financial investments held-to-maturity 431,159 431,159 Loans, advances and financing 26,370,548 22,762,471 Other assets 68,348 56,421 Derivative financial assets 46,155 46,155
41,441,726 34,327,653
Credit risk exposure of off-balance sheet items: Financial guarantees 1,602,338 1,476,596 Loan commitments and other credit related commitments 506,976 369,681
2,109,314 1,846,277
Total maximum credit risk exposure 43,551,040 36,173,930
Cash and short-tem funds Substantially all balances are held with BNM. There is limited credit risk in relation to balances at BNM.
Other assets There is limited credit risk in relation to items in the course of collection through the clearing system from other banks.
Off-balance sheet The Group and the Bank apply fundamentally the same risk management policies for off-balance sheet risks as it does for its on-balance sheet risks. In the case of commitments to lend, customers and counterparties will be subject to the same credit management policies as for loans, advances and financing. Collateral may be sought depending on the strength of the counterparty and the nature of the transaction. NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) Credit risk concentrations 126 Credit risk is the risk of financial loss from the failure of customers to meet their obligations. Exposure to credit risk is managed through portfolio management. The credit portfolio's risk profiles and exposures are reviewed and monitored regularly to ensure that an acceptable level of risk diversification is maintained. Exposure to credit risk is also managed in part by obtaining collateral security and corporate and personal guarantees.
The credit risk concentrations of the Group and the Bank, by industry concentration, are set out in the following tables:
Deposits and placements Financial with banks assets Financial Financial On Cash and and other held- Investments Investments Loans, Derivative balance Commitments short-term financial for- available- held-to- advances and Other financial sheet and The Group funds institutions trading for-sale maturity financing assets assets total contingencies 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Agriculture - - - - - 476,425 - - 476,425 31,535 Mining and quarrying - - - - - 373,899 - - 373,899 1,053 Manufacturing - - - 20,268 156,498 1,743,308 1,279 - 1,921,353 207,361 Electricity, gas and water - - - 92,741 - 192,953 993 - 286,687 57 Construction - - - - 207,108 2,274,981 - - 2,482,089 652,610 Real estate - - - - - 2,323,155 - - 2,323,155 185,829 Transport, storage and communication - - - 29,921 - 921,590 301 - 951,812 26,231 Finance, insurance and business services 247,088 192,335 149,853 2,157,267 27,000 4,346,670 25,815 46,155 7,192,183 241,832 Government and government agencies 8,276,897 - - 3,359,146 16,186 75,394 31,357 - 11,758,980 135,825 Wholesale & retail trade and restaurants & hotels - - - - 24,037 1,198,629 - - 1,222,666 140,172 Others - - - - 330 12,443,544 8,603 - 12,452,477 486,808
Total assets 8,523,985 192,335 149,853 5,659,343 431,159 26,370,548* 68,348 46,155 41,441,726 2,109,313
* Not inclusive of collective allowance amounting to RM396 million.
Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) Credit risk concentrations (continued)
Deposits and placements Financial with banks assets Financial Financial On Cash and and other held- Investments Investments Loans, Derivative balance Commitments short-term financial for- available- held-to- advances and Other financial sheet and The Group funds institutions trading for-sale maturity financing assets assets total contingencies 2009 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Agriculture - - - 4,977 - 526,897 22 - 531,896 3,580 Mining and quarrying - - - - - 254,488 - - 254,488 19,107 Manufacturing - - - 49,922 150,113 1,659,506 474 - 1,860,015 205,868 Electricity, gas and water - - - 35,804 - 154,709 415 - 190,928 563 Construction - - - 28,713 213,689 2,317,296 323 - 2,560,021 709,607 Real estate - - - - - 1,444,967 - - 1,444,967 95,128 Transport, storage and communication - - - - - 924,177 - - 924,177 35,268 Finance, insurance and business services 409,900 142,777 150,000 2,159,402 37,000 3,295,521 28,642 29,727 6,252,969 388,271 Government and government agencies 5,623,891 - - 3,299,875 27,124 93,261 26,801 - 9,070,952 15,719 Wholesale & retail trade and restaurants & hotels - - - 30,083 27,937 1,161,088 164 - 1,219,272 84,394 127 Others - - - - 330 10,492,461 166,505 - 10,659,296 767,296
Total assets 6,033,791 142,777 150,000 5,608,776 456,193 22,324,371* 223,346 29,727 34,968,981 2,324,801
* Not inclusive of general allowance amounting to RM298 million. AFFIN BANKBERHAD Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37. (25046-T) NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) Credit risk concentrations (continued) 128
Deposits and placements Financial with banks assets Financial Financial On Cash and and other held- Investments Investments Loans, Derivative balance Commitments short-term financial for- available- held-to- advances and Other financial sheet and The Bank funds institutions trading for-sale maturity financing assets assets total contingencies 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Agriculture - - - - - 379,421 - - 379,421 6,267 Mining and quarrying - - - - - 373,664 - - 373,664 1,032 Manufacturing - - - 20,268 156,498 1,620,577 1,279 - 1,798,622 203,874 Electricity, gas and water - - - 92,741 - 192,089 993 - 285,823 57 Construction - - - - 207,108 1,962,667 - - 2,169,775 590,495 Real estate - - - - - 2,278,476 - - 2,278,476 185,829 Transport, storage and communication - - - 4,991 - 915,146 71 - 920,208 26,231 Finance, insurance and business services 321,761 559,533 149,853 1,795,453 27,000 3,759,208 27,315 46,155 6,686,278 209,594 Government and government agencies 5,674,968 - - 2,411,879 16,186 75,394 19,379 - 8,197,806 3,859 Wholesale & retail trade and restaurants & hotels - - - - 24,037 1,150,259 - - 1,174,296 136,037 Others - - - - 330 10,055,570 7,384 - 10,063,284 483,002
Total assets 5,996,729 559,533 149,853 4,325,332 431,159 22,762,471* 56,421 46,155 34,327,653 1,846,277
* Not inclusive of collective allowance amounting to RM343 million.
Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37. 129 AFFIN BANK BERHAD (25046-T) 330 8,692,435 142,351 - 8,835,116 560,098 - - - with banks assets Financial Financial On placements Financial Deposits and - Cash and other and held- Investments Investments Loans, Derivative balance Commitments 4,077,847 623,271 150,000 4,224,874 456,193 19,399,596* 193,027 29,727 29,154,535 1,976,184 short-term financial for- available- held-to- advances and Other financial sheet and servicesagencies& hotels 407,040 3,670,807 623,271 150,000 - 1,785,812 - 37,000 - 3,013,968 - 2,369,539 29,601 29,727 27,124 6,076,419 - 346,631 84,320 20,536 - - 27,937 6,172,326 1,085,920 - 22 - 1,113,857 74,009 Credit risk concentrations (continued) Credit The Bank2009AgricultureMining and quarryingManufacturing gas and waterElectricity, ConstructionReal estate storage and communicationTransport, Finance, insurance and business Government and government funds - RM'000 trade and restaurants Wholesale & retail - institutions - - trading RM'000 - RM'000 - for-sale - - - RM'000 - - maturity - - - RM'000 - financing - - assets - - RM'000 35,804 - assets RM'000 - - RM'000 15,150 - - total RM'000 18,569 150,113 - contingencies - - RM'000 1,556,029 213,689 154,437 - - 897,454 254,289 124 1,848,036 415 409,266 ------1,721,416 - - 190,656 1,403,442 - - 897,454 204,140 254,289 2,080,294 - - 409,266 563 34,522 641,304 19,086 - 1,403,442 681 95,128 Others assets Total * Not inclusive of general allowance amounting to RM260 million. equivalent balances in Note 37. based on the credit Risk concentrations for commitments and contingencies are (i) Risk (continued) Credit FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 38 FINANCIAL RISK MANAGEMENT (continued) NOTES TO THE FINANCIAL STATEMENTS Annual Report 2010 130
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 2010 2010 RM'000 RM'000
Neither past due nor impaired (a) 22,362,063 19,340,931 Past due but not impaired (b) 3,213,211 2,742,727 Impaired (c) 971,123 818,522
Gross loans, advances and financing 26,546,397 22,902,180 less: Allowance for impairment - Individual (175,849) (139,709) - Collective (395,701) (343,220)
Net loans, advances and financing 25,974,847 22,419,251
Past due but not impaired includes accounts within grace period amounting to RM1.2 billion (The Group) and RM1.1 billion (The Bank).
(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 2010 2010 RM'000 RM'000
Quality classification
Satisfactory 18,598,272 15,964,665 Special mention 3,763,791 3,376,266
22,362,063 19,340,931
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. 131 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) (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 2010 2010 RM'000 RM'000
Past due up to 30 days 1,730,084 1,542,944 Past due 30-60 days 996,340 849,976 Past due 60-90 days 486,787 349,807
3,213,211 2,742,727
The Group and the Bank do not disclose the fair value of collateral held as security on assets past due but not impaired as it is not practicable to do so.
(c) Loans impaired
The Group The Bank 2010 2010 Analysis of individually impaired assets RM'000 RM'000
Gross amount 971,123 818,522
Individually impaired loans 439,997 329,510
Fair value of collateral 1,250,955 1,178,242
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 The Bank 2010 2010 RM'000 RM'000 Carrying amount
Nature of assets
Vacant Industrial Land 1,370 1,370
1,370 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. Annual Report 2010 132
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (i) Credit Risk (continued) Renegotiated financial assets Restructuring activities include extended payment arrangements, approved external management plans, modification and deferral of payments. Restructuring policies and practices are based on indicators or criteria that, in the judgement of management indicate that payment will most likely continue. These policies are kept under continous review. Restructuring is most commonly applied to term loans - in particular, customer finance loans.
The Group The Bank 2010 2010 RM'000 RM'000
Renegotiated loans, advances and financing
Continuing to be impaired after restructuring 14,869 14,412 Non-impaired after restructuring-would otherwise have been impaired 487,387 420,954
502,256 435,366
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 :
The Group AAA AA- to AA+ A- to A+ Lower than A- Unrate Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Financial asset held-for-trading - - - - 149,853 149,853 Financial investments available-for-sale 712,749 233,762 455,613 133,094 4,230,835 5,766,053 Financial investments held-to-maturity - - 27,000 404,159 431,159
712,749 233,762 455,613 160,094 4,784,847 6,347,065
The Bank 2010
Financial asset held-for-trading - - - - 149,853 149,853 Financial investments available-for-sale 393,841 220,031 455,613 92,240 3,266,535 4,428,260 Financial investments held-to-maturity - - - 27,000 404,159 431,159
393,841 220,031 455,613 119,240 3,820,547 5,009,272
Included in the above, there are impaired financial investments available-for-sale with a carrying value for the Group and the Bank of RM40,005 (2009: RM69,698) and RM33,260 (2009: RM62,953) respectively and financial investments held-to- maturity for the Group and the Bank of RM87,752 (2009: RM89,957) and RM87,584 (2009: RM89,789) respectively.
