Affin Hwang Investment Bank Berhad (Incorporated in Malaysia) Reports and financial statements for the financial year ended 31 December 2016

Transcription

1 Reports and financial statements for the financial year ended 31 December 2016

2 Reports and financial statements for the financial year ended 31 December 2016 Contents Page(s) Directors' report 1-40 Statements of financial position 41 Income statements 42 Statements of comprehensive income 43 Statements of changes in equity Statements of cash flows Summary of significant accounting policies Statement by Directors 172 Statutory declaration 172 Independent auditors' report

3 Directors' report for the financial year ended 31 December 2016 The Directors of ("the Bank") hereby submit their report together with the audited financial statements of the Group and the Bank for the financial year ended 31 December Principal activities The principal activities of the Bank are in investment banking, stockbroking activities, dealing in options and futures and related financial services. The principal activities of the subsidiaries are asset management, management of unit trust funds and private retirement schemes, Islamic fund management and provision of nominee services. 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 zakat and taxation 131,011 88,894 Zakat (1,224) (929) Profit before taxation 129,787 87,965 Taxation (26,597) (15,107) Net profit for the financial year 103,190 72,858 Dividends Dividends on ordinary shares paid or declared by the Company since 31 December 2015 are as follows: RM'000 In respect of the financial year ended 31 December 2015: Final dividend of sen gross per share paid on 28 March ,042 In respect of the financial year ended 31 December 2016: Interim dividend of sen gross per share paid on 30 November ,000 The Directors now recommend the payment of a final dividend of sen gross per share amounting to RM10,800,000 for the financial year ended 31 December 2016, which is subject to approval of the shareholder at the forthcoming Annual General Meeting of the Bank. 1

4 Directors' report Reserves and provisions All material transfers to or from reserves or provisions during the financial year are shown in the financial statements and notes to the financial statements. Statutory information on the financial statements Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps: (a) 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 allowance had been made for doubtful debts and financing; and (b) to ensure that any current assets, other than debts and financings, which were likely to be realised in the ordinary course of business and their values as shown in the accounting records of the Group and the Bank have been writtten down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances: (a) (b) (c) 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 of the Bank inadequate to any substantial extent; or which would render the values attributed to the current assets in the financial statements of the Group and the Bank misleading; or which have arisen which render adherence to the existing methods of valuation of assets or liabilities of the Group's and the Bank's financial statements misleading or inappropriate. 2

5 Directors' report Statutory information on the financial statements (continued) At the date of this report, there does not exist: (a) (b) 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 any contingent liabilities in respect of the Group or the Bank that has arisen since the end of the financial year other than in the ordinary course of banking business or activities of the Group. No contingent or other liability of the Group or the Bank has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of Directors, will or may substantially affect the ability of the Group and the Bank to meet their obligations when they fall due. 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. In the opinion of the Directors: (a) (b) the results of the operations of the Group and the Bank for the financial year were not, 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 to affect substantially the results of the operations of the Group and the Bank for the current financial year in which this report is made. 3

6 Directors' report Directors The Directors of the Bank who have held office since the date of the last report and at the date of this report are as follows: Gen Tan Sri Yaacob bin Mohd Zain (R) (Chairman, Non-Independent Non-Executive Director) Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad (Non-Independent Non-Executive Director) (Redesignated to Non-Independent Non-Executive Director w.e.f 1 May 2016) Tan Sri Dato' Seri Lodin bin Wok Kamaruddin (Non-Independent Non-Executive Director) Stephen Charles Li (Non-Independent Non-Executive Director) Lee Chor Kee (Ceased Directorship w.e.f 30 November 2016) (Alternate Director to Stephen Charles Li) Abd Malik bin A Rahman (Independent Non-Executive Director) Lim Hun David Lim (Independent Non-Executive Director) Maj. Gen. Dato' Zulkiflee bin Mazlan (R) (Appointed w.e.f 4 January 2016) (Independent Non-Executive Director) Datuk Noor Azian binti Shaari (Appointed w.e.f 4 October 2016) (Independent Non-Executive Director) In accordance with Section 129(6) of the Companies Act, 1965, Gen Tan Sri Yaacob bin Mohd Zain (R) and Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad retire and offer themselves for re-appointment at the forthcoming Annual General Meeting. In accordance with Article 75 of the Bank s Articles of Association, Mr Stephen Charles Li retires at the forthcoming Annual General Meeting and being eligible, offers himself for re-election. In accordance with Article 80 of the Bank s Articles of Association, Maj. Gen. Dato' Zulkiflee bin Mazlan (R) and Datuk Noor Azian binti Shaari retire at the forthcoming Annual General Meeting and being eligible, offer themselves for re-election. 4

7 Directors' report Responsibility statement by Board of Directors In the course of preparing the annual financial statements of the Group and of the Bank, the Directors are collectively responsible in ensuring that these financial statements are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. It is the responsibility of the Directors to ensure that the financial reporting of the Group and of the Bank present a true and fair view of the state of affairs of the Group and of the Bank as at 31 December 2016 and of the financial results and cash flows of the Group and of the Bank for the financial year then ended. The Directors have also taken the necessary steps to ensure that appropriate systems are in place for the assets of the Group and the Bank to be properly safeguarded for the prevention and detection of fraud and other irregularities. The systems, by their nature, can only provide reasonable and not absolute assurance against material misstatements, whether due to fraud or error. The Statement by Directors pursuant to Section 169 of the Companies Act, 1965 is set out on page 172 of the financial statements. Directors' interest According to the Register of Directors shareholdings, the interests of Directors in office at the end of the financial year in shares, warrants, and options over shares in the related companies are as follows: AFFIN Holdings Berhad Number of ordinary shares of RM1.00 each As at As at Bought Sold Tan Sri Dato' Seri Lodin bin Wok Kamaruddin ^ 1,051, ,051,328 Abd Malik bin A Rahman - 10,000-10,000 ^ shares held in trust by nominees companies. 5

8 Directors' report Directors' interest (continued) Boustead Holdings Berhad Number of ordinary shares of 50 sen each As at As at Bought Sold Tan Sri Dato' Seri Lodin bin Wok Kamaruddin * 28,192,758 27,065,047 3,000,000 52,257,805 Abd Malik bin A Rahman ** 1,000 12,850-13,850 Abd Malik bin A Rahman - 6,580-6,580 Boustead Heavy Industries Corporation Berhad Tan Sri Dato' Seri Lodin bin Wok Kamaruddin ^ 2,000, ,000,000 Abd Malik bin A Rahman 3, ,000 Abd Malik bin A Rahman ** 1, ,000 Boustead Petroleum Sdn Bhd Number of ordinary shares of RM1.00 each As at As at Bought Sold Tan Sri Dato' Seri Lodin bin Wok Kamaruddin ** 5,916, ,916,465 Pharmaniaga Berhad Tan Sri Dato' Seri Lodin bin Wok Kamaruddin *** 12,500, ,500,148 * ** indirect shares *** shares held in trust by nominees companies amounted to 6,334,883, shares held under own name amounted to 6,165,265. ^ shares held in trust by nominees companies amounted to 39,385,805, shares held under own name amounted to 12,872,000. shares held in trust by nominees companies. 6

9 Directors' report Directors' interest (continued) Boustead Plantations Berhad Number of ordinary shares of 50 sen each As at As at Bought Sold Tan Sri Dato' Seri Lodin bin Wok Kamaruddin ^^ 31,381,600-3,544,800 27,836,800 ^^ shares held in trust by nominees companies amounted to 27,396,800, shares held under own name amounted to 440,000. Boustead Plantations Berhad Number of ordinary shares of RM1.60 each As at As at Bought Sold Abd Malik bin A Rahman 2, ,000 Abd Malik bin A Rahman** 2, ,000 ** indirect shares Other than the above, the Directors in office at the end of the financial year did not have any other interest in the shares, warrants and option over shares of the Bank and its related companies during the financial year. 7

10 Directors' report 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. Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive a benefit (other than Directors remuneration as disclosed in Note 31 to the financial statements) by reason of a contract made by the Bank or by a related corporation with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest. Corporate Governance The Board of Directors is committed to ensure the highest standards of corporate governance throughout the organisation with the objectives of safeguarding the interests of all stakeholders and enhancing the shareholders value and financial performance of the Bank. The Board considers that it has applied the Best Practices as set out in the Malaysian Code of Corporate Governance throughout the financial period. The Bank is also required to comply with BNM s Guidelines on Corporate Governance for Licensed Institutions. 1 Board of Directors Responsibility and Oversight The Board of Directors currently comprises eight (8) Non-Executiveamend/replace Directors four with (4) of AHIB's whom are Independent Non-Executive Directors and four (4) are Non-Independent Non-Executive Directors. The Board, with a wide range of experience and knowledge, has been instrumental in the formulation and crafting of the Bank s vision and its strategic business direction. During the financial year, the Board met eleven (11) times 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 profile of the Board of Directors has been published in the Bank's website. 8

11 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) The composition of the Board and the number of meetings attended by each Director are as follows: Directors Total meetings attended Gen Tan Sri Yaacob bin Mohd Zain (R) 11 out of 11 (Chairman, Non-Independent Non-Executive Director) Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad 9 out of 11 (Non-Independent Non-Executive Director) Tan Sri Dato' Seri Lodin bin Wok Kamaruddin 11 out of 11 (Non-Independent Non-Executive Director) Stephen Charles Li 9 out of 11 (Non-Independent Non-Executive Director) Abd Malik bin A Rahman 11 out of 11 (Independent Non-Executive Director) Lim Hun David Lim 11 out of 11 (Independent Non-Executive Director) Maj. Gen. Dato' Zulkiflee bin Mazlan (R) 11 out of 11 (Independent Non-Executive Director) (Appointed w.e.f 4 January 2016) Datuk Noor Azian binti Shaari 4 out of 4 (Independent Non-Executive Director) (Appointed w.e.f 4 October 2016) 9

12 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (i) The Board's Role and Responsibilities The Board is charged with leading and guiding the Bank in an effective and responsible manner. Each Director has a legal duty to act in the best interest of the Bank. The Directors, collectively and individually, are aware of their responsibilities to shareholder(s) and stakeholders for the manner in which the affairs of the Bank are managed. The Board sets the Bank s values and standards and ensures that its obligations to its shareholder(s) and stakeholders are understood and met. The Board understands that the responsibility for good Corporate Governance rests with them and therefore strives to follow the principles and best practices of Corporate Governance. The Company complies with the various regulatory requirements and guidelines issued by Bank Negara Malaysia, Securities Commission, Bursa Malaysia Securities Berhad and Companies Commission of Malaysia. The Board meets in person no less than once every two (2) months to facilitate the discharge of their responsibilities. Members of Management who are not Directors may be invited to attend and speak at meetings on matters relating to their sphere of responsibility. Directors must attend at least 75% of the Board meetings held in each financial year. Duties of the Board include establishing the corporate vision and mission, as well as the philosophy of the Bank, setting aims of Management and monitoring the performance of Management. The Board is overall responsible over the Bank s capital management as follows:- a) b) c) The Board assumes the following specific duties: a) Establishing and reviewing the strategic direction of the Bank; b) c) d) Approving the capital plan as part of budget; Approving significant capital raising and repayment; and Reviewing and note quarterly summarised monitoring reports on capital adequacy. Overseeing and evaluating the conduct of the Bank s business; Ensuring that the Bank establishes comprehensive risk management policies, processes and infrastructure, tomanage the various types of risks; Setting corporate values and clear lines of responsibility and accountability that are communicated throughout the organisation; 10

13 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (i) The Board's Role and Responsibilities (continued) e) Ensuring that there is a managed and effective process to select and appoint key senior management officers that are qualified, professional and competent to administer the affairs of the Bank, approving succession planning policy and monitoring senior management s performance on an ongoing basis; f) Reviewing the adequacy of the internal control policy; g) Establishing procedure to avoid self-serving practices and conflicts of interest including dealings of any form with related entities; h) Establishing and ensuring the effective functioning of various board committees; and i) Discharging and performing its duties and responsibilities pertaining to anti-money laundering and counter terrorism financing as provided in guidelines, circulars or directives issued by Bank Negara Malaysia and other regulators. The Board has established written procedures determining issues which require decision of the Board and which issues can be delegated to Board Committees or Management. The Board reserves full decision-making powers on the following matters: a) Conflict of interest issues relating to substantial shareholder or a Director; b) Material acquisitions and disposition of assets not in the ordinary course of business; c) Investment in capital projects; d) Authority levels; e) Treasury policies; f) Risk management policies ; and g) Key human resourse issues. The Board has established a procedure whereby the Directors, collectively or individually, may seek independent professional advice in furtherance of their duties at the Bank s expense. 11

14 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (ii) Nominating and Remuneration Committee ("NRC") The NRC is chaired by an Independent Non-Executive Director, with the following objectives: (a) To provide a formal and transparent procedure for the appointment of all new Directors and Chief Executive Officer ("CEO") as well as assessment of effectiveness of individual directors, board as a whole and performance of CEO and key senior management officers; and (b) To provide a formal and transparent procedure for developing remuneration policy for Directors, CEO and key senior management officers and ensuring that compensation is competitive and consistent with the Bank s culture, objectives and strategy. The NRC, which comprises five (5) Board members and is scheduled to meet at least on a quarterly basis, met five (5) times during the financial year. The composition of the NRC and the number of meetings attended by each member are as follows: Members Total meetings attended Abd Malik bin A Rahman 5 out of 5 (Independent Non-Executive Director)(appointed as Chaiman w.e.f 1 May 2016) Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad 5 out of 5 (Non-Independent Non-Executive Director) Gen Tan Sri Yaacob bin Mohd Zain (R) 5 out of 5 (Non-Independent Non-Executive Director) Tan Sri Dato' Seri Lodin bin Wok Kamaruddin 5 out of 5 (Non-Independent Non-Executive Director) Maj. Gen. Dato' Zulkiflee Bin Mazlan (R) 4 out of 4 (Independent Non-Executive Director) (Appointed as a member w.e.f 27 January 2016) 12

15 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (ii) Nominating and Remuneration Committee ("NRC") (continued) The NRC is responsible for: Establishing minimum requirements and criteria for the Board i.e. required mix of skills, experience, qualification and other core competencies required of a director. The NRC is also responsible for establishing the minimum requirements for the CEO. The requirements and criteria should be approved by the Board of Directors. Recommending and assessing the nominees for directorship (including assessing Directors for reappointment, before an application for approval is submitted to BNM), Board committee members as well as nominees for the CEO. The actual decision as to who shall be nominated should be the responsibility of the Board of Directors. Overseeing the overall composition of the Board, in terms of the appropriate size and skills, and the balance between Executive Directors, Non-Executive Directors and Independent Non- Executive Directors through annual review and make recommendations to the Board with regard to any changes. Identifying and nominating, for the approval of the Board, nominees to fill Board vacancies as and when they arise. Recommending to the Board the removal of a Director or CEO from the Board/Management if the Director/CEO is ineffective, errant and negligent in discharging his responsibilities. Establishing a mechanism for the formal assessment on the effectiveness of the Board as a whole and the contribution of the Board s various committees and the performance of the CEO and other key senior management officers. Annual assessment should be based on an objective performance criteria. Such performance criteria should be approved by the Board of Directors. Ensuring that all Directors receive an appropriate continuous training programme in order for the Directors to keep abreast with the latest developments in the industry. 13

16 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (ii) Nominating and Remuneration Committee ("NRC") (continued) The NRC is responsible for: (continued) Overseeing the appointment, management succession planning and performance evaluation of key senior management officers. Recommending to the Board the removal of key senior management officers if they are ineffective, errant and negligent in discharging their responsibilities. Assessing on an annual basis, that the Directors and key senior management officers are not disqualified under Section 59(1) of Financial Services Act, Make recommendations to the Board concerning the re-election by shareholders of any Directors under the retirement by rotation provisions in the Articles of Association of the Bank. Recommending a framework of remuneration for Directors, CEO and key senior management officers for the full Board s approval. The remuneration framework should support the Bank s culture, objectives and strategy and should reflect the responsibility and commitment, which goes with Board membership and responsibilities of the CEO and senior management officers. There should be a balance in determining the remuneration package, which should be sufficient to attract and retain Directors of calibre, and yet not excessive to the extent the Bank s funds are used to subsidise the excessive remuneration packages. The framework should cover all aspects of remuneration including Directors fees, salaries, allowances, bonuses, options and benefits-inkind. 14

17 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (ii) Nominating and Remuneration Committee ("NRC") (continued) The NRC is responsible for: (continued) Recommending specific remuneration packages for Executive Directors and the CEO. The remuneration package should be structured such that it is competitive and consistent with the Bank s culture, objectives and strategy. Salary scales drawn up should be within the scope of the general business policy and not be dependant on short-term performance to avoid incentives for excessive risk-taking. As for Non-Executive Directors and Independent Non-Executive Directors, the level of remuneration should be linked to their level of responsibilities undertaken and contribution to the effective functioning of the Board. Determining and making recommendations to the Board the policy for and the scope of service agreement of key senior management officers, termination payments and compensation commitments, and ensure the legality of the foregoing. The NRC shall also ensure that the compensation is competitive and consistent with the Bank's culture, objectives and strategies. Reviewing on an annual basis, the remuneration packages of the Directors, CEO and key senior management officers. Disclosure in the Directors' Report of the Bank's Annual Report about its activities; the membership of the committee, number of committee meetings and attendance over the course of the year and statement on the committee's assessment on the mix of skills, experience and other qualities of directors. The NRC is not delegated with decision-making powers but reports its recommendation to the Board of Directors for decision. 15

18 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (iii) Board Risk Management Committee ("BRMC") The BRMC, which currently comprises three (3) Board members and scheduled to meet at least on a quarterly basis, met eight (8) times during the financial year. The composition of the BRMC and the number of meetings attended by each member are as follows: Members Total meetings attended Abd Malik bin A Rahman 8 out of 8 (Chairman, Independent Non-Executive Director) Gen Tan Sri Yaacob bin Mohd Zain (R) 8 out of 8 (Non-Independent Non-Executive Director) Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad 8 out of 8 (Non-Independent Non-Executive Director) BRMC is chaired by an Independent Non-Executive Director was established to ensure that the risk management policies and framework adequately protect the Bank against all relevant risks comprising credit risk, market risk, liquidity risk and operational risk which includes legal risk, regulatory risk, human resource risk and anti-money laundering and counter financing of terrorism ("AML/CFT") risk. The BRMC is responsible for: Ensuring that adequate and robust risk management policies and framework are in place to address business and operational risks. Overseeing and evaluating risk management policies and guidelines in respect of credit, ALCO/Treasury and operational risks, including anti-money laundering and counter financing of terrorism ("AML/CFT") risks. The BRMC shall ensure that the risk management policies and framework adequately protect the Bank against all risks, including operational risk, legal risk, regulatory risk, human resource risk and AML/CFT risks. Deliberating on proposals pertaining to risk policies and framework, and recommend to the full Board for final approval. The BRMC shall not be an approving authority on matters other than risk policies and framework. Overseeing and reviewing reports in respect of the Bank s exposure to credit, ALCO/Treasury and operational risks respectively. 16

19 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (iii) Board Risk Management Committee ("BRMC") (continued) The BRMC is responsible for: (continued) Oversee the Bank s capital management to ensure its effectiveness which include:- a) Review capital management standards and policies, capital plan and summary capital adequacy and allocation reports; and b) Approve the mandate of ALCO to manage the Bank s capital. Ensure that adequate AML/CFT policies and framework are in place in the Bank to protect the Bank against the risks of money laundering and terrorism financing. Evaluate and make recommendations to the Board on risk management issues, the level of risk exposure and appropriate risk mitigants in relation to credit transactions and exposures with connected parties, on a quarterly basis. (iv) Board Audit Committee ("BAC") The BAC currently comprises three (3) members, of whom two (2) are Independent Non-Executive Directors and is scheduled to meet at least four (4) times annually. The BAC met four (4) times during the financial year. The composition of the BAC and the number of meetings attended by each member are as follows: Members Total meetings attended Lim Hun David Lim 4 out of 4 (Chairman, Independent Non-Executive Director) Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad 4 out of 4 (Non-Independent Non-Executive Director) Maj. Gen. Dato' Zulkiflee bin Mazlan (R) 3 out of 3 (Independent Non-Executive Director) (Appointed as a member w.e.f 27 January 2016) 17

20 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (iv) Board Audit Committee ("BAC") (continued) The primary responsibilities of the BAC are as follows: Ensure that the accounts are prepared in a timely, fair, transparent and in an accurate manner/reliable with frequent reviews of the adequacy of provisions against contingencies and impaired loans. Review the balance sheet and income statement for submission to the Board of Directors and ensure the prompt publication of annual accounts. Ensure that prior to publication of the annual report, a complete review is done to comply with the regulatory listing requirements. Review the effectiveness of internal audit function, the internal controls and risk management processes including the scope of the internal audit, audit programme, functions and resources of the internal audit and that it has the necessary authority to carry out its work, the internal audit findings, and recommend action to be taken by management. The reports of internal auditors and the BAC should not be subject to the clearance of the Board of Directors. The effectiveness and performance of internal audit function are assessed against its achievement, benchmarking against best practices or other considerations. Oversee the effectiveness of Internal Audit Function:- a) Appoint Chief Internal Auditor ("CIA"), evaluate performance including his transfer and dismissal if warranted. b) Ensure oversight on the adequacy of resources and remuneration of internal auditors. c) Review and approve the audit scope, procedures and frequency. d) e) Review key audit reports and ensure that senior management is taking necessary corrective actions in a timely manner to address control weaknesses, non-compliance with laws, regulatory requirements, policies and other problems identified by Internal Audit and other control functions. Noting significant disagreements between the Chief Internal Auditor and the rest of the senior management team, irrespective of whether these have been resolved, in order to identify any impact, the disagreements may have on the audit process or findings. f) Establish a mechanism to assess the performance and effectiveness of Internal Audit function. 18

21 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (iv) Board Audit Committee ("BAC") (continued) The primary responsibilities of the BAC are as follows: (continued) External Auditors: a) b) c) d) e) f) g) Select and recommend external auditors for appointment by the Board each year. Review with the external auditors, the scope of their 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; Assessment on the long relationship and risk of familiarity threats; Review the audit fees of external auditors; Recommend removal of external auditors; Monitoring and assessing the independence of external auditor including approving the provision of non-audit services by external auditor; Have direct communication channels with external auditor and meet them without the presence of management at least annually; and Maintain regular, timely, open and honest communication with the external auditor and requiring the external auditor to report to BAC on significant matters. 19

22 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (iv) Board Audit Committee ("BAC") (continued) The primary responsibilities of the BAC are as follows: (continued) Review the year-end financial statements before submission to the Board, focusing on: a) going concern assumption; b) compliance with accounting standards and other legal and regulatory requirements; c) any changes in accounting policies and practices; d) significant adjustments, issues and unusual events arising from the audit; and e) major judgemental areas. Ensure and senior management act upon findings and recommendations timely on the interim and final external audit. In this regard, also discuss on any other matters in the absence of management, where necessary. Review the external auditors' management letter and management's response. Monitor related party transactions and conflict of interest situation that may arise within the Bank including any transactions, procedure or course of conduct that raises questions on management integrity. Escalate to the Board on such transactions. Review the accuracy and adequacy of the Chairman's statement in the directors' report, corporate governance disclosures, interim financial reports and preliminary announcements in relation to the preparation of financial statements. Appoint another independent party with knowledge of Internal Audit to conduct review on effectiveness of IA's function, if necessary. It can either be peers from within the Bank or an external party. 20

23 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (iv) Board Audit Committee ("BAC") (continued) The primary responsibilities of the BAC are as follows: (continued) Approve the engagement and appointment of external experts where Internal Audit lacks the expertise and experiences. BAC will review and ensure that such engagement includes these terms: a) Assignments, Roles and Responsibilities; b) c) d) e) f) Review and monitor compliance with the Board's conflicts of interest policy, focusing on: a) Bank or Financial Institution including regulators or external auditors has the right to audit/ access their records, audit plan, and working papers and etc; Commitment from external experts that adequate resources will be assigned; Authority to vary on changes of terms of engagement; Assurance that independence and objectivity of the audit is not compromised if the Bank's external auditors is engaged; and The regulatory requirements on outsourcing are to be complied with. Identification of circumstances which constitute or may give rise to conflicts of interest; b) Clear processes for directors to keep the Board informed on changes in circumstances which may give rise to a conflict of interest; c) d) Maintenance of records on each Director's conflict of interest; and Addressing any non-compliances with the policy. Review of third-party opinions on the design and effectiveness of the Bank's internal control framework. Islamic Operations - sought advice from Shariah Advisory on Shariah related matters to ensure compliance with Shariah principles. 21