Collateral is not generally obtained directly from the issuers of debt securities. Certain debt securities may be collateralised by specifically identified assets that would be obtainable in the event of default. 133 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 positions.
Market risk is primarily controlled through the imposition of Cut-loss, Value-at-Risk (VaR) and Net Open Position 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 according to a number of factors, including liquidity and the Bank's business strategy. In addition, the Bank conducts periodic stress test of its respective portfolios to ascertain the market risk under abnormal market conditions. For the asset liability mismatch position in the statement of financial position, the risk is measured using Net Interest Income simulations based on projected interest rate scenarios managed through limits set over time buckets together with an Overall Risk Tolerance Limit.
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 valued at current price levels.
The table below sets out a summary of the Bank’s VaR profile by financial instrument types for the trading portfolio:
Average The Group 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
The Bank 2010
Instruments FX swap 201 241 134 437 Government securities -1 -11 Private debt securities -1 -18 Annual Report 2010 134
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 is an additional measure of interest rate risk that is computed on a daily basis. It measures the change in value of a portfolio resulting from a 0.01% increase in interest rates. This measure identifies the Bank’s interest rate exposures that are most vulnerable to interest rate changes and it 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 31 December 2010. The sensitivity has been measured using the Repricing Gap Simulation methodology based on parallel shifts in the interest rate.
+100 -100 The Group basis point basis point 2010 RM million RM million
Impact on net interest income (25.7) 25.7 As percentage of net interest income -2.8% 2.8%
The Bank 2010
Impact on net interest income (21.2) 21.2 As percentage of net interest income -2.8% 2.8% 135 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 2010 '000 '000 '000 '000
US Dollar (4,453) (13,730) (13,592) (137) Others (1,290) (3,977) (3,936) (39)
The Bank 2010
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 RM176,000 (The Group) and RM213,000 (The Bank).
Foreign exchange risk The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in aggragate 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 31 December 2010. Included in the table are the Bank's financial instruments at carrying amounts, categorised by currency.
United Great States Australian Britain The Group Euro Dollar Dollar Pound Others Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Assets Cash and short-term funds 3,205 163,867 2,049 2,058 36,513 207,692 Deposits and placements with banks and other financial institutions - 147,057 15,680 - 29,597 192,334 Financial investments available-for-sale - 191,793 39,548 46,067 59,367 336,775 Loan, advances and financing 271 748,162 - 113 1,503 750,049 Other assets - 4,174 376 846 1,986 7,382
Total financial assets 3,476 1,255,053 57,653 49,084 128,966 1,494,232 Annual Report 2010 136
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (ii) Market risk (continued) Foreign exchange risk (continued)
United Great States Australian Britain The Group Euro Dollar Dollar Pound Others Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Liabilities Deposits from customers 7,660 208,366 9,941 8,487 29,784 264,238 Deposits and placements of banks and other financial institutions - 505,694 4,157 - - 509,851 Other liabilities - 12,436 173 3,411 431 16,451
Total financial liabilities 7,660 726,496 14,271 11,898 30,215 790,540
Net on-balance sheet financial position (4,184) 528,557 43,382 37,186 98,751 703,692 Off balance sheet credit commitments 1,093,230 2,051,238 25,235 65,866 396,827 3,632,396
United Great States Australian Britain The Bank Euro Dollar Dollar Pound Others Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Assets Cash and short-term funds 2,988 239,581 1,765 1,899 36,132 282,365 Deposits and placements with banks and other financial institutions - 184,059 15,680 - 29,597 229,336 Financial investments available-for-sale - 180,852 39,548 46,067 59,367 325,834 Loan, advances and financing 271 590,207 - 113 1,503 592,094 Other assets - 4,014 376 846 1,986 7,222
Total financial assets 3,259 1,198,713 57,369 48,925 128,585 1,436,851
Liabilities Deposits from customers 7,564 208,306 9,941 8,484 29,784 264,079 Deposits and placements of banks and other financial institutions - 505,694 4,157 - - 509,851 Other liabilities - 12,412 173 3,411 431 16,427
Total financial liabilities 7,564 726,412 14,271 11,895 30,215 790,357
Net on-balance sheet financial position (4,305) 472,301 43,098 37,030 98,370 646,494 Off balance sheet credit commitments 1,093,230 2,051,238 25,235 65,866 396,827 3,632,396 137 AFFIN BANK BERHAD (25046-T) interest Effective -- 149,853 - 149,853 192,335 2.81 2.62 Non interest/ liability funding. One of the major causes these -- 795,274# 873,956 - - 795,274 873,956 - 172,530- - - 8,629,563 2.76 - 86,059 - 431,159 4.95 Non-trading book ------113,955 ------36,412 9,743 46,155 29,597 132,468 30,270 24,037 207,108 month months months years years sensitive book Total rate Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 % 395,268 930,603 670,773 3,260,546 402,154 106,709 - 5,766,053 3.67 8,457,033 12,062,771 1,031,672 2,466,714 7,527,074 2,487,043 (395,701)* - 25,179,573 4.94 20,968,706 2,301,851 3,167,757 10,901,575 2,889,197 1,675,239 159,596 42,063,921 investment in jointly controlled entity and amount due from jointly controlled entity. jointly controlled entity and amount due from investment in jointly controlled and other financial institutions Loans, advances and financing - non-impaired Others (1) - impaired Deposits and placements with banks 2010 Assets Cash and short-term funds The Group Financial assets held-for-trading Financial investments available-for-sale Financial investment held-to-maturity of the overall interest rate risk management process actively managed as part of the overall interest of the assets and liabilities. These mismatches are in the repricing mismatches is timing differences policy guidelines. with Group which is conducted in accordance or maturity dates as at of contractual repricing and the Bank’s assets liabilities at carrying amounts, categorised by earlier the Group’s The following table represents 31 December 2010. Interest/profit rate risk Interest/profit rate characteristics of the assets and their corresponding mismatches in the interest rates arises from Sensitivity to interest *# collective allowance for loans, advances and financing The negative balance represents (1) Net of individual allowance. tax assets, subsidiaries, other deferred and equipment, intangible assets, statutory deposits with Bank Negara Malaysia, tax recoverable, Others include property Derivative financial assets assets Total (ii) Market risk (continued) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 38 FINANCIAL RISK MANAGEMENT (continued) NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (ii) Market risk (continued) Interest/profit rate risk (continued) 138
Non-trading book
Non interest/ Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Group month months months years years sensitive book Total rate 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 %
Liabilities Deposits from customers 15,530,756 7,871,842 5,203,862 46,979 - 2,191,809 - 30,845,248 2.99 Deposits and placements of banks and other financial institutions 3,099,548 3,437,614 - 68,186 - - - 6,605,348 2.86 Bills and acceptances payable - - - - - 110,161 - 110,161 Recourse obligation on loans sold to Cagamas Berhad - - - 286,370 - - - 286,370 5.00 Subordinated term loan 300,000 ------300,000 3.52 Other liabilities (2) - - - - - 546,230 - 546,230 Derivative financial liabilities - - - - - 40,112 17,448 57,560
Total liabilities 18,930,304 11,309,456 5,203,862 401,535 - 2,888,312 17,448 38,750,917
Equity - - - - - 3,313,004 - 3,313,004
Total liabilities and equity 18,930,304 11,309,456 5,203,862 401,535 - 6,201,316 17,448 42,063,921
On-balance sheet interest sensitivity gap 2,038,402 (9,007,605) (2,036,105) 10,500,040 2,889,197 (4,526,077) 142,148 Off-balance sheet interest sensitivity gap (3) 299,637 455,305 (5,193) (704,458) (45,291) - -
Total interest sensitivity gap 2,338,039 (8,552,300) (2,041,298) 9,795,582 2,843,906 (4,526,077) 142,148
(2) Other liabilities include provision for taxation, deferred tax liabilities and other liabilities. (3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (ii) Market risk (continued) Interest/profit rate risk (continued)
Non-trading book
Non interest/ Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Group month months months years years sensitive book Total rate 2009 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 %
Assets Cash and short-term funds 5,994,363 - - - - 138,526 - 6,132,889 1.96 Deposits and placements with banks and other financial institutions 8,563 72,259 61,955 - - - - 142,777 1.27 Financial assets held-for-trading ------150,000 150,000 2.18 Financial investments available-for-sale 877,180 489,648 1,564,182 1,968,840 690,446 37,075 - 5,627,371 3.41 Financial investment held-to-maturity 236,035 - 26,530 43,186 - 175,723 - 481,474 4.73 Loans, advances and financing - performing 11,322,040 2,461,621 2,219,502 4,242,502 1,566,346 (335,067)* - 21,476,944 4.71 - non-performing - - - - - 512,360# - 512,360
Others (1) - - - - - 1,045,095 - 1,045,095 139 Derivative financial assets - - - - - 21,664 8,063 29,727
Total assets 18,438,181 3,023,528 3,872,169 6,254,528 2,256,792 1,595,376 158,063 35,598,637
* The negative balance represents general allowance for loans, advances and financing
# Net of specific allowance. AFFIN BANKBERHAD (1) Others include property and equipment, intangible assets, statutory deposits with Bank Negara Malaysia, tax recoverable, deferred tax assets, subsidiaries and other assets (25046-T) NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (ii) Market risk (continued) Interest/profit rate risk (continued) 140
Non-trading book
Non interest/ Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Group month months months years years sensitive book Total rate 2009 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 %
Liabilities Deposits from customers 9,342,816 7,344,504 5,579,671 99,327 - 4,074,001 - 26,440,319 2.28 Deposits and placements of banks and other financial institutions 2,025,979 2,575,982 421,702 - - - - 5,023,663 2.09 Bills and acceptances payable - - - - - 94,265 - 94,265 Recourse obligation on loans sold to Cagamas Berhad - - - 297,216 - - - 297,216 5.00 Subordinated term loan 300,000 ------300,000 2.90 Other liabilities (2) - - - - - 434,472 - 434,472 Derivative financial liabilities - - - - - 14,738 26,946 41,684
Total liabilities 11,668,795 9,920,486 6,001,373 396,543 - 4,617,476 26,946 32,631,619
Equity - - - - - 2,967,018 - 2,967,018
Total liabilities and equity 11,668,795 9,920,486 6,001,373 396,543 - 7,584,494 26,946 35,598,637
On-balance sheet interest sensitivity gap 6,769,386 (6,896,958) (2,129,204) 5,857,985 2,256,792 (5,989,118) 131,117 Off-balance sheet interest sensitivity gap (3) 529,078 199,536 (339,724) (293,106) (95,784) --
Total interest sensitivity gap 7,298,464 (6,697,422) (2,468,928) 5,564,879 2,161,008 (5,989,118) 131,117
(2) Other liabilities include provision for taxation deferred tax liabilities and other liabilities. (3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments. 141 AFFIN BANK BERHAD (25046-T) interest Effective -- 149,853 - 149,853 559,533 2.81 2.76 Non interest/ -- 678,813#- 1,131,878 36,412 - - 9,743 678,813 1,131,878 46,155 - 169,157- - - 6,102,307 2.70 - 86,059 - 431,159 4.95 Non-trading book ------113,955 ------29,597 462,664 67,272 24,037 207,108 month months months years years sensitive book Total rate Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 % 333,650 734,627 660,868 2,246,981 349,206 102,928 - 4,428,260 3.74 183,541 - - - - 1,730 - 185,271 2.62 5,933,150 10,293,638 914,913 2,136,368 6,715,183 2,023,556 (343,220)* - 21,740,438 4.95 16,797,613 2,319,312 2,864,508 9,076,119 2,372,762 1,863,757 159,596 35,453,667 investment in jointly controlled entity and amount due from jointly controlled entity. jointly controlled entity and amount due from investment in jointly controlled and other financial institutions Interest/profit rate risk (continued) Interest/profit Loans, advances and financing - non-impaired Others (1) Derivative financial assets - impaired Deposits and placements with banks 2010 Assets Cash and short-term funds The Bank Financial assets held-for-trading Financial investments available-for-sale Financial investment held-to-maturity *# collective allowance for loans, advances and financing The negative balance represents (1) Net of individual allowance. tax assets, subsidiaries, other deferred and equipment, intangible assets, statutory deposits with Bank Negara Malaysia, tax recoverable, Others include property Amount due from subsidiaries Amount due from assets Total (ii) Market risk (continued) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 38 FINANCIAL RISK MANAGEMENT (continued) NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (ii) Market risk (continued) Interest/profit rate risk (continued) 142
Non-trading book
Non interest/ Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Bank month months months years years sensitive book Total rate 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 %
Liabilities Deposits from customers 12,147,517 6,553,954 4,376,920 42,754 - 2,192,729 - 25,313,874 3.02 Deposits and placements of banks and other financial institutions 2,479,622 3,187,614 68,186 - - - - 5,735,422 2.86 Bills and acceptances payable - - - - - 110,161 - 110,161 Recourse obligation on loans sold to Cagamas Berhad - - - 286,370 - - - 286,370 5.00 Subordinated term loan 300,000 ------300,000 3.52 Other liabilities (2) - - - - - 489,554 - 489,554 Derivative financial liabilities - - - - - 57,560 - 57,560 Amount due to subsidiaries - - - - - 47,926 - 47,926
Total liabilities 14,927,139 9,741,568 4,445,106 329,124 - 2,897,930 - 32,340,867
Equity - - - - - 3,112,800 - 3,112,800
Total liabilities and equity 14,927,139 9,741,568 4,445,106 329,124 - 6,010,730 - 35,453,667
On-balance sheet interest sensitivity gap 1,870,474 (7,422,256) (1,580,598) 8,746,995 2,372,762 (4,146,973) 159,596 Off-balance sheet interest sensitivity gap (3) 299,637 455,305 (5,193) (704,458) (45,291) - -
Total interest sensitivity gap 2,170,111 (6,966,951) (1,585,791) 8,042,537 2,327,471 (4,146,973) 159,596
(2) Other liabilities include other liabilities. (3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments. 143 AFFIN BANK BERHAD (25046-T) Non interest/ Effective - 1,921 - 231,285 2.14 Non-trading book - - - Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest 229,364 15,339,902 3,114,525 3,319,692 4,862,052 1,704,857 1,834,025 158,063 30,333,116 and other financial institutions 8,563 526,136 88,572 - - - - 623,271 1.93 Interest/profit rate risk (continued) Interest/profit The Bank2009Assets Cash and short-term fundsDeposits and placements with banks Financial assets held-for-tradingFinancial investments available-for-saleFinancial investment held-to-maturityLoans, advances and financing - performing- non-performing 4,042,363Others (1) 621,336Derivative financial assets 236,035 333,128 month 1,300,742 - - RM'000 months 1,329,715 621,471 RM'000 - months - RM'000 - 26,530 33,378 years RM'000 43,186 10,202,241 RM'000 years - - 2,255,261 - 1,903,848 - 4,239,770 sensitive RM'000 - 3,489,151 - RM'000 1,083,386 3.50 book - - 175,148 RM'000 (291,000)* - - - 134,582 Total % - - - 18,642,887 rate - - - 480,899 - 4,176,945 4.71 4.73 - 1.92 - - 150,000 - 150,000 - - 2.18 - 21,664 465,708# - 8,063 1,292,624 - 29,727 465,708 - 1,292,624 *# general allowance for loans, advances and financing. The negative balance represents (1) Net of specific allowance. tax assets, subsidiaries and other assets. and equipment, intangible assets, statutory deposits with Bank Negara Malaysia, deferred Others include property Amount due from subsidiaries Amount due from assets Total (ii) Market risk (continued) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 38 FINANCIAL RISK MANAGEMENT (continued) NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (ii) Market risk (continued) Interest/profit rate risk (continued) 144
Non-trading book
Non interest/ Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Bank month months months years years sensitive book Total rate 2009 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 %
Liabilities Deposits from customers 7,566,291 6,301,396 4,969,368 94,445 - 2,883,554 - 21,815,054 2.23 Deposits and placements of banks and other financial institutions 1,703,983 2,395,542 421,703 - - - - 4,521,228 2.09 Bills and acceptances payable - - - - - 94,265 - 94,265 Recourse obligation on loans sold to Cagamas Berhad - - - 297,216 - - - 297,216 5.00 Subordinated term loan 300,000 ------300,000 2.90 Other liabilities (2) - - - - - 405,173 - 405,173 Deivative financial liabilities - - - - - 14,738 26,946 41,684 Amount due to subsidiaries - - - - - 47,730 - 47,730
Total liabilities 9,570,274 8,696,938 5,391,071 391,661 - 3,445,460 26,946 27,522,350
Equity - - - - - 2,810,766 - 2,810,766
Total liabilities and equity 9,570,274 8,696,938 5,391,071 391,661 - 6,256,226 26,946 30,333,116
On-balance sheet interest sensitivity gap 5,769,628 (5,582,413) (2,071,379) 4,470,391 1,704,857 (4,422,201) 131,117 Off-balance sheet interest sensitivity gap (3) 529,078 199,536 (339,724) (293,106) (95,784) --
Total interest sensitivity gap 6,298,706 (5,382,877) (2,411,103) 4,177,285 1,609,073 (4,422,201) 131,117
(2) Other liabilities include provision for taxation and other liabilities. (3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments. 145 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (iii) Liquidity Risk Liquidity risk is the risk of loss due to failure to access funds at reasonable cost to fund the Bank's operations and meet its liabilities when they fall due. 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 Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. The risk is measured monthly using internal and external qualitative and quantitative liquidity risk indicators. The Bank also conducts liquidity stress tests to gauge the Bank’s resilience in the event of a funding crisis. In addition, the Bank has in place the Contingency Funding Plan to deal with 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 however, 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 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Deposits from customers 17,722,567 7,871,842 5,203,861 46,978 - 30,845,248 Deposits and placements of banks and other financial institutions 3,099,548 3,437,614 68,186 - - 6,605,348 Bills and acceptances payable 110,161 - - - - 110,161 Recourse obligation on loans sold to Cagamas Berhad 1,441 1,312 8,491 275,126 - 286,370 Other liabilities 68,860 114,327 524,760 113,683 55,250 876,880 Subordinate term loan - - - - 300,000 300,000
21,002,577 11,425,095 5,805,298 435,787 355,250 39,024,007
The Bank 2010
Deposits from customers 14,340,248 6,553,953 4,376,920 42,753 - 25,313,874 Deposits and placements of banks and other financial institutions 2,479,621 3,187,614 68,187 - - 5,735,422 Bills and acceptances payable 110,161 - - - - 110,161 Recourse obligation on loans sold to Cagamas Berhad 1,441 1,312 8,491 275,126 - 286,370 Other liabilities 60,248 94,583 461,233 113,198 55,250 784,512 Amount due to holding company 47,926 - - - - 47,926 Subordinate term loan - - - - 300,000 300,000
17,039,645 9,837,462 4,914,831 431,077 355,250 32,578,265 Annual Report 2010 146
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (iii) Liquidity Risk (continued)
Derivatives financial liabilities
Derivatives financial liabilities based on contractual undiscounted cash flow:
Up to 1 >1-3 >3-12 >1-5 Over 5 The Group/The Bank month months months years years Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Derivatives settled on a net basis
Interest rate derivatives (1,098) (1,353) (9,658) (33,596) (12,799) (58,504)
Up to 1 >1-3 >3-12 >1-5 Over 5 The Group/The Bank month months months years years Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Derivatives settled on a 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) 147 AFFIN BANK BERHAD (25046-T) s and counterguarantees are important factors s and counterguarantees are 2,745 - - - - - 2,745 58,80622,129 9,675 3,604 10,930 109 5,127 10,692 - 2,542 161,664 7,079 246,202 46,155 Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 245,130 - 49,930 - - 329,949 625,009 112,440149,853 14,590110,096 15,680 - - - - 49,625 - 113,955 - - 192,335 - - 207,108 431,159 - 149,853 8,629,563 - - - - - 8,629,563 1,339,407 579,9193,174,354 184,027 668,789 2,168,054 780,775 1,092,492 3,085,018 402,154 4,366,931 13,898,980 5,766,053 25,974,847 13,844,523 1,276,577 1,041,451 5,382,846 5,511,590 15,006,934 42,063,921 and other financial institutions in assessing the liquidity of the Group. The table below provides analysis of assets and liabilities into relevant maturity tenures based on remaining contractual maturities. based on remaining maturity tenures analysis of assets and liabilities into relevant The table below provides in assessing the liquidity of Group. as follows: are contractual maturities profile and the Bank by remaining Maturities of assets and liabilities the Group Liquidity risk for assets and liabilities based on remaining contractual maturities Liquidity risk for assets and liabilities based on remaining sheet assets and liabilities, commitment The maturities of on-balance sheet assets and liabilities as well other off-balance Other non-financial assets (1) The Group2010Assets 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 RM'000 Total 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) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 38 FINANCIAL RISK MANAGEMENT (continued) NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (iii) Liquidity Risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) 148
Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 The Group months months months years years years Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Liabilities Deposits from customers 25,594,409 2,013,432 3,190,429 24,027 22,951 - 30,845,248 Deposits and placements of banks and other financial institutions 6,537,162 - 68,186 - - - 6,605,348 Bills and acceptances payable 110,161 - - - - - 110,161 Recourse obligation on loans sold to Cagamas Berhad - - - - 286,370 - 286,370 Subordinated term loan - - - - - 300,000 300,000 Other liabilities 487,425 14,144 19,412 295 - - 521,276 Derivative financial liabilities 12,207 12,666 602 17,828 7,336 6,921 57,560 Provision for taxation - -22---22 Deferred tax liabilities - - - - - 24,932 24,932
32,741,364 2,040,242 3,278,651 42,150 316,657 331,853 38,750,917