24 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (v) Board Credit Review Committee ("BCRC") The BCRC was established to assist the functions of the Board in respect of its inherent authority over the debt and underwriting proposals which are considered by the Group Managenent Loan Committee ("GMLC"). The BCRC shall operate in accordance with the powers and authority delegated to it by the Board as follows: To consider whether to reject a debt or underwriting proposal or modify the terms of the debt or underwriting proposal which are under the GMLC's term of reference; To consider and if deemed fit, to approve any request to grant waivers and exemptions from complying with the Bank s Risk Management Policies and Discretionary Authorities, related policies and operations manuals; Generally to ensure that the GMLC's has discharged its responsibilities in a proper manner; and Non-veto proposals shall be submitted to the BCRC for notification. The BCRC scheduled to meet on a monthly basis, comprises three (3) members of the Board, met ten (10) times during the financial year. The composition of the BCRC and the number of meetings attended by each member are as follows: Members Total meetings attended Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad 10 out of 10 (Non-Independent Non-Executive Director)(Appointed as Chairman w.e.f 27 January 2016) Gen Tan Sri Yaacob bin Mohd Zain (R) 10 out of 10 (Non-Independent Non-Executive Director) Maj. Gen. Dato' Zulkiflee Bin Mazlan (R) 10 out of 10 (Independent Non-Executive Director) (Appointed as a member w.e.f 27 January 2016) 22

25 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (vi) Investment Committee ("IC") The IC was established to oversee the Bank's investment in shares. IC shall be responsible for the formulation of the investment strategies and guidelines, evaluate and approve acquisitions or disposals of share investments. The roles and responsibilities of the IC are as follows: (i) (ii) (iii) (iv) to monitor all investments of the Bank and make decisions in accordance with the authority limits; to record all investment decisions made and inform the Board accordingly; to formulate and review share investment and proprietary trading strategies, policies and procedures; and to appoint one (1) or more dealer(s) to execute trades in accordance with the strategies, policies and decisions of the IC. The IC is scheduled to meet on a bi-monthly basis, comprises four (4) members and met eleven (11) times during the financial year. The composition of the IC and the number of meetings attended by each member are as follows:- Members Total meetings attended Tan Sri Dato' Seri Lodin bin Wok Kamaruddin 11 out of 11 (Chairman, Non-Independent Non-Executive Director) Datuk Maimoonah bt Mohamed Hussain 9 out of 11 (Group Managing Director) Mr. Keong Si Hark 11 out of 11 (Managing Director, Securities) En Kamarul Ariffin bin Mohd Jamil 11 out of 11 (Group Chief Executive Officer, AFFIN Holdings Berhad) The IC was dissolved on 26 January

26 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (vii) Directors Training The Nominating & Remuneration Committee oversees the training needs of the Directors. The NRC shall ensure that the Directors spend sufficient time to update their knowledge and enhance their skills through appropriate continuing education programmes and life-long learning in order to keep the Directors abreast with the dynamic and complex business environment as well as new statutory and regulatory requirements. All new Directors are required to attend the Directors Orientation Programme to familiarise themselves with the Group s organisation structure, business and the financial industry. A formalised orientation programme has been developed and the relevant Heads of Departments/Divisions will brief the new members of the Board on the functions and areas of responsibility of their respective department/divisions. This serves to provide them with a platform in establishing effective channel of communication and interaction with Senior Management as well as to ensure that the Director understand:- (a) their roles and responsibilities; (b) the nature of the Group s business; (c) overview of risks on the Group s business and the risk management strategy; and (d) legal requirements and compliance controls. All Directors appointed to the Board are required to complete the Financial Institutions Directors Education training (FIDE) organized by BNM within one year from the date of appointment. Whilst The Securities Commission (SC) has on 1 April 2015 revised its Licensing Handbook which stipulated the requirement for director to attend the CMDP and the timeline to complete the programme. All existing directors appointed prior to 1 May 2015 must complete the programme by 31 October 2016, which is 18 months from the commencement of the programme on 1 May New directors, on the contrary, are required to complete the programme within six (6) months from the date of their appointment. 24

27 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (vii) Directors Training (continued) The development and training programmes attended by the Directors during the financial year ended 31 December 2016 are as follows: 25

28 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (vii) Directors Training (continued) The development and training programmes attended by the Directors during the financial year ended 31 December 2016 are as follows:(continued) 26

29 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (vii) Directors Training (continued) The development and training programmes attended by the Directors during the financial year ended 31 December 2016 are as follows:(continued) 3. (continued) 27

30 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (vii) Directors Training (continued) The development and training programmes attended by the Directors during the financial year ended 31 December 2016 are as follows:(continued) 5. (continued) 28

31 Directors' report Corporate Governance (continued) 1 Board of Directors Responsibility and Oversight (continued) (vii) Directors Training (continued) The development and training programmes attended by the Directors during the financial year ended 31 December 2016 are as follows:(continued) 29

32 Directors' report Corporate Governance (continued) 2 Internal Control Framework The Board recognises the importance of maintaining a sound system of internal controls and risk management practices. The Board affirms its overall responsibility of the Bank's system of internal controls, which includes the establishment of appropriate control environment and risk management framework. The Bank's system of internal controls involves all management and personnel from each business and support unit. The Board is responsible for determining key strategies and policies for significant risks and control issues, whilst functional managers of the Bank are responsible for the effective implementation of the Board's policies by designing, operating, monitoring and managing risks and control processes. The Board meets regularly to review the Bank's financial and business performance, oversee the conduct of the Banks' business as well as to ensure the effectiveness and adequacy of internal control systems are in place. The Bank's organisation structure sets out clearly defined lines of job responsibilities and delegation of authority to ensure effective communciation of risk control objectives as well as establishment of authority and accountability and control processes. The Bank's internal control framework encompasses the following: (i) Internal audit and control activities In accordance with Bank Negara Malaysia s Guidelines on Internal Audit Functions, Internal Audit ("IA") conducts continuous reviews on auditable areas within the Bank. The reviews conducted by IA are focused on areas of significant risks and the effectiveness of internal control in accordance to the audit plan approved by the BAC. The risks highlighted on the respective auditable areas as well as recommendations made by IA are addressed at the BAC. The BAC also conduct annual reviews on the adequacy of internal audit function, scope of work, resources and budget of IA. 30

33 Directors' report Corporate Governance (continued) 2 Internal Control Framework (continued) (i) Internal audit and control activities (continued) IA consists of Operational Audit, IS Audit, Credit Review, Compliance and Investigation. Audit activities include these key components: Conduct audit on all auditable entities covering the processes, services, products, systems and provide an independent assessment to the Board of Directors, BAC 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 risks and evaluate actions taken to provide reasonable assurance that procedures and controls exist to contain those risks. Maintain strong control activities including documented processes and systems, 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; and - the upward communication of trends, developments and emerging issues. Monitor controls, including procedues to verify that controls are in place and functioning, follow up on corrective action on control finding until its full resolution. Based on IA's review, identification and assessment of risk, testing and evaluation of controls, IA will provide an opinion on the adequacy and effectiveness of internal controls maintained by each entity. 31

34 Directors' report Corporate Governance (continued) 2 Internal Control Framework (continued) (ii) Risk Management Board Risk Management Committee ("BRMC") BRMC has been established and their responsibilities, amongst others, include overseeing effective implementation of the Bank's Risk Management framework. the Risk Assessment Risk assessment is in place to provide the process for the identification of the Bank's material risks, from the perspective of impact on the Bank's financial standing and reputation. Consistent and well-accepted methodologies of risk measurement introduced to access Liquidity, Asset and Liability Management and other relevant risk metrices. Risk Governance Structure 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 Bank has an established comprehensive and robust risk management framework and internal control system in tandem with the complexity and diversity of the investment banking activities undertaken by the Bank. On-going initiatives and periodic reviews are undertaken by the Risk Management Department ("RMD") at the Bank to enhance the risk management policies, infrastructure and framework to ensure that credit, market and operational risks associated with the Bank's business activities are adequately identified and mitigated. RMD is functionally independent of the business divisions and is primarily responsible in identifying, measuring, monitoring, evaluating and controlling credit, market and operational risks of the Bank. The Bank s comprehensive risk management framework and internal control system are pivotal and instrumental towards achieving the corporate objective of maximising profitability and returns to shareholders whilst ensuring prudential management of the associated risks. The risk management process is reviewed regularly by Board Risk Management Committee ("BRMC") to ensure the risk management policies and framework are adequate to protect the Bank against all relevant risks comprising credit risk, market risk, liquidity risk and operational risk. 32

35 Directors' report Corporate Governance (continued) 2 Internal Control Framework (continued) (ii) Risk Management (continued) Risk Governance Policies and Procedures Risk Management policies and procedures are reviewed and updated regularly to ensure relevance to the current business needs and current/applicable regulatory requirements. The policies and procedures which were revised in 2016 are the Trading Book and Banking Book Policy Statement, the Trading Book and Banking Book Administration Guidelines, Market Risk Controls Policy, Stockbroking Risk Framework and the Annual Credit Plan. Whistle Blowing Policy This policy provides avenue for employees to report actual and suspected malpractice, misconduct and violations of the Bank's policies in a safe and confidential manner. Operational Risk Management The process is facililtated by RMD and a Risk Control Self Assessment ("RCSA") has been implemented to enable management to identify and assess the risks under their areas of supervision and control on a continual basis.this serves as a trigger point to determine Key Risk Indicators ("KRIs") to adopt and monitor opearational exposures. The Operational Risk Management Unit ("ORMU") plays a centralised function for operational risk management within the RMD and it is independent of any other functions within the Bank. Exception reports are produced on a regular basis, highlighting material operational risk related issues to Compliance and Risk Oversight Committee ("CROC") and BRMC as well as Group Operational Risk Management Committee ("GORMC") for risk monitoring and appropriate level of management decision making. Relevant trainings relating to Operational Risk such as Business Continuity Plan are being provided by RMD. Concerns and breaches, if any, will be escalated to the Group Managing Director and BRMC. The same will then be escalated to the Board. 33

36 Directors' report Corporate Governance (continued) 2 Internal Control Framework (continued) (iii) Compliance The Bank has in place an independent compliance function. The compliance main function is to advice, monitor and educate the business and support units to comply and act in accordance with laws, regulations and guidelines. In line with good governance, Compliance, Legal and Corporate Services ("CLCS") Department reports independently to the Board Risk Management Committee ("BRMC"). Compliance Framework The CLCS's departmental policy and operational manual sets out the guiding principles for the sound management of compliance risk within the Bank. It also sets out, amongst others, the roles and responsibilities of the Board and Senior Management and establishment of an independent compliance function. Policies and Procedures Policies and procedures are reviewed on a periodic basis or as and when required to reflect current practices and the applicable legal/regulatory requirements. The policies and procedures which were revised in 2016 are the CLCS Department Policy and Operational Manual, Disclosure of Customer Information - Policy and Operational Procedures and Internal Guidelines On Conflict of Interest and Chinese Wall. Training Relevant trainings on identified focus areas are regularly conducted by CLCS to create compliance awareness amongst the staff and to assist the business and support units to better understand the effect and applications of the regulatory as well as internal requirements. Compliance Programme An Annual Compliance Programme is drawn up, tabled and approved by BRMC. Compliance reviews are performed regularly by CLCS to assess adherence to the existing and new regulatory requirements as well as internal policies and procedures. Any deviations or breaches are reported to CROC and BRMC for deliberation. Anti-Money Laundering /Counter Financing Terrorism (AML/CFT) The Bank has in place an AML/CFT Framework comprising policies, procedures and processes which are duly approved by the Board (policy section) and by BRMC (operational and procedural section). 34

37 Directors' report Corporate Governance (continued) 2 Internal Control Framework (continued) (iv) Escalation Process The channels of communication and procedures have been established for reporting immediately to the Board and appropriate levels of management on any significant control failings or weaknesses that are identified together with details of corrective action being undertaken. Corrective Action Tracking on resolution of issues/findings highlighted by external audit, internal audit, regulators, if any, have also been escalated to the relevant Management Committees, BAC and Board. (v) Policies/Procedures including Empowerment and Approving Authority Policies Policies and Procedures covering all functions have been developed throughout the Bank and approvals have been obtained from the relevant committees and Board. The policies and procedures are updated periodically to incorporate changes to systems, work environment and guidelines issued by regulators. Empowerment and Approving Authority Policies There is a clearly defined framework and empowerment approved by the Board. Limits of Approving Authority for key aspects of the businesses provides a sound framework of authority and accountability within the Bank and facilitates proper corporate decision making at the appropriate level in the Bank's hierarchy. The delegation of limits is subject to periodic reviews as to its implementation and continuing suitability in meeting the business objectives and operational needs. (vi) Financial Performance Review The Group Finance Department ("GFD") regularly provides comprehensive information to the Board and BAC on key financial reports, key variances and analysis of financial data of the Bank and Group. The GFD ensures maintenance of proper accounting records and the reliability of the financial information is in accordance with the approved standards and in compliance with the regulatory and statutory requirements. 35

38 Directors' report Corporate Governance (continued) 2 Internal Control Framework (continued) (vii) Business and Capital Plan Including Budget The annual business plan and financial budget of the Bank is tabled and approved by the Board. The variances between the actual and targeted results are presented to the Board on a periodic basis to allow for timely responses and corrective actions to be taken to mitigate risks. A structured framework and processes with regard to capital expenditure and revenue is in place and is reviewed annually. The internal capital target is set on a yearly basis. (viii) Human Resources The Bank acknowledges that people development is critical in ensuring that employees have the right competencies, skills and knowledge to conduct the tasks they are entrusted with, and must able to exercise sound judgment when fulfilling those responsibilities. This is line with the objective set under the Bank s COE and COC. The HR Policies and Procedures are in place and provide clarity in all aspects of human resource management in the Bank. Periodically, the policies and procedures are reviewed to ensure they remain relevant and appropriate controls are in place to manage operational risks. Changes, if any, are communicated to all employees via HR Avenue ( the HR System ). Human Resource has in place various initiatives and training programs to address the human capital requirement, including knowledge management and mandatory programmes. The Bank has in place online performance-based appraisal system (epms) to evaluate and compensate/reward its employees accordingly. Staff performance assessment is conducted annually which is based on KPIs. The recruitment process including screening process, which include the fit and proper assessment is in place. The e-learning facilities provides staff the freedom of time and space to learn and update their knowledge at their convenience while meeting the Bank s needs for its employees, who are spread across geographical areas, to be competent in key areas. 36

39 Directors' report Corporate Governance (continued) 3 Remuneration System The remuneration policy is structured in order to provide the Bank to retain, reward and motivate staff which is required for sustainable success by ensuring a fair, transparent and equitable remuneration based on:- (i) Individual job requirements, responsibilities, qualifications and experience (ii) The Bank s performance (iii) Performance/contribution of the individual staff based on the KPIs. The Bank s remuneration mix is aligned with the FSI remuneration mix of fixed and performance linked variable pay. Individual performance pay is measured through a structured and transparent performance appraisal process vide the epms. It is the Bank s basic compensation philosophy to provide a competitive level of total compensation to attract and retain qualified and competent staff. The Bank s variable remuneration policy will be driven primarily by a performance-based culture that aligns staff interests with those of the shareholders of the Bank. These elements support the achievement of our objectives through balancing rewards for both short-term results and long-term sustainable performance. Our strategy is designed to share our success, and to align employees incentives with our risk framework and risk outcomes. The quality and long-term commitment of all of our employees is fundamental to our success. We therefore aim to attract, retain and motivate the very best people who are committed to maintaining a career with the Bank, and who will perform their role in the long-term interests of our shareholders. The Bank s remuneration system comprises the following key elements: (i) Fixed pay (ii) Benefits (iii) Variable pay (short term incentive plan and Long term incentive plan) 37

40 Directors' report Corporate Governance (continued) 3 Remuneration System (continued) The Bank will ensure that overall remuneration system for the Bank (as per the BNM CG guidelines) shall:- (i) (ii) be subject to board s active oversight to ensure that the system operates as intended; be in line with the business and risk strategies, corporate values and long-term interests of the financial institution; and (iii) promote prudent risk-taking behaviour and encourage individuals to act in the interests of the financial institution as a whole, taking into account the interests of its customers; and be designed and implemented with input from the control functions and the board risk management committee to ensure that risk exposures and risk outcomes are adequately considered. The remuneration of senior management and other material risk takers must be approved by the board annually and the Bank will maintain and regularly review the list of officers who fall within the definition of Senior Management and other material risk takers. The Bank has 19 Senior Officers (who are also material risk takers) comprising Group Managing Director, Group Chief Operating Officer, Managing Directors of Businesses, Group Chief's and Chief's of Support Units and Head of Business Units. Other material risk takers primarily is the Chief Credit Officer of the Bank. The Bank will ensure transparency in accordance with the BNM CG, by the disclosure of remuneration policies and information on paid remuneration to regulators, through the Annual Financial Statement. (i) (ii) remuneration is adjusted to account for all types of risk, and determined by both quantitative measures and qualitative judgement; the size of the bonus pool is linked to the overall performance of the Bank; (iii) (iv) incentive payments are linked to the contribution of the individual and business unit to the overall performance of the Bank; bonuses are not guaranteed, except in the context of sign-on bonuses; and (v) for members of senior management and other material risk takers:- (a) (b) a portion of remuneration consists of variable remuneration to be paid on the basis of individual, business-unit and Bank-wide measures that adequately assess performance; and the variable portion of remuneration increases along with the individual s level of accountability. 38

41 Directors' report Corporate Governance (continued) 3 Remuneration System (continued) The Remuneration system is reviewed by the NRC and approved by the BOD. There are no findings in relation to material changes made during the financial year. The annual KPIs for officers in control functions is tabled to the NRC and the Board, as this will determine the compensation payout. This is to ensure and safeguard the independence and authority of individuals engaged in control functions of which remuneration shall be paid based on the achievement of the control functions' KPIs (as set out in the Remuneration Policy and System). Remuneration: Remunerations to be paid to senior management, other material risk takers and other staff are compatible with the Bank s ethical values, internal balance and strategic targets. Remunerations of all staff are defined by taking into consideration the responsibilities they assume. On an annual basis, the Management is required to table to the NRC and the Board, the performance metrics (Financial, Business and Non Financial metrices) to determine the variable pay and remuneration. In the event the performance metrics are weak, the NRC and the Board shall deliberate and decide on the variable payout. Criteria for determination of weak performance is based on the performance rating falling under "below expectation" as set out in the Bank's performance rating scale. Remunerations based on performance: Performance measurements related to the concerned periods are taken into consideration when determining the variable pay. Payment amounts based on the performance and principally the variable pay is not guaranteed in advance. Analysis of the total remuneration awards for the Group Managing Director and each Director of the Bank for the financial year are disclosed in Note 31 to the financial statements. Analysis of remuneration for senior management and other material risk takers of the Bank for the financial year are disclosed in Note 32 to the financial statements. Business outlook for 2017 The Group remains cautiously optimistic of the business prospects for Malaysia's real GDP growth is expected to improve to 4.0% - 5.0% in 2017 from an estimated growth of 4.2% in The business environment will nevertheless continue to be clouded by uncertainties from the Brexit event, China growth normalisation and tensions in the U.S. politics. Further growth in Stockbroking business is also expected from the strategic alliances with leading securities houses in Japan, Thailand and Indonesia. The asset management business will continue to capitalise on the growth potential in the retail and high net worth business categories to further increase its assests under administration and clientele. 39

42

43 Statements of financial position as at 31 December 2016 The Group The Bank (restated) (restated) Note RM'000 RM'000 RM'000 RM'000 Assets Cash and short-term funds 2 601, , , ,732 Deposits and placements with banks and other financial institutions 3 20, ,474 20, ,474 Financial assets held-for-trading 4 326, , , ,657 Financial investments available-for-sale 5 4,847,957 4,008,065 4,825,864 3,958,666 Financial investments held-to-maturity 6 33,563 78,651 33,563 78,651 Loans, advances and financing 7 1,079,130 1,240,693 1,079,130 1,240,693 Trade receivables 8 527, , , ,617 Derivative financial assets 9 122, , , ,991 Other assets , , , ,957 Statutory deposits with Bank Negara Malaysia , , , ,850 Amounts due from subsidiaries ,780 24,004 Investment in subsidiaries , ,217 Tax recoverable 29,566 27,289 29,393 27,196 Deferred tax assets 14 10,727 12,741 6,291 7,770 Property and equipment 15 34,797 26,544 23,603 21,646 Intangible assets , , , ,046 Total assets 8,242,529 7,561,478 7,863,709 7,341,167 Liabilities and equity Deposits from customers 17 5,002,565 4,314,040 5,002,565 4,314,040 Deposits and placements of banks and other financial institutions , , , ,852 Obligations on securities sold under repurchase agreements , ,878 - Trade payables , , , ,090 Derivative financial liabilities , , , ,891 Amount due to a related company Other liabilities , , , ,249 Provision for taxation 60 1, Total liabilities 6,720,681 6,086,305 6,355,521 5,861,122 Share capital , , , ,000 Reserves , , , ,045 1,480,476 1,439,346 1,508,188 1,480,045 Non-controlling interest 41,372 35, Total equity 1,521,848 1,475,173 1,508,188 1,480,045 Total liabilities and equity 8,242,529 7,561,478 7,863,709 7,341,167 Commitments and contingencies 36 4,568,820 5,793,810 4,568,820 5,793,810 The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an integral part of these financial statements. 41

44 Income statements for the financial year ended 31 December 2016 The Group The Bank (restated) (restated) Note RM'000 RM'000 RM'000 RM'000 Interest income , , , ,524 Interest expense 26 (190,327) (184,476) (190,327) (184,500) Net interest income 83,688 77,914 82,424 74,024 Other operating income , , , ,413 Net income 549, , , ,437 Other operating expenses 28 (417,505) (425,201) (208,969) (240,776) Operating profit before allowances 131,629 83,909 89,512 40,661 Write-back/(allowances) for loans, advances and financing and receivables 29 5,281 (1,391) 5,281 (1,391) Allowances of impairment losses on securities 30 (5,899) (13,455) (5,899) (13,455) Profit before zakat and taxation 131,011 69,063 88,894 25,815 Zakat (1,224) (1,074) (929) (929) Profit before taxation 129,787 67,989 87,965 24,886 Taxation 33 (26,597) (20,354) (15,107) (4,732) Net profit after zakat and taxation 103,190 47,635 72,858 20,154 Attributable to: Equity holders of the Bank 85,705 33,051 72,858 20,154 Non-controlling interest 17,485 14, ,190 47,635 72,858 20,154 Earnings per share (sen) : Basic/Fully diluted The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an integral part of these financial statements. 42

45 Statements of comprehensive income for the financial year ended 31 December 2016 The Group The Bank (restated) (restated) Note RM'000 RM'000 RM'000 RM'000 Net profit after zakat and taxation 103,190 47,635 72,858 20,154 Other comprehensive income: Items that may be reclassified subsequently to profit or loss Net fair value change in financial investments available-for-sale (874) (6,062) (1,074) (5,775) Net gain transferred to profit or loss on disposal of financial investments available-for-sale (30,076) (20,777) (30,076) (20,777) Net transfer to profit or loss on impairment of financial instruments available-for-sale - 15,176-15,176 Deferred tax on financial investments available-for-sale 14 7,477 2,801 7,477 2,801 Other comprehensive expense for the financial year, net of tax (23,473) (8,862) (23,673) (8,575) Total comprehensive income for the financial year 79,717 38,773 49,185 11,579 Attributable to: Equity holders of the Bank 62,172 24,275 49,185 11,579 Non-controlling interests 17,545 14, ,717 38,773 49,185 11,579 The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an integral part of these financial statements. 43

46 Statement of changes in equity for the financial year ended 31 December 2016 < Attributable to equity holders of the Bank > Available -for-sale Non- Share Share Statutory Regulatory revaluation Retained controlling Total capital premium reserve reserves reserves profits Sub-total interests equity The Group RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 At 1 January 2016 As previously reported 780, , ,915 5,594 (14,831) 233,868 1,439,346 35,827 1,475,173 Prior year adjustment (Note 47) ,534 (11,534) As restated 780, , ,915 5,594 (3,297) 222,334 1,439,346 35,827 1,475,173 Comprehensive income: Net profit for the financial year ,705 85,705 17, ,190 Other comprehensive income (net of tax) -Financial investments available-for-sale (23,533) - (23,533) 60 (23,473) Total comprehensive income/(loss) (23,533) 85,705 62,172 17,545 79,717 Transfer to statutory reserve , (36,428) Transfer to regulatory reserves ,073 - (4,073) Dividends paid (21,042) (21,042) (12,000) (33,042) At 31 December , , ,343 9,667 (26,830) 246,496 1,480,476 41,372 1,521,848 At 1 January , , ,071 3,556 5, ,165 1,415,071 30,329 1,445,400 Comprehensive income: Net profit for the financial year ,051 33,051 14,584 47,635 Other comprehensive income (net of tax) -Financial investments available-for-sale (8,776) - (8,776) (86) (8,862) Total comprehensive income/(loss) (8,776) 33,051 24,275 14,498 38,773 Transfer to statutory reserve , (15,844) Transfer to regulatory reserves ,038 - (2,038) Dividends paid (9,000) (9,000) At 31 December 2015, restated 780, , ,915 5,594 (3,297) 222,334 1,439,346 35,827 1,475,173 The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an integral part of these financial statements. 44

47 Statement of changes in equity < Attributable to equity holders of the Bank > Available -for-sale Share Share Statutory Regulatory revaluation Retained Total capital premium reserve reserves reserves profits equity The Bank Note RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 At 1 January 2016 As previously reported 780, , ,915 5,594 (14,762) 274,498 1,480,045 Prior year adjustment (Note 47) ,534 (11,534) - As restated 780, , ,915 5,594 (3,228) 262,964 1,480,045 Comprehensive income: Net profit for the financial year ,858 72,858 Other comprehensive income (net of tax) -Financial investments available-for-sale (23,673) - (23,673) Total comprehensive income/(loss) (23,673) 72,858 49,185 Transfer to statutory reserve , (36,428) - Transfer to regulatory reserves ,073 - (4,073) - Dividends paid (21,042) (21,042) At 31 December , , ,343 9,667 (26,901) 274,279 1,508,188 At 1 January , , ,071 3,556 5, ,692 1,468,466 Comprehensive income: Net profit for the financial year ,154 20,154 Other comprehensive income (net of tax) -Financial investments available-for-sale (8,575) - (8,575) Total comprehensive income/(loss) (8,575) 20,154 11,579 Transfer to statutory reserve , (15,844) - Transfer to regulatory reserves ,038 - (2,038) - At 31 December 2015, restated 780, , ,915 5,594 (3,228) 262,964 1,480,045 The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an integral part of these financial statements. 45

48 Statements of cash flows for the financial year ended 31 December 2016 The Group The Bank (restated) (restated) RM'000 RM'000 RM'000 RM'000 CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 129,787 67,989 87,965 24,886 Adjustments for items not involving the movement of cash and cash equivalents: Interest income: - financial assets held-for-trading (20,394) (11,629) (20,394) (11,629) - financial investments available-for-sale (174,292) (152,854) (174,292) (152,854) - financial investments held-to-maturity (2,800) (9,318) (2,800) (9,318) Accretion of discounts less amortisation of premium 3,439 2,873 3,439 2,873 Dividend income: - financial assets held-for-trading (614) (1,780) (614) (1,580) - financial investments available-for-sale (15,517) (13,852) (14,830) (11,780) Dividend income from subsidiaries - - (28,000) (21,000) Gain on disposal of property and equipment (199) (385) (96) (263) Gain arising from disposal/redemption of: - derivative instruments - (20) - (20) - financial assets held-for-trading (26,048) (27,739) (26,048) (28,549) - financial investments available-for-sale (23,351) (23,851) (21,220) (21,914) Property and equipment written off 1, Intangible assets written off Depreciation of property and equipment 8,262 5,763 5,949 3,544 Amortisation of intangible assets 2,065 1,463 1, Unrealised (gain)/loss on: - derivative instruments 4,673 10,132 4,673 10,132 - financial assets held-for-trading (5,215) (195) (3,650) (106) Write-back on allowance for impairment: - financial investments held-to-maturity - (1,554) - (1,554) - financial investments available-for-sale 5,899 15,009 5,899 15,009 Net of (write-back)/allowance for collective impairment (6,100) 422 (6,100) 422 Net allowance for individual impairment Gain on winding up of a subsidiary (21) Net allowance for bad and doubtful debt on other debtors Zakat 1,224 1, Bad debt written off Unrealised exchange gain (3,843) (28,785) (3,859) (30,616) Operating loss before changes in working capital (120,660) (165,841) (190,468) (231,369) The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an integral part of these financial statements. 46

49 Statements of cash flows The Group The Bank (restated) (restated) RM'000 RM'000 RM'000 RM'000 (Increase)/Decrease in operating assets Loan, advances and financing 167,651 (206,295) 167,651 (206,295) Deposits & placements with banks & other financial institutions 124, , , ,099 Statutory deposits with Bank Negara Malaysia 110 (42,850) 110 (42,850) Trade receivables 21,290 (122,309) 45,917 (102,609) Other assets 4,605 (51,293) 2,048 (47,841) Intercompany balances ,224 (7,954) Derivative financial assets (2,911) (17,360) (2,911) (17,360) Financial assets held-for-trading (857) (199,100) 15,253 (198,917) 314,725 (539,108) 374,129 (523,727) Increase/(Decrease) in operating liabilities Deposit from customers 688, , , ,667 Deposits and placements of banks and other financial institutions (265,291) (111,763) (265,291) (111,763) Obligations on securities sold under repurchase agreements 145, ,878 - Trade payables 82,176 60,340 (50,893) 106,807 Amount due to related company (293) Derivative financial liabilities 8,399 52,812 8,399 52,812 Other liabilities (21,750) 26,771 (30,552) 36, , , , ,753 Cash generated from operating activities 831,709 33, ,727 (1,343) Tax paid (21,069) (34,709) (8,349) (16,337) Zakat paid (1,286) (1,163) (1,060) (1,013) NET CASH GENERATED FROM/(USED 809,354 (2,277) 670,318 (18,693) IN) OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of property and equipment Purchase of property and equipment (13,836) (18,385) (4,326) (16,350) Purchase of intangible assets (2,678) (6,903) (1,479) (5,949) Interest received: - financial investments available-for-sale 174, , , ,854 - financial investments held-to-maturity 2,800 9,318 2,800 9,318 Net cash outflow from investment of financial investments available-for-sale (856,441) (435,755) (886,077) (429,052) Proceeds on redemption of financial investments held-to-maturity 44,823 99,021 44,823 99,021 Cash consideration for merger of businessess - 3,467-3,467 Dividend income received from: - subsidiary ,000 21,000 - financial investments available-for-sale 15,517 13,852 14,830 11,780 NET CASH USED IN INVESTING ACTIVITIES (635,314) (182,029) (627,032) (153,641) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (21,042) - (21,042) - Dividends paid to non-controlling interest (12,000) (9,000) - - NET CASH USED IN FINANCING ACTIVITIES (33,042) (9,000) (21,042) - The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an integral part of these financial statements. 47

50 Statements of cash flows The Group The Bank (restated) (restated) RM'000 RM'000 RM'000 RM'000 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 140,998 (193,306) 22,244 (172,334) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 413, , , ,442 CASH AND CASH EQUIVALENTS AS AT END OF THE FINANCIAL YEAR 554, , , ,108 ANALYSIS OF CASH AND CASH EQUIVALENTS Cash and short-term funds 601, , , ,732 Amount held on behalf of commissioned dealer's representatives (47,090) (48,624) (47,090) (48,624) Cash and cash equivalents 554, , , ,108 The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an integral part of these financial statements. 48

51 Summary of significant accounting policies for the financial year ended 31 December 2016 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 the Malaysian Financial Reporting Standards ("MFRS"), International Financial Reporting Standards ("IFRS"), and the requirements of the Companies Act, 1965 in Malaysia. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with MFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported financial year. It also requires Directors to exercise their judgment in the process of applying the Group and the Bank s accounting policies. Although these estimates and judgments are based on the Directors best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 48. (a) Standards, amendments to published standards and interpretations that are effective and applicable to the Group and the Bank The Group and the Bank have applied the following amendments for the first time for the financial year beginning on 1 January 2016 : Amendments to MFRS 11 'Joint arrangements' - Accounting for acquisition of interests in joint operations Amendments to MFRS 101 'Presentation of financial statements' - Disclosure initiative Amendments to MFRS 127 'Equity method in separate financial statements' Amendments to MFRS 10, 12 & 128 'Investment entities Applying the consolidation exception' Annual Improvements to MFRS Cycle The adoption of the above improvements and amendments did not have any impact on the current or any prior financial year and are not likely to affect future periods. 49

52 Summary of significant accounting policies A Basis of preparation (continued) (b) Standards and amendments to published standards that are applicable to the Group and the Bank but not yet effective A number of new standards and amendments to standards and interpretations are effective for financial year beginning after 1 January None of these is expected to have a significant effect on the consolidated financial statements of the Group and the Bank, except the following: Amendments to MFRS 107 'Statement of Cash Flows Disclosure Initiative' (effective from 1 January 2017) introduce an additional disclosure on changes in liabilities arising from financing activities. Amendments to MFRS 112 'Income Taxes - Recognition of Deferred Tax Assets for Unrealised Losses' (effective from 1 January 2017) clarify the requirements for recognising deferred tax assets on unrealised losses arising from deductible temporary difference on asset carried at fair value. In addition, in evaluating whether an entity will have sufficient taxable profits in future periods against which deductible temporary differences can be utilised, the amendments require an entity to compare the deductible temporary differences with future taxable profits that excludes tax deductions resulting from the reversal of those temporary differences. The amendments shall be applied retrospectively. MFRS 9 'Financial Instruments' (effective from 1 January 2018) will replace MFRS 139 "Financial Instruments: Recognition and Measurement". MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ("OCI"). The basis of classification depends on the entity's business model and the cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the profit or loss, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. 50

53 Summary of significant accounting policies A Basis of preparation (continued) (b) Standards and amendments to published standards that are applicable to the Group and the Bank but not yet effective (continued) A number of new standards and amendments to standards and interpretations are effective for financial year beginning after 1 January None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below: (continued) MFRS 15 'Revenue from contracts with customers' (effective from 1 January 2018) replaces MFRS 118 'Revenue' and MFRS 111 'Construction contracts' and related interpretations. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognised when a customer obtains control of goods or services, i.e. when the customer has the ability to direct the use of and obtain the benefits from the goods or services. A new five-step process is applied before revenue can be recognised: Identify contracts with customers; Identify the separate performance obligations; Determine the transaction price of the contract; Allocate the transaction price to each of the separate performance obligations; and Recognise the revenue as each performance obligation is satisfied. Key provisions of the new standard are as follows: Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements; If the consideration varies (such as for incentives, rebates, performance fees, royalties, success of an outcome etc), minimum amounts of revenue must be recognised if they are not at significant risk of reversal; The point at which revenue is able to be recognised may shift: some revenue which is currently recognised at a point in time at the end of a contract may have to be recognised over the contract term and vice versa; There are new specific rules on licenses, warranties, non-refundable upfront fees, and consignment arrangements, to name a few; and As with any new standard, there are also increased disclosures. MFRS 16 'Leases' (effective from 1 January 2019) supersedes MFRS 117 'Leases' and the related interpretations. Under MFRS 16, a lease is a contract (or part of a contract) that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. MFRS 16 eliminates the classification of leases by the lessee as either finance leases (on balance sheet) or operating leases (off balance sheet). MFRS 16 requires a lessee to recognise a ''right-of-use'' of the underlying asset and a lease liability reflecting future lease payments for most leases. The right-of-use asset is depreciated in accordance with the principle in MFRS 116 'Property, Plant and Equipment' and the lease liability is accreted over time with interest expense recognised in the income statement. For lessors, MFRS 16 retains most of the requirements in MFRS 117. Lessors continue to classify all leases as either operating leases or finance leases and account for them differently. 51

54 Summary of significant accounting policies A Basis of preparation (continued) (b) Standards and amendments to published standards that are applicable to the Group and the Bank but not yet effective (continued) The Group and the Bank will apply these standards when effective. The adoption of the above standards, amendments to published standards and interpretations to existing standards are not expected to have any significant impact on the financial statements of the Group and the Bank except for MFRS 9. The financial effect of the adoption of MFRS 9 is still being assessed by the Group and the Bank. B Consolidation (a) Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the relevant activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement and fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest s proportionate share of the recognised amounts of acquiree s identifiable net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recognised as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the profit or loss. Refer to accounting policy Note D on goodwill. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date, any gains or losses arising from such re-measurement are recognised in the profit or loss. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with MFRS 139 in the profit or loss. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity. The Group applies predecessor accounting to account for business combinations under common control. Under predecessor accounting, assets and liabilities acquired are not restated to their respective fair values. They are recognised at the carrying amounts from the consolidated financial statements of the ultimate holding company of the Group and adjusted to conform with the accounting policies adopted by the Group. The difference between any consideration given and the aggregate carrying amounts of the assets and liabilities (as of the date of the transaction) of the acquired entity is recognised as an adjustment to equity. No additional goodwill is recognised. 52

55 Summary of significant accounting policies B Consolidation (continued) (a) Subsidiaries (continued) The acquired entity s results, assets and liabilities are consolidated from the date on which the business combination between entities under common control occurred. Consequently, the consolidated financial statements do not reflect the results of the acquired entity for the period before the transaction occurred. The corresponding amounts for the previous year are not restated. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statement, statement of comprehensive income, statement of changes in equity and statement of financial position respectively. (b) Changes in ownership interests in subsidiaries without change of control Transactions with non-controlling interests that do not result in loss of control are accounted for as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in equity attributable to owners of the Group. (c) Disposal of subsidiaries When the Group ceases to consolidate because of a loss of control, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in the profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to the profit or loss. Gains or losses on the disposal of subsidiaries include the carrying amount of goodwill relating to the subsidiaries sold. (d) Investments in subsidiaries In the Bank s separate financial statements, investments in subsidiaries are carried at cost less accumulated impairment losses. On disposal of investments in subsidiaries, the difference between disposal proceeds and the carrying amounts of the investments are recognised in the profit or loss. The amounts due from subsidiaries of which the Bank does not expect repayment in the foreseeable future are considered as part of the Bank s investments in the subsidiaries. 53

56 Summary of significant accounting policies C Property and equipment Property and equipment are initially stated at cost, net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the government. When the amount of GST incurred is not recoverable from the government, the GST is recognised as part of the cost of acquisition of the property, plant and equipment. Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Cost also includes borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is de-recognised. All other repairs and maintenance are recognised as expenses in the profit or loss during the financial period in which they are incurred. Renovations Office equipment and furniture Motor vehicles Computer equipment 5 to 10 years 5 years 5 years 5 years Depreciation of capital work in progress commences when the assets are ready for their intended use. Residual values and useful lives of assets are reviewed, and adjusted if appropriate, at the end of each reporting period. At the end of the reporting period, the Group and the Bank assess whether there is any indication of impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. A write down is made if the carrying amount exceeds the recoverable amount. Refer to accounting policy Note E on impairment of non-financial assets. D Intangible assets (a) Goodwill Goodwill arises from a business combination and represents the excess of the aggregate of fair value of consideration transferred, the amount of any non-controlling interest in the acquiree and fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired and liabilities assumed on the acquisition date. If the fair value of consideration transferred, the amount of non-controlling interest and the fair value of previously held interest in the acquiree are less than the fair value of the net identifiable assets of the acquiree, the resulting gain is recognised in the profit or loss. Goodwill is carried at cost less accumulated impairment loss. Goodwill is not amortised but it is tested for impairment annually or more frequently if events or changes in circumstances indicates that it might be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units ("CGUs"), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level. 54

57 Summary of significant accounting policies D Intangible assets (continued) (a) Goodwill (continued) The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed. (b) Computer software Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software controlled by the Group and the Bank are recognised as intangible assets when the following criteria are met: (i) it is technically feasible to complete the software product so that it will be available for use; (ii) management intends to complete the software product and use or sell it; (iii) there is an ability to use or sell the software product; (iv) it can be demonstrated how the software product will generate probable future economic benefits; (v) adequate technical, financial and other resources to complete thedevelopment and to useor sell the software product are available; and (vi) the expenditure attributable to the software product during its development can be reliably measured. Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Computer software development costs recognised as assets are amortised from the point at which the asset is ready for use over their estimated useful lives, which does not exceed 5 years. (c) Merchant bank license The merchant bank license represents contribution by the Bank to the Government of Malaysia for a license to carry on merchant banking business and is considered to have an indefinite useful life, which is not amortised and is assessed for impairment annually. E 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 asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs of disposal 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 which are largely independent of the cash inflows from other assets or group of assets ("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 profit or loss unless it reverses a previous revaluation in which case it is charged to the revaluation surplus. Impairment losses on goodwill are not reversed. In respect of other assets, any subsequent increase in recoverable amount is recognised in the profit or loss unless it reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus reserve. 55

58 Summary of significant accounting policies F Financial assets (a) Classification The Group and the Bank classify its financial assets in the following categories: at fair value through profit or loss, loans and receivables, available-for-sale and held-to-maturity. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition, and in the case of assets classified as held-to-maturity, re-evaluates this designation at the end of each reporting period. (i) Financial assets at fair value through profit or loss ("FVTPL") Financial assets held-for-trading are categorised as financial assets at FVTPL. Financial assets at fair value through profit or loss are acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated and effective as hedging instruments. Refer to accounting policy Note J, on derivative financial instruments and hedging accounting. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. (iii) Financial investments available-for-sale Financial investments available-for-sale are non-derivatives that are either designated in this category or not classified in any of the other categories. (iv) Financial investments held-to-maturity Financial investments held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group s and the Bank s management have the positive intention and ability to hold to maturity. If the Group and the Bank were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as availablefor-sale. (b) Recognition and initial measurement Regular purchases and sales of financial assets are recognised on the settlement date, the date that an asset is delivered to or by the Group and the Bank. Financial assets are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss. 56

59 Summary of significant accounting policies F Financial assets (continued) (c) Subsequent measurement gains and losses Financial investments available-for-sale and financial assets at FVTPL are subsequently carried at fair value. Loans and receivables and held-to-maturity financial assets are subsequently carried at amortised cost using the effective interest/profit method. Changes in the fair values of financial assets at FVTPL, including the effects of currency translation, interest and dividend income are recognised in the profit or loss in the period in which the changes arise. Changes in the fair value financial investments available-for-sale are recognised in other comprehensive income, except for impairment losses (Note G Impairment of financial assets) and foreign exchange gains and losses on monetary assets (Note M). Interest and dividend income on financial investments available-for-sale are recognised separately in the profit or loss. Interest on financial investments available-for-sale debt securities are calculated using the effective interest/ profit method is recognised in profit or loss. Dividend income on available-for-sale equity instruments are recognised in the profit or loss when the Group's and the Bank s right to receive payments is established. (d) De-recognition Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group and the Bank have transferred substantially all risks and rewards of ownership. Loans and receivables that are factored out to banks and other financial institutions with recourse to the Group and the Bank are not derecognised until the recourse period has expired and the risks and rewards of the receivables have been fully transferred. The corresponding cash received from the financial institutions is recorded as borrowings. When financial invesment available-for-sale are sold, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to income statement. (e) Reclassification of financial assets The Group and the Bank may choose to reclassify a non-derivative trading financial asset out of the held-fortrading category if the financial asset is no longer held for the purpose of selling it in the near term. Financial assets other than loans and receivables are permitted to be reclassified out of the held for trading category only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near term. In addition, the Group and the Bank may choose to reclassify financial assets that would meet the definition of loans and receivables out of the held-for-trading or available-for-sale categories if the Group and the Bank have the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification. Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or amortised cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date are subsequently made. Effective interest / profit rates for financial assets reclassified to loans and receivables and held-to-maturity categories are determined at the reclassification date. Further increases in estimates of cash flows adjust the effective interest / profit rates prospectively. 57

60 Summary of significant accounting policies G Impairment of financial assets (a) Assets carried at amortised cost The Group and the Bank assess at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. 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 the borrower; probability of bankruptcy or other financial re-organisation; default of related borrower; measurable decrease in estimated future cash flow than was originally envisaged; and significant deterioration in issuer's credit rating; breach of trading accounts terms and conditions; contract of dealer. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest / profit rate. The asset s carrying amount of the asset is reduced and the amount of the loss is recognised in the profit or loss. If loans and receivables or a held-to-maturity investment has a variable interest / profit rate, the discount rate for measuring any impairment loss is the current effective interest / profit rate determined under the contract. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in the profit or loss. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. For loans, advances and financing, the Group and the Bank first assess whether objective evidence of impairment exists individually for loans, advances and financing that are individually significant, and individually or collectively for loans, advances and financing that are not individually significant. If the Group and the Bank determine that no objective evidence of impairment exists for individually assessed loans, advances and financing, whether significant or not, it includes the asset in a group of loans, advances and financing with similar credit risk characteristics and collectively assesses them for impairment. 58

61 Summary of significant accounting policies G Impairment of financial assets (continued) (a) Assets carried at amortised cost (continued) (i) Individual impairment allowance Loans, advances and financing 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. (ii) Collective impairment allowance For the purposes of a collective evaluation of impairment, loans, advances and financing 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, advances and financing 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. Based on the Guideline on Classification and Impairment Provisions for Loans/Financing, banking institutions are required to maintain, in aggregate collective impairment provisions and regulatory reserves of no less than 1.2% of total outstanding loans/financing (excluding loans, advances and financing with an explicit guarantee from the Federal Government of Malaysia), net of individual impairment provisions. As at reporting date, the Group and the Bank have maintained the collective impairment provisions and regulatory reserves of no less than 1.2% in the books. 59

62 Summary of significant accounting policies G Impairment of financial assets (continued) (b) Assets classified as available-for-sale The Group and the Bank assess at the end of the reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Group and the Bank use criteria and measurement of impairment loss applicable for assets carried at amortised cost above. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the profit or loss, the impairment loss is reversed through the profit or loss. In the case of equity securities classified as available-for-sale, in addition to the criteria for assets carried at amortised cost above, a significant or prolonged decline in the fair value of the security below its cost is also considered as an indicator that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in the profit or loss. The amount of cumulative loss reclassified to profit or loss is the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the profit or loss. Impairment losses recognised in the profit or loss on equity instruments classified as available-for-sale are not reversed through profit or loss in subsequent periods. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the profit or loss, the impairment loss is reversed through profit or loss in subsequent periods. H Financial liabilities All financial liabilities including derivative financial instruments have to be recognised in the statements 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 initially recognised at fair value plus transaction costs for all financial liabilities not carried at fair value through profit or loss ("FVTPL"). (a) Financial liabilities at FVTPL This category comprises two sub-categories: financial liabilities classified as held-for-trading and financial liabilities designated by the Group and the Bank at fair value through profit or loss upon initial recognition. The Group and the Bank do not have any non-derivative financial liabilities designated at fair value through profit or loss. A financial liability is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless they are designated and effective as hedging instruments. Derivatives are recognised in the statements of financial position as 'Derivative financial liabilities' when their fair values are negative. Financial liabilities classified as held-for-trading are initially recognised at fair value, and transaction costs are expensed in the profit or loss. Gains and losses arising from changes in fair value of financial liabilities classified as held-for-trading are included in the the profit or loss. 60

63 Summary of significant accounting policies H Financial liabilities (continued) (b) Other liabilities measured at amortised cost Financial liabilities that are not classified as fair value through profit or loss fall into this category and are measured at amortised cost. All the financial liabilities except for derivative financial liabilities of the Group and the Bank are measured at amortised cost. (c) De-recognition Financial liabilities are de-recognised when they have been redeemed or otherwise extinguished. I J Offsetting financial instruments Financial assets and liabilities are offset and the net amount presented in the statements of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy. Derivative financial instruments and hedge accounting Derivatives are initially recognised at fair values on the date a derivative contract is entered into and are subsequently remeasured at their fair values at the end of each reporting period. 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. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the profit or loss. The best evidence of fair value of a derivative at initial recognition is the transaction price (i.e the fair value of the consideration given or received) unless fair value of the instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. As at 31 December 2016, the Group and the Bank have not designated any derivatives as hedging intruments. K Trade receivables In accordance with the Rules of Bursa Malaysia Securities Berhad ("Bursa Securities"), clients accounts are classified as impaired accounts under the following circumstances: Types Criteria for classification of accounts as impaired Contra losses Overdue purchase When an account remains outstanding for 16 calendar days or more from the date of contra transaction When an account remains outstanding from T+5 market days onwards (non-margin purchase) and T+9 market days onwards (discretionary financing) Bad debts are written off when identified. Impairment allowances are made for balances due from clients which are considered doubtful or which have been classified as impaired, after taking into consideration collateral held by the Group and deposits of and amounts due to dealer representative in accordance with the Rules of Bursa Securities. 61

64 Summary of significant accounting policies L Current and deferred income taxes (a) Current tax Tax expense for the period comprises current and deferred income tax. The income tax expense or credit for the period is the tax payable on the current period s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. This liability is measured using the single best estimate of the most likely outcome. (b) Deferred tax Deferred tax is provided 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 liabilities are not recognised if they arise from the initial recognition of goodwill. 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 is determined using tax rates (and tax laws) that have been enacted or substantively enacted by the reporting period and are expected to apply when the related deferred tax assets is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses or unutilised tax credits can be utilised. Deferred tax liabilities are recognised for all taxable temporary differences associated with an investment in subsidiaries, except where the timing of the reversal of the temporary difference can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred and income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 62

65 Summary of significant accounting policies M Foreign currency translations (a) Functional and presentation currency Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The financial statements are presented in Ringgit Malaysia ("RM"), which is the Bank s functional and presentation currency. (b) Foreign currency transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss, except when deferred in the statement of comprehensive income as qualifying cash flows hedges and qualifying net investment hedges. Changes in the fair value of monetary financial assets denominated in foreign currency classified as availablefor-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, and other changes in the carrying amount are recognised in other comprehensive income. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in the profit or loss 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 other comprehensive income. N Provisions Provisions are recognised by the Group and the Bank when all of the following conditions have been met: the Group and the Bank have a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources to settle the obligation will be required; and a reliable estimate of the amount of obligation can be made. Where the Group and the Bank expect a provision to be reimbursed (for example, under an insurance contract), the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management's best estimate of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance cost expense. 63