On balance sheet gap (18,896,841) (763,665) (2,237,200) 5,340,696 5,194,933 14,675,081 3,313,004 Off balance sheet credit commitments - - 13,700,237 - - - 13,700,237 Derivatives 385,598 218,885 (23,126) (30,000) - - 551,357
Net maturity mismatch (18,511,243) (544,780) 11,439,911 5,310,696 5,194,933 14,675,081 17,564,598
(1) Other non-financial assets include tax recoverable, statutory deposits with BNM, deferred tax assets, investment in jointly controlled entity, property and equipment and intangible assets. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (iii) Liquidity Risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)
Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 The Bank months months months years years years Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Assets Cash and short-term funds 6,102,307 - - - - - 6,102,307 Deposits and placements with banks and other financial institutions 442,636 42,341 15,680 - 58,876 - 559,533 Financial assets held-for-trading 149,853 - - - - - 149,853 Financial investments available-for-sale 1,078,104 579,919 174,050 1,496,103 750,878 349,206 4,428,260 Financial investments held-to-maturity 110,096 - - 113,955 - 207,108 431,159 Loans, advances and financing 2,950,236 526,876 748,576 2,922,556 3,873,320 11,397,687 22,419,251 Other assets 48,443 8,108 10,830 4,983 - 161,255 233,619 Derivative financial assets 22,129 3,604 109 10,692 2,542 7,079 46,155 Amount due from subsidiaries 185,271 - - - - - 185,271 Other non-financial assets (1) 245,130 - 46,072 - - 607,057 898,259
11,334,205 1,160,848 995,317 4,548,289 4,685,616 12,729,392 35,453,667 149 AFFIN BANKBERHAD (25046-T) NOTES TO THE FINANCIAL STATEMENTS Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (iii) Liquidity Risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) 150
Up to 3 >3-6 >6-12 >1-3 >3-5 Over 5 The Bank months months months years years years Total 2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Liabilities Deposits from customers 20,894,201 1,584,038 2,792,882 20,739 22,014 - 25,313,874 Deposits and placements of banks and other financial institutions 5,667,236 - 68,186 - - - 5,735,422 Bills and acceptances payable 110,161 - - - - - 110,161 Recourse obligation on loans sold to Cagamas Berhad - - - - 286,370 - 286,370 Subordinated term loan - - - - - 300,000 300,000 Other liabilities 435,580 11,655 17,117 270 - - 464,622 Derivative financial liabilities 12,207 12,666 602 17,828 7,336 6,921 57,560 Amount due to subsidiaries 47,926 - - - - - 47,926 Deferred tax liabilities - - - - - 24,932 24,932
27,167,311 1,608,359 2,878,787 38,837 315,720 331,853 32,340,867
On balance sheet gap (15,833,106) (447,511) (1,883,470) 4,509,452 4,369,896 12,397,539 3,112,800 Off balance sheet credit commitments - - 12,245,520 - - - 12,245,520 Derivatives 385,598 218,885 (23,126) (30,000) - - 551,357
Net maturity mismatch (15,447,508) (228,626) 10,338,924 4,479,452 4,369,896 12,397,539 15,909,677
(1) Other non-financial assets include tax recoverable, statutory deposits with BNM, investment in subsidiairies, property and equipment and intangible assets. 151 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (iv) Operational Risk Management Operational risk is the risk of loss due to action on or by people, processes, infrastructure or technology or similar events which have an operational impact, including fraudulent activities.
The Bank manages such risk through a control based environment in which policies and procedures are formulated after taking into account individual unit's business activities, the environment and market in which it is operating and any 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 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 and implemented to minimize the recurrence of such events.
Group Risk Management commenced an internal operational risk (including anti-money laundering/counter financing of terrorism and business continuity management) Certification Program in November 2009.
Since October 2010, this certification programme is being conducted vide an e-learning portal. Operational Risk coordinators will first go through an on-line self learning exercise before attempting on-line assessments to measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training and development activities for the coordinators. It is a requirement that all Operational Risk coordinators and staff engaged in operational risk work are all duly certified.
(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 judgements 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. Annual Report 2010 152
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 the reporting date, except for the following:
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 431,159 646,941 431,159 646,941 Loans, advances and financing 25,974,847 26,270,051 22,419,251 22,690,852
26,406,006 26,916,992 22,850,410 23,337,793
Financial liabilities Deposits from customers 30,845,248 30,834,587 25,313,874 25,306,320 Recourse obligation on loans sold to Cagamas Berhad 286,370 303,270 286,370 303,270
31,131,618 31,137,857 25,600,244 25,609,590
The Group The Bank 2009 2009 Carrying Fair Carrying Fair value value value value RM’000 RM'000 RM’000 RM'000
Financial assets Financial investments held-to-maturity 481,474 502,532 480,899 501,957 Loans, advances and financing 21,989,304 22,313,398 19,108,595 19,320,106
22,470,778 22,815,930 19,589,494 19,822,063
Financial liabilities Deposits from customers 26,440,319 26,431,631 21,815,054 21,804,882 Recourse obligation on loans sold to Cagamas Berhad 297,216 313,077 297,216 313,077
26,737,535 26,744,708 22,112,270 22,117,959 153 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 2010 2009 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 728,471 2,381 19,025 704,000 4,134 7,040 - swaps 1,688,004 34,031 21,087 1,510,845 17,530 7,698
Interest rate contracts - swap 1,495,313 9,743 17,448 1,414,998 8,063 26,946
The derivative financial instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuation in market interest rates or foreign exchange rates relative to their terms. The extent to which instruments are favourable or unfavourable 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.
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. Annual Report 2010 154
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
38 FINANCIAL RISK MANAGEMENT (continued) (v) Fair Value of Financial Instruments (continued) 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.
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-cancellable long-term commitments, net of sub-leases are as follows:
The Group and The Bank 2010 2009 RM’000 RM'000
Within one year 19,771 18,776 One year to five years 79,084 75,104 155 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 2010 2009 RM’000 RM'000
Authorised and contracted for 4,163 3,188 Authorised but not contracted for - -
4,163 3,188
Analysed as follows: Property and equipment 4,163 3,188
Operating commitments Operating expenditure approved by the Directors but not provided for in the financial statements amounted to approximately:
The Group and The Bank 2010 2009 RM’000 RM'000
Authorised and contracted for 320,852 375,383
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 summarises the composition of regulatory capital and the ratios of the Group and the Bank for the year ended 31 December 2010. Annual Report 2010 156
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
42 CAPITAL ADEQUACY The capital adequacy ratios are as follows:
The Group# The Bank Basel II Basel II Basel II Basel II 2010 2009 2010 2009 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 499,179 317,517 411,831 249,121 Statutory reserve 888,910 789,221 807,500 720,824
3,235,763 2,954,412 3,067,005 2,817,619
Less: Goodwill (137,323) (137,323) (137,323) (137,323) Deferred tax assets * - (60,961) - (52,105)
Total Tier I capital 3,098,440 2,756,128 2,929,682 2,628,191
Tier II capital Subordinated term loan 300,000 300,000 300,000 300,000 General allowance for bad and doubtful debts and financing - 335,067 - 291,000 Collective impairment @ 153,538 - 111,304 -
Total Tier II capital 453,538 635,067 411,304 591,000
Less: Investment in capital instruments of other banking institutions (39,858) (217,056) (39,858) (200,898) Investment in subsidiaries (27,429) (27,429) (287,429) (287,429)
Capital base 3,484,691 3,146,710 3,013,699 2,730,864
Core capital ratio 11.51% 11.42% 12.35% 12.35% Risk-weighted capital ratio 12.94% 13.04% 12.71% 12.83% Core capital ratio (net of proposed dividends) ^ 11.24% 11.19% 12.05% 12.09% Risk-weighted capital ratio (net of proposed dividends) ^ 12.67% 12.81% 12.40% 12.58%
Risk-weighted assets for credit risk 24,768,236 22,071,130 21,849,466 19,478,147 Risk-weighted assets for market risk 96,572 92,319 91,973 84,589 Risk-weighted assets for operational risk 2,062,578 1,976,470 1,776,655 1,721,636
Total risk-weighted assets 26,927,386 24,139,919 23,718,094 21,284,372
* Deferred tax assets exclude deferred tax arising from investment fluctuation 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 (2009: RM53,973,000).
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. 157 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
43 LITIGATIONS AGAINST THE BANK (a) As part of a merger of banking businesses, by an Agreement dated 30 August 2000 ('the Acquisition Agreement') between AFFIN Holdings Berhad ('AHB') , AFFIN Bank Berhad ('ABB'), BSN Commercial Bank (Malaysia) Berhad ('BSNC') and Bank Simpanan Nasional Berhad ('BSN'), it was agreed that all banking assets and liabilities of BSNC would be sold to ABB in consideration of a purchase price of RM338,560,000 to be paid partly in cash and partly in shares ('the Purchase Price'). Pursuant to clause 2.1.5 of the Acquisition Agreement, BSNC and BSN undertook to ABB that debts other than those reflected as bad or doubtful debts in the audited financial statements of BSNC will be recoverable in the ordinary course of business. For the debts not recoverable, BSNC undertook to pay ABB within 30 days from the date of receipt of the Bank’s letter of demand, the amounts claimed subject to a limit of 30% of the Purchase Price amounting to RM101,568,000.
Subsequent to the merger, an audit was conducted and it was found that there had been significant under-provisioning of bad and doubtful debts by BSNC. AHB, ABB and BSN agreed that the purchase price payable to BSNC would be reduced to compensate for this under-provisioning ('the Settlement Agreement'). In return, it was agreed that ABB would assign the bad and doubtful debts to BSNC under clause 2.1.5 of the Acquisition Agreement, subject to approval being given to both parties by regulatory authorities for the reassignment. However, the accounts to be reassigned to BSNC were not identified then.
Dispute arose when ABB subsequently did not agree with BSNC on the assignment of 106 non-performing accounts with gross amount of RM988,000,000 or net amount of RM578,000,000 which have been identified unilaterally by BSNC. In 2005, BSNC issued an Originating Summons against AHB and ABB seeking an order for ABB to reassign the 106 accounts to BSNC.
On 30 November 2009, the Court has fixed the matter for further case management where filing of documents, statement of agreed/non-agreed facts and statements of issues will be tried accordingly. On 20 August 2010 where the matter came up for case management before the Judge, both counsels briefed the Judge on the facts of this case. The Judge suggested for both parties to come to a settlement, in the event that there is still room for negotiation.