66 Summary of significant accounting policies O Employee benefits (a) Short-term employee benefits Wages, salaries, paid annual leave and sick leave, bonuses, and non-monetary benefits that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. (b) 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 employees benefits relating to employee service in the current and prior periods. The Group s contributions to defined contribution plans are charged to profit or loss in the period to which they relate. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. (c) Share-based payments The settlement method of the Bank s stock option incentive scheme for key employees is dependent on an uncertain future event which is outside the control of the Company or its employees. At each reporting date, the Bank assesses the probability of the outcome of the uncertain future event in giving rise to a liability in determining whether the stock option incentive scheme is treated as cash-settled or equity-settled. Only a contingent liability exists if the contingency that triggers cash settlement is not probable. The stock option incentive scheme should be treated as equity-settled unless cash settlement becomes probable. An equity-settled share-based payment plan is where the Bank receives services from employees as consideration for equity instruments (stock options) of the Bank. The fair value of the stock options granted in exchange for services of the employees are recognised as an expense in the profit or loss over the vesting periods of the grant with a corresponding increase in equity. The total amount to be expensed over the vesting period is determined by reference to the fair value of the stock options granted, excluding the impact of any nonmarket vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each reporting date, the Bank revises its estimates of the number of stock options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the profit or loss, with a corresponding adjustment to stock option reserve in equity. A cash-settled share-based payment plan is initially recognised at the fair value of the liability at reporting date and is recognised as an expense in the profit or loss over the vesting periods of the grant with a corresponding increase in liability. The total amount to be expensed over the vesting period is determined by reference to the fair value of the stock options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The Bank re-measures the fair value of the liability at each reporting date and at the date of settlement, with any changes in fair value recognised in profit or loss. The Bank revises its estimate of the number of stock options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the profit or loss, with a corresponding adjustment to liability. P Zakat This represents business zakat payable by the Group in compliance with the principles of Shariah. The Bank only pays zakat on its business and does not pay zakat on behalf of depositors. Zakat provision is calculated based on 2.5% of net operating profit from management of Islamic funds approved by the Shariah Supervisory Council. 64

67 Summary of significant accounting policies Q R Cash and cash equivalents For the purpose of the statement of cash flows, cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Cash and cash equivalents comprise cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of 1 month or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Contingent liabilities and contingent assets The Group and the Bank do not recognise contingent assets and liabilities other than those arising from business combination, but disclose its existence in the financial statements. A contingent liability is a possible obligation that arises from past events where existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably. However, contingent liabilities do not include financial guarantee contracts. A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank. The Group and the Bank do not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain. S Operating lease Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on the straight line basis over the lease period. Initial direct cost incurred by the Group and the Bank in negotiating and arranging operating leases are recognised in income statement when incurred. T Recognition of interest and financing income and expense Interest and financing income and expense for all interest bearing financial instruments measured at amortised cost and interest bearing financial assets as held-for-trading and available-for-sale are recognised within "interest income" and "interest expense" respectively in the income statement using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest and financing income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group and the Bank take into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. Interest or income on impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. When a loan receivable is impaired, the Group and the Bank reduce the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivable are recognised using the original effective interest rate. 65

68 Summary of significant accounting policies U Recognition of fees and other income Loan arrangement fees and commissions are recognised as income when all conditions precedent are fulfilled. Corporate advisory fees are recognised as income on completion of each stage of the engagement and issuance of invoice. Portfolio management fees, commitment fees, guarantee fees, agency fees and are recognised as income based on time apportionment. Dividends are recognised when the shareholders' right to receive payment is established. This applies even if they are paid out of acquisition profits. However, the investment may need to be tested for impairment as a consequense. Brokerage income is recognised when contracts are executed. Rollover fee is recognised upon the rollover of specific contracts under share margin financing. Where debtors are classified as doubtful or bad, interest income is suspended until it is realised on a cash basis. Initial service charge and management fee are recognised as income on an accrual basis at the rates stated in the prospectus of the respective unit trust funds. Distribution income from the unit trust funds is recognised on the ex-distribution date. Management fee for private mandates is recognised as income on an accrual basis at the rates stated in the Investment Mandate Agreement of the respective private mandates. Other income are recognised on an accrual basis. Net profit from financial assets held-for-trading and financial investments available-for-sale are recognised upon disposal of the securities, as the difference between net disposal proceeds and the carrying amount of the securities. V Finance guarantee contracts Financial guarantee contracts are contracts that require the Group or the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities. Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently recognised at the higher of the amount determined in accordance with MFRS 137 'Provisions, contingent liabilities and contingent assets' and the amount initially recognised less cumulative amortisation, where appropriate. The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations. Where financial guarantees in relation to loans or payables of subsidiaries are provided by the Group or the Bank for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of investment in subsidiaries. 66

69 Summary of significant accounting policies W Share capital (a) Classification Ordinary shares are classified as equity. Other shares are classified as equity and/or liability according to the economic substance of the particular instrument. (b) Share issue costs Incremental costs directly attributable to the issue of new shares or options are deducted against share premium account. (c) Dividend distribution Liability is recognised for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Group, on or before the end of the reporting period but not distributed at the end of the reporting period. Distributions to holders of an equity instrument is recognised directly in equity. (d) Earnings Per Share Basic earnings per share Basic earnings per share is calculated by dividing: i) ii) Diluted earnings per share Diluted earnings per share adjusts the figures in the determination of basic earnings per share to take into account: i) ii) the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares; and by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. 67

70 Summary of significant accounting policies X Trust activities The Group and the Bank act as trustees in other fiduciary capabilities that result in holding or placing of assets on behalf of individuals, trust and other institutions, These assets and income arising thereon are excluded from the financial statements, as they are not assets of the Group and the Bank. Y Repurchase agreements Securities purchased under resale agreements are securities within the Group and the Bank have purchased with a commitment to resell at future dates. The commitment to resell the securities is reflected as an asset on the statements of financial position. Conversely, obligations on securities sold under repurchase agreements are securities which the Group and the Bank have sold from its portfolio, with a commitment to repurchase at future dates. Such financing and the obligation to repurchase the securities is reflected as a liability on the statements of financial position. The difference between sale and repurchase price as well as purchase and resale price are amortised as interest income and interest expense respectively on an effective interest rate method. 68

71 for the financial year ended 31 December General information The principal activities of the Bank are in investment banking, stockbroking activities, dealing in options and futures and related financial services. The principal activities of the subsidiaries are asset management, management of unit trust funds and private retirement schemes, Islamic fund management and nominee services. 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, The Bank is a limited liability company, incorporated and domiciled in Malaysia. The address of the registered office of the Bank is 27th Floor, Menara Boustead, 69, Jalan Raja Chulan, Kuala Lumpur, Malaysia. 2 Cash and short-term funds The Group The Bank RM'000 RM'000 RM'000 RM'000 Cash and balances with banks and other financial institutions 476, , , ,729 Money at call and deposit placements maturing within one month 124,905 63,239 98,601 38, , , , ,732 Inclusive in cash and short-term funds of the Group and the Bank are trust accounts maintained for dealer's representatives amounting to RM47,090,000 (2015: RM48,624,000). 3 Deposits and placements with banks and other financial institutions The Group and the Bank RM'000 RM'000 Licensed banks 20, ,474 69

72 4 Financial assets held-for-trading At fair value The Group The Bank RM'000 RM'000 RM'000 RM'000 Quoted securities Negotiable instruments of deposits 256, , , ,093 Shares, warrants and REITs (in Malaysia) 18,763 33,564 18,763 33,564 Unit trusts 4,864 8, , , , ,657 Unquoted securities Corporate bonds and/or Sukuk in Malaysia 31,218-25,204 - Corporate bonds and/or Sukuk outside Malaysia 15, ,660-25,204 - Total financial assets held-for-trading 326, , , ,657 5 Financial investments available-for-sale At fair value The Group The Bank (restated) (restated) RM'000 RM'000 RM'000 RM'000 Money market instruments Malaysian government securities 228,087 19, ,087 19,895 Malaysian government islamic investment issues 288, , , ,049 Cagamas bonds 66,597 20,102 66,597 20,102 Sukuk perumahan kerajaan 79,286 97,695 79,286 97,695 Negotiable instruments of deposit - 80,036-80, , , , ,777 Quoted securities In Malaysia: REITs 50,266 42,999 50,266 42,999 Unit trusts 190, , , ,437 Shares 32,134 22,046 32,134 22,046 Outside Malaysia: REITs 78,540 48,864 78,540 48,864 Unquoted securities Corporate bonds and/or Sukuk in Malaysia 3,527,166 2,605,743 3,526,180 2,604,757 Corporate bonds and/or Sukuk outside Malaysia 308, , , ,831 Shares in Malaysia 21,720 20,323 21,720 20,323 4,871,195 4,025,433 4,849,102 3,976,034 Allowance for impairment losses of securities (23,238) (17,368) (23,238) (17,368) Total financial investments available-for-sale 4,847,957 4,008,065 4,825,864 3,958,666 70

73 5 Financial investments available-for-sale (continued) Movements in allowance for impairment losses of financial investments available-for-sale The Group and the Bank (restated) RM'000 RM'000 At beginning of financial year 17,368 41,414 Amount made during the financial year 5,899 15,176 Amount disposal (29) - Amount written off - (39,055) Amount written-back - (167) At end of financial year 23,238 17,368 Included in financial investments available-for-sale are asset sold under repurchase agreements as follows:- The Group and the Bank RM'000 RM'000 Malaysian government islamic investment issues 79,888 - Sukuk perumahan kerajaan 69, ,319-6 Financial investments held-to-maturity At amortised cost The Group and the Bank RM'000 RM'000 Unquoted securities Corporate bonds and/or Sukuk in Malaysia 25,471 78,651 Redeemable Secured Loan Stocks 15,042-40,513 78,651 Transfer from loan and advances (6,950) - Total financial investments held-to-maturity 33,563 78,651 Movements in allowance for impairment losses of financial investments held-to-maturity At beginning of financial year - 1,554 Provision converted from loans, advances and financing 6,950 - Amount written-back - (1,554) At end of financial year 6,950-71

74 7 Loans, advances and financing (i) By type The Group and the Bank RM'000 RM'000 Term loans/financing: - Syndicated term loans/financing 402, ,288 - Other term loans/financing 356, ,427 Revolving credits 53,589 46,573 Share margin financing 241, ,979 Receivables 40,490 91,377 Staff loans 5,560 7,582 Gross loans, advances and financing 1,100,629 1,275,226 Less: Allowances for impairment losses - Individual allowance (18,176) (25,126) - Collective allowance (3,323) (9,407) (21,499) (34,533) Total net loans, advances and financing 1,079,130 1,240,693 (ii) (iii) By type of customer Domestic business enterprises: - Small medium enterprises 49,307 66,375 - Others 773, ,887 Domestic non-bank financial institutions 20,148 - Individuals 257, ,489 Foreign individuals Foreign entities - 2,509 1,100,629 1,275,226 By interest rate sensitivity Fixed rate - Share margin financing 241, ,979 - Receivables 40,490 91,377 - Housing loans/financing 2,889 4,543 - Hire purchase receivables 2,655 2,968 - Other fixed rate loans/financing 71,764 66,486 Variable rate - Cost plus 651, ,886 - BLR plus 25,026 13,127 - Other floating rate 64,558 68,860 1,100,629 1,275,226 72

75 7 Loans, advances and financing (continued) (iv) By economic purpose The Group and the Bank RM'000 RM'000 Purchase of securities 535, ,790 Purchase of landed properties of which - Residential 17,122 22,950 - Non-residential 21,287 22,732 Working capital 200, ,231 Construction 65, ,798 Purchase of transport vehicles 62,173 71,385 Personal use Merger and acquisition - 51,379 Others 198, ,889 1,100,629 1,275,226 (v) (vi) By economic sectors Household 256, ,118 Real estate 182, ,125 Transport, storage and communication 150, ,920 Manufacturing 122,251 86,400 Finance, insurance and business services 77, ,811 Wholesale & retail trade and restaurants & hotels 64, ,121 Construction 61,804 55,213 Education, health and others 59,956 60,158 Mining and quarrying 54,214 66,722 Electricity, gas and water supply 20,013 70,794 Others 51,739 10,844 1,100,629 1,275,226 By geographical distribution Wilayah Persekutuan 529, ,874 Selangor 414, ,660 Johor 70, ,004 Sarawak 39,424 6,687 Perak 28,272 2,106 Pulau Pinang 17,154 14,283 Sabah Kedah Negeri Sembilan 760 1,025 Melaka 94-1,100,629 1,275,226 73

76 7 Loans, advances and financing (continued) (vii) By maturity structure The Group and the Bank RM'000 RM'000 Maturing within one year 375, ,872 One year to three years 269, ,622 Three years to five years 260, ,969 Over five years 195, ,763 1,100,629 1,275,226 (viii) Movements of impaired loans, advances and financing At beginning of financial year 66,375 34,128 Classified as impaired during the financial year - 32,655 Amount converted to financial intruments held-to-maturity (15,000) - Amount written off - (122) Amount recovered (2,068) (286) At end of financial year 49,307 66,375 Ratio of gross impaired loans, advances and financing to gross loans, advances and financing 4.48% 5.20% (ix) Movements in allowance for impaired loans, advances and financing Individual allowance At beginning of financial year 25,126 24,239 Allowance made during the financial year - 1,009 Amount written off - (122) Provision converted to held-to-maturity (6,950) - At end of financial year 18,176 25,126 Collective allowance At beginning of financial year 9,407 8,982 Allowance made during the financial year 1,750 3,863 Amount written-back (7,834) (3,438) At end of financial year 3,323 9,407 74

77 7 Loans, advances and financing (continued) (x) Impaired loans, advances and financing by economic purpose The Group and the Bank RM'000 RM'000 Purchase of landed properties (non-residential) 21,287 22,732 Working capital 28,020 43,643 49,307 66,375 (xi) Impaired loans, advances and financing analysed by sector Finance, insurance and business services 16,715 18,160 Real estate 14,264 14,264 Wholesale retail trade and restaurant and hotels 10,828 11,451 Manufacturing 7,500 22,500 49,307 66,375 (xii) Impaired loans, advances, and financing by geographical distribution Selangor 49,307 66,375 8 Trade receivables The Group The Bank RM'000 RM'000 RM'000 RM'000 Management fees receivable on fund management 93,104 68, Amounts due from clients: - performing accounts 322, , , ,256 - impaired accounts 1,705 4,460 1,705 4,460 Amounts due from brokers 112, , , ,007 Amount due from Bursa Securities Clearing Sdn. Bhd. - 51,033-51, , , , ,756 Less: Allowance for bad and doubtful debts: - individual allowance (1,368) (4,123) (1,368) (4,123) - collective allowance - (16) - (16) 527, , , ,617 75

78 8 Trade receivables (continued) Movement of impaired amounts due from clients: The Group and the Bank RM'000 RM'000 At beginning of financial year 4,460 4,420 Allowance made during the financial year 1, Amount recovered (866) (68) Amount written off (3,670) - At end of financial year 1,705 4,460 Movements in the allowance for bad and doubtful debts: The Group and the Bank RM'000 RM'000 Individual allowance At beginning of financial year 4,123 4,083 Allowance made during the financial year 1, Amount written-back (866) (68) Amount written off (3,670) - At end of financial year 1,368 4,123 Collective allowance At beginning of financial year Allowance made during the financial year - 31 Amount written-back (16) (34) At end of financial year

79 9 Derivative financial assets The Group and the Bank Contract/ Contract/ notional notional amount Assets amount Assets RM'000 RM'000 RM'000 RM'000 At fair value Foreign exchange derivatives - Currency forwards 904,245 55, ,658 63,365 - Currency swaps 420,367 11,928 1,269,778 9,500 - Cross currency interest rate swaps 188,579 53, ,600 45,783 1,513, ,813 2,360, ,648 Interest rate derivatives - Interest rate swaps 260,000 1, ,000 1,343 1,773, ,088 2,510, , Other assets The Group The Bank RM'000 RM'000 RM'000 RM'000 Other debtors, deposits and prepayments 34,185 44,558 31,271 39,074 Collateral pledged for derivative transactions 76,561 75,771 76,561 75,771 Clearing guarantee fund (a) 1,725 1,139 1,725 1,139 Clearing fund (b) 1,000 1,000 1,000 1,000 Transferable membership , , , ,094 Less: allowance for bad and doubtful debts (c) (6,134) (10,137) (6,134) (10,137) 107, , , ,957 (a) (b) Interest-bearing contributions made by the Bank amounted to RM1,725,000 (2015: RM1,139,000) as a trading clearing participant in accordance with the Rules of Bursa Malaysia Securities Clearing Sdn. Bhd. ("Bursa Clearing") to a fund maintained by Bursa Clearing. Interest-bearing contributions made by the Bank amounted to RM1,000,000 (2015: Futures broking subsidiary - RM1,000,000) in accordance with the Business Rules of Bursa Malaysia Derivatives Clearing Berhad. 77

80 10 Other assets (continued) (c) Movements in the allowance for bad and doubtful debts are as follows: The Group and the Bank RM'000 RM'000 At beginning of financial year 10,137 9,894 Allowance made during the financial year Amount written-back (525) (122) Amount written off (4,376) - At end of financial year 6,134 10, Statutory deposits with Bank Negara Malaysia The non-interest bearing statutory deposits is maintained with Bank Negara Malaysia in compliance with Section 26(2)(c) of the Central Bank of Malaysia Act, 2009, the amount of which are determined as a set percentage of total eligible liabilities. 12 Amounts due from subsidiaries The Bank RM'000 RM'000 Amounts due from subsidiaries 2,780 24,004 The amount due from subsidiaries are unsecured, interest-free and repayable on demand. 13 Investment in subsidiaries The Bank RM'000 RM'000 Unquoted shares at cost 121, ,120 Less: winding-up of subsidiaries - (10,903) 121, ,217 78

81 13 Investment in subsidiaries (continued) The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows: Group Percentage of equity held Non-controlling interests Name Principal activities Direct subsidiaries: % % % % Affin Hwang Asset Asset management, Management Berhad management of unit trust ("AHAM") & private retirement schemes Affin Capital Services Investment holdings Berhad* AIIMAN Asset Islamic fund Management Sdn. Bhd. management (formerly known as Asian Islamic Investment Management Sdn. Bhd.) ( AIIMAN ) * Affin Hwang AIIMAN Islamic fund Global Sukuk Fund ** management Affin Hwang Nominees Nominee services (Asing) Sdn. Bhd. Affin Hwang Nominees Nominee services (Tempatan) Sdn. Bhd. AHC Global Sdn. Bhd. (formerly known as Investment holdings Classic Uptrend Sdn. Bhd.) AHC Associates Sdn. Bhd. (formerly known as Investment holdings Sole Delta Sdn. Bhd.) * Direct subsidiaries of Affin Hwang Asset Management Berhad ** The Fund is a subsidiary consolidated in the Group as the Group controls the funds in accordance with MFRS 10 'Consolidated Financial Statements'. 79

82 13 Investment in subsidiaries (continued) On 20 September 2016, the Bank acquired the entire share capital of AHC Global Sdn. Bhd. (formerly known as Classic Uptrend Sdn. Bhd.) and of AHC Associates Sdn. Bhd. (formerly known as Sole Delta Sdn. Bhd.), comprising 2 ordinary shares of RM1 each for cash consideration of RM2 respectively. The companies remain inactive as at end of the financial year. Details of subsidiaries that have material non-controlling interests: Set out below are the Group's subsidiaries that have material non-controlling interest ("NCI"): Proportion of ownership interests and voting rights held by non-controlling Profit allocated to non- Accummulated non- Name of subsidiaries interest controlling interests controlling interests % % RM'000 RM'000 RM'000 RM'000 Affin Hwang Asset Management Berhad ,485 14,584 41,372 35,826 Summarised financial information for each subsidiary that has non-controlling interest that are material to the Group is set out below. The summarised financial information below represents amounts before inter-company eliminations. AHAM RM'000 RM'000 Summarised financial position Total assets 497, ,807 Total liabilities (359,335) (229,387) Net assets 137, ,420 Equity attributable to owners of the Bank 96,536 83,593 NCI 41,372 35,826 Summarised financial results Revenue 278, ,130 Profit before taxation 69,756 64,170 Taxation (11,471) (15,556) Other comprehensive income 200 (288) Total comprehensive income 58,485 48,326 Summarised cash flows Net cash generated from operating activities 168,125 29,116 Net cash used in financing activities (40,000) (30,000) Net cash generated from/(used in) investing activities 975 (5,620) Net increase/(decrease) in cash & cash equivalents 129,100 (6,504) Profit allocated to NCI of the Group 17,485 14,584 80

83 14 Deferred tax assets Deferred tax assets and liabilities are offset when there is a legally enforceable right to set-off current tax assets and 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 statements of financial position: Deferred tax assets: The Group The Bank (restated) (restated) RM'000 RM'000 RM'000 RM'000 - to be recovered after more than 12 months 6,529 1,203 6, to be recovered within 12 months 20,991 25,318 15,781 20,347 Deferred tax liabilities: - to be recovered after more than 12 months (17,885) (13,112) (17,885) (12,804) - to be recovered within 12 months 1,092 (668) 1,866 (668) 10,727 12,741 6,291 7,770 81

84 14 Deferred tax assets (continued) The movement in deferred tax assets and liabilities during the financial year are as follows: Unutilised business Foreign tax losses and The Group Property Intangible Provision for exchange unabsorbed capital Financial 2016 Note and equipment assets other liabilities translation gain allowances losses instrument AFS Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 At beginning of financial year (2,410) (35) 18,320 (11,335) 7,182 1,019 12,741 (Charged)/credited to income statements 33 (384) (2,664) (7,182) - (9,491) Credited to equity ,477 7,477 At end of financial year (2,794) ,832 (13,999) - 8,496 10,727 The Group 2015 At beginning of financial year (1,099) (258) 21,863 (7,888) - (1,782) 10,836 (Charged)/credited to income statements 33 (1,311) 223 (3,543) (3,447) 7,182 - (896) Credited to equity ,801 2,801 At end of financial year (2,410) (35) 18,320 (11,335) 7,182 1,019 12,741 The Bank 2016 At beginning of financial year (1,491) (835) 13,041 (11,146) 7,182 1,019 7,770 (Charged)/credited to income statements 33 (102) (2,664) (7,182) - (8,956) Credited to equity ,477 7,477 At end of financial year (1,593) (616) 13,814 (13,810) - 8,496 6,291 The Bank 2015 At beginning of financial year (674) (255) 16,589 (7,888) - (1,782) 5,990 (Charged)/credited to income statements 33 (817) (580) (3,548) (3,258) 7,182 - (1,021) Credited to equity ,801 2,801 At end of financial year (1,491) (835) 13,041 (11,146) 7,182 1,019 7,770 82

85 15 Property and equipment Office equipment Motor Computer The Group Renovations &furniture vehicles equipment Total RM'000 RM'000 RM'000 RM'000 RM'000 Cost At ,778 23,600 6,424 44, ,802 Additions 7,026 3, ,708 13,836 Disposals (1) (129) (930) (513) (1,573) * Reclassification ,544 4,544 Write-offs (11,600) (7,114) - (4,747) (23,461) At ,203 19,508 6,445 45, ,148 Accumulated depreciation At ,383 20,077 4,819 36,979 80,258 Charge for the financial year 2,664 1, ,524 8,262 Disposals (1) (119) (930) (513) (1,563) * Reclassification Write-offs (11,256) (6,451) - (4,697) (22,404) At ,790 14,743 4,727 36,091 65,351 Net book value At ,413 4,765 1,718 9,901 34,797 The Group Cost At ,538 24,395 6,982 40,956 93,871 Additions 11,641 1, ,965 18,505 Disposals - (1,425) (1,389) (1,147) (3,961) Write-offs (401) (438) - (774) (1,613) At ,778 23,600 6,424 44, ,802 Accumulated depreciation At ,019 20,738 5,319 36,779 79,855 Charge for the financial year 1,700 1, ,105 5,763 Disposals - (1,415) (1,283) (1,147) (3,845) Write-offs (336) (421) - (758) (1,515) At ,383 20,077 4,819 36,979 80,258 Net book value At ,395 3,523 1,605 7,021 26,544 * Reclassification from Intangible assets 83

86 15 Property and equipment (continued) Office equipment Motor Computer The Bank Renovations & furniture vehicles equipment Total RM'000 RM'000 RM'000 RM'000 RM'000 Cost At ,544 19,532 3,276 41,094 92,446 Additions 2, ,400 4,326 Disposals (1) (127) (463) (513) (1,104) * Reclassification ,544 4,544 Write-offs (9,225) (4,852) - (4,707) (18,784) At ,615 15,182 2,813 41,818 81,428 Accumulated depreciation At ,185 17,673 2,944 34,998 70,800 Charge for the financial year 2, ,946 5,949 Disposals (1) (118) (463) (513) (1,095) * Reclassification Write-offs (9,153) (4,799) - (4,675) (18,627) At ,139 13,431 2,701 33,554 57,825 Net book value At ,476 1, ,264 23,603 The Bank Cost At ,274 20,376 4,080 37,856 79,586 Vested from AFFIN Futures ,345 Additions 11, ,259 16,357 Disposals - (1,421) (918) (1,147) (3,486) Write-offs (401) (421) - (534) (1,356) At ,544 19,532 3,276 41,094 92,446 Accumulated depreciation At ,190 18,566 3,477 34,554 70,787 Vested from AFFIN Futures ,231 Charge for the financial year 1, ,517 3,544 Disposals - (1,414) (918) (1,147) (3,479) Write-offs (336) (413) - (534) (1,283) At ,185 17,673 2,944 34,998 70,800 Net book value At ,359 1, ,096 21,646 * Reclassification from Intangible assets 84

87 16 Intangible assets The Group The Bank RM'000 RM'000 RM'000 RM'000 Goodwill on consolidation (a) 264, , , ,409 Intangible assets (b): - Merchant bank licence 52,500 52,500 52,500 52,500 - Computer software licence 6,579 9,729 3,736 7, , , , ,046 (a) Goodwill on consolidation The Group The Bank RM'000 RM'000 RM'000 RM'000 Cost At beginning and end of financial year 284, , , ,609 Impairment losses At beginning and end of financial year 20,200 20,200 20,200 20,200 Net book value At beginning and end of financial year 264, , , ,409 The carrying amounts of goodwill allocated to the Group CGUs are as follows: The Group The Bank CGU RM'000 RM'000 RM'000 RM'000 Investment Banking 97,346 97,346 97,346 97,346 Stockbroking 163, , , ,063 Asset Management 3,602 3, , , , ,409 85

88 16 Intangible assets (continued) (a) Goodwill on consolidation (continued) The recoverable amount of the CGUs are determined based on value-in-use calculations using the cash flow projections based on financial budgets or forecasts covering a five-year (2015: five-year) period. Cash flows beyond the fifth-year period are assumed to grow at 4.50% (2015 : 3.00%) on perpetual basis for all CGUs which is based on forecast Gross Domestic Product ("GDP") growth rate of Malaysia. The cash flow projections are derived based on a number of key factors including the past performance and the management's expectations of the market developments. The discount rates used are based on the pretax weighted average cost of capital plus an appropriate risk premium where applicable, at the date of assessment of the CGUs. The estimated terminal growth rates and discount rates used for value in use calculation are as follows: Discount rate Growth rate % % % % Investment Banking Stockbroking Asset Management Impairment was not required for goodwill arising from all the business segments. The impairment charge is most sensitive to discount rate and management believes that any reasonable possible charge to the assumptions applied is not likely to cause the recoverable amount of asset management segment to be lower that its carrying amount. For investment banking and stockbroking CGUs, the estimated recoverable amount will be equal to the carrying value under the assumptions below : Investment banking Stockbroking % % Discount rate Cash flow Terminal growth rate

89 16 Intangible assets (continued) (b) Intangible assets Merchant The Group bank Computer licence software Total RM'000 RM'000 RM'000 Cost At ,500 25,934 78,434 Additions - 2,678 2,678 Reclassification * - (4,544) (4,544) Write-offs - (143) (143) At ,500 23,925 76,425 Accumulated amortisation At ,205 16,205 Amortised during the financial year - 2,065 2,065 Reclassification * - (798) (798) Write-offs - (126) (126) At ,346 17,346 Net carrying value At ,500 6,579 59,079 Merchant The Group bank Computer licence software Total RM'000 RM'000 RM'000 Cost At ,500 19,158 71,658 Additions - 6,903 6,903 Write-offs - (127) (127) At ,500 25,934 78,434 Accumulated amortisation At ,863 14,863 Amortised during the financial year - 1,463 1,463 Write-offs - (121) (121) At ,205 16,205 Net carrying value At ,500 9,729 62,229 * Reclassification to computer equipment 87

90 16 (b) Intangible assets (continued) Merchant The Bank bank Computer licence software Total RM'000 RM'000 RM'000 Cost At ,500 18,594 71,094 Additions - 1,479 1,479 Reclassification * - (4,544) (4,544) Disposals - (111) (111) At ,500 15,418 67,918 Accumulated amortisation At ,457 11,457 Amortised during the financial year - 1,134 1,134 Reclassification * - (798) (798) Disposals - (111) (111) At ,682 11,682 Net carrying value At ,500 3,736 56,236 * Reclassification to computer equipment 88

91 16 (b) Intangible assets (continued) Merchant The Bank bank Computer licence software Total RM'000 RM'000 RM'000 Cost At ,500 12,645 65,145 Additions - 5,949 5,949 At ,500 18,594 71,094 Accumulated amortisation At ,782 10,782 Amortised during the financial year At ,457 11,457 Net carrying value At ,500 7,137 59,637 The merchant bank license is assessed for impairment on an annual basis together with the goodwill impairment testing for the Investment Banking CGU as disclosed in Note 16(a). 17 Deposits from customers (i) By type of deposit The Group and the Bank RM'000 RM'000 Fixed deposits 3,550,924 2,930,883 Negotiable instrument of deposits 1,209,644 1,191,217 Other deposits 241, ,940 5,002,565 4,314,040 89

92 17 Deposits from customers (continued) (ii) By maturity structure Maturity structure of deposits are as follows: The Group and the Bank RM'000 RM'000 Due within six months 4,349,787 3,066,058 Six months to one year 551, ,849 One year to three years 101,743 1,009,133 5,002,565 4,314,040 (iii) By type of customer Domestic non-banking financial institutions 2,043,552 1,278,851 Domestic banking institutions 1,209,258 1,190,461 Business enterprises 1,144,147 1,115,296 Government and statutory bodies 510, ,118 Individuals 69,333 74,779 Foreign entities 4,957 5,864 Other entities 20,799 27,671 5,002,565 4,314, Deposits and placements of banks and other financial institutions The Group and the Bank RM'000 RM'000 Licensed banks 484, , Obligations on securities sold under repurchase agreements The Group and the Bank RM'000 RM'000 Financial investments available-for-sale 145,878 - Obligations on securities sold under repurchase agreements are securities which the Bank has sold from its investment portfolio, with a commitment to repurchase at future dates. Such financing and the obligation to repurchase the securities is reflected as a liability on the statements of financial position. The financial assets sold under repurchase agreements as at end of the current financial year are from the financial assets available-for-sale portfolio (2015: Nil). 90

93 20 Trade payables The Group The Bank RM'000 RM'000 RM'000 RM'000 Amount due to unit trust funds 264, , Amount due to unit holders 40,869 17, Amount due to external fund managers Amount due to clients 224, , , ,714 Amount due to brokers 165, , , ,376 Amount due to Bursa Securities Clearing Sdn. Bhd. 29,154-29, , , , ,090 Trade payables include amount payable under outstanding contracts from the stock and share broking activities and amounts due to unit trust funds and unit holders. The credit terms of amounts due to unit trust funds and unit holders range from 1 to 10 days (2015: 1 to 10 days). The credit terms of amount due to external fund managers range from 30 to 90 days (2015: 30 to 90 days). 21 Derivatives financial liabilities The Group and the Bank Contract/ Contract/ notional notional amount Liabilities amount Liabilities RM'000 RM'000 RM'000 RM'000 At fair value Foreign exchange related contracts - Currency forwards 170,697 2,409 1,169,815 4,478 - Currency swaps 1,228,794 75,681 1,060,532 73,912 - Cross currency interest rate swaps 309,089 71, ,356 63,501 1,708, ,444 2,563, ,891 Interest rate related contracts - Interest rate swaps 410, ,118, ,291 2,563, ,891 91

94 22 Other liabilities The Group The Bank RM'000 RM'000 RM'000 RM'000 Commissioned dealer's representatives trust balances 47,090 48,624 47,090 48,624 Collateral pledged for derivative transactions 8,761 12,109 8,761 12,109 Amounts payable to commissioned and salaried dealer's representatives 22,174 22,457 22,174 22,457 Accrued employee benefit 50,726 49,063 25,415 25,440 Other creditors and accruals 83, ,512 49,589 76, , , , , Share capital Number of ordinary shares of RM1.00 each The Bank Authorised RM'000 RM'000 At beginning and end of the financial year 1,500,000 1,500,000 1,500,000 1,500,000 Issued and fully paid At beginning and end of the financial year 780, , , ,000 92

95 24 Reserves The Group The Bank (restated) (restated) RM'000 RM'000 RM'000 RM'000 Share premium 219, , , ,800 Statutory reserve (a) 251, , , ,915 Regulatory reserves (b) 9,667 5,594 9,667 5,594 Available-for-sale revaluation reserves (c) (26,830) (3,297) (26,901) (3,228) 453, , , ,081 Retained profits (d) 246, , , , , , , ,045 (a) (b) (c) (d) The statutory reserve is maintained by the Bank in compliance with Section 47(2)(f) of the Financial Services Act, 2013 and is not distributable as cash dividends. The Group and the Bank are required to maintain in aggregate collective impairment allowances and regulatory reserves of no less than 1.2% of total outstanding loans, advances and financing, net of impairment allowances. The available-for-sale revaluation reserves represent the unrealised gains or losses arising from a change in the fair value of investments classified as financial investments available-for-sale. The gains or losses are transferred to the income statement upon disposal or when the securities becomes impaired. Pursuant to the Finance Act, 2007 which was gazetted on 28 November 2007, dividends paid, credited or distributed to shareholders are not tax deductible by the Bank but are exempted from tax in the hands of the shareholders ("single-tier dividends"). The unutilised Section 108 balance of the Bank has expired as at 31 December As at 31 December 2016, the Bank has sufficient tax exempt account balances to pay tax exempt dividends of RM7,724,000 (2015: RM7,724,000) under Section 12 of the Income Tax (Amended Act 1999). 93

96 25 Interest income The Group The Bank RM'000 RM'000 RM'000 RM'000 Loans, advances and financing 66,006 66,175 66,006 66,175 Money at call and deposit placements with financial institutions 11,076 19,037 9,812 15,171 Derivative instruments 3,133 5,588 3,133 5,588 Financial assets held-for-trading 20,394 11,629 20,394 11,629 Financial investments available-for-sale 174, , , ,854 Financial investments held-to-maturity 2,800 9,318 2,800 9,318 Others (247) 662 (247) , , , ,397 Net accretion of discounts less amortisation of premiums (3,439) (2,873) (3,439) (2,873) 274, , , ,524 of which: Interest income earned on impaired loans, advances and financing 1, , Interest expense The Group The Bank RM'000 RM'000 RM'000 RM'000 Deposits from customers 171, , , ,295 Deposits and placements of banks and other financial institutions 15,092 12,786 15,092 12,853 Derivative instruments 2,740 2,578 2,740 2,578 Others 1,352 1,817 1,352 1, , , , ,500 94

97 27 Other operating income The Group The Bank RM'000 RM'000 RM'000 RM'000 Fee income Fee on loans, advances and financing 4,328 3,851 4,328 3,851 Corporate advisory fees 9,310 4,426 9,310 4,426 Guarantee fees Underwriting commissions 4,445 6,423 1,332 5,258 Gross brokerage income 80,099 89,508 80,099 89,137 Portfolio management fees 184, , Initial service charge 84,356 67, Agency fees 2,107 2,184 2,107 2,184 Arrangement fees 7,899 3,657 7,899 3,657 Others 4,197 3,109 3,955 2, , , , ,507 Income from financial instruments Gains arising on financial assets held-for-trading: - net gain on disposal 26,048 27,739 26,048 28,549 - unrealised gain 5, , gross dividend income 614 1, ,580 Gains on derivatives instruments: - net gain on disposal unrealised loss (4,673) (10,132) (4,673) (10,132) Gains arising on financial investments available-for-sale: - net gain on disposal 23,351 23,851 21,220 21,914 - gross dividend income 15,517 13,852 14,830 11,780 66,072 57,305 61,689 53,817 Other income Realised foreign exchange gain/(loss) 11,222 (10,056) 11,260 (12,058) Unrealised foreign exchange gain 3,843 28,785 3,859 30,616 Gain on disposal of property and equipment Gain on winding up of a subsidiary Gross dividend income - subsidiaries ,000 21,000 Others 1,921 1,711 1,441 2,247 17,185 20,825 44,656 42, , , , ,413 95

98 28 Other operating expenses The Group The Bank RM'000 RM'000 RM'000 RM'000 Personnel costs Salaries, allowances and bonuses 151, , , ,403 Defined contribution plan 25,210 28,217 15,070 18,550 Other personnel costs 25,244 26,737 9,369 7, , , , ,411 Establishment cost Rental of premises 14,916 17,700 10,971 14,784 Equipment rental 1,610 1, Repair and maintenance 7,304 7,111 4,761 5,423 Amortisation of intangible assets 2,065 1,463 1, Depreciation of property and equipment 8,262 5,763 5,949 3,544 Electricity, water and sewerage 2,645 2,891 2,293 2,569 Insurance and indemnities 1,025 1, Others ,083 38,291 26,355 28,469 Marketing expenses Business promotion and advertisement 6,226 6,112 1,204 1,291 Entertainment 2,116 1, Travelling and accommodation 3,461 3,223 1,813 1,581 Dealers handling fees 8,108 11,444 8,108 11,444 Dealer s representatives performance incentive 5,434 6,137 5,434 6,126 Commission and referral fee expenses 98,736 77, Others 5,215 5, , ,492 18,027 21,594 96

99 28 Other operating expenses (continued) The Group The Bank RM'000 RM'000 RM'000 RM'000 Administration and general expenses Directors' remuneration (Note 31) 1,932 1,596 1,787 1,453 Telecommunication expenses 9,641 9,931 8,146 8,055 Auditors' remuneration Professional fees 4,232 9,400 (68) 3,731 Intangible assets written off Property and equipment written off 1, Transaction levy 7,662 7,722 7,662 7,722 Subscription 7,915 6,064 7,577 5,913 Subsidies 3,167 2,980 3,167 2,980 Others 11,414 8,769 9,334 7,816 47,742 47,298 38,245 38, , , , ,776 The expenditure includes the following statutory disclosure: Directors remuneration (Note 31) 1,932 1,596 1,787 1,453 Auditors' remuneration: (i) Statutory audit fees (ii) Regulatory related fees (iii) Non audit fees Tax fees Non audit fees

100 29 Write-back/(Allowances) for losses on loans, advances and financing and receivables The Group and the Bank RM'000 RM'000 Individual assessment allowance - Made during the financial year (1,781) (1,117) - Written-back during the financial year Collective allowance - Made during the financial year (1,750) (3,894) - Written-back during the financial year 7,850 3,472 Bad debts and financing - Recovered Written off (2) - Other debtors - Allowances for losses (898) (365) - Written-back during the financial year ,281 (1,391) 30 Allowances for impairment losses on securities The Group and the Bank (restated) RM'000 RM'000 (Allowances)/Write-back for impairment losses : - Financial investments available-for-sale (5,899) (15,009) - Financial investments held-to-maturity - 1,554 (5,899) (13,455) 98

101 31 Managing Director's and Directors remuneration The Managing Director and Directors of the Bank who have held office during the financial year are as follows: Managing Director Datuk Maimoonah bt Mohamed Hussain Non-Executive Directors Gen Tan Sri Yaacob bin Mohd Zain (R) Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad Tan Sri Dato' Seri Lodin bin Wok Kamaruddin Stephen Charles Li Lee Chor Kee (Ceased Directorship w.e.f 30 November 2016) Abd Malik bin A Rahman Lim Hun David Lim Maj. Gen. Dato' Zulkiflee bin Mazlan (R) (Appointed w.e.f 4 January 2016) Datuk Noor Azian binti Shaari (Appointed w.e.f 4 October 2016) The aggregate amount of remuneration for all Directors during the financial year are as follows: The Group The Bank RM'000 RM'000 RM'000 RM'000 Managing Director Fixed and non-deferred remuneration - Salary and other remuneration 2,247 2,258 2,247 2,258 Variable and non-deferred remuneration - Bonus 2,150 2,500 2,150 2,500 - Benefits-in-kind ,455 4,816 4,455 4,816 Non-Executive Directors: Fixed and non-deferred remuneration - Fees Salary and other remuneration 1, Benefits-in-kind Total 1,932 1,596 1,787 1,453 Grand total 6,387 6,412 6,242 6,269 99

102 31 Managing Director's and Directors remuneration (continued) Details of remuneration of the Group are as follows: The Group Managing Director Datuk Maimoonah bt Mohamed Hussain Total Non-Executive Directors Gen Tan Sri Yaacob bin Mohd Zain (R) Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad Tan Sri Dato' Seri Lodin bin Wok Kamaruddin Stephen Charles Li Lee Chor Kee Abd Malik bin A Rahman Lim Hun David Lim Datuk Noor Azian binti Shaari Maj. Gen. Dato' Zulkiflee Mazlan ( R ) Total Grand Total * Other emoluments include allowances and EPF. 100

103 31 Managing Director's and Directors remuneration (continued) Details of remuneration of the Group are as follows: The Group Managing Director Datuk Maimoonah bt Mohamed Hussain Total Non-Executive Directors Gen Tan Sri Yaacob bin Mohd Zain (R) Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad Ariffin bin Alias Tan Sri Dato' Seri Lodin bin Wok Kamaruddin Stephen Charles Li Lee Chor Kee Abd Malik bin A Rahman Lim Hun David Lim Total Grand Total * Other emoluments include allowances and EPF. 101

104 31 Managing Director's and Directors remuneration (continued) Details of remuneration of the Bank are as follows: The Bank Managing Director Datuk Maimoonah bt Mohamed Hussain Total Non-Executive Directors Gen Tan Sri Yaacob bin Mohd Zain (R) Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad Tan Sri Dato' Seri Lodin bin Wok Kamaruddin Stephen Charles Li Lee Chor Kee Abd Malik bin A Rahman Lim Hun David Lim Datuk Noor Azian binti Shaari Maj. Gen. Dato' Zulkiflee Mazlan ( R ) Total Grand Total * Other emoluments include allowances and EPF. 102

105 31 Managing Director's and Directors remuneration (continued) Details of remuneration of the Bank are as follows: The Bank Managing Director Maimoonah bt Mohamed Hussain Total Non-Executive Directors Gen Tan Sri Yaacob bin Mohd Zain (R) Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad Ariffin bin Alias Tan Sri Dato' Seri Lodin bin Wok Kamaruddin Stephen Charles Li Lee Chor Kee Abd Malik bin A Rahman Lim Hun David Lim Total Grand Total * Other emoluments include allowances and EPF. 103

106 32 Significant related party transactions and balances The identified related parties and their relationship with the Group and the Bank are as follows: Related parties Lembaga Tabung Angkatan Tentera ("LTAT") Relationship Ultimate holding corporate body, which is Government-Linked Investment Company ("GLIC") of the Government of Malaysia. AFFIN Holdings Berhad ("AHB") Holding company Subsidiaries and associate of LTAT Subsidiaries and associate of AHB as disclosed in its financial statements Subsidiaries and associate companies of the ultimate holding corporate body Subsidiaries and associate companies of the holding company Subsidiaries of the Bank as disclosed in Note 13 Subsidiaries Key management personnel The key management personnel of the Group and the Bank consists of: - All Directors of the Bank and its key subsidiaries - Non-Executive Directors, Managing Director, Chief Operation Officer, Chief Financial Officer and certain Heads of Department Related parties of key management personnel (deemed as related to the Bank) Close family members and dependents of key management personnel Entities that are controlled or jointly controlled 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 are those persons having the authority and responsibilty for planning, directing and controlling the activities of the Group and the Bank either directly or indirectly. Key management personnel includes the Managing Director of the Bank in office during the financial year and the remuneration for the financial year are disclosed in Note

107 32 Significant related party transactions and balances (continued) The Group and the Bank do not have any individual or collective significant transactions outside the ordinary course of business with the Government of Malaysia and government related entities. In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are the other significant related party transactions and balances. (a) Related parties transactions Ultimate Holding Other Related Corporate Body Companies The Group RM'000 RM'000 RM'000 RM'000 Income Interest on fixed deposits & interbank placements - - 9,775 14,663 Interest on financial investments available-for-sale - - 4,916 6,011 Interest on loans, advances and financing - - 4,820 6,285 Unrealised loss on derivative instruments - - (278) (198) Brokerage income 1, Rebate of management fees Management fees income ,533 1,149 Corporate advisory fees , Agency fees Arrangement fees ,047 Other fee income Realised gain on foreign exchange for derivatives instruments , ,945 29,822 Expenses Rental of premises - - 7,313 7,236 Interest expense on derivatives (304) Interest expense on deposits ,874 29,023 Travel services ,029 Advisory fee expense ,042 Management fees expense - - 1,442 - Other expenses - - 1, ,601 39,

108 32 Significant related party transactions and balances (continued) (b) Related parties balances Ultimate Holding Other Related Corporate Body Companies The Group RM'000 RM'000 RM'000 RM'000 Amounts due to Deposit from customers - - 1,241,432 1,298,085 Deposit and placements of banks and other financial instituions ,310 - Other liabilities Derivative liabilities (2) Trade payable - 121, ,792 1,300,861 1,298,933 Amounts due from Interbank placement ,000 40,000 Cash and short-term funds , ,761 Derivative assets Loans, advances and financing , ,065 Refundable deposits - - 2,015 1,331 Trade receivable 76,721 10, Other assets Financial investments , ,706 76,721 11, , ,863 Commitments and contingencies Notional Amount of: Direct credit substitutes ,000 65,000 Interest rate related contracts ,000 50,000 Irrevocable commitments to extend credit , , ,

109 32 Significant related party transactions and balances (continued) (c) Related parties transactions The Bank Income Ultimate Holding Other Related Corporate Body Subsidiaries Companies RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Interest on fixed deposits & interbank placements ,723 14,597 Interest on financial investments available-for-sale ,916 6,011 Interest on loans, advances and financing ,820 6,285 Unrealised loss on derivative instruments (278) (198) Management fee income Corporate advisory fees , Agency fees Arrangement fees ,047 Other fees income Brokerage income 1, Realised gain on foreign exchange for derivatives instruments Gross dividend income -subsidiaries ,000 21, Other income , ,269 21,000 22,901 28,607 Expenses Rental of premises ,310 7,192 Interest on derivatives (304) Interest expense on deposits ,874 29,023 Travel services Other expenses ,836 36,

110 32 Significant related party transactions and balances (continued) (d) Related parties balances Ultimate Holding Other Related Corporate Body Subsidiaries Companies The Bank RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Amounts due to Deposits from customers ,241,432 1,298,085 Deposits and placements of banks and other financial institutions ,310 - Other liabilities Derivative liabilities (2) Trade payable - 121, , ,300,099 1,298,282 Amounts due from Interbank placement ,000 40,000 Cash and short-term funds , ,259 Loans, advances and financing , ,065 Refundable deposits ,816 1,262 Intercompany balances - - 2,775 24, Trade receivable 76,653 10, Financial investments , ,706 76,653 10,893 2,775 24, , ,292 Commitments and contingencies Direct credit substitutes ,000 65,000 Interest rate related contracts ,000 50,000 Irrevocable commitments to extend credit , , ,

111 Company No : U 32 Significant related party transactions and balances (continued) (e) Key management personnel compensation Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group and the Bank either directly or indirectly. The remuneration of key management personnel of the Group and the Bank are as follows: The Group The Bank RM'000 RM'000 RM'000 RM'000 Short-term employee benefits: - Salaries, allowances and commissions 11,283 6,010 10,284 4,445 - Bonuses 9,040 6,772 6,626 2,915 - Defined contribution plan 3,491 2,235 2,872 1,251 - Other employee benefits 1, , Benefit-in-kind Other emoluments 1, Directors' fees ,867 17,307 22,666 10,657 Included in the table above is the Managing Director's & Non-Executive Directors' remuneration as disclosed in Note 31. Loans to key management personnel: The Group and the Bank RM'000 RM'000 As at end of financial year The total remuneration awards of key management personnel including other material risk takers of the Bank for the financial year is as follows: The Bank Unrestricted Deferred RM'000 RM'000 Fixed Remuneration - Cash-based 14, Other 89 - Variable Remuneration - Cash-based 7,

112 Company No : U 32 Significant related party transactions and balances (continued) (e) Key management personnel compensation (continued) The total remuneration awards of key management personnel including other material risk takers of the Bank for the financial year is as follows: (continued) The Bank Unrestricted Deferred RM'000 RM'000 Fixed Remuneration - Cash-based 7, Other 90 - Variable Remuneration - Cash-based 3,381 - The number of key management personnel receiving variable remuneration during the financial year for Bank is 20 (2015 : 12). 33 Taxation The Group The Bank (restated) (restated) RM'000 RM'000 RM'000 RM'000 Malaysian income tax: - Current financial year 18,535 14,255 6, Deferred tax (Note 14) 9, ,956 1,021 28,026 15,151 15,107 1,021 (Over)/Under provision in prior years (1,429) 5,203-3,711 26,597 20,354 15,107 4,732 The numeric reconciliation between the applicable statutory income tax rate to the effective income tax rate of the The Group The Bank (restated) (restated) % % % % Statutory tax rate in Malaysia Tax effect in respect of: - Non-allowable expenses Non-taxable income (5.19) (16.42) (9.93) (26.98) - Impact of change in tax rate on deferred tax (Over)/Under provision in prior financial year (1.10) Other temporary differences not recognised in prior financial year Average effective tax rate