On 8 September 2010, the Plaintiff's solicitors requested for an adjournment at the trial. The Judge vacated the trial dates and set the matter down for case management on 8 October 2010 which was further postponed to 10 December 2010. On 10 December 2010 the matter was fixed for trial on 4, 5 , 6 ,7 and 8 April 2011.
(b) There was a legal suit between Malayan Banking Berhad's ('MBB') predecessor-in-title, PhileoAllied Bank (Malaysia) Berhad and AFFIN Bank Berhad's ('ABB') predecessor-in-title, BSN Commercial Bank (Malaysia) Berhad with regards to who has prior charge over the shares of Kuo Shinn Sdn Bhd (the 'Shares').
The suit was initiated by PhileoAllied Bank (Malaysia) Berhad vide an Originating Summons dated 28 January 2000 against BSN Commercial Bank (Malaysia) Berhad for inter alia the return of the Shares or its equivalent value if the Shares had been sold by BSN Commercial Bank (Malaysia) Berhad.
Subsequently, the High Court allowed MBB's claim on 25 November 2002 wherein the High Court ordered for the return of the Shares within 7 days from the date of the Order or in the event the Shares had been sold, the sale proceeds of the Shares to be paid to MBB ('25 November 2002 Order'). ABB had filed an appeal to the Court of Appeal against the 25 November 2002 Order which was dismissed on 27 November 2008. Further thereto, ABB had applied for leave to appeal to the Federal Court but the leave application was dismissed with costs by the Federal Court on 8 July 2009.
Following the decision of the Federal Court, ABB had delivered the share certificates to MBB in August 2009. However, MBB refused to accept the share certificates, with the view that the shares had been disposed. MBB then proceeded to enforce the 25 November 2002 Order vide an application for a monetary judgement in the Kuala Lumpur High Court.
On 31 May 2010, the High Court allowed MBB's application for monetary judgement wherein the High Court ordered ABB to pay the sum of RM30 million together with 8% interest thereon from 2 December 2002 until the date of payment and payment to be made within 14 days of the Order dated 31 May 2010 (the 'Judgement Sum')('31 May 2010 Order').
Pursuant thereto, ABB had applied for a stay of execution of the 31 May 2010 Order pending appeal to the Court of Appeal. The stay of execution was dismissed by the Kuala Lumpur High Court on 18 June 2010 and ABB was ordered to pay the Judgement Sum within 21 days from 18 June 2010. Thereafter, ABB filed an application for stay of execution of the 31 May 2010 Order to the Court of Appeal which was subsequently dismissed on 5 July 2010 with costs in the sum of RM2,000 to be paid to MBB. Annual Report 2010 158
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
43 LITIGATIONS AGAINST THE BANK (continued) The Court of Appeal had fixed the hearing of ABB’s appeal on 25 August 2010 and parties were required to file in their respective written submission on or before 11 August 2010. On 8 October 2010, the appeal was however dismissed.
On 8 November 2010, the Bank filed the Notice for Motion together with the Affidavit pertaining to the application for leave to appeal to the Federal Court against decision of the Court of Appeal. The Federal Court however dismissed ABB’s application for leave to appeal on 22 February 2011.
(c) Other than above, there are various legal suits against the Bank in respect of claims and counter claims of approximately RM86.3 million (2009: RM68.7 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.
44 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS 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 judgement in estimating the future cash flows, growth rate and discount rate. 159 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
45 CHANGES IN ACCOUNTING POLICIES During the financial year, the Group and the Bank have changed the following accounting policies upon adoption of new accounting standards, amendments and improvements to published standards and interpretations:
• Financial assets – Note G • Leasehold land – Note K
The following Notes (i) to (ii) disclose the impacts of such changes on the financial statements of the Group and Bank.
Impact on adoption of FRS 139 i) Impact on The Group and the Bank's statement of financial position
Balance as at 1 January 2010 As previously As reported FRS 139 Adjusted The Group RM'000 RM'000 RM'000
Assets Financial investments available-for-sale 5,627,371 83,639 5,711,010 Financial investments held-to-maturity 481,474 (25,279) 456,195 Loans, advances and financing 21,989,304 27,090 22,016,394 Other assets 461,197 (30,691) 430,506 Derivative financial assets - 29,727 29,727 Deferred tax assets 54,789 (21,123) 33,666
28,614,135 63,363 28,677,498
Liabilities Other liabilities 473,429 (41,684) 431,745 Derivative financial liabilities - 41,684 41,684
473,429 - 473,429
Equity Reserves - investment fluctuation reserve (1,880) 43,770 41,890 Reserves - retained profits 332,003 19,593 351,596
330,123 63,363 393,486 Annual Report 2010 160
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
45 CHANGES IN ACCOUNTING POLICIES (continued) Impact on adoption of FRS 139 (continued) i) Impact on The Group and the Bank's statement of financial position (continued)
Balance as at 1 January 2010 As previously As reported FRS 139 Adjusted The Bank RM'000 RM'000 RM'000
Assets Financial investments available-for-sale 4,239,770 83,568 4,323,338 Financial investments held-to-maturity 480,899 (24,704) 456,195 Loans, advances and financing 19,108,595 21,502 19,130,097 Other assets 428,498 (33,022) 395,476 Derivative financial assets - 29,727 29,727 Deferred tax assets 54,390 (19,269) 35,121
24,312,152 57,802 24,369,954
Liabilities Other liabilities 473,429 (41,684) 431,745 Derivative financial liabilities - 41,684 41,684
473,429 - 473,429
Equity Reserves - investment fluctuation reserve (6,853) 44,148 37,295 Reserves - retained profits 249,121 13,654 262,775
242,268 57,802 300,070
The Group and the Bank did not disclose the effect of the adoption of FRS 139 on the current period because it is impracticable. 161 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
45 CHANGES IN ACCOUNTING POLICIES (continued) Impact on adoption of FRS 117 i) Impact on The Group and the Bank's statements of financial position
Balance as at 31 December 2008 As previously As reported FRS 117 restated The Group RM'000 RM'000 RM'000
Other assets 531,026 (17,347) 513,679 Property and equipment 187,758 17,347 205,105
Balance as at 31 December 2009 As previously As reported FRS 117 restated RM'000 RM'000 RM'000
Other assets 431,470 (16,180) 415,290 Property and equipment 171,578 16,180 187,758
Balance as at 31 December 2008 As previously As reported FRS 117 restated The Bank RM'000 RM'000 RM'000
Other assets 482,934 (15,660) 467,274 Property and equipment 182,909 15,660 198,569
Balance as at 31 December 2009 As previously As reported FRS 117 restated RM'000 RM'000 RM'000
Other assets 398,771 (14,500) 384,271 Property and equipment 163,198 14,500 177,698 Annual Report 2010 162
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
45 CHANGES IN ACCOUNTING POLICIES (continued) Impact on adoption of FRS 117 (continued) ii) Impact on The Group and the Bank's income statement/statement of comprehensive income
For the financial year ended at 31 December 2008 As previously As reported FRS 117 restated The Group RM'000 RM'000 RM'000
Establishment cost Depreciation 22,514 465 22,979 Lease rental - leasehold properties 465 (465) -
For the financial year ended at 31 December 2009 As previously As reported FRS 117 restated RM'000 RM'000 RM'000
Establishment cost Depreciation 21,862 241 22,103 Lease rental - leasehold properties 241 (241) -
For the financial year ended at 31 December 2008 As previously As reported FRS 117 restated The Bank RM'000 RM'000 RM'000
Establishment cost Depreciation 21,829 457 22,286 Lease rental - leasehold properties 457 (457) -
For the financial year ended at 31 December 2009 As previously As reported FRS 117 restated RM'000 RM'000 RM'000
Establishment cost Depreciation 21,092 234 21,326 Lease rental - leasehold properties 234 (234) - 163 AFFIN BANK BERHAD (25046-T)
NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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) 2,677,539 (ii) The percentage of outstanding credit exposures to connected parties as a proportion of total credit exposures 7% (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 2011. Annual Report 2010 164
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 DATO' ZULKIFLEE ABBAS BIN ABDUL HAMID, two of the Directors of AFFIN BANK BERHAD, state that, in the opinion of the Directors, the accompanying financial statements set out on pages 59 to 163 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 2010 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 2011.
JEN TAN SRI DATO' SERI ISMAIL BIN HAJI OMAR (BERSARA) Chairman
DATO' ZULKIFLEE ABBAS BIN ABDUL HAMID Managing Director/Chief Executive Officer
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 59 to 163, 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 2011, before me.
Commissioner for Oaths 165 AFFIN BANK BERHAD (25046-T)
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 statement of financial position as at 31 December 2010 of the Group and the Bank, and the statements of income, comprehensive income, change 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 59 to 163.
Directors’ Responsibility for the Financial Statements The directors of the Bank are responsible for the preparation and fair presentation of these financial statements in accordance with MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities, Bank Negara Malaysia Guidelines and the Companies Act, 1965. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material 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 and fair presentation of the financial statements 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 2010 and of their financial performance and cash flows for the year then ended.
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 MOHAMMAD FAIZ BIN MOHAMMAD AZMI (No. AF : 1146) (No. 2025/03/12 (J)) Chartered Accountants Chartered Accountant
Kuala Lumpur, Malaysia 28 February 2011 Annual Report 2010 166
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
Table of Contents
Page
1. Introduction 1.1 Background 167 1.2 Scope of Application 167
2. Risk Governance Structure 2.1 Overview 167 2.2 Board Committees 168 2.3 Management Committees 169 2.4 Group Risk Management Function 170 2.5 Internal Audit and Internal Control Activities 170
3. Capital 3.1 Capital Structure 170 3.2 Capital Adequacy 171
4. Risk Management Objectives and Policies 171
5. Credit Risk 5.1 Credit Risk Management Objectives and Policies 172 5.2 Application of Standardised Approach for Credit Risk 172 5.3 Credit Risk Measurement 172 5.4 Risk Limit Control and Mitigation Policies 173 5.5 Credit Risk Monitoring 174 5.6 Impairment Provisioning 174 5.7 Credit Risk Culture 177
6. Market Risk 6.1 Market Risk Management Objectives and Policies 178 6.2 Application of Standardised Approach for Market Risk 178 6.3 Market Risk Measurement, Control and Monitoring 178 6.4 Value-at-Risk ('VaR') 178 6.5 Foreign Exchange Risk 178 6.6 Market Risk Culture 178
7. Liquidity Risk 7.1 Liquidity Risk Management Objectives and Policies 179 7.2 Liquidity Risk Measurement, Control and Monitoring 179
8. Operational Risk 8.1 Operational Risk Management Objectives and Policies 179 8.2 Application of Basic Indicator approach for Operational Risk 179 8.3 Operational Risk Measurement, Control and Monitoring 179 8.4 Operational Risk Culture 179
9. Shariah Compliance 180
Appendices 181 167 AFFIN BANK BERHAD (25046-T)
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
1.0 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 2010. 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 2010 Annual Report for the year ended 31 December 2010.