113 Company No : U 34 Earnings per share The basic earnings per 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 by the weighted average number of ordinary shares in issue during the financial year. The Group The Bank (restated) (restated) Net profit attributable to equity holders (RM'000) 85,705 33,051 72,858 20,154 Weighted average number of ordinary shares in issue ('000) 780, , , ,000 Basic earnings per share (sen) Dividends Dividends recognised as distribution to ordinary equity holders of the Bank: The Bank Amount of Amount of Gross dividend tax exempt Gross dividend tax exempt per share dividend per share dividend sen RM'000 sen RM'000 Ordinary share: - Final dividend for financial year ended , Interim dividend , , The Directors now recommend the payment of a final dividend of sen (2015: sen) gross per share amounting to RM10,800,000 (2015: RM3,042,000) for the financial year ended 31 December 2016, which is subject to approval of the shareholder at the forthcoming Annual General Meeting of the Bank. 111

114 Company No : U 36 Commitments and contingencies In the normal course of business, the Group and the Bank makes various commitments and incurs certain contingent liabilities with legal recourse to its customers. No material losses are anticipated as a result of these transactions. The principal amount of commitments and contingencies constitute the following: The Group and the Bank Principal Principal amount amount RM'000 RM'000 Direct credit substitutes* 110,050 98,850 Obligations under underwriting agreement 19,481 25,500 Irrevocable commitments to extend credit: - maturity less than one year 179, ,609 - maturity more than one year Interest rate related contracts**: - less than one year 300, one year to less than five years 370, ,000 Foreign exchange related contracts**: - less than one year 3,001,759 4,087,984 - one year to less than five years 220, ,755 Any commitments that are unconditionally cancelled at any time by the Bank without prior notice or that effectively provide for automatic cancellation due to deterioration in a borrower's creditworthiness 367, ,091 4,568,820 5,793,810 * Included in direct credit substitutes of the Group and the Bank are financial guarantee contracts of RM65 million, of which fair value at the time of issuance is zero. ** The fair value of these derivatives have been recognised as "derivative financial assets" and "derivative financial liabilities" in the statement of financial position and disclosed in Note 9 and 21 respectively to the financial statements. 112

115 Company No : U 37 Capital commitments Capital expenditure approved by Directors are not provided for in the financial statements amounted to approximately: The Group The Bank RM'000 RM'000 RM'000 RM'000 In respect of property and equipment: Authorised and contracted for , ,164 Authorised but not contracted for 10,269-8,760-10,665 13,917 9,156 4, Lease commitments The Group and the Bank have lease commitments in respect of rented premises and hired equipment, all of which are classified as operating lease. A summary of the future minimum lease payments under non-cancellable operating lease commitments are as follows: The Group The Bank RM'000 RM'000 RM'000 RM'000 Year Within one year 11,030 11,868 7,426 10,316 One to five years 3,429 9,074 1,044 8, Capital management With effect from 1 January 2013, the total capital and capital adequacy ratios of the Group and the Bank are computed in accordance with Bank Negara Malaysia s Capital Adequacy Framework (Capital Components) dated 28 November The Group and the Bank are currently adopting Standardised Approach for Credit Risk and Market Risk, the Basic Indicator Approach for Operational Risk. In line with the transitional arrangements under the Bank Negara Malaysia s Capital Adequacy Framework (Capital Components), the minimum capital adequacy requirement for Common Equity Tier 1 Capital Ratio ( CET 1 ) and Tier 1 Capital Ratio are 5.125% (2015: 4.50%) and 6.625% (2015: 6.00%) respectively for financial year ended 31 December The minimum regulatory capital adequacy requirement remains at 8.625% (2015: 8.00%) for total capital ratio. The Group and the Bank s objectives when managing capital are: To comply with the capital requirements set by the regulators of the banking markets where the entities within the Group and the Bank operates; To safeguard the Group and the Bank s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and 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 ( RWA ) above a minimum level agreed with the management which takes into account the risk profile of the Group and the Bank. 113

116 Company No : U 40 Capital adequacy The table below summarises the composition of regulatory capital and the ratios of the Group and the Bank for the financial year ended 31 December The Group The Bank RM'000 RM'000 RM'000 RM'000 (restated) (restated) Basel III Common Equity Tier (CET) 1 Capital : Paid-up share capital 780, , , ,000 Share premium 219, , , ,800 Statutory reserve 251, , , ,915 Retained profits 256, , , ,558 Unrealised loss on AFS instruments (26,830) (3,297) (26,901) (3,228) 1,480,476 1,439,346 1,508,188 1,480,045 Less : Other regulatory adjustment Goodwill and other intangible assets (323,090) (326,240) (316,645) (320,046) Investment in subsidiaries - - (108,692) (106,686) Collective allowance reserve (9,667) (5,594) (9,667) (5,594) Deferred tax assets (10,727) (12,741) (6,291) (7,770) CET 1 Capital 1,136,992 1,094,771 1,066,893 1,039,949 Additional Tier 1 Capital Qualifying non-controlling interests 3,000 3, Total Tier 1 Capital 1,139,992 1,097,771 1,066,893 1,039,949 Tier 2 Capital Collective impairment allowance # 12,525 14,531 12,525 14,531 Less : Regulatory adjustment Investment in subsidiaries - - (12,525) (14,531) Total Tier 2 Capital 12,525 14, Total Capital 1,152,517 1,112,302 1,066,893 1,039,949 Proposed dividends 10,800 3,042 10,800 3,042 Capital Ratios CET 1 Capital ratio % % % % Tier 1 Capital ratio % % % % Total Capital ratio % % % % # Qualifying collective impairment is restricted to allowances on the unimpaired portion of the loans, advances and financing. 114

117 Company No : U 40 Capital adequacy (continued) The Group The Bank RM'000 RM'000 RM'000 RM'000 (restated) (restated) CET 1 Capital ratio (net of proposed dividends) % % % % Tier 1 Capital ratio (net of proposed dividends) % % % % Total Capital ratio (net of proposed dividends) % % % % Credit risk 2,601,028 2,739,271 2,400,616 2,589,933 Market risk 188, , , ,305 Operational risk 705, , , ,105 Total RWA 3,495,016 3,591,627 2,991,705 3,234, Employee share option incentive scheme A subsidiary of the Bank, Affin Hwang Asset Management Berhad, has established and implemented a stock option incentive scheme for its key employees. The subsidiary granted 250 options on the date of stock option agreement dated 16 July The shareholders of the subsidiary have approved, and the subsidiary has adopted the scheme which provides for key employees to be vested with options to purchase ordinary shares of the subsidiary. The share option incentive scheme would provide the key employees with an appropriate incentive to encourage them to continue in the employment of the subsidiary and to improve the growth and profitability of the subsidiary. The main features of the share option scheme are, inter alia, as follows: 1. Eligible persons are key employees as defined by the stock option agreement. 2. The grant of the option is deemed to be incorporated in the terms of employment of the key employees with the subsidiary and the key employees are not required to make any payment to the subsidiary for the grant of the Options. 3. The share options will vest and become exercisable by the grantees in accordance with the stock option agreement in tranches The share option scheme shall be in force until 1 June All remaining vested options which have not been exercised will expire on the expiration date. The share options granted have performance and/or service based vesting conditions. Generally, the share options granted can be classified into four categories which are based on joining; time linked; performance linked and bonus kicker. In the event of an initial public offering is taking place on or before 1 June 2019, the share option incentive scheme will be settled in shares. Otherwise, the subsidiary is required to settle in cash. 115

118 Company No : U 41 Employee share option incentive scheme (continued) Movements in the number of share options awarded are as follows: Grant date As at 1 January 2016 Granted Exercised Expired As at December Jul The estimated fair value of each share option granted is between RM22.18 to RM28.36 per option. The exercise price of the options is RM40.30 per share and the weighted average remaining contractual life is 9 years. Total share-based payment expenses recognised in profit or loss during the financial year is amounted RM4.672 million (2015: Nil). 42 Subsequent event There are no material events subsequent to the end of the financial year other than the acquisition of entire share capital of ABB Trustee Berhad ("ABBT") comprising 100,000 ordinary shares of RM10 each (of which RM5 is uncalled), from Affin Bank Berhad for a total cash consideration of approximately RM630,000, based on the audited net asset value of ABBT as at 31 December 2015, subject to further adjustment if any. The entire share capital of ABBT is acquired by five shareholders in equal proportion, namely the Bank, Affin Hwang Nominees (Tempatan) Sdn Bhd, Affin Hwang Nominees (Asing) Sdn Bhd, AHC Global Sdn Bhd (formerly known as Classic Uptrend Sdn Bhd) and AHC Associates Sdn Bhd (formerly known as Sole Delta Sdn Bhd), each holding 20% equity interest in ABBT. The acquisition exercise was completed on 25 January Material Litigation A chargor of a piece of land ( the Land ) charged to the Bank as part of the collaterals for a syndicated facility granted to a borrower by a consortium financial institutions, had filed a claim against the Bank on 9 June 2016 for the sum of RM5,185, or in the alternative damages to be assessed, interests and costs, alleging that the Bank as Security Agent had failed to perform its contractual and/or statutory obligations in relation to the application of the sales proceeds of the Land and had wrongfully deducted the recovery and enforcement expenses, which included expenses for other properties/securities from the surplus of the sales proceed of the Land. As Security Agent, the consortium financial institutions will indemnify the Bank for the claim instituted against the Bank. On 15 November 2016, the Judge granted an order allowing the Bank s application to transfer the proceedings to Kuala Lumpur High Court and the case is now fixed for case management on 15 March

119 Company No : U 44 Financial risk management objectives and policies As a full-fledged investment bank, the Bank has established robust and comprehensive risk management policies and framework, based on best practices, to ensure that the salient risk elements in the operations of the Bank are adequately managed and mitigated. The Bank s framework for the management of financial risks is congruent with the primary corporate objective of creating and enhancing shareholders value, guided by a prudent and robust framework of risk management methodologies and policies. The Bank s risk management policies and framework are reviewed periodically to ensure that they are comprehensive in addressing the multi-faceted risks associated with the investment banking sector. The Group Risk Management ("GRM") at the group level is primarily responsible for the development and maintenance of the risk management policies and framework of the Bank and supports the functions of the Asset & Liability Committee ("ALCO"), the Board Risk Management Committee ("BRMC") and the Board Credit Review Committee ("BCRC"). A. Credit risk Credit risk is the potential risk of financial loss arising from defaults by counterparties in meeting their obligations. The Bank's exposure to credit risks arises primarily from share trading, share margin financing, corporate/inter-bank lending activities, bonds investment, foreign exchange trading as well as equity and debt underwriting and from participation in securities settlements and payment transactions. The management of credit risk is governed by a set of approved credit policies, guidelines, circulars and procedures to ensure that the overall lending objectives achieved are in compliance with the internal and regulatory requirements. The risk management policies are subject to review by the BRMC, a sub-committee of the Board that reviews the adequacy of the Bank s risk policies and framework. The Bank s credit risk framework is further strengthened with an established framework for the approval and review of proposals that comprises the Group Management Loan Committee ("GMLC") and the Board Credit Review Committee ("BCRC"). The GMLC represents the approving authority for credit and underwriting proposals, whilst the BCRC is the committee that reviews proposals that exceed specified limits and criteria, as well as to consider whether to reject the proposal or modify the terms of the proposal. A number of relevant factors are taken into consideration in the identification and analysis of counterparty credit risk. Each counterparty is assigned a credit rating under the Credit Risk Grading Policy, which considers factors such as competitive position, operating performance, cash flow strength and management strength. 117

120 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Credit risk measurement Loans, advances and financing Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank s underwriting criteria and the ability of the Bank to make a return commensurate to the level of risk undertaken. A critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in the risk assessment and decision making process. The Bank has developed internal rating models to support the assessment and quantification of credit risk. All corporate lending, underwritings and share margin financing applications are evaluated by the Bank's credit management function and forwarded to the relevant approving authorities based on the Authority Matrix approved by Board. 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, 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 derivatives due to potential exposure arising from market movements, and loan books are managed on an aggregated basis as part of the overall lending limits with customers. Collateral - - Charges over business assets, debentures, personal guarantee and corporate guarantee, sinking fund account and shares; and Charges over financial instruments such as marketable securities. Credit Related Commitments 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 long-term commitments generally have a greater degree of credit risk than short-term commitments. 118

121 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Credit risk monitoring 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 to 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 non-performing. 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 enhancing the knowledge and required skills set of its staff. It places strong emphasis on creating and enhancing risk awareness in the organisation. The Bank is supportive of credit officer in taking the Professional Credit Certification ("PCC") programme offered by the Asian Institute Of Chartered Bankers ("AICB"). Upon attaining the PCC certification, Credit officer is expected to demonstrate sound understanding of credit process and competence to undertake credit roles and responsibility. For effective and efficient staff learning, an E Learning Program is implemented with an online Learning Management System ("LMS"). The LMS provides staff with a progressive self-learning alternative at their own pace. Maximum exposure to credit risk For financial assets recognised in the statements of financial position, the exposure to credit risk equals their carrying amount. For financial guarantees granted, the maximum exposures to credit risk is the maximum amount that the Group and the Bank would have to pay if the guarantees were to be called upon. For loan commitments and other credit related commitments, the maximum exposure to credit risk is the full amount of the undrawn credit facilities granted to customers. All financial assets of the Group and the Bank are subject to credit risk except for cash in hand, equity securities held as financial assets held-for-trading or financial investments available-forsale, as well as non-financial assets. 119

122 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Maximum exposure to credit risk (continued) The exposure to credit risk of the Group and the Bank equals their carrying amount in the statements of financial position as at reporting date, except for the following: Credit risk exposures of on-balance sheet assets: The Group Maximum Maximum credit risk credit risk exposure exposure RM'000 RM'000 Cash and short-term funds & 601, ,960 Financial assets held-for-trading** 302, ,093 Financial investments available-for-sale # 4,498,257 3,650,351 Other assets* 101, ,158 5,503,632 4,444,562 Credit risk exposures of off-balance sheet items: Direct credit substitutes 110,050 98,850 Obligations under underwriting agreement 19,481 25,500 Irrevocable commitments to extend credit 179, ,630 Any commitments that are unconditionally cancelled at any time by the Bank without prior noticed or that effectively provide for automatic cancellation due to deterioration in a borrower's creditworthiness 367, , , ,071 Total maximum credit risk exposure 6,180,682 5,164,633 The following have been excluded for the purpose of maximum credit risk exposure calculation : & Cash on hand ** Investments in shares, unit trust, warrants and REITs # Investments in quoted and unquoted shares, unit trust and REITs * Prepayment 120

123 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Maximum exposure to credit risk (continued) The exposure to credit risk of the Group and the Bank equals their carrying amount in the statements of financial position as at reporting date, except for the following (continued): Credit risk exposures of on-balance sheet assets: The Bank Maximum Maximum credit risk credit risk exposure exposure RM'000 RM'000 Cash and short-term funds & 265, ,690 Financial assets held-for-trading** 281, ,093 Financial investments available-for-sale # 4,497,271 3,649,365 Other assets* 99,100 96,481 5,142,983 4,221,629 Credit risk exposures of off-balance sheet items: Direct credit substitutes 110,050 98,850 Obligations under underwriting agreement 19,481 25,500 Irrevocable commitments to extend credit 179, ,630 Any commitments that are unconditionally cancelled at any time by the Bank without prior noticed or that effectively provide for automatic cancellation due to deterioration in a borrower's creditworthiness 367, , , ,071 Total maximum credit risk exposure 5,820,033 4,941,700 The following have been excluded for the purpose of maximum credit risk exposure calculation : & Cash on hand ** Investments in shares, unit trust, warrants and REITs # Investments in quoted and unquoted shares and REITs * Prepayment 121

124 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Maximum exposure to credit risk (continued) Whilst the Group and the Bank's maximum exposure to credit risk is the carrying value of the assets, or in the case of off-balance sheet items, the amount guaranteed, committed or accepted, in most cases the likely exposure is reduced by collateral, credit enhancements and other actions taken to mitigate the credit exposure. The financial effect of collateral held for loans, advances and financing is 14.57% as at 31 December 2016 (2015: 26.80%). The financial effects of collateral for the other financial assets are insignificant. 122

125 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Credit risk concentrations Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The following tables analyse the Group and the Bank s financial assets and commitments and contingencies by industry concentration as at the reporting date: Deposit and placements Financial Financial Financial Cash and with banks and assets investments investments Loans, Derivative Total on- Commitments short-term other financial held-for- available- held-to- advances and Trade financial Other balance and The Group funds institutions trading for-sale maturity financing receivables assets assets sheet contingencies RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Agricultural , ,596 - Mining and quarrying ,555-54, ,604 19,481 Manufacturing ,667 8, , ,828 65,000 Electricity, gas and water ,614-19, , ,894 10,000 Construction ,730-61, ,113 67,305 Real estate , , , ,167 54,117 Wholesale, retail trade, hotel & restaurant ,168-53, ,820 27,200 Transport, storage and communication ,526 25, , ,049 - Finance, insurance and business 601,292 20, , ,554-77,069 82, ,087 87,201 2,164,629 - Government and government agencies , ,878 - Education, Health and Others ,975-59, ,955 - Purchase of securities , ,802 - Others , , ,520 10, , , , ,417 & 20, ,675 # 4,498,257 ## 33,563 1,079, , , ,283 * 7,286, ,050 & Excludes cash in hand of RM51,000 # Excludes investments in unit trust, shares, warrants and REITS amounting to RM23.63 million ## Excludes investments in unit trust, quoted and unquoted shares net of impairment allowance amounting to RM million * Excludes prepayment amounting to RM6.27 million. 123

126 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Credit risk concentrations (continued) Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The following tables analyse the Group and the Bank s financial assets and commitments and contingencies by industry concentration as at the reporting date (continued): Deposit and placements Financial Financial Financial Cash and with banks and assets investments investments Loans, Derivative Total on- Commitments short-term other financial held-for- available- held-to- advances and Trade financial Other balance and The Group funds institutions trading for-sale maturity financing receivables assets assets sheet contingencies RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Agricultural , ,269 63,273 - Mining and quarrying ,869-66, ,050 - Manufacturing ,373 10,950 37, ,451 70,319 Electricity, gas and water ,599-70, , ,215 26,097 Construction , , , ,094 67,305 Real estate ,706-88, , ,255 70,635 Wholesale, retail trade, hotel & restaurant , , , ,079 - Transport, storage and communication ,198 26, , , Finance, insurance and business 461, , , ,764 40, ,112 54, ,983 80,195 2,292,233 50,000 Government and government agencies , ,740 - Education, Health and Others ,518-59, ,372 31,884 Purchase of securities , ,617 - Others , ,127 13,486-9, , , ,960 & 145, ,093 # 3,650,351 ## 78,651 1,240, , , ,158 * 6,579, ,071 & Excludes cash in hand of RM44,000 # Excludes investments in unit trust, shares, warrants and REITS amounting to RM42.2 million ## Excludes investments in unit trust, quoted and unquoted shares net of impairment allowance amounting to RM357.7 million * Excludes prepayment amounting to RM11.4 million. 124

127 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Credit risk concentrations (continued) Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The following tables analyse the Group and the Bank s financial assets and commitments and contingencies by industry concentration as at the reporting date (continued): Deposit and placements Financial Financial Financial Cash and with banks and assets investments investments Loans, Derivative Total on- Commitments short-term other financial held-for- available- held-to- advances and Trade financial Other balance and The Bank funds institutions trading for-sale maturity financing receivables assets assets sheet contingencies RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Agricultural , ,596 - Mining and quarrying ,555-54, ,604 19,481 Manufacturing ,667 8, , ,828 65,000 Electricity, gas and water ,614-19, , ,763 10,000 Construction ,730-61, ,113 67,305 Real estate , , , ,167 54,117 Wholesale, retail trade, hotel & restaurant ,168-53, ,820 27,200 Transport, storage and communication ,526 25, , ,021 - Finance, insurance and business 265,268 20, , ,568-77, ,087 86,823 1,723,467 - Government and government agencies , ,878 - Education, Health and Others ,975-59, ,955 - Purchase of securities , ,801 - Others , , , , , , ,393 & 20, ,219 # 4,497,271 ## 33,563 1,079, , ,088 99,100 * 6,833, ,050 & Excludes cash in hand of RM49,000 # Excludes investments in shares, warrants and REITS amounting to RM18.76 million ## Excludes investments in unit trust, quoted and unquoted shares net of impairment allowance amounting to RM million * Excludes prepayment amounting to RM5.43 million. 125

128 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Credit risk concentrations (continued) Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The following tables analyse the Group and the Bank s financial assets and commitments and contingencies by industry concentration as at the reporting date (continued): Deposit and placements Financial Financial Financial Cash and with banks and assets investments investments Loans, Derivative Total on- Commitments short-term other financial held-for- available- held-to- advances and Trade financial Other balance and The Bank funds institutions trading for-sale maturity financing receivables assets assets sheet contingencies RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Agricultural , ,269 63,273 - Mining and quarrying ,869-66, ,050 - Manufacturing ,373 10,950 37, ,451 70,319 Electricity, gas and water ,599-70, , ,102 26,097 Construction , , , ,094 67,305 Real estate ,706-88, , ,255 70,635 Wholesale, retail trade, hotel & restaurant , , , ,079 - Transport, storage and communication ,198 26, , , Finance, insurance and business 244, , , ,778 40, , ,983 80,045 2,018,837 50,000 Government and government agencies , ,740 - Education, Health and Others ,518-59, ,372 31,884 Purchase of securities , ,617 - Others , , , , , ,690 & 145, ,093 # 3,649,365 ## 78,651 1,240, , ,991 96,481 * 6,288, ,071 & Excludes cash in hand of RM42,000 # Excludes investments in shares, warrants and REITS amounting to RM33.6 million ## Excludes investments in unit trust, quoted and unquoted shares net of impairment allowance amounting to RM309.3 million * Excludes prepayment amounting to RM10.5 million. 126

129 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Description of collateral held as security and other credit enhancement for loans, advances and financing. The main types of collateral obtained by the Group and the Bank are as follows: - For corporate loans, charges over the business assets such as premises, equipment and fixed deposits; and - For share margin financing charges over marketable securities. 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 3 months (i.e. 90 days) or with impaired allowances. The Group and the Bank RM' RM'000 Distribution of loans, advances and financing by credit quality: Carrying amount of loans, advances and financing by credit quality: - Neither past due nor impaired 1,051,115 1,170,262 - Past due but not impaired ,589 - Impaired 49,307 66,375 Gross loans, advances and financing 1,100,629 1,275,226 Less: Allowances for impairment - Individual (18,176) (25,126) - Collective (3,323) (9,407) (21,499) (34,533) Net loans, advances and financing 1,079,130 1,240,

130 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Total loans, advances and financing - credit quality (continued) (a) Loans neither past due nor impaired Analysis of loans and advances that are neither past due nor impaired analysed based on the Group and the Bank's internal grading system are as follows: The Group and the Bank RM' RM'000 Quality classification Satisfactory 1,051,115 1,170,262 Special mention - - Quality classification definitions: i) Satisfactory - For corporate loans mean exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or levels of expected loss. ii) - For share margin financing means accounts that are not impaired/due. Special mention - Exposures require varying degrees of special attention and default risk is of greater concern. (b) Loans past due but not impaired Certain loans, advances and financing are past due but not impaired as the collateral values of these loans are in excess of the principal and profit outstanding. Allowances for these loans may have been set aside on a portfolio basis. The Bank s loans, advances and financing which are past due but not impaired are as follows: The Group and the Bank RM'000 RM'000 Past due up to 30 days ,589 Past due days - - Past due days ,

131 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Total loans, advances and financing - credit quality (continued) (c) Loans that are individually determined to be impaired as at reporting date: The Group and the Bank RM'000 RM'000 Analysis of impaired loans: Gross individually assessed loans, advances and financing 49,307 66,375 Less: individual impairment (18,176) (25,126) Net individually assessed impaired loans 31,131 41,249 Collateral and other credit enhancements obtained During the financial year, the Bank has not obtained any assets by taking possession of collateral held as security or calling upon other credit enhancements. There is no repossessed collateral as at the reporting date. Other financial assets Other financial assets of the Group and the Bank are summarised as follows: The Group Neither past due nor Total gross impaired Impaired amount RM'000 RM'000 RM'000 Cash and short-term funds 601, ,417 Trade receivables 527,568 1, ,273 Other assets 101,283 6, ,417 Deposits and placements with banks and other FIs 20,637-20,637 Total 1,250,905 7,839 1,258,744 Less: Impairment allowances - (7,502) (7,502) Total net amount 1,250, ,251,