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.
2.0 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. Annual Report 2010 168
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
2.0 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 Guidelines on the Governance of Shariah Committee for the Islamic Financial Institutions ('BNM/GPS-i').
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 advice ABB on matters to be referred to the Shariah Advisory Council. 169 AFFIN BANK BERHAD (25046-T)
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2.0 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 is established within senior management to manage market and liquidity risks. Its responsibilities include:-
(i) Manage the asset liability of ABB through coordination of the overall planning process including strategic planning, budgeting and asset liability management process;
(ii) Direct ABB's overall acquisition and allocation of funds;
(iii) Prudently manage ABB's interest rate exposure;
(iv) Determine the overall Balance Sheet strategy and ensuring policy compliance;
(v) Prudently manage ABB's interest rate exposure;
(vi) Determined the type and scope of derivative activities, approve individual derivative transactions as well as control over the level of exposure in derivatives; and
(vii) Review of market risks in ABB's trading portfolios.
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. Annual Report 2010 170
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
2.0 Risk Governance Structure (continued) 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.
3.0 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 2010. The Group’s Core capital ratio ('CCR') and Risk-weighted capital ratio ('RWCR') as at 31 December 2010 were above the BNM minimum requirements of 4.0% and 8.0% respectively.
The Group The Bank 2010 2010 RM’000 RM'000
Tier I capital Paid-up share capital 1,439,285 1,439,285 Share premium 408,389 408,389 Retained profits 499,179 411,831 Statutory reserve 888,910 807,500
3,235,763 3,067,005 Less: Goodwill (137,323) (137,323) Deferred tax assets --
Total Tier I capital 3,098,440 2,929,682 171 AFFIN BANK BERHAD (25046-T)
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
3.0 Capital (continued) 3.1 Capital Structure (continued)
The Group The Bank 2010 2010 RM’000 RM'000
Tier II capital Subordinated term loan 300,000 300,000 Collective impairment 153,538 111,304
Total Tier II capital 453,538 411,304 Less: Investment in capital instruments of other banking institutions (39,858) (39,858) Investment in subsidiaries (27,429) (287,429)
Capital base 3,484,691 3,013,699
Core capital ratio 11.51% 12.35% Risk-weighted capital ratio 12.94% 12.71% Core capital ratio (net of proposed dividends) 11.24% 12.05% Risk-weighted capital ratio (net of proposed dividends) 12.67% 12.40%
Risk-weighted assets for: Credit risk 24,768,236 21,849,466 Market risk 96,572 91,973 Operational risk 2,062,578 1,776,655
Total risk-weighted assets 26,927,386 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.
4.0 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. Annual Report 2010 172
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
5.0 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.
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 as least annually and approved by the BRMC.
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
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.
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). 173 AFFIN BANK BERHAD (25046-T)
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5.0 Credit Risk (continued) 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.
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:
• 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; • For other loans, charges over business assets such as premises, inventories, trade receivables or deposits.
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.
Master Netting Arrangements The Bank presently does not have any master netting arrangement with its business counterparties.
Financial covenants (for credit related commitments and loan 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 collaterised 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, 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) Annual Report 2010 174
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
5.0 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.
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.
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.
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 impaired allowances. 175 AFFIN BANK BERHAD (25046-T)
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
5.0 Credit Risk (continued) 5.6 Impairment Provisioning (continued) Analysed by economic sector
The Group The Bank 2010 2010 Past due loans RM’000 RM'000
Primary agriculture 25,065 25,000 Mining and quarrying 1,034 1,034 Manufacturing 55,979 53,530 Electricity, gas and water supply 1,701 1,580 Construction 195,354 132,596 Real estate 183,208 181,164 Wholesale & retail trade and restaurants & hotels 69,846 63,909 Transport, storage and communication 58,578 57,658 Finance, insurance and business services 271,344 222,654 Education, health and others 130,868 130,467 Household 2,220,092 1,872,993 Others 142 142
3,213,211 2,742,727
Individual impairment
Primary agriculture 5,778 5,778 Mining and quarrying -- Manufacturing 47,302 40,105 Electricity, gas and water supply 1,184 1,184 Construction 92,408 65,022 Real estate 1,900 1,900 Wholesale & retail trade and restaurants & hotels 15,122 14,600 Finance, insurance and business services 3,368 3,368 Education, health and others 8,786 7,752
175,848 139,709
Individual impairment charged
Primary agriculture 6,039 6,039 Mining and quarrying 1,046 1,046 Manufacturing 45,226 43,262 Electricity, gas and water supply 1,191 1,191 Construction 98,539 75,814 Real estate 2,075 2,075 Wholesale & retail trade and restaurants & hotels 15,588 15,066 Transport, storage and communication 6,599 6,599 Finance, insurance and business services 3,789 3,789 Education, health and others 17,931 17,835
198,023 172,716 Annual Report 2010 176
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
5.0 Credit Risk (continued) 5.6 Impairment Provisioning (continued) Analysed by economic sector (continued)
The Group The Bank 2010 2010 Individual impairment written-off RM’000 RM'000
Mining and quarrying 1,046 1,046 Manufacturing 2,677 1,502 Construction 71,454 71,454 Real estate 7,157 7,157 Wholesale & retail trade and restaurants & hotels 5,271 5,271 Transport, storage and communication 6,549 6,549 Finance, insurance and business services 63,076 63,076 Education, health and others 13,675 13,675
170,905 169,730
Collective impairment
Primary agriculture 2,877 2,642 Mining and quarrying 1,350 1,337 Manufacturing 28,455 27,135 Electricity, gas and water supply 716 678 Construction 18,408 16,102 Real estate 8,258 8,035 Wholesale & retail trade and restaurants & hotels 12,352 11,932 Transport, storage and communication 5,406 5,380 Finance, insurance and business services 15,591 13,891 Education, health and others 6,658 5,517 Household 268,318 249,333 Others 27,312 1,238
395,701 343,220
Analysed by geographical area
The Group The Bank 2010 2010 Past due loans RM’000 RM'000
Perlis 1,613 1,271 Kedah 150,752 89,000 Pulau Pinang 126,917 118,361 Perak 145,745 108,697 Selangor 909,378 795,447 Wilayah Persekutuan 654,069 578,597 Negeri Sembilan 123,082 111,816 Melaka 134,772 131,112 Johor 320,955 299,750 Pahang 98,030 71,358 Terengganu 65,665 14,879 Kelantan 56,413 7,026 Sarawak 148,198 144,516 Sabah 277,149 270,436 Labuan 269 257 Abroad 204 204
3,213,211 2,742,727 177 AFFIN BANK BERHAD (25046-T)
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
5.0 Credit Risk (continued) 5.6 Impairment Provisioning (continued) Analysed by geographical area (continued)
The Group The Bank 2010 2010 Individual impairment RM’000 RM'000
Kedah 6,394 6,394 Pulau Pinang 646 640 Perak 2,084 2,084 Selangor 68,011 60,293 Wilayah Persekutuan 55,911 54,881 Negeri Sembilan 2,127 2,127 Melaka 777 777 Johor 2,778 2,778 Pahang 5,968 5,968 Terengganu 2,613 2,613 Kelantan 1,154 1,154 Abroad 27,386 -
175,849 139,709
Collective impairment
Perlis 312 303 Kedah 11,156 9,581 Pulau Pinang 12,111 11,227 Perak 13,267 12,138 Selangor 128,479 91,650 Wilayah Persekutuan 154,491 150,545 Negeri Sembilan 8,937 8,103 Melaka 9,198 8,889 Johor 26,892 25,460 Pahang 6,658 5,266 Terengganu 4,105 2,767 Kelantan 3,129 734 Sarawak 6,079 5,930 Sabah 9,895 9,635 Labuan 992 992
395,701 343,220
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. Annual Report 2010 178
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
6.0 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 I.
6.3 Market Risk Measurement, Control and Monitoring Market risk is primarily controlled through the imposition of Cut-loss, Value-at-Risk ('VaR') and Net Open Position Limits which are approved by both ALCO and BRMC in accordance with ABB’s risk appetite. These limits are set and reviewed regularly according to a number of factors, including liquidity and ABB’s business strategy. In addition, ABB conducts periodic stress test of its respective portfolios to ascertain the market risk under abnormal market conditions. For the asset liability mismatch position in the statement of financial position, the risk is measured using Net Interest Income simulations based on projected interest rate scenarios managed through limits set over time buckets together with an Overall Risk Tolerance Limit.
The Bank's Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.
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.
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 valued at current price levels.
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. 179 AFFIN BANK BERHAD (25046-T)
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
7.0 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.
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, ABB has in place the Contingency Funding Plan to deal with liquidity crisis and emergencies.
BRMC is responsible for ABB's liquidity policy although the strategic management of liquidity has been delegated to ALCO. BRMC is however, informed regularly of the liquidity situation.
8.0 Operational Risk 8.1 Operational Risk Management Objectives and Policies Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Such risks may result in omissions, errors and breakdowns that can potentially lead to financial loss or other indirect losses to ABB.
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 environment and market in which it is operating and any 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 An Operational Risk Management certification programme is being conducted vide an e-learning portal. Respective Businesses’ Operational Risk 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. It is a requirement that all Operational Risk coordinators and staff engaged in operational risk work are all duly certified. Annual Report 2010 180
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
9.0 Shariah Compliance Shariah Compliance and Review ('SCR') officer of the Bank conducts regular Shariah compliance and review to ensure that documentation, procedures and execution of transactions are in accordance with the Shariah standards issued by AFFIN Group Shariah Committee ('AGSC') and Shariah Advisory Council ('SAC') of BNM. The results of the review are reported to the AGSC. Cases of non-Shariah compliance are thoroughly investigated to establish causes of their occurrence and to ensure introduction of adequate controls to avoid their recurrence in the future.
The AGSC consists of three Shariah Committee members (Chairman and two members). The AGSC meets periodically or as and when there is a need to hold a meeting. The members received a fixed sum of money as attendance fee for every meeting they attend, in addition to a fixed amount paid monthly to each member as remuneration, irrespective of the number of meetings held during the year or the financial results of the Bank. 181 AFFIN BANK BERHAD (25046-T)
BASEL II PILLAR 3 DISCLOSURES APPENDIX I FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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 have adopted the Standardised Approach for credit risk and market risk, and Basic Indicator Approach for operation risk computation.
The following information concerning the Group and the Bank's risk exposures are disclosed as accompanying information to the annual report, and does not form part of the audited accounts.