132 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Other financial assets (continued) Other financial assets of the Group and the Bank are summarised as follows (continued): The Group Neither past due nor Total gross impaired Impaired amount RM'000 RM'000 RM'000 Cash and short-term funds 461, ,960 Trade receivables 549,772 4, ,232 Other assets 101,158 10, ,295 Deposits and placements with banks and other FIs 145, ,474 Total 1,258,364 14,597 1,272,961 Less: Impairment allowances - (14,276) (14,276) Total net amount 1,258, ,258,685 The Bank Neither past due nor Total gross impaired Impaired amount RM'000 RM'000 RM'000 Cash and short-term funds 265, ,393 Trade receivables 434,464 1, ,169 Other assets 99,100 6, ,234 Deposits and placements with banks and other FIs 20,637-20,637 Total 819,594 7, ,433 Less: Impairment allowances - (7,502) (7,502) Total net amount 819, ,931 The Bank Cash and short-term funds 244, ,690 Trade receivables 481,296 4, ,756 Other assets 96,481 10, ,618 Deposits and placements with banks and other FIs 145, ,474 Total 967,941 14, ,538 Less: Impairment allowances - (14,276) (14,276) Total net amount 967, ,

133 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Private debts securities, treasury bills and derivatives Private debts 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 financial investments are rated by external rating agencies. The Group and the Bank mainly uses external credit ratings provided by RAM, MARC or Moody's. The table below presents an analysis of debts securities, credit quality of cash & short funds, deposit and placements of bank and other financial institutions and derivative financial assets. Cash and short term funds exclude cash in hand, securities include financial assets held-for-trading, financial investment available-for-sale and financial investment held-to-maturity. The Group Sovereign AAA AA- to AA+ A- to A+ Lower than A- Unrated Impaired* Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Cash and short-term funds , , , ,417 Deposits and placements with banks and other financial institutions - 10,000 10, ,637 Financial assets held-for-trading - Negotiable instruments of deposits , , ,015 - Corporate bonds and/or sukuk in Malaysia ,204 4,234-1,780-31,218 - Corporate bonds and/or sukuk outside Malaysia ,903 5,864 5,675-15,442 Financial investments available-for-sale: - Malaysian government securities 228, ,087 - Malaysian government islamic investment issue 288, ,667 - Corporate bonds and/or sukuk in/outside Malaysia 1,882, , , ,392 68, ,967 3,835,620 - Sukuk Perumahan Kerajaan 79, ,286 - Cagamas bonds - 66, ,597 Financial investments held-to-maturity - Corporate bonds and/or sukuk in Malaysia ,471 8,092 33,563 Derivative financial assets - 6,785 12,628 47,257-55, ,088 2,478,592 1,304,955 1,075, ,368 74, ,097 8,092 5,578,637 * Net of allowance for impairment. Collateral is not generally obtained directly from the issues of debt securities. Certain debt securities may be collaterised by specifically identified assets that would be obtainable in the event of default. 131

134 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Private debts securities, treasury bills and derivatives (continued) The table below presents an analysis of debts securities, credit quality of cash & short funds, deposit and placements of bank and other financial institutions and derivative financial assets. Cash and short term funds exclude cash on hand, securities include financial assets held-for-trading, financial investment available-for-sale and financial investment held-tomaturity. (continued) The Group Sovereign AAA AA- to AA+ A- to A+ Lower than A- Unrated Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Cash and short-term funds , , , ,960 Deposits and placements with banks and other financial institutions - 65,474 40,000-40, ,474 Financial assets held-for-trading - - Negotiable instruments of deposits , ,093 Financial investments available-for-sale: - Malaysian government securities 19, ,895 - Negotiable instruments of deposits , ,036 - Malaysian government islamic investment issue 675, ,049 - Corporate bonds and/or sukuk in/outside Malaysia 486, , , , ,105 2,757,574 - Sukuk Perumahan Kerajaan 97, ,695 - Cagamas bonds - 20, ,102 Financial investments held-to-maturity - Corporate bonds and/or sukuk in Malaysia ,330-68,321 78,651 Derivative financial assets - 2,629 10,690 43,392-63, ,991 1,279,023 1,117,626 1,315, ,946 40, ,663 4,687,520 Collateral is not generally obtained directly from the issues of debt securities. Certain debt securities may be collaterised by specifically identified assets that would be obtainable in the event of default. 132

135 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Private debts securities, treasury bills and derivatives (continued) The table below presents an analysis of debts securities, credit quality of cash & short funds, deposit and placements of bank and other financial institutions and derivative financial assets. Cash and short term funds exclude cash on hand, securities include financial assets held-for-trading, financial investment available-for-sale and financial investment held-to-maturity. (continued) The Bank Sovereign AAA AA- to AA+ A- to A+ Lower than A- Unrated Impaired* Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Cash and short-term funds , , , ,393 Deposits and placements with banks and other financial institutions - 10,000 10, ,637 Financial assets held-for-trading - Negotiable instruments of deposits , , ,015 - Corporate bonds and/or sukuk in Malaysia , ,204 Financial investments available-for-sale: - Malaysian government securities 228, ,087 - Malaysian government islamic investment issue 288, ,667 - Corporate bonds and/or sukuk in/outside Malaysia 1,882, , , ,392 68, ,967 3,834,634 - Sukuk Perumahan Kerajaan 79, ,286 - Cagamas bonds - 66, ,597 Financial investments held-to-maturity - Corporate bonds and/or sukuk in Malaysia ,471 8,092 33,563 Derivative financial assets - 6,785 12,628 47,257-55, ,088 2,478, ,043 1,067, ,231 68, ,783 8,092 5,220,171 * Net of allowance for impairment. Collateral is not generally obtained directly from the issues of debt securities. Certain debt securities may be collaterised by specifically identified assets that would be obtainable in the event of default. 133

136 Company No : U 44 Financial risk management objectives and policies (continued) A. Credit risk (continued) Private debts securities, treasury bills and derivatives (continued) The table below presents an analysis of debts securities, credit quality of cash & short funds, deposit and placements of bank and other financial institutions and derivative financial assets. Cash and short term funds exclude cash on hand, securities include financial assets held-for-trading, financial investment available-for-sale and financial investment held-tomaturity. (continued) The Bank Sovereign AAA AA- to AA+ A- to A+ Lower than A- Unrated Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Cash and short-term funds , , , ,690 Deposits and placements with banks and other financial institutions - 65,474 40,000-40, ,474 Financial assets held-for-trading - Negotiable instruments of deposits , ,093 Financial investments available-for-sale: - Malaysian government securities 19, ,895 - Negotiable instruments of deposits , ,036 - Malaysian government islamic investment issue 675, ,049 - Corporate bonds and/or sukuk in/outside Malaysia 486, , , , ,105 2,756,588 - Sukuk Perumahan Kerajaan 97, ,695 - Cagamas bonds - 20, ,102 Financial investments held-to-maturity - Corporate bonds and/or sukuk in Malaysia ,330-68,321 78,651 Derivative financial assets - 2,629 10,690 43,392-63, ,991 1,279, ,321 1,286, ,946 40, ,663 3,959,109 Collateral is not generally obtained directly from the issues of debt securities. Certain debt securities may be collaterised by specifically identified assets that would be obtainable in the event of default. 134

137 Company No : U 44 Financial risk management objectives and policies (continued) B. Market risk Market risk is the risk of losses to the Bank s positions in financial instruments that are adversely affected by movements in market risk factors such as interest rates, foreign exchange rates, equity prices or commodity prices. The Bank's primary market risk exposures are in the trading and investment portfolios. The Bank s risk management process involves the identification and measurement, mitigation and control, monitoring and testing as well as reporting and review of risk. The Bank manages market risk through a comprehensive set of market risk controls. Key risk governance committees such as the Asset & Liability Committee ("ALCO") and the Board Risk Management Committee ("BRMC") establish and monitor controls with oversight by the Board of Directors. Market risk controls are established to ensure that the Bank's market risk profile remains within the boundaries of the Bank's risk appetite. The Bank employs several key risk metric for monitoring market risk such as Value-at-Risk ("VaR"), instrument specific sensitivities, loss limiting thresholds and position size caps. The Bank s market risk is primarily concentrated in interest rate risk in the Banking Book ("IRRBB") arising from differences in the repricing mismatch between rate sensitive assets and liabilities. The Bank monitors and assess the IRRBB exposures through the short-term Net Interest Income ("NII") sensitivity and changes in the Economic Value of Equity ("EVE"). In addition to assessing market risk under normal market scenarios, the Bank also conducts periodical stress testing to anticipate potential losses under stressed scenarios. Market Risk Measurement Value-at-risk ("VaR") VaR is a statistical measure of potential portfolio market value loss resulting from changes in market variables such as foreign exchange rates and interest rates, over a given holding period, measured at a specific confidence level. The Variance-Covariance Parametric methodology is adopted to compute the potential portfolio market value loss amount. This is a statistically defined, probability-based approach that uses volatilities and correlations to quantify market risks. Under this methodology, a matrix of historical volatilities and correlations is derived. VaR is then computed by applying these volatilities and correlations to the outstanding trading portfolio. 135

138 Company No : U 44 Financial risk management objectives and policies (continued) B. Market risk (continued) The table below sets out a summary of the Bank s VaR profile by financial instrument types for the trading portfolio. Value-at-Risk (VaR) Average for the financial Balance year Minimum The Bank RM RM RM Instruments Maximum RM FX Related Contracts 69,962 93, ,431 Bonds 50, ,941 2, ,920 Value-at-Risk (VaR) Average for the financial Balance year Minimum The Bank RM RM RM Instruments Maximum RM FX Related Contracts 84,438 70, ,580 Bonds 66,295 77, ,011 Other Risk Measures i) Mark-to-Market Mark-to-market valuation tracks the current market value of the outstanding financial instruments. ii) Stress Testing Stress tests are conducted to attempt to quantify potential market risk losses arising from low probability abnormal market movements. Stress tests measure the changes in values arising from extreme movements in relevant market risk factors based on past experience and simulated stress scenarios. iii) Sensitivity Sensitivities are measures that quantify the change in value of a portfolio of financial instruments resulting from a unit change in the relevant market risk factors. Sensitivities are used as measures of vulnerability to market risk factor movements and are also used to facilitate the implementation of risk controls and hedging strategies. 136

139 Company No : U 44 Financial risk management objectives and policies (continued) B. Market risk (continued) Net interest income sensitivity The information below shows the net interest income sensitivity for the financial assets and financial liabilities held at reporting date. The sensitivity has been measured using the Repricing Gap Simulation methodology based on 100 basis points parallel shifts in the interest rate. The Bank basis point basis point basis point basis point RM million RM million RM million RM million Impact on profit after taxation (35.37) (21.10) Impact on equity (196.66) (126.72) Foreign exchange risk sensitivity analysis The following table sets out the analysis of the exposures to access the impact of a 1% change in the exchange rates to the profit. The Group The Bank RM'000 RM'000 RM'000 RM' % Australian Dollar New Zealand Dollar United States Dollar (3,081) (446) (3,267) (472) Singapore Dollar 1,065 (16) 1,048 (28) Others (228) 24 (228) (2) The Group The Bank RM'000 RM'000 RM'000 RM'000-1% Australian Dollar (59) (35) (44) (13) New Zealand Dollar (115) (17) (115) (17) United States Dollar 3, , Singapore Dollar (1,065) 16 (1,048) 28 Others 228 (24)

140 Company No : U 44 Financial risk management objectives and policies (continued) B. Market risk (continued) Foreign exchange risk The Group and the Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Controls are imposed on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. The table summarises the Group and the Bank's exposure to foreign currency exchange rate risk at reporting date. Included in the table are the Group and the Bank's financial instruments at carrying amounts, categorised by currency. The Group Assets Cash and short-term funds Financial assets held-for-trading Financial investments availablefor-sale Loans, advances and financing Trade receivables Other financial assets Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Trade payables Other financial liabilities Net on-balance sheet financial position Off balance sheet commitments 138

141 Company No : U 44 Financial risk management objectives and policies (continued) B. Market risk (continued) Foreign exchange risk (continued) The Group Assets Cash and short-term funds Financial assets held-for-trading Financial investments availablefor-sale Loans, advances and financing Trade receivables Other financial assets Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Trade payables Other financial liabilities Net on-balance sheet financial position Off balance sheet commitments 139

142 Company No : U 44 Financial risk management objectives and policies (continued) B. Market risk (continued) Foreign exchange risk (continued) The Bank Assets Cash and short-term funds Financial investments available-for-sale Loans, advances and financing Trade receivables Other financial assets Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Trade payables Other financial liabilities Net on-balance sheet financial position Off balance sheet commitments The Bank Assets Cash and short-term funds Financial investments available-for-sale Loans, advances and financing Trade receivables Other financial assets Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Trade payables Other financial liabilities Net on-balance sheet financial position Off balance sheet commitments 140

143 Company No : U 44 Financial risk management objectives and policies (continued) C. Interest rate risk Sensitivity to interest rates arises from repricing mismatch between interest rate sensitive assets and liabilities. One of the major causes of these mismatches is timing differences in the repricing of the assets and liabilities. These mismatches are actively managed as part of the overall interest rate risk management process which is conducted in accordance with the applicable policies. The following table represents the Group's and the Bank's assets and liabilities of carrying amount, categorised by the earlier of contractual repricing or maturity date as at reporting date. < Non-trading book > Up to Over Non-interest Trading The Group 1 month months months years 5 years sensitive book Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 291, , ,468 Deposits and placements with banks and other financial institutions , ,637 Securities: - Financial assets held-for-trading , ,302 - Financial investments available-for-sale 17,007 37, ,086 1,434,625 2,710, , ,847,957 - Financial investments held-to-maturity - - 2,120 22,235 9, ,563 Loans, advances and financing: - Performing 726, ,978 40,535 2,313 3,057 (3,323) ^ - 1,047,999 - Impaired loans ,131-31,131 Derivative financial assets 122, ,088 Other assets (1) 76, , ,464 Statutory deposits with Bank Negara Malaysia , ,740 Total assets 1,111, , ,741 1,479,173 2,723,053 1,477, ,390 7,844,349 + Included in financial investments available-for-sale is impairment on securities of RM23.2 million. ^ The negative balance represents collective impairment allowance for loans, advances and financing. (1) Other assets include trade receivables and other assets. 141

144 Company No : U 44 Financial risk management objectives and policies (continued) C. Interest rate risk (continued) < Non-trading book > Up to Over Non-interest Trading The Group 1 month months months years 5 years sensitive book Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Liabilities Deposits from customers 2,436,998 1,691, , ,000-33,968-5,002,565 Deposits and placement of banks and other financial institution 483, , ,561 Obligations on securities sold under repurchase agreements 95,981 49, ,878 Trade payables , ,497 Derivative financial liabilities , ,291 Other liabilities (2) 8, , ,829 Total liabilities 3,024,903 1,740, , , , ,291 6,720,621 Net interest sensitivity gap (1,913,201) (1,424,551) (451,289) 1,379,173 2,723,053 (2) Other liabilities include other liabilities and amount due to related company. 142

145 Company No : U 44 Financial risk management objectives and policies (continued) C. Interest rate risk (continued) < Non-trading book > Up to Over Non-interest Trading The Group 1 month months months years 5 years sensitive book Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 270, , ,004 Deposits and placements with banks and other financial institutions , ,474 Securities: - Financial assets held-for-trading , ,302 - Financial investments available-for-sale 30,002 8, ,420 1,621,665 1,717, , ,008,065 - Financial investments held-to-maturity ,525 41,430 14, ,651 Loans, advances and financing: - Performing 727, , ,131 2,616 4,510 (5,672) ^ - 1,199,444 - Impaired loans ,249-41,249 Derivative financial assets , ,991 Other assets (1) 75, , ,634 Statutory deposits with Bank Negara Malaysia , ,850 Total assets 1,103, , ,076 1,810,711 1,735,781 1,389, ,293 7,168,664 + Included in financial investments available-for-sale is impairment on securities of RM17.4 million. ^ The negative balance represents collective impairment allowance for loans, advances and financing. (1) Other assets include trade receivables and other assets. 143

146 Company No : U 44 Financial risk management objectives and policies (continued) C. Interest rate risk (continued) < Non-trading book > Up to Over Non-interest Trading The Group 1 month months months years 5 years sensitive book Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Liabilities Deposits from customers 1,865, , ,543 1,000,000-38,974-4,314,040 Deposits and placement of banks and other financial institution 749, ,852 Trade payables , ,321 Derivative financial liabilities , ,891 Other liabilities (2) 12, , ,454 Total liabilities 2,627, , ,543 1,000, , ,891 6,084,558 Net interest sensitivity gap (1,523,814) (470,337) (203,467) 810,711 1,735,781 (2) Other liabilities include other liabilities and amount due to related company. 144

147 Company No : U 44 Financial risk management objectives and policies (continued) C. Interest rate risk (continued) < Non-trading book > Up to Over Non-interest Trading The Bank 1 month months months years 5 years sensitive book Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 265, ,442 Deposits and placements with banks and other financial institutions , ,637 Securities: - Financial assets held-for-trading , ,982 - Financial investments available-for-sale 17,006 37, ,086 1,434,625 2,709, , ,825,864 - Financial investments held-to-maturity - - 2,120 22,235 9, ,563 Loans, advances and financing: - Performing 726, ,978 40,535 2,313 3,057 (3,323) ^ - 1,047,999 - Impaired loans ,131-31,131 Derivative financial assets , ,088 Other assets (1) 76, , ,114 Statutory deposits with Bank Negara Malaysia , ,740 Total assets 1,085, , ,741 1,479,173 2,722,062 1,053, ,070 7,366,560 + Included in financial investments available-for-sale is impairment on securities of RM23.2 million. ^ The negative balance represents collective impairment allowance for loans, advances and financing. (1) Other assets include trade receivables, other assets and amount due from subsidiaries. 145

148 Company No : U 44 Financial risk management objectives and policies (continued) C. Interest rate risk (continued) < Non-trading book > Up to Over Non-interest Trading The Bank 1 month months months years 5 years sensitive book Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Liabilities Deposits from customers 2,436,998 1,691, , ,000-33,968-5,002,565 Deposits and placement of banks and other financial institution 483, , ,561 Obligations on securities sold under repurchase agreements 95,981 49, ,878 Trade payables , ,197 Derivative financial liabilities , ,291 Other liabilities 8, , ,029 Total liabilities 3,024,903 1,740, , , , ,291 6,355,521 Net interest sensitivity gap (1,939,506) (1,424,551) (451,289) 1,379,173 2,722,

149 Company No : U 44 Financial risk management objectives and policies (continued) C. Interest rate risk (continued) < Non-trading book > Up to Over Non-interest Trading The Bank 1 month months months years 5 years sensitive book Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 244, ,732 Deposits and placements with banks and other financial institutions , ,474 Securities: - Financial assets held-for-trading , ,657 - Financial investments available-for-sale 30,002 8, ,420 1,621,665 1,717, , ,958,666 - Financial investments held-to-maturity ,525 41,430 14, ,651 Loans, advances and financing: - Performing 727, , ,131 2,616 4,510 (5,672) ^ - 1,199,444 - Impaired loans ,249-41,249 Derivative financial assets , ,991 Other assets (1) 75, , ,578 Statutory deposits with Bank Negara Malaysia , ,850 Total assets 1,077, , ,076 1,810,711 1,735,781 1,098, ,648 6,843,292 + Included in financial investments available-for-sale is impairment on securities of RM17.4 million. ^ The negative balance represents collective impairment allowance for loans, advances and financing. (1) Other assets include trade receivables, other assets and amount due from subsidiaries. 147

150 Company No : U 44 Financial risk management objectives and policies (continued) C. Interest rate risk (continued) < Non-trading book > Up to Over Non-interest Trading The Bank 1 month months months years 5 years sensitive book Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Liabilities Deposits from customers 1,865, , ,543 1,000,000-38,974-4,314,040 Deposits and placement of banks and other financial institution 749, ,852 Trade payables , ,090 Derivative financial liabilities , ,891 Other liabilities 12, , ,249 Total liabilities 2,627, , ,543 1,000, , ,891 5,861,122 Net interest sensitivity gap (1,549,436) (470,337) (203,467) 810,711 1,735,

151 Company No : U for the financial year to 31 December 2016 (continued) 44 Financial risk management objectives and policies (continued) D. Liquidity risk Basel III Liquidity Standards The Basel Committee developed the Liquidity Coverage Ratio ("LCR") and Net Stable Funding Ratio ("NSFR") with the goal of strengthening the resilience of the banking systems. The LCR and NSFR are tracked monthly to assess the short term and long term liquidity risk profile of the Bank. ALCO is responsible for the day-today strategic management of the Bank's BRMC on a periodical basis. liquidity and reporting of the Bank's liquidity position to the Liquidity risk disclosure table which is based on contractual undiscounted cash flow The information below provides analysis of cash flow payables for financial liabilities based on remaining contractual maturities on undiscounted basis. The balances in the table below do not agree directly to the balances reported in the statement of financial position as the information incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments. Up to 1 >1-3 >3-12 >1-5 Over 5 The Group month months months years years Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Liabilities Deposits from customers 2,449,183 1,718, , ,584-5,041,850 Deposits and placements of banks and other financial institutions 485, ,095 Obligations on securities sold under repurchase agreements 96,750 49, ,148 Trade payable 724, ,497 Amount due to related company Other liabilities 97,781 17,336 95,372 1, ,433 3,853,702 1,785, , ,528-6,610,419 Up to 1 >1-3 >3-12 >1-5 Over 5 The Group month months months years years Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Liabilities Deposits from customers 1,881, , ,021 1,068,370-4,393,773 Deposits and placements of banks and other financial institutions 750, ,216 Trade payable 642, ,321 Amount due to related company Other liabilities 91,114 38, , ,765 3,366, , ,478 1,069,136-6,022,

152 Company No : U for the financial year to 31 December 2016 (continued) 44 Financial risk management objectives and policies (continued) D. Liquidity risk (continued) Liquidity risk disclosure table which is based on contractual undiscounted cash flow (continued) The information below provides analysis of cash flow payables for financial liabilities based on remaining contractual maturities on undiscounted basis. The balances in the table below do not agree directly to the balances reported in the statement of financial position as the information incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments. (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Liabilities Deposits from customers 2,449,183 1,718, , ,584-5,041,850 Deposits and placements of banks and other financial institutions 485, ,095 Obligations on securities sold under repurchase agreements 96,750 49, ,148 Trade payable 419, ,197 Other liabilities 75,662 17,336 58,087 1, ,029 3,525,887 1,785, , ,528-6,245,319 Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Liabilities Deposits from customers 1,881, , ,021 1,068,370-4,393,773 Deposits and placements of banks and other financial institutions 750, ,216 Trade payable 470, ,090 Other liabilities 89,599 17,407 77, ,249 3,191, , ,498 1,069,136-5,799,

153 Company No : U for the financial period ended to 31 December 2016 (continued) 44 Financial risk management objectives and policies (continued) D. Liquidity risk (continued) Derivative financial liabilities Derivative financial liabilities based on contractual undiscounted cash flow: Derivatives settled on a net basis The Group and the Bank Up to 1 >1-3 >3-12 >1-5 Over 5 month months months years years Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Interest rate derivatives - (19) The Group and the Bank Interest rate derivatives Derivatives settled on a gross basis The Group and the Bank Up to 1 >1-3 >3-12 >1-5 Over 5 month months months years years Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Foreign exchange derivatives: Outflow 582, , , ,013-1,836,834 Inflow (571,333) (403,282) (606,588) (110,585) - (1,691,788) 10,942 9, ,642 5, ,046 The Group and the Bank Foreign exchange derivatives: Outflow 1,538, , , ,651-2,686,890 Inflow (1,532,842) (161,202) (377,485) (480,784) - (2,552,313) 5,688 6,926 31,096 90, ,

154 Company No : U for the financial year to 31 December 2016 (continued) 44 Financial risk management objectives and policies (continued) D. Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities The maturities of on-balance sheet assets and liabilities as well as other off-balance sheet assets and liabilities, commitments and counterguarantees are important factors in assessing the liquidity of the Bank. The table below provides analysis of assets and liabilities into relevant maturity tenures based on remaining contractual maturities: Up to 1 >1-3 >3-12 >1-5 Over 5 No specific The Group month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Assets Cash and short-term funds 601, ,468 Deposits and placements with banks and other financial institutions , ,637 - Financial assets held-for-trading ,016 35,872 10,788 23, ,302 - Financial investments available -for-sale 17,324 37, ,767 1,420,882 2,693, ,243 4,847,957 - Financial investments held-to -maturity - - 2,122 22,288 9,153-33,563 Loans, advances and financing 244,755 20,169 64, , ,902-1,079,130 Trade receivables 527, ,905 Derivative financial assets 13,595 14,732 85,642 8, ,088 Other assets 7,936 2,552 34,922 42,201 3,573 16, ,559 Statutory deposits with Bank Negara Malaysia 177, ,740 Other non-financial assets (1) , ,180 Total Assets 1,590,723 75, ,729 2,070,043 2,946, ,424 8,242,529 Liabilities Deposits from customers 2,446,711 1,707, , , ,002,565 Deposits and placements of banks and other financial institutions 484, ,561 Obligations on securities sold under repurchase agreements 96,640 49, ,878 Trade payables 724, ,497 Derivative financial liabilities 11,249 9, ,387 7, ,291 Other liabilities 97,781 17,336 95,372 1, ,433 Other non-financial liabilities (2) Total Liabilities 3,861,439 1,784, , , ,720,681 Net liquidity gap (2,270,716) (1,709,148) (272,158) 1,958,412 2,946, ,968 1,521,848 (1) (2) Other non-financial assets includes deferred tax assets, tax recoverable, property and equipment and intangible assets. Other non-financial liabilities includes provision for taxation and amount due to related party. 152