Disclosure on Capital Adequacy under the Standardised Approach (RM'000) Group 2010
Gross Total Risk Exposure/ Net Weighted Minimum EAD Exposures/ Risk Assets Capital before EAD Weighted after Effects Requirements Exposure Class CRM after CRM Assets of PSIA at 8%
1 CREDIT RISK On Balance Sheet Exposures Corporates 14,018,930 13,151,465 11,707,401 11,707,401 936,592 Regulatory Retail 9,990,439 9,878,644 7,408,826 7,408,826 592,706 Other Assets 1,007,575 1,007,575 355,022 355,022 28,402 Sovereigns/Central Banks 11,727,290 11,727,290 10,941 10,941 875 Public Sector Entities 51,159 45,199 9,040 9,040 723 Banks, Development Financial Institutions & MDBs 1,970,016 1,970,016 540,152 540,152 43,212 Insurance Companies, Securities Firms & Fund Managers 95,362 95,362 95,362 95,362 7,629 Residential Real Estate (RRE) Financing 1,980,809 1,978,940 778,567 778,567 62,285 Higher Risk Assets 389,024 388,597 582,895 582,895 46,632 Defaulted Exposures 1,275,168 1,255,513 1,683,907 1,683,907 134,713
Total for On-Balance Sheet Exposures 42,505,772 41,498,601 23,172,113 23,172,113 1,853,769
Off Balance Sheet Exposures Off Balance Sheet Exposures other than OTC derivatives or credit derivatives 2,077,478 2,043,484 1,552,189 1,552,189 124,175 Defaulted Exposures 31,835 29,289 43,934 43,934 3,515
Total for Off-Balance Sheet Exposures 2,109,313 2,072,773 1,596,123 1,596,123 127,690
Total for On and Off-Balance Sheet Exposures 44,615,085 43,571,374 24,768,236 24,768,236 1,981,459
2 MARKET RISK Long Short Position Position
Interest Rate Risk 2,609,530 2,473,385 136,145 69,361 - 5,549 Foreign Currency Risk 8,899 22,612 (13,713) 27,211 - 2,177
3 OPERATIONAL RISK Operational Risk 2,062,578 165,006
Total RWA and Capital Requirements 26,927,386 24,768,236 2,154,191
PSIA "Profit Sharing Investment Account" OTC "Over The Counter" Annual Report 2010 182
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 APPENDIX I
Disclosure on Capital Adequacy under the Standardised Approach (RM'000)
Group 2009
Gross Total Risk Exposure/ Net Weighted Minimum EAD Exposure/ Risk Assets Capital before EAD Weighted after Effects Requirements Exposure Class CRM after CRM Assets of PSIA at 8%
1 CREDIT RISK On Balance Sheet Exposures Corporates 11,940,769 11,284,642 9,784,011 9,784,011 782,721 Regulatory Retail 8,418,717 8,302,885 6,226,940 6,226,940 498,155 Other Assets 829,957 829,957 329,297 329,297 26,344 Sovereigns/Central Banks 8,985,402 8,985,402 13,964 13,964 1,117 Public Sector Entities 55,050 50,843 10,168 10,168 813 Banks, Development Financial Institutions & MDBs 2,158,145 2,158,145 602,721 602,721 48,218 Insurance Companies, Securities Firms & Fund Managers 95,092 94,445 94,445 94,445 7,556 Residential Real Estate (RRE) Financing 1,787,181 1,787,181 708,939 708,939 56,715 Higher Risk Assets 523,648 523,648 785,471 785,471 62,838 Equity Exposure 42,918 42,918 42,918 42,918 3,433 Defaulted Exposures 1,248,429 1,230,075 1,652,239 1,652,239 132,179
Total for On-Balance Sheet Exposures 36,085,308 35,290,141 20,251,113 20,251,113 1,620,089
Off Balance Sheet Exposures Off Balance Sheet Exposures other than OTC derivatives or credit derivatives 2,289,459 2,261,016 1,771,072 1,771,072 141,686 Defaulted Exposures 35,343 32,630 48,945 48,945 3,916
Total for Off-Balance Sheet Exposures 2,324,802 2,293,646 1,820,017 1,820,017 145,602
Total for On and Off-Balance Sheet Exposures 38,410,110 37,583,787 22,071,130 22,071,130 1,765,691
2 MARKET RISK Long Short Position Position
Interest Rate Risk 2,219,276 (2,094,522) 124,754 66,516 - 5,321 Foreign Currency Risk 11,055 (18,073) (7,017) 25,803 - 2,064
3 OPERATIONAL RISK Operational Risk 1,976,470 158,118
Total RWA and Capital Requirements 24,139,919 22,071,130 1,931,194
PSIA "Profit Sharing Investment Account" OTC "Over The Counter" 183 AFFIN BANK BERHAD (25046-T)
BASEL II PILLAR 3 DISCLOSURES APPENDIX I FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
Disclosure on Capital Adequacy under the Standardised Approach (RM'000) (continued)
Bank 2010
Gross Total Risk Exposure/ Net Weighted Minimum EAD Exposure/ Risk Assets Capital before EAD Weighted after Effects Requirements Exposure Class CRM after CRM Assets of PSIA at 8%
1 CREDIT RISK On Balance Sheet Exposures Corporates 12,540,053 11,749,181 10,626,610 10,626,610 850,129 Regulatory Retail 8,055,493 7,951,324 5,963,336 5,963,336 477,067 Other Assets 1,286,037 1,286,037 525,486 525,486 42,038 Sovereigns/Central Banks 8,186,533 8,186,533 - - - Public Sector Entities 51,159 45,199 9,040 9,040 723 Banks, Development Financial Institutions & MDBs 1,914,175 1,914,175 528,984 528,984 42,319 Insurance Companies, Securities Firms & Fund Managers 306 306 306 306 24 Residential Real Estate (RRE) Financing 1,859,507 1,857,981 726,720 726,720 58,138 Higher Risk Assets 346,361 345,933 518,901 518,901 41,512 Defaulted Exposures 1,128,386 1,108,751 1,498,164 1,498,164 119,853
Total for On-Balance Sheet Exposures 35,368,010 34,445,420 20,397,547 20,397,547 1,631,803
Off Balance Sheet Exposures Off Balance Sheet Exposures other than OTC derivatives or credit derivatives 1,814,442 1,780,448 1,407,985 1,407,985 112,639 Defaulted Exposures 31,835 29,289 43,934 43,934 3,515
Total for Off-Balance Sheet Exposures 1,846,277 1,809,737 1,451,919 1,451,919 116,154
Total for On and Off-Balance Sheet Exposures 37,214,287 36,255,157 21,849,466 21,849,466 1,747,957
2 MARKET RISK Long Short Position Position
Interest Rate Risk 2,609,530 2,473,385 136,145 69,361 - 5,549 Foreign Currency Risk 4,300 22,612 (18,312) 22,612 - 1,809
3 OPERATIONAL RISK Operational Risk 1,776,655 142,132
Total RWA and Capital Requirements 23,718,094 21,849,466 1,897,447
PSIA "Profit Sharing Investment Account" OTC "Over The Counter" Annual Report 2010 184
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 APPENDIX I
Disclosure on Capital Adequacy under the Standardised Approach (RM'000) (continued)
Bank 2009
Gross Total Risk Exposure/ Net Weighted Minimum EAD Exposure/ Risk Assets Capital before EAD Weighted after Effects Requirements Exposure Class CRM after CRM Assets of PSIA at 8%
1 CREDIT RISK On Balance Sheet Exposures Corporates 10,632,554 10,024,632 8,842,285 8,842,285 707,383 Regulatory Retail 6,870,382 6,758,972 5,069,005 5,069,005 405,520 Other Assets 1,188,466 1,188,466 530,773 530,773 42,462 Sovereigns/Central Banks 6,057,135 6,057,135 1,925 1,925 154 Public Sector Entities 55,050 50,843 10,169 10,169 813 Banks, Development Financial Institutions & MDBs 1,866,036 1,866,036 544,299 544,299 43,544 Insurance Companies, Securities Firms & Fund Managers 45 45 45 45 4 Residential Real Estate (RRE) Financing 1,661,387 1,661,387 654,555 654,555 52,364 Higher Risk Assets 395,719 395,719 593,578 593,578 47,487 Equity Exposure 42,918 42,918 42,918 42,918 3,433 Defaulted Exposures 1,165,717 1,147,394 1,541,510 1,541,510 123,321
Total for On-Balance Sheet Exposures 29,935,409 29,193,547 17,831,062 17,831,062 1,426,485
Off Balance Sheet Exposures Off Balance Sheet Exposures other than OTC derivatives or credit derivatives 1,939,841 1,911,398 1,598,140 1,598,140 127,851 Defaulted Exposures 35,343 32,630 48,945 48,945 3,916
Total for Off-Balance Sheet Exposures 1,975,184 1,944,028 1,647,085 1,647,085 131,767
Total for On and Off-Balance Sheet Exposures 31,910,593 31,137,575 19,478,147 19,478,147 1,558,252
2 MARKET RISK Long Short Position Position
Interest Rate Risk 2,219,276 (2,094,522) 124,754 66,516 - 5,321 Foreign Currency Risk 3,325 (18,073) (14,748) 18,073 - 1,446
3 OPERATIONAL RISK Operational Risk 1,721,636 137,731
Total RWA and Capital Requirements 21,284,372 19,478,147 1,702,750
PSIA "Profit Sharing Investment Account" OTC "Over The Counter" 185 AFFIN BANK BERHAD (25046-T)
BASEL II PILLAR 3 DISCLOSURES APPENDIX I FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010
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) BASEL II PILLAR 3 DISCLOSURES Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 APPENDIX II
Disclosure on Credit Risk: Disclosures on Risk Weights under the Standardised Approach (RM'000)
Group 2010 186 Exposures after Netting and Credit Risk Mitigation
Insurance Total Companies, Exposure Banks, Securities after MDBs Firms Higher Netting & Total Risk Risk Sovereigns & and & Fund Regulatory Residential Risk Other Credit Risk Weighted Weights Central Banks PSEs FDIs Managers Corporates Retail Mortgages Assets Assets Equity Mitigation Assets
0% 11,719,253 ------601,396 - 12,320,649 - 10% ------20% 131,982 45,209 1,751,344 - 1,104,217 875 - - 65,973 - 3,099,600 619,920 35% ------1,406,021 - - - 1,406,021 492,107 50% - - 573,341 - 1,330,074 238 572,920 - - - 2,476,573 1,238,286 75% - - - - - 9,997,337 - - - - 9,997,337 7,498,003 90% ------100% 10,941 - 39,824 105,464 12,189,309 8,703 247,982 34,559 336,960 - 12,973,742 12,973,742 110% ------125% ------135% ------150% - - - - 326,319 543,654 1,018 423,216 3,245 - 1,297,452 1,946,178 270% ------350% ------400% ------625% ------938% ------1250% ------
Average Risk Weight - -
Deduction from Capital Base - - 39,858 ------
PSE "Public Sector Entities" MDB "Multilateral Development Banks" FDI "Financial Development Institutions" BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 APPENDIX II
Disclosure on Credit Risk: Disclosures on Risk Weights under the Standardised Approach (RM'000) (continued)
Group 2009
Exposures after Netting and Credit Risk Mitigation
Insurance Total Companies, Exposure Banks, Securities after MDBs Firms Higher Netting & Total Risk Risk Sovereigns & and & Fund Regulatory Residential Risk Other Credit Risk Weighted Weights Central Banks PSEs FDIs Managers Corporates Retail Mortgages Assets Assets Equity Mitigation Assets
0% 8,963,738 ------470,934 - 9,434,672 - 10% ------20% 208,304 50,853 1,922,669 - 1,218,925 720 - - 38,131 - 3,439,602 687,920 35% ------1,231,008 - - - 1,231,008 430,853 50% - - 605,047 - 1,104,369 23,071 579,981 - - - 2,312,468 1,156,234 75% - - - - - 8,413,463 - - - - 8,413,463 6,310,097 90% ------100% 12,039 - 172,894 103,608 10,404,079 42,655 188,143 - 319,334 42,91811,285,670 11,285,670 110% ------125% ------
135% ------187 150% - - - - 570,664 365,113 - 529,569 1,558 - 1,466,904 2,200,356 270% ------350% ------400% ------625% ------938% ------1250% ------AFFIN BANKBERHAD Average Risk Weight - -
Deduction from Capital Base - - 217,056 ------(25046-T)
PSE "Public Sector Entities" MDB "Multilateral Development Banks" FDI "Financial Development Institutions" BASEL II PILLAR 3 DISCLOSURES Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 APPENDIX II
Disclosure on Credit Risk: Disclosures on Risk Weights under the Standardised Approach (RM'000) (continued)
Bank
2010 188
Exposures after Netting and Credit Risk Mitigation
Insurance Total Companies, Exposure Banks, Securities after MDBs Firms Higher Netting & Total Risk Risk Sovereigns & and & Fund Regulatory Residential Risk Other Credit Risk Weighted Weights Central Banks PSEs FDIs Managers Corporates Retail Mortgages Assets Assets Equity Mitigation Assets
0% 8,189,437 ------562,902 - 8,752,339 - 10% ------20% 15 45,209 1,683,645 - 760,650 875 - - 247,060 - 2,737,454 547,491 35% ------1,348,467 - - - 1,348,467 471,963 50% - - 573,341 - 1,229,250 238 509,514 - - - 2,312,343 1,156,172 75% - - - - - 8,070,017 - - - - 8,070,017 6,052,513 90% ------100% - - 39,824 10,408 11,098,278 3,875 232,490 - 476,074 -11,860,949 11,860,949 110% ------125% ------135% ------150% - - - - 326,319 482,009 1,018 364,240 - - 1,173,586 1,760,378 270% ------350% ------400% ------625% ------938% ------1250% ------
Average Risk Weight - -
Deduction from Capital Base - - 39,858 ------
PSE "Public Sector Entities" MDB "Multilateral Development Banks" FDI "Financial Development Institutions" 189 AFFIN BANK BERHAD (25046-T) - - - APPENDIX II - - - after Total Total Exposure 6,493,498 - -
- 445,988 - - - 264,632 - - 2,794,241 558,848 ------Exposures after Netting and Credit Risk Mitigation after Netting and Credit Exposures ------Insurance Companies, - - MDBs Firms Higher Netting & Risk Total Banks, Securities - - - - 172,894 9,208 9,436,542 38,726 178,064 - 477,846 42,91810,356,198 10,356,198 42,91810,356,198 477,846 510,464178,064 - 21,804 - 1,087,397 410,991 1,037,479 38,726 - 605,047 - -5,152,162 9,436,542 - 1,174,260 2,174,794 - - - - 1,912,551 - - 9,208 6,869,550 - 172,894 - - 1,174,260 - - - - - 6,869,550 1,275,034 ------319,049 ------554,673 - - - - 401,312 ------200,898 9,625 50,853 1,630,560 9,625 50,853 - 837,851 720 Banks PSEs FDIs Managers Corporates Retail Mortgages Assets Assets Equity Mitigation Assets 10% 20% 35% 50% 75% 90% 100% 110% 125% 135% 150% 270% 350% 400% 625% 938% 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) Bank 2009 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 Weights Central Weights 0% 6,047,510 1250% - Risk Weight Deduction from Capital Base PSE "Public Sector Entities" MDB "Multilateral Development Banks" FDI "Financial Development Institutions" BASEL II PILLAR 3 DISCLOSURES Risk & Sovereigns and & Fund Regulatory Residential Risk Other Risk Credit Weighted Average Average BASEL II PILLAR 3 DISCLOSURES Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 APPENDIX III
(i) Disclosures on Rated Exposures according to Ratings by ECAIs (RM'000)
Group 2010 190 Ratings of Corporate by Approved ECAIs
Moodys Aaa to Aa3 A1 to A3 Baa1 to Ba3 B1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
Exposure Class 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
Rating & Investment Inc AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
On and Off-Balance-Sheet Exposures
Credit Exposures (using Corporate Risk Weights) Public Sector Entities (applicable for entities risk weighted based on their external ratings as corporates) - - - - 51,184 Insurance Cos, Securities Firms & Fund Managers - - - - 105,466 Corporates 433,081 1,155,313 3,570 - 14,184,902
Total 433,081 1,155,313 3,570 - 14,341,552 191 AFFIN BANK BERHAD (25046-T) APPENDIX III - 12,806,193 - 51,184 - 10,410 - - - - Ratings of Corporate by Approved ECAIs Ratings of Corporate by Approved 427,064 1,054,489 427,064 1,054,489 3,570 3,570 - 12,744,599 S&P 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 Fitch AAA to AA- A+ to A- BBB+ to BB- 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) Total Exposure Class Exposure Corporates On and Off-Balance-Sheet Exposures On and Off-Balance-Sheet (using Corporate Risk Weights) Exposures Credit Public Sector Entities (applicable for entities risk weighted Insurance Cos, Securities Firms & Fund Managers (continued) Bank 2010 (i) to Ratings by ECAIs (RM'000) according on Rated Exposures Disclosures FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 BASEL II PILLAR 3 DISCLOSURES BASEL II PILLAR 3 DISCLOSURES Annual Report2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 APPENDIX III
(ii) Disclosures on Rated Exposures according to Ratings by ECAIs (RM'000) (continued)
Group 192 2010
Ratings of Sovereigns and Central Banks by Approved ECAIs
Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Exposure Class Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Rating & Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated
On and Off-Balance-Sheet Exposures Sovereigns and Central Banks - 11,851,234 - 10,941 - -
Total - 11,851,234 - 10,941 - -
Ratings of Banking Institutions by Approved ECAIs
Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Exposure Class 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
Rating & Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated
On and Off-Balance-Sheet Exposures Banks, MDBs and FDIs 911,685 62,276 116,038 - 157 1,274,354
Total 911,685 62,276 116,038 - 157 1,274,354 193 AFFIN BANK BERHAD (25046-T) APPENDIX III - 157 1,218,515 - 157 - - - - Ratings of Banking Institutions by Approved ECAIs Ratings of Banking Institutions by Approved - 8,189,452 - 8,189,452 - - - - Ratings of Sovereigns and Central Banks by Approved ECAIs and Central Banks by Approved Ratings of Sovereigns 899,824 62,276899,824 62,276 116,038 116,038 - 157 1,218,515 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 RAM AAA to AA3- A1 to A3 BBB1+ to BBB3 BB1 to B3 C1+ 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 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 On and Off-Balance-Sheet Exposures On and Off-Balance-Sheet Exposures On and Off-Balance-Sheet Exposure Class Exposure and Central Banks Sovereigns Total Class Exposure Banks, MDBs and FDIs Total (continued) Bank 2010 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 BASEL II PILLAR 3 DISCLOSURES (i) to Ratings by ECAIs (RM'000) according on Rated Exposures Disclosures Annual Report 2010 194
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 APPENDIX IV a) Disclosures on Credit Risk Mitigation (RM'000)
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 - 195 AFFIN BANK BERHAD (25046-T)
BASEL II PILLAR 3 DISCLOSURES APPENDIX IV FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 a) Disclosures on Credit Risk Mitigation (RM'000)
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. Annual Report 2010 196
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 APPENDIX IV b) Disclosure on Off-Balance Sheet and Counterparty Credit Risk (RM'000) (continued)
Group 2010
Positive Fair Value of Credit Risk Principlal Derivative Equivalent Weighted Description Amount Contracts Amount Amount
Direct Credit Substitutes 408,608 - 408,609 299,520 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 2,109,314 1,596,123
Group 2009
Direct Credit Substitutes 495,326 - 495,326 470,810 Transaction related contingent Items 2,648,189 - 1,324,094 1,106,247 Short Term Self Liquidating trade related contingencies 1,401,193 - 280,239 120,271 Foreign exchange related contracts: One year or less 2,111,158 18,440 45,883 20,345 Over one year to five years 103,687 3,223 10,310 4,347 Interest/Profit rate related contracts: One year or less 385,000 - 910 184 Over one year to five years 589,721 3,981 18,380 6,655 Over five years 440,277 4,083 38,564 7,910 Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 3,957,040 - - - Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year 5,231,059 - - - Any commitments that are unconditionally cancelled at any time by the bank without prior notice - - - - Unutilised credit card lines 555,478 - 111,096 83,248
Total 17,918,128 29,727 2,324,802 1,820,017 197 AFFIN BANK BERHAD (25046-T)
BASEL II PILLAR 3 DISCLOSURES APPENDIX IV FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 b) Disclosure on Off-Balance Sheet and Counterparty Credit Risk (RM'000) (continued)
Bank 2010
Positive Fair Value of Credit Risk Principlal Derivative Equivalent Weighted Description Amount Contracts Amount Amount
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
Bank 2009
Direct Credit Substitutes 444,676 - 444,676 437,598 Transaction related contingent Items 2,480,918 - 1,240,459 1,022,917 Short Term Self Liquidating trade related contingencies 324,530 - 64,906 63,881 Foreign exchange related contracts: One year or less 2,111,158 18,440 45,883 20,345 Over one year to five years 103,687 3,223 10,310 4,347 Interest/Profit rate related contracts: One year or less 385,000 - 910 184 Over one year to five years 589,721 3,981 18,380 6,655 Over five years 440,277 4,083 38,564 7,910 Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 3,673,199 - - - Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year 4,651,975 - - - Unutilised credit card lines 555,478 - 111,096 83,248
Total 15,760,619 29,727 1,975,184 1,647,085 Annual Report 2010 198
BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 APPENDIX IV 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 and places non-maturity deposits in the overnight bucket.
Group Bank 2010 2010 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 20.3 311.4 15.6 328.1 US Dollar 4.1 7.4 4.2 7.2 Great Britain Pound 0.4 1.1 0.4 1.1 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) (0.0) (0.1) (0.0)
Total 25.7 323.7 21.1 340.2
* Others comprise of NZD, EUR, HKD and AED currencies where the amount of each currency is relatively small.