155 Company No : U for the financial year to 31 December 2016 (continued) 44 Financial risk management objectives and policies (continued) D. Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities The maturities of on-balance sheet assets and liabilities as well as other off-balance sheet assets and liabilities, commitments and counterguarantees are important factors in assessing the liquidity of the Bank. The table below provides analysis of assets and liabilities into relevant maturity tenures based on remaining contractual maturities: (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 No specific The Group month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Assets Cash and short-term funds 462, ,004 Deposits and placements with banks and other financial institutions , ,474 - Financial assets held-for-trading 8,645 5, , , ,302 - Financial investments available -for-sale 79,945 8, ,247 1,639,778 1,735, ,301 4,008,065 - Financial investments held-to -maturity ,748 41,855 14, ,651 Loans, advances and financing 158,314 12, , , ,212-1,240,693 Trade receivables 544,099 5, ,093 Derivative financial assets 6,742 9,789 23,173 80, ,991 Other assets 7,332-13,845 91, ,541 Statutory deposits with Bank Negara Malaysia 177, ,850 Other non-financial assets (1) , ,814 Total Assets 1,444,931 41, ,941 2,644,147 2,068, ,695 7,561,478 Liabilities Deposits from customers 1,879, , ,326 1,009, ,314,040 Deposits and placements of banks and other financial institutions 749, ,852 Trade payables 642, ,321 Derivative financial liabilities 5,936 6,786 32,636 96, ,891 Other liabilities 91,114 38, , ,765 Other non-financial liabilities (2) - - 2, ,436 Total Liabilities 3,369, , ,855 1,106, ,086,305 Net liquidity gap (1,924,168) (782,179) (159,914) 1,537,714 2,068, ,695 1,475,173 (1) (2) Other non-financial assets includes deferred tax assets, tax recoverable, property and equipment and intangible assets. Other non-financial liabilities includes amount due to related company and provision for taxation. 153

156 Company No : U for the financial year to 31 December 2016 (continued) 44 Financial risk management objectives and policies (continued) D. Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) The maturities of on-balance sheet assets and liabilities as well as other off-balance sheet assets and liabilities, commitments and counterguarantees are important factors in assessing the liquidity of the Bank. The table below provides analysis of assets and liabilities into relevant maturity tenures based on remaining contractual maturities: (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 No specific The Bank month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Assets Cash and short-term funds 265, ,442 Deposits and placements with banks and other financial institutions , ,637 Securities: - Financial assets held-for-trading ,016 25,204-18, ,982 - Financial investments available -for-sale 17,324 37, ,767 1,420,882 2,692, ,140 4,825,864 - Financial investments held-to -maturity - - 2,122 22,288 9,153-33,563 Loans, advances and financing 244,755 20,169 64, , ,902-1,079,130 Trade receivables 434, ,801 Amount due from subsidiaries ,780 2,780 Other assets 7,686 2,552 34,922 41,600 3,461 14, ,533 Derivative financial assets 13,595 14,732 85,642 8, ,088 Statutory deposits with Bank Negara Malaysia 177, ,740 Other non-financial assets (1) , ,149 Total Assets 1,161,343 75, ,729 2,058,774 2,934, ,143 7,863,709 Liabilities Deposits from customers 2,446,711 1,707, , , ,002,565 Deposits and placements of banks and other financial institutions 484, ,561 Obligations on securities sold under repurchase agreements 96,640 49, ,878 Trade payables 419, ,197 Derivative financial liabilities 11,249 9, ,387 7, ,291 Other liabilities 75,662 17,336 58,087 1, ,029 Total Liabilities 3,534,020 1,784, , , ,355,521 Net liquidity gap (2,372,677) (1,709,148) (234,873) 1,947,143 2,934, ,143 1,508,188 (1) Other non-financial assets includes deferred tax assets, tax recoverable, property and equipment, intangible assets and investment in subsidiaries. 154

157 Company No : U for the financial year to 31 December 2016 (continued) 44 Financial risk management objectives and policies (continued) D. Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) The maturities of on-balance sheet assets and liabilities as well as other off-balance sheet assets and liabilities, commitments and counterguarantees are important factors in assessing the liquidity of the Bank. The table below provides analysis of assets and liabilities into relevant maturity tenures based on remaining contractual maturities: (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 No specific The Bank month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Assets Cash and short-term funds 244, ,732 Deposits and placements with banks and other financial institutions , ,474 Securities: - Financial assets held-for-trading - 5, , , ,657 - Financial investments available -for-sale 30,546 8, ,247 1,639,778 1,735, ,301 3,958,666 - Financial investments held-to -maturity ,748 41,855 14, ,651 Loans, advances and financing 158,314 12, , , ,212-1,240,693 Trade receivables 481, ,617 Amount due from subsidiaries , ,004 Other assets 6,481-12,939 87, ,957 Derivative financial assets 6,742 9,789 23,173 80, ,991 Statutory deposits with Bank Negara Malaysia 177, ,850 Other non-financial assets (1) , ,875 Total Assets 1,106,282 35, ,035 2,664,424 2,067, ,756 7,341,167 Liabilities Deposits from customers 1,879, , ,326 1,009, ,314,040 Deposits and placements of banks and other financial institutions 749, ,852 Trade payables 470, ,090 Derivative financial liabilities 5,936 6,786 32,636 96, ,891 Other liabilities 89,599 17,407 77, ,249 Total Liabilities 3,195, , ,439 1,106, ,861,122 Net liquidity gap (2,089,071) (767,152) (130,404) 1,557,991 2,067, ,756 1,480,045 (1) Other non-financial assets includes deferred tax assets, tax recoverable, property and equipment, intangible assets and investment in subsidiaries. 155

158 Company No : U for the financial year to 31 December 2016 (continued) 44 Financial risk management objectives and policies (continued) E. Operational risk management Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people, infrastructure or technology or events which are beyond the Bank's immediate control which have an operational impact, including natural disasters, fraudulent activities and money laundering/financing of terrorism. The Bank manages operational risk through a control based environment in which policies and procedures are formulated after taking into account individual unit's business activities, the market in which they are operating and the regulatory requirements in force. The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational risk. requirement is calculated by taking 15% of the Bank s average annual gross income over the previous three years. The capital Risk is identified through the use of assessment tools and measured using threshold/limits mapped against a risk matrix. Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational Risk Management process. The Bank gathers, analyses and reports operational risk loss and 'near miss' events to the Group Operational Risk Management Committee and the Board Risk Management Committee. Appropriate preventive and remedial actions are reviewed for effectiveness and implemented to minimise the recurrence of such events. As a matter of requirement, all Operational Risk Coordinators must satisfy an Internal Operational Risk (including anti-money laundering/counter financing of terrorism and business continuity management) Certification Program. These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training and development activities for the coordinators. F. Compliance and legal risk Compliance risk refers to risk arising from breaches of applicable laws and regulatory requirements governing the operations of the Bank and also internal policies and procedures approved by the management and the Board of Directors. Legal risks are risks arising from non-compliance with legal obligations and risks of legal rights assumed to be not wholly enforceable, and includes the inherent risks from deficient drafting of contractual and public documents and/or inadequate management of litigation matters. As a full-fledged investment bank, the Bank is subject to various legal/ regulatory requirements and statutory obligations at the entity level and also for the various business segments and services offered and these legal/regulatory requirements include the Financial Services Act, 2013, Capital Markets & Services Act 2007, Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001, Rules of Bursa Malaysia Securities Berhad, Rules of Bursa Malaysia Derivatives Berhad, as well as circulars and guidelines issued by the regulators from time to time. The Compliance, Legal and Corporate Services ("CLCS") Department reports directly to the Board Risk Management Committee ("BRMC"). The compliance and legal risk management policies of the Bank are subject to the review of BRMC. Periodic reports on the state of compliance and legal risks in the Bank are also submitted to BRMC to assist BRMC in monitoring of the same. The general scope of work of the CLCS Department is to monitor compliance risks emanating from such statutory requirements, rules, circulars and guidelines as well as to advise the Bank on all legal matters including, but not limited to, reviewing and/or drafting legal documents for the Bank, monitoring and advising on litigation matters and rendering of legal advice to the Bank. 156

159 for the financial year ended to 31 December 2016 (continued) 45 Fair value of financial instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Group and the Bank measure fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Level 3: Quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Valuations derived from valuation techniques in which one or more significant inputs are not based on observable market data. In addition, fair value information for non-financial assets and liabilities is excluded as they do not fall within the scope of MFRS 132 'Financial Instruments - Disclosure and Presentation' which requires the fair value information to be disclosed. These include property and equipment, investment in subsidiaries, deferred taxation assets, provision for taxation. Financial instruments are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted prices is readily available, and the price represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an on-going basis. These would include actively traded listed equities and actively exchange-traded derivatives. Where fair value is determined using unquoted market prices in less active markets or quoted prices for similar assets and liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available, the Group and the Bank then determine fair value based upon valuation techniques that use as inputs, market parameters including but not limited to yield curves, volatilities and foreign exchange rates. The majority of valuation techniques employ only observable market data and so reliability of the fair value measurement is high. Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). Such inputs are generally determined based on observable inputs of a similar nature, historical observations on the level of the input or other analytical techniques. This category includes unquoted shares held for socio economic reasons. Fair values for shares held for socio economic reasons are based on the net tangible assets of the affected companies. The Group's and the Bank's exposure to financial instruments classified as Level 3 comprised a small number of financial instruments which constitute an insignificant component of the Group s and the Bank's portfolio of financial instruments. Hence, changing one or more of the inputs to reasonable alternative assumptions would not change the value significantly for the financial assets in Level 3 of the fair value hierarchy. The Group and the Bank recognise transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfer has occurred. Transfers between fair value hierarchy primarily due to change in the leval of trading activity, change in observable market activity related to an input, reassessment of available pricing information and change in the significance of the unobservable input. There were no transfers between Level 1, 2 and 3 of the fair value hierarchy during the financial year (2015: Nil). 157

160 for the financial year ended to 31 December 2016 (continued) 45 Fair value of financial instruments (continued) The following table presents assets and liabilities measured at fair value and classified by level of the following fair value measurement hierarchy: The Group Level 1 Level 2 Level 3 Total RM'000 RM'000 RM'000 RM'000 Assets Financial assets held-for-trading - Corporate bonds or sukuk - 46,660-46,660 - Other financial assets - 256, ,015 - Equity securities 23, ,627 Financial investments available-for-sale * - Corporate bonds or sukuk - 3,835,620-3,835,620 - Other financial assets - 662, ,637 - Equity securities 330,172-19, ,700 Derivative financial assets - 122, ,088 Total 353,799 4,923,020 19,528 5,296,347 Liabilities Derivative financial liabilities - 150, ,291 Total - 150, ,291 The Bank Assets Financial assets held-for-trading - Corporate bonds or sukuk - 25,204-25,204 - Other financial assets - 256, ,015 - Equity securities 18, ,763 Financial investments available-for-sale * - Corporate bonds or sukuk - 3,834,634-3,834,634 - Other financial assets - 662, ,637 - Equity securities 309,065-19, ,593 Derivative financial assets - 122, ,088 Total 327,828 4,900,578 19,528 5,247,934 Liabilities Derivative financial liabilities - 150, ,291 Total - 150, ,291 * Net of allowance for impairment 158

161 for the financial year ended to 31 December 2016 (continued) 45 Fair value of financial instruments (continued) The following table presents assets and liabilities measured at fair value and classified by level of the following fair value measurement hierarchy (continued): The Group Level 1 Level 2 Level 3 Total RM'000 RM'000 RM'000 RM'000 Assets Financial assets held-for-trading - Other financial assets - 231, ,093 - Equity securities 42, ,209 Financial investments available-for-sale * - Corporate bonds or sukuk - 2,757,574-2,757,574 - Other financial assets - 892, ,777 - Equity securities 339,583-18, ,714 Derivative financial assets - 119, ,991 Total 381,792 4,001,435 18,131 4,401,358 Liabilities Derivative financial liabilities - 141, ,891 Total - 141, ,891 The Bank Assets Financial assets held-for-trading - Other financial assets - 231, ,093 - Equity securities 33, ,564 Financial investments available-for-sale * - Corporate bonds or sukuk - 2,756,588-2,756,588 - Other financial assets - 892, ,777 - Equity securities 291,170-18, ,301 Derivative financial assets - 119, ,991 Total 324,734 4,000,449 18,131 4,343,314 Liabilities Derivative financial liabilities - 141, ,891 Total - 141, ,891 * Net of allowance for impairment 159

162 for the financial year ended to 31 December 2016 (continued) 45 Fair value of financial instruments (continued) The following table presents the changes in Level 3 instruments for the financial year ended: The Group and the Bank RM'000 RM'000 At beginning of financial year 18,131 16,808 Total gains recognised in other comprehensive income 1,397 1,323 At end of financial year 19,528 18,131 Effect of changes in significant unobservable assumptions to reasonably possible alternatives As at reporting date, financial instruments measured with valuation techniques using significant unobservable inputs (Level 3) mainly include unquoted shares held for socio economic purposes. Qualitative information about the fair value measurements using significant unobservable inputs (Level 3): The Group and the Bank Description Financial investments available-for-sale Unquoted shares Inter-relationship between significant unobservable inputs and fair value measurement Higher net tangible assets results in higher fair value In estimating its significance, the Group and the Bank used an approach that is currently based on methodologies used for fair value adjustments. These adjustments reflects the values that the Group and the Bank estimate are appropriate to adjust from the valuations produced to reflect for uncertainties in the inputs used. The methodologies used can be a statistical or other relevant approved techniques. 160

163 for the financial year ended to 31 December 2016 (continued) 45 Fair value of financial instruments (continued) The following tables analyse within the fair value hierarchy of the Group's and the Bank's assets and liabilities not measured at fair value as at reporting date but for which fair value is disclosed: Carrying Fair Value The Group and the Bank amount Level 1 Level 2 Level 3 Total RM'000 RM'000 RM'000 RM'000 RM'000 Financial Assets Financial investment held-tomaturity 33,563-32,619-32,619 Loans, advances and financing 1,079,130-1,080,228-1,080,228 Financial Liabilities Deposits from customers 5,002,565-5,005,345-5,005,345 The Group and the Bank Financial Assets Financial investment held-tomaturity 78,651-78,651-78,651 Loans, advances and financing 1,240,693-1,238,068-1,238,068 Financial Liabilities Deposits from customers 4,314,040-4,315,364-4,315,

164 for the financial year ended to 31 December 2016 (continued) 45 Fair value of financial instruments (continued) Other than as disclosed above, the total fair value of each financial assets and liabilities presented on the statements of financial position as at reporting date of the Group and the Bank approximates the total carrying amount. 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 investments held-to-maturity The fair values of 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. 162

165 for the financial year ended to 31 December 2016 (continued) 45 Fair value of financial instruments (continued) 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, advances and financing with similar credit ratings and maturities. The fair values of impaired loans, advances and financing, whether fixed or floating are represented by their carrying values, net of individual and collective allowances, being the reasonable estimate of recoverable amount. The fair values of impaired loans and advances are represented by their carrying values, net of individual allowance, being the expected 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. Deposits from customers, deposits and placements of banks and other financial institutions 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. 163

166 for the financial year ended to 31 December 2016 (continued) 45 Fair value of financial instruments (continued) Offsetting financial assets and financial liabilities In accordance with MFRS 132 'Financial Instruments: Presentation', the Group and the Bank report financial assets and financial liabilities on a net basis on the statements of financial position only if there is a legally enforceable right to set off the recognised amounts and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. The following table shows the impact of netting arrangement on: - - All financial assets and liabilities that are reported net on statements of financial position; and All derivative financial instruments and reverse repurchase and repurchased agreements and other similar secured lending and borrowing agreements that are subject to enforceable master netting arrangements or similar agreements, but do not qualify for statements of financial position netting. The table identifies the amounts that have been offset in the statements of financial position and also those amounts that are covered by enforceable netting arrangements (offsetting arrangements and financial collateral) but do not qualify for netting under the requirements of MFRS 132 described above. The "Net amounts" presented below are not intended to represent the Group's and the Bank's actual exposure to credit risk, as a variety of credit mitigation strategies are employed in addition to netting and collateral arrangements. Derivative financial assets and liabilities The 'Financial instruments' column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be offset and close-out netting applied across all outstanding transaction covered by the agreements if an event of default or other predetermined events occur. Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the collateral to be realised in an event of default or if other predetermined events occur. 164

167 for the financial year ended to 31 December 2016 (continued) 46 Offsetting financial assets and financial liabilities Gross amounts of recognised Net amounts financial of financial Related amount not set off Gross liabilities in the assets in the balance sheet amounts of statement presented Financial recognised of financial in the Financial collateral Net financial assets position balance sheet instruments received amount RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 The Group and the Bank Financial assets Trade receivables - Amount due from Bursa Securities Clearing Sdn Bhd 582,294 (582,294) Derivative financial assets 122, ,088 (73,906) - 48,182 Total 704,382 (582,294) 122,088 (73,906) - 48,182 Financial liabilities Trade payables - Amount due to Bursa Securities Clearing Sdn Bhd 611,448 (582,294) 29, ,154 Derivative financial liabilities 150, ,291 (73,906) (76,385) - Total 761,739 (582,294) 179,445 (73,906) (76,385) 29,

168 for the financial year ended to 31 December 2016 (continued) 46 Offsetting financial assets and financial liabilities (continued) Gross amounts of recognised Net amounts financial of financial Related amount not set off Gross liabilities in the assets in the balance sheet amounts of statement presented Financial recognised of financial in the Financial collateral Net financial assets position balance sheet instruments received amount RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 The Group and the Bank Financial assets Trade receivables - Amount due from Bursa Securities Clearing Sdn Bhd 593,363 (542,330) 51, ,033 Derivative financial assets 119, ,991 (80,050) - 39,941 Total 713,354 (542,330) 171,024 (80,050) - 90,974 Financial liabilities Trade payables - Amount due to Bursa Securities Clearing Sdn Bhd 542,330 (542,330) Derivative financial liabilities 141, ,891 (80,050) (61,841) - Total 684,221 (542,330) 141,891 (80,050) (61,841) - 166

169 Company No : U for the financial year ended to 31 December 2016 (continued) 47 Prior year adjustment During the financial year, the Group and the Bank have effected a prior year adjustment to the 31 December 2015 financial statements to account for the impairment of available-for-sale ("AFS") financial investments arising from significant or prolonged decline in the fair value of the equity securities below its cost based on the technical guidance provided under FRSIC Consensus 14 Impairment of Investment in Equity Instruments Categorised as Available-for-Sale Financial Asset due to Significant or Prolonged Decline in Fair Value. The adjustment resulted in a debit of RM11,534,000 to retained profits. The impact of the prior year adjustments on the financial statements of the Group and Bank are as follows: The Group Income statement for the financial year ended 31 December 2015 As previously Prior year reported adjustment As restated RM'000 RM'000 RM'000 Write-back/(allowances) of impairment losses on securities 1,721 (15,176) (13,455) Profit before zakat and taxation 84,239 (15,176) 69,063 Profit before taxation 83,165 (15,176) 67,989 Taxation (23,996) 3,642 (20,354) Net profit after zakat and taxation 59,169 (11,534) 47,635 Profit attributable to: Equity holder of the Bank 44,585 (11,534) 33,051 Earnings per share (sen): Basic/fully diluted 5.72 (1.48) 4.24 Statement of comprehensive income for the financial year ended 31 December 2015 As previously Prior year reported adjustment As restated RM'000 RM'000 RM'000 Net profit after zakat and taxation 59,169 (11,534) 47,635 Impairment loss transferred to profit or loss on financial investments available-for-sale - 15,176 15,176 Deferred tax on financial investments available-for-sale 6,443 (3,642) 2,801 Other comprehensive expense for the financial year, net of tax (20,396) 11,534 (8,862) 167

170 Company No : U for the financial year ended to 31 December 2016 (continued) 47 Prior year adjustment (continued) The impact of the prior year adjustments on the financial statements of the Group and Bank are as follows (continued): The Group Statement of changes in equity for the financial year ended 31 December 2015 As previously Prior year reported adjustment As restated RM'000 RM'000 RM'000 Available-for-sale revaluation reserves (14,831) 11,534 (3,297) Retained profits 233,868 (11,534) 222,334 Statement of cash flows for the financial year ended 31 December 2015 As previously Prior year reported adjustment As restated RM'000 RM'000 RM'000 Profit before taxation 83,165 (15,176) 67,989 Adjustments for items not involving the movement of cash and cash equivalents: Allowance/(Write-back) on allowance for impairment: - financial investments available-for-sale (167) 15,176 15,009 The Bank Income statement for the financial year ended 31 December 2015 As previously Prior year reported adjustment As restated RM'000 RM'000 RM'000 Write-back/(allowances) of impairment losses on securities 1,721 (15,176) (13,455) Profit before zakat and taxation 40,991 (15,176) 25,815 Profit before taxation 40,062 (15,176) 24,886 Taxation (8,374) 3,642 (4,732) Net profit after zakat and taxation 31,688 (11,534) 20,154 Profit attributable to: Equity holder of the Bank 31,688 (11,534) 20,154 Earnings per share (sen): Basic/fully diluted 4.06 (1.48)

171 Company No : U for the financial year ended to 31 December 2016 (continued) 47 Prior year adjustment (continued) The impact of the prior year adjustments on the financial statements of the Group and Bank are as follows (continued): The Bank Statement of comprehensive income for the financial year ended 31 December 2015 As previously Prior year reported adjustment As restated RM'000 RM'000 RM'000 Net profit after zakat and taxation 31,688 (11,534) 20,154 Impairment loss transferred to profit or loss on financial investments available-for-sale - 15,176 15,176 Deferred tax on financial investments available-for-sale 6,443 (3,642) 2,801 Other comprehensive expense for the financial year, net of tax (20,109) 11,534 (8,575) Statement of changes in equity for the financial year ended 31 December 2015 As previously Prior year reported adjustment As restated RM'000 RM'000 RM'000 Available-for-sale revaluation reserves (14,762) 11,534 (3,228) Retained profits 274,498 (11,534) 262,964 Statement of cash flows for the financial year ended 31 December 2015 As previously Prior year reported adjustment As restated RM'000 RM'000 RM'000 Profit before taxation 40,062 (15,176) 24,886 Adjustments for items not involving the movement of cash and cash equivalents: Allowance/(write-back) on allowance for impairment: - financial investments available-for-sale (167) 15,176 15,

172 Company No : U for the financial year ended to 31 December 2016 (continued) 48 Critical accounting estimates and judgments Allowance for impairment 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 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 s 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 matters such 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 margin and broking clients, 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 future cash flows on contractual basis and historical loss experience which incorporate numerous estimates and judgments, and therefore is subject to estimation uncertainty. The Group and the Bank perform regular review of the basis and underlying data and assumptions to best reflect the current economic circumstances. Estimated impairment on goodwill The Group performs an impairment review on an annual basis to ensure that the carrying value of the goodwill does not exceed its recoverable amounts from cash-generating units to which the goodwill is allocated. The recoverable amount represents the present value of the estimated future cash flows expected to arise from continuing operations. Therefore, in arriving at the recoverable amount, management exercise judgment in estimating the future cash flows, growth rate and discount rate. The recoverable amounts of the stockbroking business, investment banking and assets and fund management (the cash-generating units to which goodwill are allocated) were determined based on discounted cash flow valuation model. The calculations require the use of estimates as set out in Note 16 to the financial statements. 170

173 Company No : U for the financial year ended to 31 December 2016 (continued) 49 Credit exposures arising from transactions with connected parties The following credit exposure are based on Bank Negara Malaysia's revised Guidelines on Credit Transaction and Exposures with Connected Parties, which are effective 1 January 2008: i) ii) iii) The aggregate value of outstanding credit exposures with connected parties (RM'000) The percentage of outstanding credit exposures to connected parties as a proportion of credit exposures The percentage of outstanding credit exposures with connected which is non-performing or in default. The Group and the Bank , , % 13.67% Client trust accounts As at 31 December 2016, cash held in trust for the clients by the Group and the Bank amounted to RM431,445,000 (2015: RM463,616,000). These amounts are not recognised in the financial statements as they are held by the Group and the Bank in its fiduciary capacity. 51 Approval of financial statements The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 8 March

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